Opinion
C/A No. 0:22-2167-CMC
2022-08-17
YORK COUNTY, Plaintiff, v. APPALOOSA MANAGEMENT, LP; DT Sports Holding, LLC; Tepper Sports Holding, Inc. ; and the City of Rock Hill, Defendants.
John T. Lay, Jordan M. Crapps, Gallivan White Boyd, Columbia, SC, Kate Cammerer Mettler, Gallivan White Boyd, Charleston, SC, for Plaintiff. Christopher Ogiba, Moore & Van Allen, Charleston, SC, Scott M. Tyler, Moore and Van Allen, Charlotte, NC, Barry Gordon Sher, Pro Hac Vice, Daniel Alexander Fliman, Pro Hac Vice, Phara Amy Guberman, Pro Hac Vice, Paul Hastings LLP, New York, NY, for Defendants Appaloosa Management, LP, DT Sports Holding, LLC, Tepper Sports Holding, Inc.
John T. Lay, Jordan M. Crapps, Gallivan White Boyd, Columbia, SC, Kate Cammerer Mettler, Gallivan White Boyd, Charleston, SC, for Plaintiff.
Christopher Ogiba, Moore & Van Allen, Charleston, SC, Scott M. Tyler, Moore and Van Allen, Charlotte, NC, Barry Gordon Sher, Pro Hac Vice, Daniel Alexander Fliman, Pro Hac Vice, Phara Amy Guberman, Pro Hac Vice, Paul Hastings LLP, New York, NY, for Defendants Appaloosa Management, LP, DT Sports Holding, LLC, Tepper Sports Holding, Inc.
ORDER
CAMERON MCGOWAN CURRIE, Senior United States District Judge
This case arises from the unsuccessful development of the Carolina Panthers football team's training facility and headquarters in York County, South Carolina (the "Project"). As a consequence, the developer, GT Real Estate Holdings, LLC ("GTRE"), filed for protection under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. The matter is before the court on the issue whether the court possesses subject matter jurisdiction over certain state law claims Defendants Appaloosa Management, LP; DT Sports Holding, LLC; and Tepper Sports Holding, Inc. (together, the "Tepper Defendants") removed to this court pursuant to 28 U.S.C. § 1452. After the court ordered briefing on the matter of federal jurisdiction, Plaintiff York County filed a motion to remand. ECF No. 16. That motion also is addressed in this Order.
I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
In September 2019, David Tepper, owner of the Carolina Panthers football franchise, purchased approximately 200 acres of land in York County on which to develop a "mixed-use, pedestrian friendly community anchored by a practice facility, headquarters offices and sports/entertainment venue with emphasis on retail/entertainment/media production, sports medicine, hospitality, employment, research and development, commercial, indoor and outdoor recreation and open space uses facility and related improvements[.]" ECF No. 9-4, 6. On April 20, 2020, York County and GTRE entered into a Fee In Lieu of Tax and Incentive Agreement ("FILOT") to apportion the costs of developing the Project. ECF No. 9-4. See S.C. Code Ann. §§ 12-44-40, 12-44-50. Of significance to this action, the FILOT Agreement made reference to a certain approved and final Traffic Impact Analysis of the Project conducted by Design Resource Group (the "TIA") and York County's obligation to assist GTRE in complying with the TIA. ECF No. 9-4, 30 (Section 5.04(b)). The FILOT Agreement incorporated an Interlocal Agreement entered into on April 17, 2020 between the City of Rock Hill and York County. ECF No. 9-6, 47-71. The Interlocal Agreement established the parties’ respective financial obligations with respect to funding the Project, including the issuance of special source revenue bonds ("SSRBs") by the City pursuant to S.C. Code Ann. § 4-29-68 ; and bonds issued by the City pursuant to the Municipal Improvements Act, S.C. Code Ann. §§ 5-37-10, et seq.
The Interlocal Agreement defines this section of the Code as the "MID Act." ECF No. 9-4, 5.
