Opinion
06 Civ. 266 (KMW).
March 5, 2007
OPINION AND ORDER
Defendants Monsanto Co., Pharmacia Corp., and Solutia, Inc. are corporations formed from Monsanto ("Old Monsanto"), which was until the 1970s the sole U.S. manufacturer of polychlorinated biphenyls ("PCBs"), chemical compounds once used for a wide range of commercial purposes. Plaintiffs, employees of the General Electric Company, claim they have suffered serious personal injuries because of exposure to PCBs once manufactured by Old Monsanto. They filed suit on December 6, 2005, in the Supreme Court of the State of New York, County of New York, alleging $11 billion in actual damages and seeking $11 billion in punitive damages, plus costs and attorney's fees. Defendants removed the action to this Court on January 12, 2006. Plaintiffs now move for remand to state court. For the reasons stated below, their motion is denied.
BACKGROUND
In order to resolve the motion to remand, I must first describe Plaintiffs' claim and the relationships between the parties.
The 590 Plaintiffs work at the Main Plant of the General Electric Company in Schenectady, New York. (Am. Compl. ¶ 1.) They claim that the soil and water of the Main Plant complex are contaminated with dangerous concentrations of PCBs, which have caused cancer, liver disease, and other serious illnesses. (Id. ¶¶ 33-39.)
The three Defendants are corporations formed from portions of Old Monsanto by a series of divisions and mergers. Old Monsanto was the sole U.S. manufacturer of PCBs between the 1930s and the 1970s, when domestic production of PCBs was prohibited. (Id. ¶¶ 5, 8, 10.) In 1997, the company divided into two units, one that retained the original name and one called "Solutia, Inc." (Objections of Pharmacia Corp. and Monsanto Co. to Debtor's Motion to Reject Distribution Agreement Dated Sept. 1, 1997 ¶ 7, Jan. 26, 2004, In re Solutia Inc., No. 03-17949 (Bankr. S.D.N.Y.).) In 2000, Old Monsanto merged with Pharmacia Upjohn, Inc., forming a new corporation called "Pharmacia Corp." (Id. ¶ 7 n. 1.) Later in 2000, Pharmacia Corp. created a wholly owned subsidiary (now publicly traded) called Monsanto Co. ("New Monsanto"). (Id.)
The three companies have apportioned among themselves liabilities for tort claims arising from Old Monsanto's chemicals business, including the manufacture of PCBs. When Solutia was formed, it expressly assumed all liabilities for such tort claims from Old Monsanto. (Decl. of Jeffry N. Quinn in Support of Chapter 11 Petitions and Requests for First-Day Relief Pursuant to Local Bankruptcy Rule 1007-2, In re Solutia Inc., No. 03-17949 (Bankr. S.D.N.Y.), attached as Exhibit A to Decl. of Lawrence P. Biondi [hereinafter "Quinn Decl."], ¶ 14.) Solutia later agreed to indemnify New Monsanto for the same liabilities. (Id. ¶ 18.) Pharmacia Corp. and New Monsanto have agreed that New Monsanto will indemnify Pharmacia Corp. for chemical tort claims to the extent that Solutia fails to pay, perform, or discharge them. (Id. ¶ 16.)
Solutia petitioned for Chapter 11 bankruptcy protection in 2003. (See Voluntary Pet. (Chapter 11), Dec. 17, 2003, In re Solutia Inc., No. 03-17949 (Bankr. S.D.N.Y.).) Its proposed Reorganization Plan has not yet been confirmed by the Bankruptcy Court.
DISCUSSION
Defendants' Notice of Removal alleges three independent grounds for federal jurisdiction: diversity of citizenship, relatedness to a bankruptcy proceeding, and action at the behest of a federal officer. If I find any of these bases for jurisdiction is adequate, I need not address the others. See Romney v. Lin, 94 F.3d 74, 77 n. 3 (2d Cir. 1996). I conclude that I may properly exercise jurisdiction over this case because it is related to a bankruptcy proceeding in this district. I also conclude that I need not abstain from exercising jurisdiction, either mandatorily or voluntarily.
I. The Case Is Related to Solutia's Bankruptcy Petition
This action was properly removed to this Court because the action is related to Solutia's Chapter 11 bankruptcy proceeding. Because Solutia has agreed to indemnify the other two Defendants for any liability resulting from Plaintiffs' claims, the outcome of this action could have a substantial effect on the bankrupt estate.
A debtor that files for bankruptcy is entitled to an automatic stay of "the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title." 11 U.S.C. § 362(a)(1). I note without further analysis that this automatic stay provision applies to the lawsuit against Solutia. However, this automatic stay does not affect my conclusion that this lawsuit is related to Solutia's bankruptcy petition: as explained below, the lawsuit would have a "conceivable" effect on Solutia regardless of whether Solutia itself is named as a defendant, because of Solutia's agreement to indemnify Pharmacia and New Monsanto for tort claims arising from the chemicals business.
