Welch v. Kennedy Piggly Wiggly Stores, Inc.

• Citation: 63 BR 888
• Decision Date: 05 August 1986
• Docket Number: Civ. A. No. 84-0163-B,85-0195-B.
• Parties: Donald L. WELCH, Plaintiff, v. KENNEDY PIGGLY WIGGLY STORES, INC., Defendant. Donald L. WELCH, Plaintiff, v. KENNEDY PIGGLY WIGGLY STORES, INC., National Security Assn., Inc., and Herman L. Mullins, t/a National Security Assn., Inc., Defendants.
• Court: U.S. District Court — Western District of Virginia

63 B.R. 888 (1986)

Donald L. WELCH, Plaintiff, v. KENNEDY PIGGLY WIGGLY STORES, INC., Defendant.

Donald L. WELCH, Plaintiff, v. KENNEDY PIGGLY WIGGLY STORES, INC., National Security Assn., Inc., and Herman L. Mullins, t/a National Security Assn., Inc., Defendants.

Civ. A. Nos. 84-0163-B, 85-0195-B.

United States District Court, W.D. Virginia, Big Stone Gap Division.

August 5, 1986.

COPYRIGHT MATERIAL OMITTED

S. Strother Smith, III, Abingdon, Va., for plaintiff.

David Nagle, Richmond, Va., for National Security.

John E. Kieffer, Bristol, Va., for Kennedy Piggly Wiggly.

MEMORANDUM OPINION

GLEN M. WILLIAMS, District Judge.

The consolidated civil actions, 84-0163-B and 84-0195-B, are now before this court on each of the defendants' motions to dismiss and defendant Herman Mullins' motion for sanctions. Plaintiff, Donald Welch, instituted these actions in bankruptcy court after filing a petition for bankruptcy in the United States Bankruptcy Court for the Western District of Virginia. Because the bankruptcy court was without jurisdiction over the matters, which involve only state law causes of action, the cases were transferred to this court's docket. This court's jurisdiction is contended under 28 U.S.C. § 1334.

I. BACKGROUND

Plaintiff filed his first complaint in bankruptcy court on September 20, 1983 against defendants Herman Mullins (Mullins), t/a National Security Association, Kennedy Piggly Wiggly Stores, Inc. (Piggly Wiggly), Bruce Hayes (Hayes) and Delmer Province (Province). As alleged, plaintiff was employed by Piggly Wiggly until July 25, 1983. Sometime prior to that date, the Norton, Virginia Piggly Wiggly store where plaintiff was working began to become less profitable so management decided to reduce the store's payroll by releasing certain employees. The plan was for the store to release the employees in such a way that the employees would not be entitled to unemployment compensation, thereby enabling the store to avoid any increase in unemployment compensation taxes. Subsequently, defendants Hayes and Province, as agents of Piggly Wiggly, conspired with defendant Mullins, trading as the National Security Association of Richmond, Virginia, in furtherance of the plan. Piggly Wiggly hired Mullins "to come to Norton supposedly to conduct certain polygraph examinations" of a number of Piggly Wiggly employees, including the plaintiff. Mullins interviewed plaintiff on July 25, 1983. Following the interview, Mullins "being fully cognizant of what Kennedy Piggly Wiggly was trying to do and being involved in a conspiracy with them to carry out their purpose wrote a report to Kennedy Piggly Wiggly . . . and made statements in that report which were totally and completely untrue concerning his investigation of and interview with Donald Welch." Among the false statements made was the allegation that plaintiff admitted to Mullins that he had violated company policy by mishandling coupons and allowing employees under his supervision to mishandle coupons. Mullins also submitted the false statements to the Virginia Employment Commission through his affidavit dated August 10, 1983. "As a result of those statements . . . plaintiff lost his job and any reasonable chance of obtaining benefits before the Virginia Employment Commission." Based on these factual allegations, plaintiff sought damages against each of the defendants on theories of conspiracy, common law and statutory libel and slander, tortious interference with prospective economic advantage, and outrageous conduct.

On September 30, 1983, the bankruptcy court, after determining that it was without jurisdiction over the matter, transferred the matter to this court. After the transfer, this court took the following action. On October 26, 1983, the court granted plaintiff's motion to amend his complaint by changing the name of defendant Mullins to Mullins National Security Association, Inc. (National Security) and by including Herman Mullins individually as a defendant. On December 15, 1983, the court granted plaintiff's motion to dismiss Herman Mullins as a defendant in the case. Upon defendant Piggly Wiggly's Fed.R. Civ.P. 12(b)(6) motion, the court granted on January 9, 1984 the motion to dismiss as to allegations against Piggly Wiggly of common law libel and slander. Plaintiff's motion to dismiss defendants Hayes and Province was granted on October 9, 1984. On June 17, 1985, the court issued a memorandum opinion and order granting defendant Piggly Wiggly's motion to dismiss as to allegations of conspiracy under VA. CODE § 18.2-499 (1965 added vol.). Finally, on July 17, 1985, the court granted the motion by National Security to dismiss the corporation as a named defendant on the ground that service of process had not been made upon it.

