Penson Techs. LLC v. Schonfeld Grp. Holdings LLC (In re Penson Worldwide)

Decision Date21 May 2018
Docket NumberCase No. 13–10061 (LSS) (Jointly Administered),Adversary No. 16–51522 (LSS)
Citation587 B.R. 6
Parties IN RE: PENSON WORLDWIDE, et al., Debtors. Penson Technologies LLC, (successor in interest to SAI Holdings, Inc. and Penson Financial Services, Inc.), Plaintiff, v. Schonfeld Group Holdings LLC, Defendant.
CourtU.S. Bankruptcy Court — District of Delaware

Michael S. Neiburg, Young Conaway Stargatt & Taylor, LLP, Wilmington, DE, for Plaintiff.

Mark G. Hanchet, Mayer Brown LLP, Christopher J. Houpt, New York, NY, Wendy F. Klein, Warren A. Usatine, Michael R. Yellin, Esq., Cole Schotz P.C., Hackensack, NJ, Sean T. Scott, Mayer Brown LLP, Chicago, IL, Nicholas J. Brannick, Cole Schotz P.C., Wilmington, DE, for Defendant.



Plaintiff Penson Technologies LLC, as the successor in interest to Debtor SAI Holdings, Inc. ("SAI") and Debtor Penson Financial Services, Inc. ("Penson"), initiated this post-confirmation adversary proceeding objecting to Defendant Schonfeld Group Holdings LLC's proof of claim and seeking to recover damages for breaches of contracts. Defendant poses multiple challenges to Plaintiff's choice of forum and asks me either to dismiss the matter, enforce a forum selection clause, abstain or otherwise transfer the case to a court in New York. Because I hold that this matter is, at its heart, an objection to a proof of claim, it is properly in this court and should remain here. Accordingly, I will deny the requested relief.

The Prepetition Transaction

Defendant is a trading and investment company. In 2006, it managed its wholly owned subsidiary, Schonfeld Securities, LLC, which operated a clearing and back office business. Defendant also had affiliate entities who were "introducing firms" or "correspondents" ("Correspondents")—brokers that traded securities for their own accounts or those of their clients and who contracted with clearing firms to perform services necessary to conduct trades. Opus Trading Fund LLC ("Opus") was one Correspondent.

In November 2006, SAI purchased Schonfeld Securities, LLC's clearing and back office operations. The transaction was memorialized in an Asset Purchase Agreement ("APA") dated as of November 20, 2006 and executed by SAI as buyer and Schonfeld Securities, LLC as seller.2 The APA also contemplated that Penson, SAI's wholly owned subsidiary, would provide clearing and financial services for seven Correspondents, including Opus, for a period of ten years.

The APA required Defendant to "absolutely, unconditionally and irrevocably guarantee the immediate payment of, and the full, complete and timely performance of" each of Schonfeld Securities, LLC's obligations under the APA pursuant to a separate guaranty agreement to be executed contemporaneously with the APA.3 On November 20, 2006, therefore, Defendant executed that certain Unconditional Guaranty Agreement ("Guaranty") in favor of SAI and Penson. Defendant also agreed to back the Correspondents' respective obligations to exclusively use Penson for their clearing and financial services needs.4 To memorialize these arrangements, each of the seven Correspondents entered into a clearing agreement. As relevant here, Opus and Penson also entered into a series of portfolio margining side agreements (the agreement at issue, "PMA Side Agreement").5

The purchase price to be paid by SAI to Schonfeld Securities, LLC or Defendant (at the direction of Schonfeld Securities, LLC) was projected to be $100 million. Payment consisted of an initial amount at closing6 and four subsequent earn out payments based on the net revenues generated from the Correspondents' trading activity over the next four years.

Plaintiff alleges that in late January 2012, shortly before the last earn out payment was due, Defendant caused Opus to terminate its PMA Side Agreement with Penson, and Opus moved its entire clearing, execution, margin and custody relationship to JPMorgan in violation of the exclusivity provisions in that agreement. Plaintiff alleges these actions damaged Plaintiff in an amount in excess of $20 million.

The Bankruptcy Case

On January 11, 2013, SAI, Penson and eight other related entities ("Debtors") filed voluntary bankruptcy petitions in this court, On July 31, 2013, the court confirmed the Debtors' Fifth Amended Joint Liquidation Flan. With exceptions not relevant here, on the effective date, Debtors transferred their assets, claims, and causes of action to Plaintiff.

Defendant timely filed proofs of claim against SAI and Penson Worldwide, Inc. Defendant asserts that it is owed $3,783,932 for "unpaid purchase price for the completed sale of a clearing business"7 (i.e., the last earn out payment under the APA).

