Opinion
No. 00-CV-1223
September 13, 2000
REPORT RECOMMENDATION
This cause comes before the Court on the motion to remand filed by the Plaintiff.
I. BACKGROUND
Plaintiff in this case originally filed its complaint on May 8, 2000, in the Ninth Judicial Circuit, Knox County, Illinois. Plaintiff is an Iowa corporation licensed to do business in the State of Illinois. Defendant BASF is a Delaware corporation licensed to do business in the State of Illinois.
The Complaint alleges that in January 1999, Plaintiff contracted with Defendant and its agent, Lois/Chicago, Inc. (Lois) to provide certain advertising services for Defendant. The Complaint further alleges that Plaintiff did provide the requested services and that Defendant refused to compensate Plaintiff. Plaintiff alleges that Defendant is indebted to Plaintiff in the amount of $23,664.00 for said services.
After the parties had formed their contract, Lois commenced bankruptcy proceedings in the Southern District of New York. Before these proceedings were initiated, Lois contracted with Defendant to purchase advertising time for Defendant. Under normal circumstances, Defendant would have paid Lois directly for the advertising services. Lois would have then deducted its commission from the sum and paid Plaintiff. However, because there is a dispute as to the amount owed for the advertising services, Defendant has not yet paid Lois.
On June 30, 2000, Defendant removed the matter to this Court alleging a federal question because of the bankruptcy proceedings of Lois. Defendant further moved to transfer venue of this matter to the United States Bankruptcy Court for the Southern District of New York. The basis for the Motion to Transfer Venue was that the bankruptcy cases of Lois and those of two related companies, Lois/USA, Inc. and Lois/USA New York, Inc., are pending in the Bankruptcy Court for the Southern District of New York.
On July 19, 2000, Plaintiff objected to Defendant's motion to transfer venue and filed a motion to remand to the Circuit Court of the Ninth Judicial District, Knox County, Illinois. Plaintiff asserts that there is no federal question subject matter jurisdiction.
II. ANALYSIS
The motion to remand is brought pursuant to 28 U.S.C. § 1447 and 1452. The removal of claims relating to bankruptcy cases is governed by 28 U.S.C. § 1452. Under 28 U.S.C. § 1452 (b), a court to which a bankruptcy matter is removed may remand the case on any equitable ground. Plaintiffs here assert that the instant case does not arise under or relate to Title 11 of the United States Code pursuant to 28 U.S.C. § 1334(b) and that subject matter jurisdiction based on a federal question does not therefore lie. According to 28 U.S.C. § 1447(c), a motion to remand for lack of subject matter jurisdiction may be brought at any time before final judgment in the case.
Plaintiff first asserts that the well-pleaded complaint rule bars federal jurisdiction in this case, contending that this is merely a common law breach of contract action. Defendant argues that the well-pleaded complaint rule does not apply to bankruptcy cases that are removable under 28 U.S.C. § 1452. The Seventh Circuit has recognized that bankruptcy jurisdiction under 28 U.S.C. § 1334 is an independent source of jurisdiction and is not dependent on diversity of citizenship. See Diamond Mortgage Corp. of Illinois v. Sugar, 913 F.3d 1233, 1238-39 (7th Cir. 1990) (concluding that district court could have exercised its diversity or bankruptcy subject matter jurisdiction when the complaint was related to the underlying bankruptcy cases). Moreover, the Supreme Court has opined that "Congress intended to grant comprehensive jurisdiction to the bankruptcy courts so that they might deal efficiently and expeditiously with all matters connected with the bankruptcy estate." See Celotex Corp. v. Edwards, 514 U.S. 300, 308 (1995). The crucial inquiry therefore is whether the instant case is "related to" a federal bankruptcy case.
