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SOLUTIA INC. v. FMC CORPORATION

July 27, 2004.

SOLUTIA INC., Plaintiff,
v.
FMC CORPORATION, Defendant.



The opinion of the court was delivered by: WILLIAM PAULEY, District Judge

MEMORANDUM and ORDER

Plaintiff Solutia Inc. ("Solutia") brings this action against defendant FMC Corporation ("FMC") for damages arising from FMC's alleged breach of a joint venture agreement. On February 20, 2004, Solutia filed this action in the Bankruptcy Court for the Southern District of New York, where it is currently in Chapter 11 bankruptcy proceedings. FMC moves to withdraw the reference of this adversary proceeding from the bankruptcy court to this Court. For the reasons set forth below, FMC's motion to withdraw the reference is granted.

  BACKGROUND

  FMC and Solutia are both national, publicly-traded companies doing business in the global chemicals sector. (Compl. ¶ 6.) On April 29, 1999, the parties entered into a Joint Venture Agreement (the "Agreement") to combine their purified phosphoric acid*fn1 ("PPA") businesses into a new joint venture. (Compl. ¶¶ 8, 10.) The Agreement required each party to contribute equally-valued assets and intellectual property to the venture, including production facilities, research and development facilities and other assets. (Compl. ¶¶ 14-16, Appendix A: Joint Venture Agreement ¶¶ 6, 6.2, 6.4.) The Agreement also required FMC to contribute a license to use certain technologies (the "wet processed" method) developed by FMC and FMC's Spanish subsidiary, FMC Foret, for use at a facility in Conda, Idaho (the "Conda Facility"). (Compl. ¶¶ 16, 18, 21-22; Agreement ¶ 6.4.) Solutia contends that under the Agreement, the parties agreed to produce food-grade PPA for human consumption using the wet-processed method. (Compl. ¶¶ 8, 18.) The Federal Trade Commission approved the venture, and the parties jointly formed Astaris, LLC ("Astaris") on April 1, 2000. (Compl. ¶¶ 11-14.) Each party owns fifty percent of Astaris. (Compl. ¶ 14; Agreement ¶ 5.1.)

  Solutia initially filed suit against FMC in Missouri state court on October 16, 2003, alleging that the Conda Facility never performed as expected, and attributing Astaris' problems to FMC. (FMC Mem. Ex. B: Missouri Complaint; Compl. ¶¶ 25-26.) The Missouri action contained state law claims only, including allegations of breach of contract, breach of fiduciary duty, and negligent and fraudulent misrepresentations concerning FMC's wet processed method. (FMC Mem. Ex. B.) FMC filed a motion to dismiss on December 15, 2003. Shortly thereafter, Solutia filed for bankruptcy in the Bankruptcy Court for the Southern District of New York. The Solutia reorganization involves over 90,000 creditors and claims of over $3 billion. The Missouri court scheduled a hearing for the motion to dismiss for March 17, 2004. However, on February 20, 2004, Solutia voluntarily dismissed the Missouri action and filed this action, containing nearly identical allegations, against FMC in the bankruptcy court. (Compare FMC Mem. Ex. B, with FMC Mem. Ex. C.)

  In this action, Solutia alleges: (1) breach of article 6.4 of the Agreement due to FMC's failure to supply technology capable of producing 80,000 metric tons of food-grade PPA (the "technology") (Compl. ¶¶ 37-41); (2) breach of article 16.1 of the Agreement due to FMC's failure to disclose all facts relevant to the transaction (Compl. ¶¶ 42-48); (3) breach of article 3.14(c) of the Asset Transfer Agreement for failure to supply the technology capable of producing 80,000 metric tons of food-grade PPA (Compl. ¶¶ 49-55); (4) breach of article 6.2 of the Assignment Agreement for failure to deliver the technology; (5) breach of fiduciary duty (Compl. ¶¶ 56-60); (6) negligent misrepresentation based on FMC's alleged failure to disclose that the technology would not be readily adoptable to the Conda Facility and would not be as successful as it was in Spain (Compl. ¶¶ 70-76); and (7) fraud and fraud in the inducement with respect to FMC's alleged withholding of material information about the technology (Compl. ¶¶ 77-87).

