143 F. Supp. 3d 198
D.N.J.2015Background
- ACR Energy Partners contracted in 2011 to build and operate a central utility plant (CUP) and energy distribution system for the Revel casino, and separately leased the CUP parcel; the ESA and ground lease were interdependent.
- Revel filed Chapter 11 in 2014; Polo North purchased Revel’s assets in a 2015 sale. The Bankruptcy Court approved the sale but carved out ACR’s possessory interests and later entered a rejection order for the ESA and lease.
- ACR timely elected rights under 11 U.S.C. § 365(h) to retain possessory and access rights appurtenant to the leased premises.
- After the sale and rejection, ACR stopped delivering energy to the facility; Polo North demanded possession of the CUP parcel and claimed the lease was terminated and ACR abandoned equipment.
- Parallel suits followed: ACR sued in federal court seeking declarations protecting its possessory rights; Polo North sued in state court seeking possession and a declaration the lease was terminated (later removed). Polo North moved to dismiss/remand for lack of subject-matter jurisdiction.
Issues
| Issue | Plaintiff's Argument (ACR) | Defendant's Argument (Polo North) | Held |
|---|---|---|---|
| Whether the disputes present a federal question under 28 U.S.C. § 1331 because resolution requires interpreting § 365(h) rights | ACR: resolution requires interpreting and enforcing rights created by § 365(h); federal question exists | Polo North: disputes are traditional state-law contract/tenancy issues; no federal question | Court: Yes — claims implicate substantial federal question because ACR’s § 365(h) election and its legal effect must be adjudicated |
| Whether the district court has "arising under" jurisdiction under 28 U.S.C. § 1334(b) (bankruptcy-based) | ACR: rights arise from the bankruptcy proceeding and exist only because of § 365(h) election | Polo North: issues are state-law tenancy/contract disputes not created by bankruptcy | Court: Yes — the claims arise under the Bankruptcy Code because ACR’s rights exist by virtue of the bankruptcy and require interpreting rejection/sale orders and § 365(h) |
| Whether Polo North can terminate ACR’s possessory interest by pointing to alleged breach of the ESA (to which Polo North is not a party) | ACR: § 365(h) election preserves possessory rights despite rejection; breach of a nonassumed contract cannot defeat those rights without bankruptcy-law analysis | Polo North: alleged cessation of energy services and contractual breach justify termination and possession under state law | Court: Resolution requires federal analysis of § 365(h) effect; state-law breach arguments cannot be resolved without addressing federal bankruptcy rights |
| Whether the Removed Action should be remanded to state court for lack of federal jurisdiction | ACR: removal proper because federal jurisdiction exists under § 1331 and § 1334 | Polo North: removal improper; state law claims predominate | Court: Denied remand — federal jurisdiction exists (both § 1331 and § 1334 grounds) |
Key Cases Cited
- Empire Healthchoice Assurance, Inc. v. McVeigh, 547 U.S. 677 (federal-question test for substantial federal issues)
- Franchise Tax Bd. v. Construction Laborers Vacation Trust for S. Cal., 463 U.S. 1 (well-pleaded complaint rule and when federal law creates the cause of action)
- Caterpillar Inc. v. Williams, 482 U.S. 386 (scope of the well-pleaded complaint rule)
- Beneficial Nat’l Bank v. Anderson, 539 U.S. 1 (federal-question jurisdiction principles)
- Rivet v. Regions Bank of La., 522 U.S. 470 (artful-pleading doctrine; cannot avoid federal jurisdiction by disguising federal issues)
- Stoe v. Flaherty, 436 F.3d 209 (Third Circuit: bankruptcy "arising under" jurisdiction analogous to § 1331)
- United States Trustee v. Gryphon at the Stone Mansion, Inc., 166 F.3d 552 (proceeding "arises under" bankruptcy where it has no existence outside bankruptcy)