The opinion of the court was delivered by: P. KEVIN CASTEL, District Judge
This action was removed from state court under
28 U.S.C. § 1452. The plaintiffs include the Trustee in bankruptcy for The
AdBrite Corporation ("AdBrite") which is in Chapter 7 proceedings
and who brought the state court action with the approval of the
Bankruptcy Court. Also named as plaintiffs are fifteen
shareholders of AdBrite. The Trustee and the shareholders bring
claims against Allan R. Avery, the former Chief Executive of
AdBrite, and others.
In urging remand, plaintiffs argue that the action was
improperly removed by Avery and that this Court lacks subject
matter jurisdiction. Plaintiffs assert that if this Court were to
conclude that the action was properly removed and that there is
subject matter jurisdiction, then the action is subject to
mandatory abstention or, alternatively, permissive abstention.
They urge equitable remand to state court pursuant to
28 U.S.C. § 1452(b). For the reasons set forth below, I conclude that the
action was properly removed, that the Court has subject matter jurisdiction and that the action includes "core"
proceedings to recover assets of the bankrupt in the hands of
third-parties, which are not subject to mandatory abstention. I
further conclude that the relevant factors strongly support
permissive abstention. Also, as to the non-core state law money
damage claims, mandatory abstention is required.
Pursuant to 28 U.S.C. § 1452(b), the action is remanded to
Supreme Court of the State of New York, New York County.
The Proceedings in Bankruptcy Court
On October 15, 2002, AdBrite filed a voluntary Chapter 11
petition in this District, 02-30225-CGM. On March 6, 2003, the
Chapter 11 proceeding was converted into a Chapter 7 proceeding.
On February 17, 2004, the Trustee for the debtor applied to the
Bankruptcy Court for an order approving the retention of special
counsel to bring an action on behalf of the bankrupt estate and
certain of its shareholders against four persons and two
entities. As described in the submissions to the Bankruptcy
Court, the action would allege fraud, breach of fiduciary duty
and conspiracy to deprive AdBrite of certain intellectual
property rights. The factual basis for the claims arises out of
the alleged actions of Allan Avery, as President of AdBrite,
commencing in January 2002. Avery and Norman Rothstein allegedly
formed a separate entity, A.B. Media Corporation, for the purpose
of taking over the assets of AdBrite. The proposed lawsuit would
allege that Avery caused AdBrite to enter into a short-term loan
agreement with Rothstein with AdBrite's intellectual property as
collateral and that Avery knew that AdBrite could not repay the
loan according to its terms.
Bankruptcy Judge Cecelia G. Morris held a hearing on the
application on April 13, 2004, at which prospective defendants
Avery, McNulty, Rothstein, Willen and Fuel Cell Components were represented by counsel. The Bankruptcy Court
approved the retention of special counsel to pursue the action in
New York state court.
The summons in the action is dated December 22, 2004, the same
date it and the complaint were filed with the New York County
Clerk. Buechner, et al. v. Avery, et al., Index No 04/604319,
Supreme Court, New York County. In addition to money damages, the
action sought, among other things, an order "declaring the
Rothstein Loan transaction and the conveyance of Adbrite's
intellectual property cancelled and deemed void" and the
"imposition of a constructive trust over the assets of" AdBrite
in the hands of defendants. (Complaint, p. 27, ¶¶ 2 and 3)
On February 14, 2005, defendant Avery filed a "Notice of
Removal" in this District. Defendant alleged that removal was
proper because the Court has "related to" jurisdiction.
28 U.S.C. § 1334(b).
The Timeliness of Removal
Plaintiffs assert that the removal petition was untimely
because one or more defendants (other than Avery) were served
with process more than thirty days prior to removal and failed to
remove within that time period. Plaintiffs also assert that
defendant Avery was served more than thirty days prior to
removal, a point he strongly contests.
Section 1441 of title 28 of the United States Code authorizes
removal of actions from state to federal court in certain
circumstances. It provides that "any civil action brought in a
State court of which the district courts of the United States
have original jurisdiction, may be removed by the defendant or
the defendants, to the district court . . . where such action is
pending." In the face of a motion to remand, the party removing
the case bears the burden of establishing that removal was proper. See United
Food & Commercial Workers Union, Local 919, AFL-CIO v. CenterMark
Properties Meriden Square, Inc., 30 F.3d 298, 301 (2d Cir.
1994). The removal statute is to be strictly construed. See
Syngenta Crop Protection, Inc. v. Henson, 537 U.S. 28, 32
(2002) (citing Healy v. Ratta, 292 U.S. 263, 270 (1934) ("Due
regard for the rightful independence of state governments . . .
requires that [federal courts] scrupulously confine their own
jurisdiction to the precise limits which the statute has
defined.")); see also Pupo v. Chadwick's of Boston, Inc.,
2004 WL 2480399 at *1 (S.D.N.Y. Nov. 4, 2004). In all cases
seeking remand to state court, the defendant bears the burden ...