  Solutia seeks at least $322 million in compensatory damages, lost profits, and punitive damages. (Compl. ¶¶ 41, 48, 55, 60.) Solutia also seeks, alternatively, rescission of the Agreement and restitution for the value Solutia transferred to Astaris. (Compl. ¶¶ 69, 78, 87.) The parties agree that there are no substantive rights under Chapter 11 implicated in this suit, and that there are no claims involving the right of priority of Solutia's creditors. (See FMC Mem. at 7.)

  DISCUSSION

  I. Applicable Legal Standards

  In 1984, Congress enacted the Bankruptcy Amendments and Federal Judgeship Act of 1984, which states that jurisdiction of all core bankruptcy proceedings is vested exclusively in federal district courts. 28 U.S.C. § 1334(a). By standing order dated July 10, 1984, this adversary proceeding was automatically referred to the Bankruptcy Court for the Southern District of New York as a case arising under, or related to a case under, Title 11 of the United States Code. FMC moves for an order withdrawing the reference to the bankruptcy court pursuant to 28 U.S.C. § 157(d). Section 157(d) states in relevant part, "[t]he district court may withdraw, in whole or in part, any case or proceeding referred under this section, on its motion or on a timely motion of any party, for cause shown." 28 U.S.C. § 157(d). As there is no statutory definition of what "cause" suffices for withdrawal of the reference, this Court looks to Orion Pictures Corp. v. Showtime Networks, 4 F.3d 1095 (2d Cir. 1993), the seminal case on that subject. See Iridium Operating LLC v. Motorola, Inc., 285 B.R. 822, 828 (S.D.N.Y. 2002).

  In Orion Pictures, the Second Circuit established factors for district courts to consider in determining whether cause exists to warrant withdrawal: "(1) whether the claim is core or non-core; (2) what is the most efficient use of judicial resources; (3) what is the delay and what are the costs to the parties; (4) what will promote uniformity of bankruptcy administration; (5) what will prevent forum shopping; and (6) other related factors." Orion Pictures Corp. v. Showtime Networks, 4 F.3d 1095, 1101 (2d Cir. 1993); accord South Street Seaport Ltd. Partnership v. Burger Boys, Inc., 94 F.3d 755, 762 (2d Cir. 1996). II. Orion Factors

  A. Core/Non-Core

  "A district court considering whether to withdraw the reference should first evaluate whether the claim is core or noncore, since it is upon this issue that questions of efficiency and uniformity will turn." Orion Pictures, 4 F.3d at 1101; accord Iridium Operating, 285 B.R. at 834. It is undisputed that this action concerns a non-core dispute. Unlike core proceedings, non-core proceedings involve disputes over rights that are unrelated to the federal bankruptcy laws and could proceed in a court that lacks federal bankruptcy jurisdiction. Complete Mgmt., Inc. v. Arthur Andersen LLP, 02 Civ. 1736 (NRB), 2002 WL 31163878, at *2 (S.D.N.Y. Sept. 27, 2002); Weschler v. Squadron, Plesent & Sheinfeld LLP, 201 B.R. 635, 639 (S.D.N.Y. 1996). While a bankruptcy judge may preside over a non-core proceeding, he may not determine the action and is "only empowered to submit proposed findings of fact and conclusions of law to the district court for de novo review." Orion Pictures, 4 F.3d at 1101. Since "non-core matters [are] subject to de novo review by the district court[,] . . . [the court could] conclude that in a given case unnecessary costs could be avoided by a single proceeding in district court." Orion Pictures, 4 F.3d at 1101.

  The non-core nature of this adversary proceeding strongly weighs in favor of withdrawal of the reference. While this favor tips in favor of FMC's position, a court is not required to withdraw the reference solely because a proceeding is non-core. Durso Supermarkets, Inc. v. D'Urso, 170 B.R. 211, 214 (S.D.N.Y. 1994). Accordingly, this court also weighs questions of efficient use of judicial resources, delay and costs to the parties, uniformity of bankruptcy administration, the prevention of forum shopping, and ...


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