A case is "related to" a bankruptcy under 28 U.S.C. § 1334(b) if it "affects the amount of property available for distribution or the allocation of property among creditors." See In the Matter of Xonics, 813 F.2d 127, 131 (7th Cir. 1987). Typically, "related to" proceedings consist of claims owned by the debtor that become property of the estate under 11 U.S.C. § 541 and disputes between third parties which affect in some way the administration of the bankruptcy case. See In re Emerald Acquisition Corp., 170 B.R. 632, 640 (N.D.Ill. 1994). The statute recognizes that the debtor need not always be a party provided the amount of property in the bankruptcy estate is affected. See Zerand-Bernal Group, Inc. v. Cox, 23 F.3d 159, 162 (7th Cir. 1994). Although the claim need not be against the debtor or property of the estate, there must be a plausible explanation as to how the claim can have an impact on the estate and not just the debtor for removal to be proper. See In re Emerald Acquisition Corp., 170 B.R. at 640. The Seventh Circuit has recognized that "related to" jurisdiction pursuant to 28 U.S.C. § 1334 encompasses disputes that "involve property of the estate" and instances in which "resolving two creditors' intramural squabble will affect the recovery of some other creditor." See In re Cary Metal Products, Inc., 158 B.R. 459, 464 (N.D.Ill. 1993) (quoting Matter of Kubly, 818 F.2d 643, 645 (7th Cir. 1987)). However, such jurisdiction is limited in that the "[o]verlap between the bankrupt's affairs and another dispute is insufficient unless its resolution also affects the bankrupt's estate or the allocation of its assets among creditors." See In re Cary Metal Products, Inc., 158 B.R. at 465 (quoting Homes Insurance Co. v. Cooper Cooper, Ltd., 889 F.2d 746, 749 (7th Cir. 1989)). For the purposes of removal jurisdiction, a case is not related to a bankruptcy merely because of common issues, related parties, parallel claims, or bankruptcy law. Hence, if resolution of the claim will have no effect on the property of the debtor's estate, remand may be proper. See Emerald Acquisition Corp., 170 B.R. at 640.
Plaintiff contends that the funds held by Lois for transfer to plaintiff are not part of the bankruptcy estate because they are not owned by Lois and are thus not property of the estate under 11 U.S.C. § 541(d).
Defendant argues the instant case does effect both "the amount of property available for distribution" to Lois' creditors and the "allocation of property" among those creditors. The outcome of this dispute could affect how much property is available in Lois' bankruptcy estate. For example, if Plaintiff prevails in this action and is paid by Defendant, that action could have an affect on Lois' bankruptcy estate. As Lois Executive Vice President Robert Stewart has indicated, this scenario could ultimately make it more difficult for Lois to collect other accounts receivable.
The dispute between Plaintiff and Defendant could clearly have a major impact on the overall distribution of assets among creditors of the Lois bankruptcy estate. Hence, Plaintiff's argument that the funds are not property of the bankruptcy estate pursuant to 11 U.S.C. § 541(d) appears to be without merit.
The dispute between Plaintiff and Defendant is "related to" the Lois bankruptcy proceedings. For the reasons previously mentioned, the outcome of this litigation could clearly affect the amount of property ultimately distributed among creditors. See In the Matter of Xonics, 813 F.2d at 131. The underlying dispute could therefore potentially impact the administration of Lois' bankruptcy case. See In re Emerald Acquisition Corp., 170 B.R. at 640. Although Lois is not a party to this action, the amount of property in its bankruptcy estate could easily be affected by the outcome of this dispute. See Zerand-Bernal Group, Inc., 23 F.3d at 162. The result here could reduce the overall amount available for distribution in the bankruptcy estate, thereby affecting the overall allocation of property among creditors. See Homes Insurance Co., 889 F.2d at 749.
Based on the foregoing, this Court does have subject matter jurisdiction. The present case invokes a federal question as the case does "relate to" the Lois bankruptcy case as required by 28 U.S.C. § 1334(b).
Therefore, I recommend that the motion to remand pursuant to 28 U.S.C. § 1452 be DENIED.
Defendant has moved pursuant to Federal Rule of Civil Procedure 12(b)(3) and 28 U.S.C. § 1404, 1409, and 1412 that this proceeding be transferred to the United States Bankruptcy Court for the Southern District of New York. Because the Court has found that removal was proper, logic may dictate transfer of venue as well. The Court is inclined, if the law so allows, to recommend transferring venue to the New York Bankruptcy Court.
The Court believes that transfer is proper under 28 U.S.C. § 1404(a):
"For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought." Because this case "relates to" and involves property of Lois' bankruptcy cases, it arguably could have been brought in the New York Bankruptcy Court. Transfer is also proper under 28 U.S.C. § 1412: "A district court may transfer a case or proceeding under title 11 to a district court for another district, in the interest of justice or for the convenience of the parties." The transfer of venue in this matter would promote the efficient and economic administration of Lois' bankruptcy estate because of the proximity of debtors, creditors, and witnesses to the New York Bankruptcy Court.
Therefore, I recommend that the motion to transfer this proceeding to the United States Bankruptcy Court for the Southern District of New York be GRANTED pursuant to 28 U.S.C. § 1404 and 1412.
The parties are advised that any objection to this Report and Recommendation must be filed in writing with the Clerk of the Court within ten working days after being served with a copy of this Report and Recommendation. See 28 U.S.C. § 636(b)(1). Failure to file a timely objection will constitute a waiver of objections on appeal. Video Views, Inc. v. Studio 21, Ltd., 797 F.2d 538, 539 (7th Cir. 1986). See also Local Rule 72.2.