On November 16, 2016, Plaintiff commenced this adversary proceeding by filing its Complaint and Objection to Claim ("Complaint").8 In the Complaint, Plaintiff recites much of the history just recounted and asserts five causes of action as a result of Opus's early termination of the PMA Side Agreement:

Count I Breach of Contract
Defendant breached the APA by causing Opus to terminate the PMA Side Agreement.
Count II Breach of Guaranty
Defendant failed to discharge its obligation under the Guaranty to ensure Opus's performance of the PMA Side Agreement.
Count III Breach of Obligation of Good Faith and Fair Dealing
Defendant breached the implied obligation of good faith and fair dealing under the APA by causing Opus to breach the PMA Side Agreement.
• Count IV Objection to Claim9
Defendant materially breached the APA by causing Opus to breach the PMA Side Agreement such that SAI's obligation to make the last earn out payment has been excused.
Alternatively, Plaintiff asserts that the Defendant's proof of claim should be deemed satisfied in full on account of damages suffered by SAI.
Count V Declaratory Judgment Regarding Plaintiff's Right to Setoff
Declaration that Plaintiff is entitled to offset damages incurred by SAI as a result of Defendant's material breaches of the APA against any amounts it owes to Defendant.

Defendant now asks me to dismiss the Complaint for lack of subject matter jurisdiction.10 Even if subject matter jurisdiction exists, Defendant alternatively requests that I abstain, dismiss the complaint under the doctrine of forum non conveniens or transfer the case to New York based on a forum selection clause.

II. Subject Matter Jurisdiction Exists Over Each Claim in this Adversary Proceeding

In its Reply Brief, Defendant summarizes its subject matter jurisdiction argument;

[Defendant's] actual argument, as set forth in its initial moving brief, is that although [Plaintiff's] claims are statutorily core pursuant to 28 U.S.C. § 157, [Plaintiff's] claims are not constitutionally cote as required by Stern v. Marshall and Halper v. Halper, 164 F.3d 830 (3d Cir. 1999). Accordingly, absent an independent basis for federal jurisdiction (which does not exist in this case), this Court lacks subject matter jurisdiction over [Plaintiff's] counterclaims.11

Defendant confuses and conflates subject matter jurisdiction with a bankruptcy court's ability to enter a final order resolving a proceeding. In responding to Defendant's argument, Plaintiff follows suit, focusing on whether I have authority consistent with the Constitution to enter a final order on the causes of action asserted in the Complaint.12 In focusing on this issue, both parties miss the fundamental question posed by a subject matter jurisdiction challenge: whether bankruptcy jurisdiction exists over the adversary proceeding.13

Bankruptcy Jurisdiction

Bankruptcy courts are courts of limited jurisdiction, and their subject matter jurisdiction derives from federal statutes14 —specifically from 28 U.S.C. §§ 1334 and 157.15 Congress granted federal district courts original and exclusive jurisdiction over all cases arising under title 11, and original but not exclusive jurisdiction over all "civil proceedings arising under title 11, or arising in or related to cases under title 11."16 District courts thus have bankruptcy jurisdiction over two types of proceedings: (i) the main bankruptcy case itself, and (ii) civil proceedings that arise under title 11, or that arise in or are related to the main bankruptcy case. Bankruptcy jurisdiction does not exist if the proceeding does not fit into one of these two categories. Because Congress granted bankruptcy jurisdiction directly to the district court,17 bankruptcy judges exercise bankruptcy jurisdiction only when the district court refers the case or proceeding to the bankruptcy judge.18 In the District of Delaware there is a standing order referring all bankruptcy cases and their attendant civil proceedings to bankruptcy judges,19 which is how the Penson Worldwide bankruptcy cases and this adversary proceeding came before me.

Distinctions between "arising under," "arising in" (both core) and "related to" (noncore) proceedings are not relevant to a determination of subject matter jurisdiction when the proceeding has been filed before plan confirmation.20 Post-confirmation, however, bankruptcy jurisdiction over non-core proceedings narrows; it exists only if there is "a close nexus to the bankruptcy plan or proceeding."21 In contrast, in core proceedings the close nexus test does not apply; bankruptcy jurisdiction remains the same as it was pre-confirmation.22

As this adversary proceeding was filed post-confirmation, the path of least resistance to bankruptcy jurisdiction is a determination that a proceeding is core.23 Here, the analysis is straightforward. Each count in the Complaint is an enumerated core proceeding, Counts IV and V (objection to claim and declaration on setoff) fall under § 157(b)(2)(B), allowance or disallowance of claims against the estate. Counts I–III fall under § 157(b)(2)(C), counterclaims by the estate against persons filing claims against the estate. Each claim thus "arises in" the bankruptcy case or under title 1124 and the subject matter...

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