Plaintiff subsequently filed his second complaint in bankruptcy court on July 24, 1985. The defendants originally named in this action were Mullins, National Security, Piggly Wiggly and Murray Guard, Inc. of Virginia (Murray Guard) as successor to National Security. With the exception of deleting the names of Hayes and Province as conspirators with Mullins, plaintiff alleges the same set of facts as were alleged in his first complaint. He also seeks damages based upon the same theories of relief with the addition of claiming interference with an economic opportunity and/or contractual relations and not just interference with prospective economic advantage.

As before, this action was also transferred to this court's docket based on a finding that the bankruptcy court lacked jurisdiction over the subject matter. The court's only disposition since the action was transferred has been to grant a motion consented to by all parties to dismiss Murray Guard as a named defendant.

Thus, the only remaining defendant from plaintiff's action filed on September 20, 1983 is Piggly Wiggly, and the defendants remaining in his action filed on July 24, 1985 are Piggly Wiggly, Mullins and National Security. Because the allegations in the complaints filed in the two actions are virtually identical and the remaining defendant in the first action is named in the second, the court will consolidate these actions and treat the second complaint as an amendment to the first.¹ Having so consolidated the actions, the court will now address defendants' motions to dismiss and defendant Mullins' motion for sanctions.

II. DEFENDANTS' MOTIONS TO DISMISS

A. Jurisdiction

The court will first briefly address as a preliminary consideration the issue of jurisdiction. Each of the defendants has moved to dismiss this action based on the contention that the court is without subject matter jurisdiction over state law claims that come to the court only because they were raised in a complaint by the plaintiff as a petitioner in bankruptcy, with no other independent basis of jurisdiction attaching, i.e. diversity of citizenship. Defendants Mullins and National Security argue that, in conferring such jurisdiction on the federal district courts, Title 28 U.S.C. § 1334 (as amended July 10, 1984)², which Congress revised in response to the Northern Pipeline Co. v. Marathon Pipeline Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), exceeds the proper scope of subject matter jurisdiction permissible under Article III, § 2 of the United States Constitution.

In making their argument, these defendants failed to recognize that the plurality in Marathon, citing Williams v. Austrian, 331 U.S. 642, 67 S.Ct. 1443, 91 L.Ed. 1718 (1947) and Schumacher v. Beeler, 293 U.S. 367, 55 S.Ct. 230, 79 L.Ed. 433 (1934), reaffirmed the principle that a case such as the one at bar may be adjudicated in federal court (but not bankruptcy court) because of its relationship to the petition in bankruptcy. Marathon, 458 U.S. at 72 n. 26, 102 S.Ct. at 2872 n. 26. The cases involving this issue have thus been decided on whether the action in question is "related" to the pending bankruptcy case. One commentator explains as follows:

As another court put it, related proceedings are `those civil proceedings that, in the absence of bankruptcy, could have been brought in a district court or state court.\'

* * * * * *

These definitional cases adopt a rationale which looks to whether the proceeding in question could have been brought absent a case under the Code. It has been proposed above as a working hypothesis that the only proceedings which fit this formulation are suits owned by the debtor when the bankruptcy case was filed — causes of action based upon facts then in existence — and suits between third parties. It should not be surprising, then, that the following matters have been held to be `related\': an action by a debtor alleging breach of a prepetition contract; an action to collect a prepetition account; an action seeking an injunction prohibiting violation of a covenant not to compete; an action by a debtor alleging breach of warranty; and an action by a debtor alleging tortious interference with a contractual relationship, breach of contract, and like matters. Such a formulation is not only in accordance with the cases, but seems to comport with notions of the constitutional mandate set out in Marathon.

1 COLLIER ON BANKRUPTCY ¶ 3.011cv (15th ed. 1986) (footnotes omitted). Based on this authority, the court concludes that the present case bears such a relationship to plaintiff's bankruptcy proceedings so as to give this court jurisdiction over plaintiff's state law claims against the defendants.

B. Claims Against Piggly Wiggly

As to Piggly Wiggly, the claims remaining against it are for statutory libel and slander under VA. CODE § 8.01-45 (1984 repl. vol.), tortious interference with economic opportunity and/or contractual relations and outrageous conduct. For the same reason that the court dismissed the claim against Piggly Wiggly for common law libel and slander — that the complaint fails to allege that Piggly Wiggly uttered any statements to or about the plaintiff ...