Pertinent here, the Interlocal Agreement recited that, prior to the effective date of the Interlocal Agreement, York County, as part of its Pennies for Progress program, had contemplated widening from two lanes to three Mount Gallant Road, a state-maintained roadway, between Dave Lyle Boulevard and Anderson Road near the City of Rock Hill. The TIA provided, however, that the referenced portion of Mount Gallant Road would need to be expanded to five lanes (the "Expanded Scope"). York County and the City of Rock Hill agreed that the Expanded Scope would be deemed a "Park Project" (see ECF No. 9-4, 73-74) for which all costs borne by GTRE could be reimbursed from SSRBs or MID Bonds issued by the City of Rock Hill. Further, York County authorized GTRE to manage the construction of the Expanded Scope under the following criteria:
Pennies for Progress-type programs are created pursuant to the Capital Project Sales Tax Act, S.C. Code Ann. §§ 4-10-300, et seq. A county may enact an ordinance, subject to referendum approval in the county, to impose a sales and use tax for the purpose of funding specific types of projects. Id. § 4-10-330. Revenues from the sales tax are remitted to the Department of Revenue and credited by the State Treasurer to a segregated fund. The revenues are distributed quarterly to the county treasurer in the county where the tax is imposed, and the revenues must be used only for the purposes stated in the ordinance. Id. § 4-10-360.
(i) the County shall make a direct payment to the Developer [GTRE] or its designee in the amount of $21,000,000 no later than July 15, 2020; (ii) the County and/or the City will commit to cooperating with the Developer (and/or its designee) throughout the construction of the
Expanded Scope, including using reasonable best efforts to facilitate all permits, consents, waivers, designations, incentives, and/or approvals related to the Expanded Scope; (iii) the County agrees that the Developer shall manage the procurement of a contractor to implement the project consistent with the Developer's policies, which policies may deviate from the requirements, provisions, and competitive processes of the County's procurement code, and which policies are not subject to any additional obligations to the County; and (iv) the Developer must commence construction on the Expanded Scope within 24 months following the issuance of at least $225,000,000 in SSRBs or MID Bonds by the City no later than October 31, 2020, and must make delivery of the Expanded Scope to the applicable public authority within a reasonable period of time thereafter.
ECF No. 9-4, 62 (Section 4.1(c)).
In addition, on May 4, 2020, York County partnered with Chester County, South Carolina, to develop a multi-county industrial park under an agreement that would address sharing expenses of the park; specify by percentage the revenue to be allocated to each county; and specify the manner in which revenue must be distributed to each of the taxing entities within the counties. See S.C. Code Ann. § 4-1-170. ECF No. 9-4, 82
In December 2020, the City of Rock Hill and GTRE entered into a number of agreements, including a Land Development Agreement (ECF No. 9-5); Finance and Construction Administration Agreement (the "FCAA") (ECF No. 9-6, 3-44); and Dedication Agreement (ECF No. 9-7). The Land Development Agreement provided that GTRE had no obligation to proceed under any of the agreements until (1) an amount equal to $135,000,000 in bond proceeds had been delivered to the Bond Trustee for deposit in the Project Fund by the City, and (2) the City Infrastructure Funding Account had been funded with $20,000,000 by the City. ECF No. 9-5, 6 (Section 1(a)). As to the Expanded Scope, the Land Development Agreement recited that, "[s]ubject to the County contributing the funds required by the Interlocal Agreement which the Developer will request from the County within thirty (30) days of the date that this Agreement is executed by the City and Developer, and the acquisition of the property interests necessary to complete the Expanded Scope, the Developer shall commence construction on the Expanded Scope no later than October 31, 2022." ECF No. 9-5, 20 (Section 15(f)).
The FCAA governed construction and funding of the infrastructure pursuant to, and in accordance with, the terms of the Land Development Agreement. ECF No. 9-6, 5. Pursuant to the FCAA, the City of Rock Hill
intend[ed] to issue or authorize the issuance of the Bonds secured in whole or in part by a pledge of all or any part of the Panthers Net Park Fees and any Reserve Fund, the proceeds of which will be deposited in the Project Fund (as such term is defined below) in order to defray (i) up to $225,000,000 of the Costs (as such term is defined in the Interlocal Agreement) of the Park Projects, (ii) the amount required to fund any Reserve Fund or Credit Enhancement (as such terms are defined in the Interlocal Agreement), (iii) such amount as may be necessary to provide for capitalized interest on the Bonds for a period not to exceed three years from the date of issuance of the Bonds and (iv) the costs of issuance of the Bonds (clauses (i)-(iv), collectively, the "Permitted Bond Proceed Uses")[.]
