USA Promlite Tech., Inc. v. Am. First Nat'l Bank (In re USA Promlite Tech. Inc.)
| Decision Date | 09 December 2020 |
| Docket Number | Adversary No. 19-3331,Case No: 18-36893 |
| Citation | 629 B.R. 855 |
| Parties | IN RE: USA PROMLITE TECHNOLOGY INC, Debtor USA Promlite Technology, Inc., Plaintiff v. American First National Bank, et al, Defendants |
| Court | U.S. Bankruptcy Court — Southern District of Texas |
Nelson M. Jones, III, Law Office of Nelson M. Jones III, Houston, TX, for Plaintiff.
Erick Gustavo Holguin, Ellis Koeneke et al, Dennis Longoria, Ellis, Koeneke & Ramirez, LLP, McAllen, TX, for Defendant City of Hildalgo.
Tuananh Lam Mai, Mai & Na PLLC, Houston, TX, for Defendant American First National Bank.
Timothy L. Wentworth, Okin Adams, LLP, Houston, TX, for Trustee.
Eduardo V. Rodriguez, United States Bankruptcy Judge The City of Hidalgo filed its Plea to the Jurisdiction, Motion to Dismiss for Lack of Subject Matter Jurisdiction, Motion to Dismiss Pursuant to Rule 12(b) and Dismiss Pursuant to the City of Hidalgo's Governmental Immunity.1 On November 16, 2020, the Court held a hearing on the Motion to Dismiss. For the reasons explained below, this Court grants the City of Hidalgo's Motion to Dismiss Pursuant to Federal Rule of Civil Procedure 12(b)(1).
The City of Hidalgo ("City of Hidalgo " or "the City ") is a home rule municipality in the Rio Grande Valley.2 In 2013, the City entered into a contract with U.S.A. Promlite Technology, Inc. ("Promlite ") for the retrofitting and installation of LED lights in all city buildings, streets lamps, parking lots, and the State Farm Arena (now known as the Payne Arena) and other government-owned spaces.3 Disputes over the contract arose and Promlite sued the City in the Hidalgo County State District Court for breach of contract and asserted quasi-contractual equitable claims for unjust enrichment and quantum meruit.4
American First National Bank ("AFNB " and together with Promlite, "Plaintiffs ") filed a Petition in Intervention claiming that it received an assignment from Promlite as to the breach of contract claim against the City.5 This was purportedly part of the loan agreement between AFNB and Promlite.6 The City was not a party to this loan and is not in privity of contract with AFNB.7 The State District Court granted summary judgment against AFNB's intervention claim.8 Subsequently, Promlite filed for bankruptcy on December 6, 2018.9 Promlite then filed a Notice of Removal of the state court action against the City of Hidalgo10 and later, AFNB filed a Motion for Reconsideration of the State Court's Order Granting Summary Judgment.11 This Court dismissed the state court summary judgment order and allowed AFNB to proceed under a "partial assignment."12
In its Second Amended Original Complaint ("Complaint "), Promlite pled the following causes of action: (i) breach of contract; (ii) unjust enrichment; and (iii) quantum meruit.13 Seeking dismissal of all three claims, the City of Hidalgo filed its Plea to the Jurisdiction, Motion to Dismiss for Lack of Subject Matter Jurisdiction, Motion to Dismiss Pursuant to Rule 12(b) and Dismiss Pursuant to the City of Hidalgo's Governmental Immunity ("Motion to Dismiss " or "Motion "). In response, Promlite and AFNB filed their Joint Response to the City of Hidalgo's Motion to Dismiss ("Joint Response ").14 A hearing on the Motion to Dismiss was held on November 16, 2020, and the Court now issues the instant Memorandum Opinion.
This Court lacks both arising in and arising under jurisdiction because none of Plaintiffs' causes of action are created or determined by title 11 nor do they arise only in bankruptcy.15 Under 28 U.S.C. § 157(a), "[b]ankruptcy judges may hear and determine all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11 ...."16 For jurisdiction to "arise under" title 11, the cause of action asserted by the plaintiff must be either created or determined by title 11.17 "Arising under" jurisdiction requires that the proceeding "invoke a substantive right provided by [the Bankruptcy Code]."18 "Arising in" jurisdiction requires that the proceeding "would have no existence outside of the bankruptcy," where the asserted causes of action are not based on any provision of the Bankruptcy Code.19
None of Plaintiffs' causes of action in this case arise under or arise in title 11.20 Plaintiffs' claims for breach of contract, quantum meruit, and unjust enrichment were initiated in state court.21 Plaintiffs' breach of contract claim arises under the Texas Business and Commerce Code and the two related quasi-contractual equitable doctrines of unjust enrichment and quantum meruit, arise under Texas common law.22 Plaintiffs do not argue that any of their claims are based on substantive rights provided by the Bankruptcy Code and this Court does not find any such rights relevant to this proceeding. Additionally, this case landed in this Court only because Promlite filed a Notice of Removal based on its underlying bankruptcy case.23 If not for Promlite's bankruptcy, the claims asserted could have been adjudicated on the merits in the state court.24 Lacking "arising under" or "arising in" jurisdiction, the Court turns to whether it has "related to" jurisdiction pursuant to 28 U.S.C. § 1334(b).