An action may be removed to the district court for the district where the action is pending if the action is "related to" a case arising under Title 11 of the Bankruptcy Code. 28 U.S.C. § 1334(b); see id. § 1452(a). Litigation is "related to" a bankruptcy matter if it has a "significant connection" with the bankruptcy matter, Turner v. Ermiger (In re Turner), 724 F.2d 338, 341 (2d Cir. 1983) (internal quotation marks omitted), which the Second Circuit has defined as "any `conceivable effect' on the bankrupt estate," Publicker Indus. Inc. v. United States (In re Cuyahoga Equip. Corp.), 980 F.2d 110, 114 (2d Cir. 1992) (citing Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984)). In cases where the defendant has a potential claim against a bankrupt estate for indemnification or contribution, courts in the Second Circuit generally find that courts may exercise jurisdiction pursuant to this "conceivable effect" standard if there is a "`reasonable' legal basis" for the claim.N.Y.C. Employees' Ret. Sys. v. Ebbers (In re Worldcom, Inc. Sec. Litig.), 293 B.R. 308, 318 (S.D.N.Y. 2003).
Pharmacia and New Monsanto have a reasonable legal basis for an indemnification claim against Solutia, and such a claim would have more than a conceivable effect on the bankrupt estate. The Distribution Agreement currently in effect among the parties requires Solutia to indemnify both Pharmacia and New Monsanto for liabilities flowing from the chemicals business, including Plaintiffs' claims. (See Aff. of Mark G. Arnold, Ex. B, § 4.03(b); id., Ex. C, § 2(d).) Plaintiffs seek damages in the billions of dollars. If they obtain a judgment against Pharmacia or New Monsanto, it will be passed on directly to Solutia, which would have not merely a "conceivable" effect, but a profound effect, on the bankrupt estate.
The 2000 Separation Agreement between New Monsanto and Pharmacia does not alter this conclusion. In that Agreement, New Monsanto agreed to indemnify Pharmacia for various liabilities, including PCB lawsuits, "to the extent that Solutia were to fail to pay, perform or discharge those liabilities as contemplated in the Distribution Agreement." (Quinn Decl. ¶ 16.) Because this provision would come into effect only after Solutia was unable to perform its obligations to Pharmacia, it is irrelevant to whether the instant litigation affects Solutia.
Also irrelevant at this stage is Solutia's proposed Reorganization Plan, pursuant to which its indemnity obligation would be assumed outright by New Monsanto. (See Decl. of Lawrence P. Biondi, Ex. B, § V(B)(2)(b).) The Plan has not been confirmed by the Bankruptcy Court and so is not binding on New Monsanto. It is not known whether the Plan will be confirmed, and whether this litigation might be concluded first. The proposed Reorganization Plan is thus too speculative a basis to defeat jurisdiction in this Court.
II. The Court Need Not Abstain Mandatorily and Declines to Abstain Equitably
Although 28 U.S.C. § 1334(c)(2) directs the district court to abstain from entertaining certain state law claims related to bankruptcy proceedings, this mandatory abstention does not apply to unliquidated personal injury tort claims against the bankrupt estate. 28 U.S.C. § 157(b)(4). Mandatory abstention does not apply to such claims because "the unpredictable and substantial verdicts that are often produced in personal injury tort and wrongful death claims could have potentially deleterious effects on a debtor's estate." Beck v. Victor Equip. Co., 277 B.R. 179, 180 (S.D.N.Y. 2002). Here, the exception to mandatory abstention also applies to litigation against Pharmacia and New Monsanto, because Solutia is obligated to indemnify Pharmacia and New Monsanto for any judgment awarded against them. Mandatory abstention is thus inapplicable to this action.
Although the Court need not abstain from exercising jurisdiction, it may do so "in the interest of justice, or in the interest of comity with State courts or respect for State law." 28 U.S.C. § 1334(c)(1). The removal statute phrases this authority even more broadly, permitting discretionary remand "on any equitable ground." Id. § 1452(b). Courts apply a variety of factors to cabin this open-ended "equitable remand" authority, including
(1) the effect on the efficient administration of the bankruptcy estate; (2) the extent to which issues of state law predominate; (3) the difficulty or unsettled nature of the applicable state law; (4) comity; (5) the degree of relatedness or remoteness of the proceeding to the main bankruptcy case; (6) the existence of the right to a jury trial; and (7) prejudice to the involuntarily removed defendants.Drexel Burnham Lambert Group, Inc. v. Vigilant Ins. Co., 130 B.R. 405, 407 (S.D.N.Y. 1991). Plaintiffs cite these so-called "Drexel factors" but do not explain how they apply to the facts here. When considered in this case, the Drexel factors counsel against remand.
