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Safe Foundations, Inc.; Road v. Metal Foundations

December 20, 2012


The opinion of the court was delivered by: Magistrate Judge Maureen P. Kelly

Re: ECF No. 8


Kelly, Magistrate Judge

This case emanates from the sale of assets owned by various entities controlled by Gary L. Reinert, Sr. ("Reinert") while under the auspices of bankruptcy protection. Following the purchase of those assets by Defendant Metal Foundations Acquisitions, LLC ("MFA"), MFA initiated an adversarial proceeding by filing a Complaint in Equity against Reinert in the Court of Common Pleas of Allegheny County, Pennsylvania, alleging that Reinert had misappropriated confidential trade secrets that MFA had rightfully purchased in the asset sale and was interfering with MFA's contract relations. The Complaint in Equity was subsequently removed to the United States Bankruptcy Court for the Western District of Pennsylvania by consent of the parties. See Bankr. Adversary No. 11-ap-2656, Doc. No. 1.

Plaintiffs in this case are Safe Foundations, Inc. ("SFI"), Road Running Planning and Consulting, Inc. ("RRPC"), non-debtor entities of which Reinert was the sole shareholder prior to his filing for bankruptcy, and Eric Bononi, Chapter 7 Trustee, who now controls those shares pursuant to the Bankruptcy Code (collectively, "Plaintiffs"). Arguing that they are the rightful owners of certain assets at issue in the adversarial proceeding and that their interest in the property would not be protected without their participation, Plaintiffs filed a Motion to Intervene in the adversarial proceeding pending in the Bankruptcy Court. Id. at Doc. No. 72. On July 31, 2012, a hearing was held on Plaintiffs' Motion to Intervene before United States Bankruptcy Judge Jeffrey A. Deller. Finding that Plaintiff's Motion to Intervene was untimely, Judge Deller denied Plaintiffs' Motion on that same date. See ECF No. 14-1. Plaintiffs subsequently filed the instant action on August 16, 2012, bringing largely the same claims against MFA that it sought to raise in the adversarial proceeding had they been allowed to intervene. See ECF No. 1.

MFA has now filed a Motion to Refer Case, or in the Alternative, to Dismiss Plaintiffs' Complaint Pursuant to Fed. R. Civ. P. 12(b)(6) ("the Motion to Refer"), ECF No. 8, arguing, inter alia, that because Plaintiff's claims directly relate to MFA's claims brought against Reinert in the Bankruptcy Court, the case should be referred to the Bankruptcy Court for resolution pursuant to 28 US.C. § 157. For the reasons that follow, the Motion to Refer will be granted. DISCUSSION

Under Title 28 of the United States Code, Section 157(a), "[e]ach district court may provide that . . . any or all proceedings arising under title 11 [i.e. the Bankruptcy Code] or arising in or related to a case under title 11 shall be referred to the bankruptcy judges for this district." 28 U.S.C. § 157 (emphasis added). See In re Combustion Engineering, Inc., 391 F.3d 190, 225 (3d Cir. 2004), quoting Celotex Corp. v. Edwards, 514 U.S. 300, 308 (1995) ("[s]section 157(a) . . . permits district courts to refer most matters to a bankruptcy court," thereby allowing the "bankruptcy courts to 'deal efficiently and expeditiously with all matters connected with the bankruptcy estate'"). Pursuant to this authority, the judges of the United States District Court for the Western District of Pennsylvania have adopted a standing Order of Reference of Bankruptcy Cases and Proceedings which provides that "all proceedings arising under title 11 or arising in or related to a case under title 11 . . . be and they hereby are referred to the Bankruptcy Judges of this district for consideration and resolution." See Standing Orders (emphasis added).

