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KERUSA CO. LLC v. W10Z/515 REAL ESTATE LTD. P'SHIP

May 6, 2004.

KERUSA CO. LLC, Plaintiff,
v.
W10Z/515 REAL ESTATE LTD. P'SHIP, 515/ZGP LLC, W10Z/515 GEN — PAR LLC, ZECKENDORF REALTY, J. A. JONES CONST., FRANK WILLIAMS & ASSOCS., JAROS BAUM & BOLLES CONSULTING ENGS., CANTOR SEINUK GRP., ARTHUR W. ZECKENDORF, WILLIAM L. ZECKENDORF, CHARLES IRWIN, DANIEL NEIDICH, STUART ROTHENBERG, and JOHN DOES ##1-10, Defendants; BOARD OF MANAGERS OF 515 PARK AVE. CONDOMINIUM, Plaintiff, v. W10Z/515 REAL ESTATE LTD. P'SHIP, et al., Defendants; RICHARD L. KRAMER, et al., Plaintiffs, v. WILLIAM L. ZECKENDORF, et al., Defendants



The opinion of the court was delivered by: GERARD E. LYNCH, District Judge

OPINION AND ORDER

[EDITORS' NOTE: THIS PAGE CONTAINED ATTORNEY NAMES.]

  515 Park Avenue (the "Building") is a luxury condominium development in New York City financed, built, and sold by defendant W10Z/515 Real Estate Limited Partnership (the "Sponsor") and various other entities affiliated with the Zeckendorf family real estate business (e.g., defendants 515/ZGP LLC, W10Z/515 Gen — Par LLC, Zeckendorf Realty LP). The other defendants in these three related lawsuits include the general contractor and construction manager for the Building (J.A. Jones), the architect (Frank Williams & Assocs.), the mechanical engineers (Jaros Baum & Bolles), and the structural engineers (Cantor Seinuk Group), as well as individuals who are principals or employees or agents of the Zeckendorf entities. Plaintiffs are either purchasers of apartment units in the Building, family members of purchasers, or legal representatives of purchasers.

  The three complaints, originally filed in New York Supreme Court, allege that, due to design and construction defects, the Building and plaintiffs' individual units have suffered severe water damage and toxic mold infestations, all of which have diminished the value of the Building and plaintiffs' units due to actual damage, costs of remediation, and damage to marketability as a result of public awareness of the alleged defects in the Building. Plaintiffs allege that various defendants were aware of the problems during the construction but neglected to take appropriate steps to address and correct them, and failed to inform prospective purchasers of the existence, nature, or extent of the problems. The complaints each state numerous causes of action under New York law, sounding in breach of contract, breach of implied covenant of good faith and fair dealing, breach of implied warranties, negligence, fraudulent inducement, breach of fiduciary duties, false advertising in violation of N.Y.G.B.L. §§ 349 and 350, common law fraud, and fraud in the purchase or sale of securities. The Kramer action also asserts a number of tort claims for personal injury.

  Following the bankruptcy filing of defendant J.A. Jones ("Jones"), defendant Sponsor removed these three cases to this Court, invoking its bankruptcy jurisdiction under 28 U.S.C. § 1334(b) and 1452(a). Plaintiffs, joined by a number of defendants, move to remand the actions to the New York state courts, arguing that jurisdiction is lacking and, in the alternative, that the Court should exercise its discretion under 28 U.S.C. § 1334(c) or 1452(b) to abstain or remand. Defendants Sponsor and Jones (the "Removing Defendants") oppose the motions and cross-move to transfer the actions to the Western District of North Carolina, where the Jones bankruptcy is pending. For the reasons that follow, the motions to remand will be granted and the motions to transfer will be denied as moot.

  DISCUSSION

 I. Jurisdiction

  The Removing Defendants argue that this Court has jurisdiction under 28 U.S.C. § 1334, contending that these actions are "core proceedings" as defined in 28 U.S.C. § 157(b)(2), or that at a minimum they are "related to" the Jones bankruptcy proceedings, which, under 28 U.S.C. § 157(c)(1) and 1334(b), also gives rise to federal jurisdiction. They are correct that federal jurisdiction exists over these actions, although incorrect in their arguments as to the consequences of that jurisdiction.