ECF No. 9-6, 4.
The FCAA also recited that:
in exchange for the timely commencement of the construction, acquisition, installation and equipping of the Park Projects, the City intends to reimburse or pay the Developer and/or Vendors for up to $225,000,000 for Costs of the Park Projects in accordance with the terms of this Agreement and the Land Development Agreement from the proceeds of Bonds issued by the City for such purpose, and to thereby facilitate the Developer constructing, installing and equipping the Park Projects, which will be owned by the City, County, State or, in some cases, by the South Carolina Department of Transportation[.]
ECF No. 9-6, 4.
Specific to this action, the FCAA provided:
(b) The City shall use reasonable best efforts to issue Bonds, some of which may be taxable in nature, in an amount sufficient to fund the Project Fund with the Maximum Project Fund Amount by no later than February 26, 2021, it being acknowledged by the Parties that (i) "reasonable best efforts" by the City, as used anywhere in this Agreement, shall not require the City to pledge, use or contribute any City funds, revenues or assets to the repayment of the Bonds beyond the Panthers Fund Proceeds, Reserve Funds derived from proceeds of the Bonds, together with capitalized interest, if any, or MID assessments imposed in accordance with the MID Governing Documents; and (ii) the City's "reasonable best efforts" to issue Bonds shall not be construed as an assurance or guarantee by the City that there will be a buyer for any of the Bonds.
ECF No. 9-6, 14 (Section 3.4(b)).
Under the FCAA, the City of Rock Hill agreed to issue bonds in an aggregate amount sufficient to fund the Project with at least $135,000,000 in reliance upon GTRE's investment of not less than $500,000,000 on or before December 31, 2023. ECF No. 9-6, 23 (Section 8.2).
In March 2022, the funding arrangements collapsed. GTRE submitted a notice of default to the City of Rock Hill on March 18, 2022, contending that the City had failed to " ‘use reasonable best efforts to issue Bonds, some of which may be taxable in nature, in an amount sufficient to fund the Project Fund with the Maximum Project Fund Amount by no later than February 26, 2021'as set forth in Article III, Section 3.4(b) of the [FCCA] Agreement.’ " ECF No. 9-8, 2. The City of Rock Hill apparently accused GTRE and the Tepper Defendants of breaching their agreements and failing to cooperate with the City and its bond underwriters to facilitate the bond issuances. ECF No. 1-1, ¶ 65. On May 31, 2022, York County made a demand on GTRE for the $21,000,000 the County had provided to GTRE for the Expanded Scope. York County asserted that GTRE had not segregated the $21,000,000 for the purpose of the Expanded Scope but wrongfully had commingled the funds in GTRE's general operating account. ECF No. 9-9, 2. On June 1, 2022, GTRE filed a petition for protection under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. ECF No. 9-3; see GT Real Estate Holdings, LLC, Debtor , Bankruptcy Petition # 22-10505-KBO. On June 9, 2022, GTRE advised York County:
11 U.S.C. § 362(a) prohibits, among other things, (i) the commencement of any action against GTRE to recover a pre-petition claim against it, (ii) any act to obtain possession of property of GTRE's estate or of property from GTRE's estate, or (iii ) any act to exercise control over property of GTRE's estate. Accordingly, GTRE cannot currently pay any amounts demanded in your Letter and,
at this time, GTRE will not be responding to any of the many inaccurate contentions in your Letter.
ECF No. 9-10.
On June 9, 2022, York County filed a complaint in the Court of Common Pleas for the County of York against the Tepper Defendants and the City of Rock Hill. ECF No. 1-1. York County alleges the Tepper Defendants formed GTRE on June 5, 2019, as a contracting party for the Tepper Defendants. GTRE's only member and sole owner is DT Sports. In turn, DT Sports is wholly owned by Tepper Sports. According to York County, the Tepper Defendants collectively conduct business as "Tepper Sports & Entertainment." Tepper Sports & Entertainment allegedly operates as the agent for, as well as the benefit of, David Tepper. ECF No. 1-1, ¶¶ 15, 18-19.
