Thomasson v. AmSouth Bank, NA

• Decision Date: 07 January 1986
• Docket Number: Civ. A. No. CV85-PT-2904-S.
• Citation: 59 BR 997
• Parties: Albert F. THOMASSON, et al, Plaintiffs, v. AMSOUTH BANK, N.A., a national banking association, et al, Defendants.
• Court: U.S. District Court — Northern District of Alabama

59 B.R. 997 (1986)

Albert F. THOMASSON, et al, Plaintiffs, v. AMSOUTH BANK, N.A., a national banking association, et al, Defendants.

Civ. A. No. CV85-PT-2904-S.

United States District Court, N.D. Alabama, S.D.

April 2, 1986.

Report, Including Proposed Findings of Fact and Conclusions of Law January 7, 1986.

J. Michael Rediker, and David R. Donaldson of Ritchie and Rediker, Birmingham, Ala., for plaintiffs.

Donald M. Wright, and Robert B. Rubin of Sirote, Permutt, Friend, Friedman, Held & Apolinsky, P.C., Birmingham, Ala., Tracy E. Friedman of Dotson, Babcock & Scofield, Houston, Tex., for defendant/Knostman.

David B. Anderson, William A. Ratliff, and William A. Robinson of Cabaniss, Johnston, Gardner, Dumas & O'Neal, Birmingham, Ala., for defendant/AmSouth.

MEMORANDUM OPINION

PROPST, District Judge.

This matter was sent to this court for a final order and review under 28 U.S.C. § 1334(c)(1) by the Honorable Clifford Fulford on the seventh day of January, 1986. This court referred this case back to Judge Fulford for his consideration of the trustee's Motion for Modification or Dissolution of the Temporary Restraining Order. This case is now back in this court for final review and order.

The facts giving rise to this action are briefly as follows. On June 5, 1984, Tomlinson Interest, Inc. (Tomlinson) filed a Chapter 7 bankruptcy petition in the Houston Bankruptcy Court. Defendant Knostman was appointed Trustee on June 15, 1984. Tomlinson owned a 56% working interest in the Johns Field in Rankin County, Mississippi, and on February 5, 1985, Knostman was granted authority under section 721 of the Bankruptcy Code to engage in certain activities in Johns Field. Knostman had entered into a Joint Operating Agreement (JOA) with the non-operator working interest owners, including the plaintiffs who respectively own interests of 7.5%, 5%, and 6.25%, on January 21, 1985. The JOA was supplemented on February 7, 1985. Pursuant to this supplement, the plaintiffs directed AmSouth Bank to deliver to Knostman letters of credit (L's/C) upon which he could draw under the provisions of the JOA. Knostman's attempt to draw on the L's/C have led to this suit.

The plaintiffs allege in their complaint that they were fraudulently induced by Knostman's misrepresentations and omissions of material facts to issue their L's/C, and that the certifications made by Knostman in trying to draw on the L's/C were false and fraudulent. The plaintiff seeks an accounting (Count 1), a declaratory judgment (Count 2), a preliminary injunction (Count 3) and five million dollars (Count 4). The plaintiffs demanded a jury trial as to Count 4 and on the issues of fraud, improper purpose and motive, and misrepresentation under Count 3.

On October 31, 1985, the Circuit Court of Jefferson County entered a temporary restraining order that prevented AmSouth Bank from paying and Knostman from attempting to draw on the L's/C. The case was set for hearing on the preliminary injunction count in state court on December 2, 1985. However, this hearing never occurred because Knostman removed the case on November 5, 1985.

On plaintiff's motion, and by agreement of all parties, the temporary restraining order was extended by the Bankruptcy Court until December 12, 1985. It was then extended again by agreement until a final disposition had been made of the remand, abstention and transfer motions.

The first legal conclusion Judge Fulford makes is that the United States District Court for the Northern District of Alabama has jurisdiction over this case pursuant to 28 U.S.C. § 1334(b).¹ Section 1334(b) states:

Notwithstanding any Act of Congress that confers exclusive jurisdiction on a court or courts other than the district courts, the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under Title 11, or arising in or related to cases under Title 11.

Disputes that are "arising under Title 11" or "arising in . . . case under Title 11" are called "core proceedings."²See Zweygardt v. Colorado National Bank of Denver, 52 B.R. 229, 231 (Bankr.D.Colo.1985). "Core proceedings" encompass "those proceedings which would not exist at law in the absence of the Bankruptcy Code." Cameron v. Anderson (In re American Energy, Inc.), 50 B.R. 175, 178 (Bankr.D.N. D.1985). As pointed out in Zweygardt, the meanings of "arising in" and "arising under" are unclear. Zweygardt, 52 B.R. at 231-232. This court has no wish to stir up the already muddy water that surround these two phrases. Since this court agrees with the Bankruptcy Court that it has "related to" jurisdiction, it is not necessary to comment on the correctness of the Bankruptcy Judge's finding of "arising in" jurisdiction.