  To address the constitutional constraints on the bankruptcy court's judicial power articulated by the Supreme Court in Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982), Congress distinguished between "core" bankruptcy matters, which do not exist independently of the Bankruptcy Code, and "non-core" matters, which do have independent existence under state law. See 28 U.S.C. § 157(b)(2) (non-exclusive list of matters that are "core"); Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.L. No. 98-353, 98 Stat. 333. "A proceeding is encompassed within the bankruptcy court's core . . . jurisdiction `if it invokes a substantive right provided by title 11 or if it is a proceeding that, by its nature, could arise only in the context of a bankruptcy case.'" In re Leco Enters., Inc., 144 B.R. 244, 249 (S.D.N.Y. 1992) (quoting Wood v. Wood, 825 F.2d 90, 96-97 (5th Cir. 1987)); accord In re Green, 200 B.R. 296, 298 (S.D.N.Y. 1996). By contrast, a proceeding is non-core if it exists independently under state law and is merely "related to" the bankruptcy case because of a conceivable effect upon the debtor's estate. See Green, 200 B.R. at 299. Only a district court, and not a bankruptcy court, may enter final judgment in a non-core, "related to" proceeding. Compare 28 U.S.C. § 157(b)(1) ("bankruptcy judges may hear and determine" all core proceedings, subject only to ordinary appellate review), with 28 U.S.C. § 157(c)(1) (in "a proceeding that is not a core proceeding but that is otherwise related to a case under title 11," final judgment "shall be entered by the district judge" upon de novo review of any findings as to which any party objects).

  These actions hardly fit the description of a "core" proceeding. They are perfectly ordinary state-law actions that invoke no aspect of bankruptcy law, that proceed against numerous defendants who are not in bankruptcy and who are jointly and severally liable for all claims, and that, even as to the bankrupt defendant, concern actions taken long before the bankruptcy filing. Even if the proofs of claim filed by the Kerusa and Board of Managers plaintiffs in the Jones bankruptcy render their claims against Jones "core" (a conclusion which the Court need not reach here), they have no effect on the claims against the other defendants, the many cross-claims among defendants other than Jones, or the entirety of the Kramer action (for which no proof of claim has been filed by the plaintiffs), all of which are clearly non-core.

  This conclusion, however, does not exhaust the jurisdictional inquiry. Federal courts also have jurisdiction over matters "related to" a pending bankruptcy proceeding. 28 U.S.C. § 1334(b). This jurisdiction is considerably broader, applying to civil proceedings whose "outcome might have any conceivable effect on the bankrupt estate." In re Cuyahoga Equip. Co., 980 F.2d 110, 114 (2d Cir. 1992). Although "related to" jurisdiction is not unlimited, federal courts have found jurisdiction under this heading in cases where the debtor is not even a party, such as a proceeding to execute on a bond issued by the debtor's surety, Celotex Corp. v. Edwards, 514 U.S. 300 (1995), or proceedings against officers or employees of the debtor that could exhaust the debtor's insurance limits or give rise to claims against the debtor for contribution or indemnity, see, e.g., In re Worldcom Inc. Sec. Litig., 293 B.R. 308, 317 (S.D.N.Y. 2003) ("An action is related to bankruptcy 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."). These cases are clearly "related to" the Jones bankruptcy because they contain claims directly against Jones for potentially millions of dollars in liability, and any finding of liability on the part of any defendant will likely give rise to contribution or indemnity claims against Jones.*fn1

  Accordingly, this Court does have jurisdiction over these matters and the removal was proper. Unlike most instances of removal jurisdiction, however, this conclusion does not resolve the matter. In contrast to most headings of jurisdiction in which the jurisdiction of the federal courts must be exercised once properly invoked, Congress has recognized that the bankruptcy jurisdiction, particularly in its "related to" aspect, is potentially so broad that federal courts require equally broad discretion to remand cases to the state courts where fairness and judicial efficiency will be better served by litigating the matters in state court than by sucking into the federal courts large and complex actions lacking any specifically federal component merely because they tangentially affect a bankrupt estate.

 II. Discretionary Abstention and Remand

  The Court's power to abstain or remand in circumstances such as that presented here is broad. See 28 U.S.C. § 1334(c)(1) (`'Nothing in this section prevents a district court in the interests 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."); 28 U.S.C. § 1452(b) ("The court to which such claim or cause of action is removed may remand such claim or cause of action on any equitable ground."). Courts in this district have treated the analysis under these two statutory provisions as essentially identical, see, e.g., Worldcom, 293 B.R. at 334, and have identified a wide variety of factors that bear on this analysis: (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 with state courts; (5) the degree of relatedness or remoteness of the proceeding to the main bankruptcy case; (6) the existence of a right to trial by jury; (7) prejudice to the involuntarily removed parties; and (8) the potential for duplicative and uneconomical use of judicial resources ...


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