In its complaint, York County alleges the Tepper Defendants controlled all aspects of GTRE's relationship with York County, including direct access to and control of GTRE's bank account. Id. ¶ 21. York County asserts the Tepper Defendants directed the misappropriation of $21,000,000 of statutorily restricted public funds from the Expanded Scope and utilized the funds on the Carolina Panthers’ headquarters and practice facility. Id. ¶¶ 54-55. York County alleges four causes of action as to the Tepper Defendants: civil conspiracy (First Cause of Action); negligence and negligence per se (Second Cause of Action); interference with contractual relations (Third Cause of Action); and negligent misrepresentation (Fourth Cause of Action). York County also asserts a claim of breach of contract as to the City of Rock Hill (Fifth Cause of Action). York County seeks a judgment against the Tepper Defendants for full restitution and repayment of the $21,000,000 designated for the Expanded Scope; pre- and post-judgment on the $21,000,000; sums representing increased construction costs associated with the original Mount Gallant expansion or specific performance of the construction and completion of the Expanded Scope; lost tax revenue and economic benefits; actual and consequential damages; punitive and exemplary damages; and attorney's fees and costs. ECF No. 1-1, 22. The next day, June 10, 2022, York County filed a notice of appearance in the GTRE bankruptcy action in the District of Delaware.
The City of Rock Hill removed the Fifth Cause of Action to this court on July 22, 2022. See York Cnty. v. Appaloosa Mgmt., LP , C/A No. 0:22-2380-CMC.
On July 7, 2022, the Tepper Defendants removed the First through Fourth Causes of Action to this court pursuant to 28 U.S.C. § 1452(a) and Rule 9027 of the Federal Rules of Bankruptcy Procedure. ECF No. 1. On July 14, 2022, the Tepper Defendants moved for an order transferring this case to the United States District Court for the District of Delaware for ultimate reference to the Delaware Bankruptcy Court. ECF No. 9. On July 26, 2022, the court entered a text order directing York County to address the jurisdictional issue whether the removed Causes of Action are core proceedings or, alternatively, are related to the District of Delaware bankruptcy case. ECF No. 15. On August 3, 2022, York County filed a motion to remand for lack of subject matter jurisdiction or, as an alternative, to abstain from exercising subject matter jurisdiction and remand to state court. ECF No. 16. York County informs the court that the motion to remand is intended to address the court's July 26, 2022 directive. The Tepper Defendants filed a response in opposition on August 8, 2022. York County filed a reply on August 15, 2022.
The Delaware Bankruptcy Court currently is entertaining a motion to transfer GTRE's bankruptcy case to the District of South Carolina. Bankruptcy Petition #22-10505-KBO, ECF No. 112. The motion to transfer is scheduled for a hearing on September 7, 2022. Id. at 290.
II. DISCUSSION
York County asserts the Tepper Defendants have failed to establish grounds for removal under 28 U.S.C. § 1452(a), such that remand is warranted. The court disagrees.
A. Legal Standards
Pursuant to § 1452(a),
(a) A party may remove any claim or cause of action in a civil action other than a proceeding before the United States Tax Court or a civil action by a governmental unit to enforce such governmental unit's police or regulatory power, to the district court for the district where such civil action is pending, if such district court has jurisdiction of such claim or cause of action under section 1334 of this title.
A district court has jurisdiction under 28 U.S.C. § 1334 as follows:
(a) Except as provided in subsection (b) of this section, the district courts shall have original and exclusive jurisdiction of all cases under title 11.
(b) Except as provided in subsection (e)(2), and 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.
(c)(1) Except with respect to a case under chapter 15 of title 11, nothing in this section prevents a district court in the interest of justice, or in the interest of comity with State courts or respect for State law, from abstaining from hearing a particular proceeding arising under title 11 or arising in or related to a case under title 11.
(2) Upon timely motion of a party in a proceeding based upon a State law claim or State law cause of action, related to a case under title 11 but not arising under title 11 or arising in a case under title 11, with respect to which an action could not have been commenced in a court of the United States absent jurisdiction under this section, the district court shall abstain from hearing such proceeding if an action is commenced, and can be timely adjudicated, in a State forum of appropriate jurisdiction.
