On August 14, 2009, Penny Fern Hart ("Plaintiff") commenced this action by filing a notice of motion for summary judgment in lieu of a complaint ("Complaint") in New York State Supreme Court, New York County, against John Bello, Maj-Britt Rosenbaum, and William McCreery (collectively, "Defendants"), alleging that Defendants, who are shareholders of Soup Kitchen International, Inc. ("Soup Kitchen"), failed to pay Plaintiff, who is a director and shareholder of Soup Kitchen, certain guaranties under a loan agreement, dated April 11, 2007 ("Loan Agreement"). (See Decl. of Jonathan M. Borg, dated Mar. 25, 2011 ("Borg Decl."), Ex. A.)*fn1 On May 18, 2010, an involuntary bankruptcy petition against Soup Kitchen was filed in the United States Bankruptcy Court for the Eastern District of New York ("Bankruptcy Case").
Under the Loan Agreement, Commerce Bank ("Bank") lent the sum of $1,000,000 to Soup Kitchen ("Loan"), and each Defendant executed a personal guaranty (collectively, "Guaranties") of the Loan. (Decl. of Anastasios P. Tonorezos, dated Mar. 4, 2011 ("Tonorezos Decl."), Ex. A, ¶¶ 24--26, Exs. D--F.) On April 15, 2008, Soup Kitchen failed to repay the Loan, triggering a default. (See Aff. of Penny Fern Hart, dated Aug. 12, 2009, attached to Pl. Mem. as Ex. G ("Hart Aff."), ¶ 18.) On or about June 11, 2008, the Bank assigned "all of its right, title, and interest in and to [the Loan]" to Plaintiff. (Tonorezos Decl. Ex. G.)
On or about October 26, 2010, Defendants filed counterclaims ("Counterclaims") against Plaintiff alleging, among other things, breach of fiduciary duty, and aiding and abetting a fraudulent transfer of assets. On October 26, 2010, Defendants also commenced a third party action ("Third Party Action") against the Original Soupman, Inc., Sebastian Rametta, Robert Bertrand, Daniel Rubano, Hank Gracin, Ronald L. Crane, Soup One, Inc., International Gourmet Soups, Inc., and Soup Rock Center, Inc. (collectively, "Third Party Defendants"), alleging, among other things, breach of fiduciary duty, fraudulent transfer of Soup Kitchen's assets, and breach of contract. (See Borg Decl. Ex. D, 46--59; Tonorezos Decl. Ex. A.)
On January 5, 2011, Defendants removed the case to this Court pursuant to 28 U.S.C. § 1452, asserting that the case is "related to" the Bankruptcy Case. (See Not. of Removal ¶ 15); see 28 U.S.C. § 1334; In re Soup Kitchen Int'l, Inc., No. 10-44670 (Bankr. E.D.N.Y. May 18, 2010).
By letter, dated January 21, 2011, special litigation counsel to Robert L. Geltzer, the Bankruptcy Case trustee ("Trustee") to the Soup Kitchen bankruptcy estate ("Bankruptcy Estate"), advised the Court that "the Trustee intends to substitute himself for [Defendants] with respect to a number of [Defendants'] third-party claims, including [Defendants' claims for] breach of fiduciary duty [and] for avoidance of  allegedly fraudulent conveyance of the assets of [Soup Kitchen]." (See Ltr. from Trustee to Hon. Richard M. Berman, dated Jan. 21, 2011 ("Trustee Ltr.").)
On March 4, 2011, Plaintiff and Third Party Defendants filed a joint motion to remand, arguing, among other things, that (1) the Court lacks subject matter jurisdiction over this action because it is not "'related to' the Bankruptcy Case"; and (2) even if the Court concludes "that it has 'related to' jurisdiction, remand is required on the basis of abstention." (Mem. of Law in Supp. of Pl. Mot. to Dismiss and Pl. and Third Party Defs. Joint Mot. to Remand, dated Mar. 4, 2011 ("Pl. Mem."), at 8, 19.) In the alternative, Plaintiff "seeks to dismiss her claim[s], without prejudice, as well as to dismiss [the Counterclaims and Third Party Action]." (Pl. Mem at 1, 7.)
On March 25, 2011, Defendants filed an opposition to the motion to remand, arguing, among other things, that (1) this case is related to the Bankruptcy Case because the outcome of this case "will impact upon the handling and administration of the [B]ankrupt[cy] [E]state"; and (2) neither mandatory nor discretionary abstention is appropriate. (Defs. Mem. of Law in Supp. of Cross-Mot. to Transfer and in Opp'n to Mot. to Remand, dated Mar. 25, 2011 ("Defs. Mem."), at 10, 21--24.) Defendants also contend that dismissal without prejudice is improper under Rule 41(a)(2) of the Federal Rules of Civil Procedure because Defendants have expended significant time and resources answering the Complaint and asserting Counterclaims and Third Party Claims. (Defs. Mem. at 19.) Defendants also cross-moved to transfer this case to the United States District Court for the Eastern District of New York to "facilitate the economic administration of [Soup Kitchen's Bankruptcy] [E]state." (Defs. Mem. at 12.)
On April 1, 2011, Plaintiff and Third Party Defendants filed a reply. (See Pl. Mem. of Law in Further Supp. of Mot. to Remand and in Opp'n to Defs. Mot. to Transfer, dated Apr. 1, 2011 ("Pl. Opp'n").) On April 8, 2011, Defendants filed a sur-reply. (See Defs. Mem. of Law in Reply to Opp'n to Cross-Mot. to Transfer, dated Apr. 8, 2011.) The parties waived oral argument.
For the reasons stated below, Plaintiff's motion to remand is denied, and Defendants' cross-motion to transfer is granted.
"When presented with competing motions to remand a case and to transfer venue, a court is to consider the remand motion first, and then address the motion to transfer venue only if it first denies the motion to remand." Lothian Cassidy LLC v. Ransom, 428 B.R. 555, 558 (E.D.N.Y. 2010).
"[T]he district courts shall have original but not exclusive jurisdiction of all civil proceedings . . . related to cases under [the Bankruptcy Code]." 28 U.S.C. § 1334(b). Litigation is "related to" "a pending bankruptcy proceeding [if] its outcome might have any 'conceivable effect' on the bankrupt estate." In re Cuyahoga Equip. Corp., 980 F.2d 110, 114 (2d Cir. 1992); see Parmalat Capital Fin. Ltd. v. Bank of Am. Corp., 632 F.3d 71, 78 (2d Cir. 2011).
Under 28 U.S.C. § 1334(c)(2), mandatory abstention occurs if "the action has already been commenced in state court, and it can be timely adjudicated there."*fn2 In re Ames Dep't Stores, Inc., 319 F. App'x 40, 42 (2d Cir. 2009). And, "[f]ederal courts should be sparing in their exercise of discretionary abstention" under 28 U.S.C. § 1334(c)(1). In re Texaco Inc., 182 B.R. 937, 946--47 (Bankr. S.D.N.Y. 1995). "[T]he district in which the underlying bankruptcy case is pending is presumed to be the appropriate ...