Unfortunately, there is no clear definition of "related to" jurisdiction, but upon reading Zweygardt; In re American Energy, Inc.; National Acceptance Company of America v. Price (Matter of Colorado Energy Supply, Inc.) 728 F.2d 1283 (10th Cir.1984); and other related cases, this court is satisfied that this case is sufficiently related to the Houston bankruptcy proceedings to support jurisdiction under 28 U.S.C. § 1334(b). As pointed out by the Bankruptcy Judge, "if damages are awarded to the Plaintiffs, or if Knostman is denied his claimed right to draw on the L's/C, there will be an impact on the bankruptcy case in Houston." See Bankruptcy Judge's Report, dated January 7, 1986. This "impact," coupled with the fact that the trustee entered into the post-petition transactions that have given rise to the present action against him in his capacity as trustee of the debtor, is enough support "related to" jurisdiction under 28 U.S.C. § 1334(b).

This court also agrees with the Bankruptcy Court that the abstention doctrine need not be considered in this case. Since, this court has decided to remand this case, it is not necessary to consider the abstention issue directly.

The trustee would like for this court to transfer this case to the United States Bankruptcy Court for the Southern District of Texas, Houston Division (Houston Bankruptcy Court). Under 28 U.S.C. § 1412, this court can transfer this case "in the interest of justice or for the convenience of the parties." (emphasis added). As pointed out by the Bankruptcy Court, the word "and" in old section 1475 was changed to "or" in section 1412. This change should make it easier to meet the requirements necessary for transfer. Factors that should be considered in deciding whether to transfer a case are the convenience of witnesses, the parties' access to proof, the ability to receive a fair trial, and judicial efficiency. See In re Legend Industries, Inc., 49 B.R. 935, 938 (Bankr.E.D.N.Y.1985). See also, In re Butcher, 46 B.R. 109, 112 (Bankr.N.D.Ga. 1985) ("The most important factor is whether the transfer of the proceeding would promote the economic and efficient administration of the estate.").³ Also, the burden of proving appropriateness of transfer of venue of a bankruptcy case is on the party moving for the transfer. Id.

In this case, the trustee has not met its burden. The convenience of the witnesses factor weighs against the trustee. Since this case involves letters of credit from an Alabama bank, this court assumes that many of the witnesses will be from Alabama. The plaintiffs and AmSouth Bank are from Alabama. The trustee is not from Alabama, but the trustee has chosen to deal with Alabama citizens and corporations. In light of this, this court finds that the convenience of witnesses factor weighs against transfer. The L's/C would be drawn on an Alabama bank, and the fraud, if committed, was against Alabama residents in Alabama. There is nothing to indicate that access to proof would be better in Houston than in Birmingham. If anything, this access would be better in Birmingham. There is also no indication that a fair trial cannot be held in either Alabama or Texas.⁴ This being true, this factor does not weigh in favor of transfer.

The last and most important factor is that of judicial efficiency. The trustee argues that this factor weighs in favor of transfer. The basis for this argument is that the Houston Bankruptcy Court is already dealing with Tomlinson Interests' estate and that it is already familiar with this case in that the Houston Bankruptcy Court granted Knostman the authority to enter into the JOA. Also, the trustee points out that litigation in Alabama will be more expensive for the trustee than litigation in Houston. While this court agrees that these factors weigh in favor of transfer, there are also several factors that weigh against transfer. First, at least a portion of the law to be applied in this case is Alabama law. Courts situated in Alabama, whether state or federal, will be more familiar with Alabama law than the Houston Bankruptcy Court, and this should make a judicial proceeding more efficient in Alabama. There is no indicated application of Texas law. Second, the Circuit Court of Jefferson County has already dealt with the substantive issues in this case when it issued the temporary restraining order on October 31, 1985. The Houston Bankruptcy Court has not had occasion to deal with the fraud issue in this case. It would be more judicially efficient to remand this case to the state court than to transfer the case to Houston because of this prior exposure. Third, since the plaintiffs have demanded a jury trial and the Houston Bankruptcy Court might not be able to meet this demand, it would not promote judicial efficiency to transfer this case. See In re L.A. Clarke and Son, Inc., 51 B.R. 31 (Bankr.D. D.C.1985); In re Bokum Resources Corp., 49 B.R. 854 (Bankr.D.N.M.1985). Last, if this court does not transfer this case, the potential conflict as to venue with respect to AmSouth Bank will be avoided. Compare 12 U.S.C. § 94 and 28 U.S.C. § 1409. See Matter of Chuck Harrison Dodge, Inc., 49 B.R. 381 (Bankr.W.D.Pa.1985); In re James Paul Neese, 12 B.R. 968, 971 (B...