Each district court "may provide that any or all cases under title 11 and any or all proceedings arising under title 11 or arising in or related to a case under title 11 shall be referred to the bankruptcy judges for the district." 28 U.S.C. § 157(a).
(emphasis added)
Removal in this case is based upon § 1334(b). Civil proceedings "arising under" or "arising in" Title 11 comprise "core proceedings" under bankruptcy law. A civil proceeding "arises under" Title 11 " ‘if it is a cause of action created by the Bankruptcy Code, and ... lacks existence outside the context of bankruptcy.’ " In re Hard Rock Exploration, Inc. , Civil Action No. 2:20-cv-00276, 2022 WL 1321571, at * 2 (S.D.W. Va. May 3, 2022) (quoting In re Kirkland , 600 F.3d 310, 316 (4th Cir. 2010) ). A claim or proceeding "arises in" Title 11 when it is " ‘not based on any right created by Title ll, but nevertheless ... would have no practical existence but for the bankruptcy.’ " Hard Rock , 2022 WL 1321571, at *4 (quoting Valley Historic Ltd. P'ship v. Bank of New York , 486 F.3d 831, 835 (4th Cir. 2007) ). A non-exhaustive statutory list of core proceedings is enumerated in 28 U.S.C. § 157(b)(2).
Section 157 is not a jurisdictional grant to the district courts, but rather, an "itemization" of the types of proceedings that constitute "core" proceedings appropriate for resolution by the bankruptcy court. Saul, Ewing, Remick & Saul v. Provident Sav. Bank , 190 B.R. 771, 776 (D. Del. 1996).
A proceeding that is " ‘related to a case under title 11, but not arising under title 11, or arising in a case under title 11’ is a ‘non-core’ proceeding." Hard Rock , 2022 WL 1321571, at *4 (quoting Bowles v. Massey Energy Co. , No. 2:12-cv-05997, 2012 WL 6628953, at *4 (S.D.W. Va. Dec. 19, 2012) ). In Celotex Corp. v. Edwards , 514 U.S. 300, 115 S.Ct. 1493, 131 L.Ed.2d 403 (1995), the Supreme Court cited with approval to Pacor, Inc. v. Higgins , 743 F.2d 984 (3d Cir. 1984), and the Court of Appeals for the Third Circuit's observation "the ‘related to’ language of § 1334(b) must be read to give district courts (and bankruptcy courts under § 157(a), jurisdiction over more than simple proceedings involving the property of the debtor or the estate." Celotex , 514 U.S. at 308, 115 S.Ct. 1493. The Court also agreed with the Third Circuit that a bankruptcy court's "related to" jurisdiction cannot be limitless. Celotex , 514 U.S. at 308, 115 S.Ct. 1493.
The Court of Appeals for the Fourth Circuit has adopted the test articulated in Pacor : A proceeding is "related to" a case under Title 11 " ‘if the outcome [of the proceeding] could alter the debtor's rights, liabilities, options, or freedom of action (either positively or negatively) and [the proceeding] in any way impacts upon the handling and administration of the bankrupt estate.’ " New Horizon of NY, LLC v. Jacobs , 231 F.3d 143, 151 (4th Cir. 2000) (quoting Spartan Mills v. Bank of Am. Ill. , 112 F.3d 1251, 1255-56 (4th Cir. 1997) ). In the Fourth Circuit, a civil case is related to bankruptcy if "the outcome of [the civil] proceeding could conceivably have any effect on the estate being administered in bankruptcy." Id. (quoting at Owens-Illinois, Inc. v. Rapid Am. Corp. (In re Celotex Corp. ), 124 F.3d 619, 625 (4th Cir. 1997) ). If a proceeding fails to arise under, arise in, or relate to a case under Title 11, then the court lacks jurisdiction under 28 U.S.C. § 1334(b). Hard Rock , 2022 WL 1321571, at *2.