Conversely, 28 U.S.C. § 157(b)(1) permits Bankruptcy judges to hear and adjudicate "all core proceedings arising under title 11 . . . or arising in a case under title 11 . . . referred under subsection (a) of this section." Id. (emphasis added). The Bankruptcy Court also has jurisdiction over non-core proceedings that are "otherwise related to a case under title 11." 28 U.S.C. § 157(c)(1) (emphasis added). The United States Court of Appeals for the Third Circuit has described the jurisdictional scheme as follows:

[P]roceedings "arising under" title 11 or "arising in" title 11 cases are "core." See, e.g., Barnett v. Stern, 909 F.2d 973, 981 (7th Cir.1990) ("[A] proceeding is core under section 157 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."). By contrast, proceedings which are "related to" a bankruptcy case are non-core. See In Re Meyertech Corp., 831 F.2d 410, 416 (3d Cir. 1987); In re Wood, 825 F.2d 90, 96-97 (5th Cir.1987) ("If the proceeding does not invoke a substantive right created by the federal bankruptcy law and is one that could exist outside of bankruptcy it is not a core proceeding; it may be related to the bankruptcy because of its potential effect, but under section 157(c)(1) it is an 'otherwise related' or non-core proceeding."); In re Yobe, 75 B.R. 873, 875 (Bankr. W.D. Pa.1987) (drawing a distinction between "core" and "related" proceedings).

Phar-Mor, Inc. v. Coopers & Lybrand, 22 F.3d 1228, 1234-35 (3d Cir. 1994). Under the latter circumstances, however, the bankruptcy judge may not enter judgment absent consent of the parties but, rather, must submit findings of fact and conclusions of law for the district court's consideration and de novo review of any matter to which a party has objected. Id. at 1235. See 28 U.S.C. § 157 (c)(1) & (2).

Because "non-core" or "related to" jurisdiction sweeps with the broadest brush, this Court need only decide whether the instant case is related to the bankruptcy proceeding. See In re Resorts Intern., Inc., 372 F.3d 154, 163 (3d Cir. 2004), quoting In re Marcus Hook Dev. Park, Inc., 943 F.2d 261, 266 (3d Cir. 1991) ("we need not resolve whether this is a 'core' proceeding for subject matter jurisdictional purposes because '[w]hether a particular proceeding is core represents a question wholly separate from that of subject-matter jurisdiction'"); In re Reed, 94 B.R. 48, 51 (E.D. Pa. 1988) ("[w]hether a proceeding is core or non-core affects the power of the bankruptcy judge to issue a final order or judgment . . . but not the ability to hear the proceeding").

[T]he test for determining whether a civil proceeding is related to bankruptcy is whether the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy.... Thus, the proceeding need not necessarily be against the debtor or against the debtor's property. 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.

Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984), overruled on other grounds by Things Remembered, Inc. v. Petrarca, 516 U.S. 124 (1995) (emphasis in original; citations omitted). See In re W.R. Grace & Co., 591 F.3d 164, 171 (3d Cir. 2009). See also Lichtenfels v. Electro-Motive Diesel, Inc., 2010 WL 653859, at *3 (W.D. Pa. Feb. 22, 2010), quoting Halper v. Halper, 64 F.3d 830, 837 (3d Cir. 1999) ("[t]he term, 'conceivable,' in the Pacor test is a key component to making a determination about jurisdiction. . . . 'Conceivable' does not simply mean that a proceeding will have a certain or likely impact upon a bankruptcy estate, but that 'it is possible that a proceeding may impact the debtor's rights, liabilities, options, or freedom of action, or the handling and administration of the bankrupt estate'") (emphasis added).

In the instant case, Plaintiffs have brought state law claims against MFA for conversion, fraud/fraudulent inducement, reformation, unfair competition and a claim under the Lanham Act, 15 U.S.C. ยง 1125(a), for false designation/false description. See ECF No. 1. Each of these claims is premised on Plaintiffs' assertion that MFA erroneously listed assets owned by Plaintiffs on the exhibits to the Credit Bid Agreement as being subject to the asset sale and that, because Plaintiffs were not amongst the Reinert entities that were in bankruptcy ("the Debtor entities"), those assets were not ...

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