This Court has related to jurisdiction pursuant to 28 U.S.C. § 157(c)(1), which provides "[a] bankruptcy judge may hear a proceeding that is not a core proceeding but that is otherwise related to a case under title 11." A proceeding is "related to" a case under title 11 "when the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy."25 In other words, "if the outcome could alter the debtor's rights, liabilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankrupt estate."26 Here, Promlite is the debtor in the underlying Chapter 7 bankruptcy case.27 The outcome of this adversary proceeding could conceivably impact the administration of Promlite's bankruptcy case because if it prevails in the instant suit and is awarded any of the $3,697,717.90 it asks for,28 that money will become property of the estate pursuant to 11 U.S.C. § 541(a) and be subject to the $1,817,377.73 in liabilities Promlite disclosed on its latest schedules.29 Any money potentially won in a lawsuit such as this one conceivably has an effect on administration of the bankruptcy estate.30
The City of Hidalgo's Motion to Dismiss requests that this Court dismiss Plaintiffs' causes of action pursuant to, inter alia, Federal Rules of Civil Procedure 12(b)(1), 12(b)(4), and 12(b)(6). Federal Rule 12 applies to this adversary proceeding pursuant to Federal Rule of Bankruptcy Procedure 7012. Rule 12(h)(3) mandates that "[i]f the court determines at any time that it lacks subject-matter jurisdiction, the court must dismiss the action."31 Because "[i]t is incumbent on all federal courts to dismiss an action whenever it appears that subject matter jurisdiction is lacking," this Court must enter an order dismissing this suit if it finds its lacks jurisdiction to adjudicate Plaintiffs' claims.32 However, should the Honorable United States District Court find that the Bankruptcy Court did not have authority to enter a final order, this Court requests that the Honorable United States District Court convert this Memorandum Opinion into a Report and Recommendation.
In its Motion, the City of Hidalgo asks this Court to dismiss Plaintiffs' Complaint for several reasons. First, the City argues that this Court lacks subject matter jurisdiction because it is entitled to governmental immunity and that immunity has not been waived.33 Thus, the City concludes, this Court must dismiss the suit pursuant to Federal Rule of Civil Procedure 12(b)(1).34 Alternatively, the City argues that if this Court does not dismiss the Complaint pursuant to Rule 12(b)(1) on the basis of governmental immunity, then the Court should dismiss the Complaint pursuant to Rule 12(b)(6) on the same basis because governmental immunity prohibits Plaintiffs from asserting a claim upon which relief can be granted.35 Alternatively, the City contends that the Complaint should be dismissed because the contract, made the basis of Promlite's Complaint, is void, unconstitutional, and unenforceable because it creates a debt without establishment of a sinking fund, as required by the Texas Constitution.36 That, it concludes, requires dismissal as a matter of law.37 Finally, the City asks this Court to dismiss the Complaint pursuant to Rule 12(b)(4) because it alleges that service of process was not made to the correct person under state or federal law.38
As a preliminary matter, this Court must determine whether it has subject matter jurisdiction over this Complaint before it can proceed to Plaintiffs' other bases for dismissal.39 "The requirement that subject matter jurisdiction be established as a threshold matter is inflexible and without exception for subject matter jurisdiction is power to declare the law and without subject matter jurisdiction the court cannot proceed at all in any cause."40 If subject matter jurisdiction cannot be established, then there is no jurisdiction to entertain a Rule 12(b)(6) motion to dismiss Plaintiffs' claims or the contracts validity under the Texas Constitution41 and the City's Motion for insufficient process pursuant to Rule 12(b)(4) becomes moot.42
Furthermore, a lack of subject matter jurisdiction, or a decision not to exercise subject matter jurisdiction, would implicate the futility of allowing the plaintiff leave to amend the complaint.43 Because the City's Motion challenges this Court's subject matter jurisdiction pursuant to Rule 12(b)(1), this...
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