The burden of establishing federal jurisdiction is upon the party seeking removal. Mulcahey v. Columbia Organic Chem. Co., Inc. , 29 F.3d 148, 151 (4th Cir. 1994) (citing Wilson v. Republic Iron & Steel Co. , 257 U.S. 92, 42 S.Ct. 35, 66 L.Ed. 144 (1921) ). Because removal jurisdiction raises significant federalism concerns, a court must strictly construe removal jurisdiction. Id. (citing Shamrock Oil & Gas Corp. v. Sheets , 313 U.S. 100, 61 S.Ct. 868, 85 L.Ed. 1214 (1941) ). If federal jurisdiction is doubtful, remand is necessary. Id. (citing cases). Because the Tepper Defendants carry the burden, the court will first analyze their arguments.
B. "Related to" Jurisdiction
The Tepper Defendants state all of York County's causes of action are predicated on GTRE's purported contractual obligations and GTRE's actions in relation to the Project, all of which currently are being litigated in the bankruptcy case. The Tepper Defendants make reference to the complaint's allegations that GTRE breached the York County contracts by "(1) spending the Penny Tax Funds elsewhere on the development of the Project; (2) failing to construct the Mt. Gallant Expanded Scope; and (3) failing to comply with the inherent obligation of good faith and fair dealing." See ECF No. 1-1, ¶ 92. The Tepper Defendants further note York County's actions in state court, such as filing a notice of lis pendens and serving GTRE with a demand letter, demonstrate York County's interest in recovering from GTRE. While the allegations of the complaint do recite GTRE's alleged tortious conduct, the gravamen of the complaint and associated Causes of Action is that the Tepper Defendants directed GTRE's actions and exercised dominion over the funding set aside for the Project. See id. ¶ 93 ("The Tepper Defendants intentionally procured [GTRE's] breach by controlling and directing the Penny Tax Funds for purposes other than the Mt. Gallant Expanded Scope."). The court is not persuaded by the Tepper Defendants’ narrow reading of the complaint.
The Tepper Defendants note that the Property became an asset of the Estate once GTRE's bankruptcy case was commenced. According to the Tepper Defendants, York County seeks to exercise control over GTRE's claims and contractual rights against the City of Rock Hill. The Tepper Defendants also observe that, were York County to prevail in state court, the recovery could alter the ultimate distribution of property among creditors. In response, York County states the complaint does not assert any claims against GTRE; seek to adjudicate any material rights, claims or liabilities of any party against GTRE; seek to adjudicate any rights that are assets of GTRE's bankruptcy estate; or implicate res judicata or collateral estoppel against GTRE. York County urges that its state law claims of conspiracy, negligence, interference with contractual relationship, and negligent misrepresentation all relate to the Tepper Defendants’ alleged knowing and intentional tortious acts in misappropriating the Pennies for Progress funds and interfering with the rights and contracts of York County. York County denies its particularized harm is property of GTRE's bankruptcy estate, or a recovery in the state court action will provide satisfaction of York County's claims against GTRE in bankruptcy. York County argues it has state law tort claims against the Tepper Defendants, in contrast to equitable and contractual claims it possesses in bankruptcy court against GTRE for actions GTRE itself took.
In accordance with New Horizon , the issue is whether the outcome of York County's state court civil proceeding could conceivably have any effect on the estate being administered in bankruptcy. The United States Bankruptcy Court for the Eastern District of Virginia addressed a similar factual scenario in In re Virginia True Corp. , Case No. 19-4-4769, 2020 WL 1696103 (Bankr. E.D. Va. Mar. 30, 2020). In that case, Howard Kleinhendler and Benito Fernandez formed Virginia True Corporation ("Virginia True") to purchase land in Richmond County, Virginia, from Diatomite, a corporation owned by Allan Applestein. Anthony and Domenick Cipollone, Kleinhendler, and Fernandez entered into a stockholders’ agreement whereby the Cipollones made a $5,000,000 capital contribution to Virginia True as consideration for their shares. The stockholders’ agreement provided that the Cipollones would recoup their $5,000,000 capital contribution through either a buyout of their shares for $5,000,000 or the repayment of a promissory note for $5,000,000 that would be secured by a deed of trust lien on the property. Virginia True used the $5,000,000 to purchase the property and gave Diatomite a $7,000,000 unsecured promissory note. In a separate side agreement, Virginia True agreed it would not encumber the property without Applestein's consent. Id. at *1. Later, the Cipollones attempted to exercise the buy-out option. Virginia True opted instead to execute a $5,000,000 promissory note secured by a lien on the property. When the note matured, Virginia True failed to pay the Cipollones and instead filed a bankruptcy petition in the United States Bankruptcy Court for the Eastern District of New York. All parties actively participated in the bankruptcy case. Like this case, the Cipollones filed a complaint in the circuit court for the County of Richmond, Virginia, against Kleinhendler, Fernandez, Applestein, and Diatomite Corporation. The state court complaint alleged the defendants conspired to induce the Cipollones to invest in Virginia True in order to fund the purchase of the Property but limited the Cipollones’ available recourse through the side agreement with Diatomite prohibiting future encumbrances. The Cipollones asserted state law causes of action of fraudulent inducement to contract against Fernandez and Kleinhendler; tortious interference with contract against Applestein and Diatomite; and conspiracy against all defendants. Kleinhendler removed the case to the Virginia Bankruptcy Court and filed a motion to change venue to the Eastern District of New York for reference to the New York Bankruptcy Court. The Cipollones thereafter filed a motion to remand. Id. at *2-3.