(1) Effect on the efficient administration of the estate. This factor, which one bankruptcy judge has called "one of the most important" of the seven, ML Media Partners, LP v. Century/ML Cable Venture (In re Adelphia Commc'ns Corp.), 285 B.R. 127, 144 (Bankr. S.D.N.Y. 2002), argues against remand. In Nemsa Establishment, S.A. v. Viral Testing Systems Corp., No. 95 Civ. 0277 (LAP), 1995 WL 489711 (S.D.N.Y. Aug. 15, 1995), Judge Preska held that the efficient administration of the estate would be harmed by remand because the debtor and non-debtor defendants were "inextricably intertwined." Id. at *8; see also In re Adelphia, 285 B.R. at 145. Here, too, debtor Solutia and non-debtors New Monsanto and Pharmacia are inextricably intertwined because of the apportionment of personal injury tort liability among them. (See Quinn Decl. ¶¶ 13-19 (describing history of apportionment of liability).)
Furthermore, as Plaintiffs have noted, the Reorganization Plan now under consideration in the Bankruptcy Court could shift responsibility for Solutia's PCB liabilities to New Monsanto. If Plaintiffs prevail in this litigation, the judgment they receive would become one of New Monsanto's major liabilities. "[I]t plainly would be in the interests of judicial efficiency and economy to place all of such determinations under one tent."Blackacre Bridge Capital LLC v. Korff (In re River Ctr. Holdings LLC), 288 B.R. 59, 69 (Bankr. S.D.N.Y. 2003). The first factor therefore weighs strongly against remand.
(2) Extent to which state law predominates. Although Plaintiffs' Complaint relies on tort, warranty, and products-liability causes of action rooted in state law, these causes of action are not "novel or complex" and therefore not necessarily best resolved in state court. Neuman v. Goldberg, 159 B.R. 681, 688 (S.D.N.Y. 1993). Moreover, Defendants' defenses include the claim that their actions were taken at the direction of federal officers, and that Plaintiffs' state law claims are therefore preempted by federal law. Abstention is not appropriately invoked where a case raises "preemption issues," a rationale that "applies with even greater force in the bankruptcy context." Coker v. Pan Am. World Airways, Inc. (In re Pan Am. Corp.), 950 F.2d 839, 847 (2d Cir. 1991). Thus, despite the presence of state law causes of action, this factor cuts somewhat against remand.
(3) Difficulty or unsettled nature of state law. Plaintiffs have not argued that the applicable state law here is either especially difficult or unsettled. Cf. Thompson v. Magnolia Petrol. Co., 309 U.S. 478, 483 (1940) (authorizing remand only for "unsettled questions" of state law); In re Adelphia, 285 B.R. at 146 (noting that abstention is appropriate for "matters involving family law, probate law, condemnation law, or other specialized areas of the law not regularly addressed in the federal courts"). This Court's ability to handle settled areas of state law is not significantly different from a state court's. Accordingly, this factor is not applicable.
(4) Comity. "Comity focuses on the state's interest in developing its law and applying its law to its citizens."Renaissance Cosmetics, Inc. v. Development Specialists Inc., 277 B.R. 5 (S.D.N.Y. 2002) (internal quotation marks omitted). Many but not all Plaintiffs are residents of New York; Defendants are corporations organized under the laws of Delaware with principal places of business in Missouri, New Jersey, and New York. Plaintiffs also contend that New York has an important interest "in the protection of its citizens from the hazards alleged herein, and the implementation of its common law." (Pls.' Mem. of Law 14.) Because many but not all parties are citizens of New York and because the case could raise significant public policy questions for New York, this factor weighs in favor of remand.
Defendants contend that Pharmacia's principal place of business is not New York but New Jersey. However, I will accept Plaintiffs' representation as true for the purposes of this analysis in order to weigh Plaintiffs' strongest argument for equitable remand.
(5) Degree of relatedness or remoteness. As explained above, the debtor and non-debtor Defendants are inextricably intertwined. Because the instant action is unquestionably related to Solutia's bankruptcy proceeding, and the outcome of this litigation could have a profound effect on the assets in the bankrupt estate, this factor counsels strongly against remand.
(6) Right to jury trial. Neither party has mentioned its right to jury trial or explained why this Court would be less able to assure that right than a state court; thus, the sixth factor does not apply to the analysis.
(7) Prejudice to involuntarily removed defendants. All three Defendants have consented to the removal of this action, so this factor does not apply.
Three of the Drexel factors weigh against remand (two strongly so), while only one factor — the Court's concern for comity — weighs in favor of remand. New York's interest in the case does not outweigh concerns of efficient resolution, relatedness to the bankruptcy proceeding, and possible preemption by federal defenses. The Court holds that equitable remand is not appropriate in this litigation.
CONCLUSION
For the reasons explained above, Plaintiffs' motion to remand is DENIED.
SO ORDERED.