The Virginia Bankruptcy Court found the state court case was "related to" the bankruptcy action because the resolution of the state court action could impact the administration of Virginia True's bankruptcy estate for a number of reasons. First, the damages sought to be recovered by the Cipollones in the removed action overlapped with claims asserted by them against Virginia True in the bankruptcy case, and any damages awarded and paid in connection with the removed action would likely affect the amount of the Cipollones’ claims asserted in the bankruptcy case. 2020 WL 1696103, at *4. Here, recovery by York County against the Tepper Defendants could affect the claim York County asserts in GTRE's bankruptcy case for the same amount. Second, in Virginia True , the Virginia Bankruptcy Court found "related to" jurisdiction based on an indemnification agreement whereby Virginia True agreed to indemnify its officers, directors, employees, and agents for certain actions. The Bankruptcy Court concluded that the Cipollones’ success in the state court action could cause Kleinhendler and Fernandez to seek indemnification from Virginia True, thereby altering Virginia True's liabilities. 2020 WL 1696103, at *4. Here, the Tepper Defendants advise that GTRE and its sole member, DT Sports Holdings, LLC, entered into a limited liability agreement on December 9, 2019, amended May 31, 2022, that contains an indemnification clause. ECF No. 19-8, 6-7. According to the Tepper Defendants, a state court judgment in favor of York County would trigger the indemnification clause and alter GTRE's liabilities.
In its reply brief, York County cites to Ivanhoe Bldg. & Loan Ass'n v. Orr , 295 U.S. 243, 55 S.Ct. 685, 79 L.Ed. 1419 (1935), for the proposition a creditor need not deduct from his claim in bankruptcy an amount received from a non-debtor third party in partial satisfaction of a judgment. In Ivanhoe , owners of land secured a $23,000 mortgage from Ivanhoe Building and Loan Association ("Ivanhoe"). The owners conveyed the land to a company that assumed the mortgage debt. The company conveyed the property to an individual. The individual defaulted, and the property was sold at a foreclosure sale for a $100 bid by Ivanhoe. Meanwhile, the company that had assumed the mortgage debt was adjudicated bankrupt. Ivanhoe presented an unsecured claim against the bankruptcy estate for $10,739.94, the amount due on the loan, less the $100.00 expended at the foreclosure sale. The bankruptcy referee reduced the claim to $1,739.94 on the grounds the property in foreclosure was worth $9,000. On appeal the Supreme Court determined that, as an unsecured creditor, Ivanhoe did not "owe" the bankrupt company the $9,000.00 realized when Ivanhoe took possession of the property in foreclosure. This is due in part to the fact unsecured creditors often are paid only a percentage of their claims.
In In re Del Biaggio , 496 B.R. 600 (N.D. Cal. 2012), the bankruptcy court explained that Ivanhoe adopted a rule to deal with the situation in which the defendant co-obligor is in bankruptcy and cannot pay his debts in full. According to the Del Biaggio court, Ivanhoe decides the amount of the creditor's claim in bankruptcy is not affected by third-party payments, except to the extent payment from the debtor would produce a double recovery. In this case, GTRE proposes to pay its debt to York County in full, such that repayment by both the Tepper Defendants and GTRE of the $21,000,000 funding supplied by York County would amount to a double recovery. In the court's view, any other damages sought by York County against the Tepper Defendants could be resolved through an adversary proceeding in bankruptcy court.
York County calls the indemnification clause into question, noting the amendment is dated May 31, 2022, the day before GTRE's bankruptcy petition. York County asserts the indemnification clause "is a grossly transparent sham by the Tepper Defendants to amend their [agreement with GTRE] after the failed project and the day before its bankruptcy petition to insert a purported indemnification provision and obligate an insolvent GTRE for indemnification of the Tepper Defendants." ECF No. 23, 5 (emphasis in original). York County submits another action would need to be filed to determine whether the indemnification clause is valid, thus negating "related to" jurisdiction.
The court finds the existence of GTRE's indemnification clause could conceivably have an effect on the administration of GTRE's estate. Because other factors support "related to" jurisdiction, judicial efficiency would be promoted by the GTRE bankruptcy court's resolving the questions posited by York County regarding the limited liability agreement.
The court also finds pertinent GTRE's adversary proceeding against York County filed in the Delaware Bankruptcy Court on July 14, 2022. GTRE seeks a declaratory judgment and injunctive relief. GTRE asserts this case violates the § 362 stay because (1) York County's "alter ego and veil piercing claims" are property of GTRE's bankruptcy estate; (2) York County's claims against the Tepper Defendants require a judicial determination with respect to liability of GTRE; and (3) York County has improperly exercised dominion and control over contractual claims GTRE holds against the City of Rock Hill under the FCAA, to which York County was not a signatory. GTRE alleges if factual or legal issues relating to the York County $21,000,000 payment are determined by the state court, GTRE faces a material risk those determinations will collaterally estop GTRE from taking contrary positions in further litigation. See Complaint, Adversary Case No. 22-50391. Further, on August 11, 2022, GTRE filed a Chapter 11 Plan of Reorganization that values York County's claim as $21,165,000, and represents that this amount has been placed into a county escrow account to satisfy York County's claims. Case No. 22-10505, ECF No. 295. These actions in the Delaware Bankruptcy Court overlap significantly with York County's state law claims. The court concludes it possesses "related to" jurisdiction under § 1334(b).
C. "Arising In" Jurisdiction
The Tepper Defendants argue in the alternative the court may exercise "arising in" jurisdiction because York County's claims exist only because of its contracts with GTRE, and all of York County's causes of action are predicated upon GTRE's obligations and actions in connection with the contracts. The court disagrees. York County's claims against the Tepper Defendants for civil conspiracy, negligence and negligence per se, interference with contractual relations, and negligent misrepresentation existed antecedent to GTRE's bankruptcy filing. " ‘It seems self-evident that a claim ... that pre-dates the filing of the Chapter 11 case cannot be said to have arisen within that case, and whether it caused the bankruptcy is immaterial.’ " Hard Rock , 2022 WL 1321571, at *3 (quoting Valley Historic , 486 F.3d at 836 ). The court concludes it lacks "arising in" jurisdiction.
The Tepper Defendants do not argue "arising under" jurisdiction.
III. CONCLUSION
For the reasons stated, York County's motion to remand (ECF No. 16) is denied . Having determined the court has "related to" jurisdiction under 18 U.S.C. § 1334, the court is inclined to grant the Tepper Defendants’ motion to transfer this case to the Delaware District Court for reference to the Delaware Bankruptcy Court. Transferring this matter to be included with the entirety of GTRE's bankruptcy action would promote judicial efficiency by allowing either the Delaware Bankruptcy Court or, should venue be transferred, the South Carolina Bankruptcy Court, to resolve, in the context of the bankruptcy case as a whole, whether abstention is appropriate, as York County urges, and whether to dismiss the complaint pursuant to Fed. R. Civ. P. 12(b)(2), 12(b)(6), and 12(b)(7), as the Tepper Defendants argue. York County is directed to file a response to the Tepper Defendants’ motion to transfer no later than ten days from entry of this order. The court vacates the portion of its July 26, 2022 text order that extends the time for York County to respond until fourteen days after the Delaware Bankruptcy Court renders a decision on the motion to transfer pending in that court.
IT IS SO ORDERED .