645 B.R. 500
Bankr. S.D.N.Y.2022Background
- Debtor Port Morris Tile & Marble LP filed Chapter 7 on Dec. 23, 2021; Alan Nisselson is the Chapter 7 Trustee.
- Fund Group (trustees of multiemployer benefit plans) sued related non-debtors in EDNY seeking >$3.5M in unpaid ERISA contributions, alleging alter-ego and single-employer liability; Debtor is not named because of the automatic stay.
- Trustee moved in the bankruptcy court for a preliminary injunction to enjoin the Fund Group’s federal action (and separately sought relief as to a state turnover action by the Marjerry Group; the PI as to Marjerry was granted but this opinion addresses only the Fund Group).
- Central legal question: whether the Fund Group’s claims are property of the bankruptcy estate (general/derivative) such that only the Trustee may pursue them, or are particular to the Fund Group so the automatic stay does not apply.
- The bankruptcy court concluded it had jurisdiction to decide the issue but denied the Trustee’s preliminary injunction as he failed to show likelihood of success — both the ERISA claims and the state-law veil-piercing claims were not shown to be estate property, and the balance of hardships did not tip decisively to the Trustee.
Issues
| Issue | Plaintiff's Argument (Trustee) | Defendant's Argument (Fund Group / Federal Defs.) | Held |
|---|---|---|---|
| Bankruptcy court jurisdiction to enjoin the Federal Action | Court has related/core jurisdiction to enjoin proceedings that affect the estate | Federal court claimants argued matter is non-core and bankruptcy court lacks authority to enjoin | Court: has statutory and constitutional jurisdiction to decide whether claims are estate property and to enjoin if warranted |
| Whether ERISA alter-ego / single-employer claims are property of the estate (derivative/general) | Trustee: claims are general and overlap with state-law alter-ego/fraudulent-transfer theories the Trustee could pursue; only Trustee may assert them | Fund Group: ERISA confers exclusive standing on plan trustees/beneficiaries and the claims are particular to the Fund Group under federal law | Held: Trustee failed to show likelihood of success; ERISA claims are not clearly estate property — standing under ERISA/statutory scheme and doctrinal differences from state alter-ego law make the claims not categorically derivative |
| Whether Trustee can pursue ERISA-based recovery on behalf of creditors (statutory standing / Caplin/§544 issue) | Trustee: Bankruptcy Code (and trustee’s avoidance powers) justify trustee stepping into creditors’ shoes to recover diverted assets | Fund Group: ERISA limits who may sue (participants/beneficiaries/fiduciaries); ERISA funds and beneficiaries are distinct and not estate property | Held: Court declined to find trustee has ERISA-based standing; Caplin and ERISA’s limited standing weigh against treating ERISA claims as estate property |
| State-law veil-piercing claims against individual non-debtors | Trustee: veil-piercing theories interfere with administration and overlap with trustee’s potential state-law claims | Fund Group: veil-piercing pleaded only between non-debtors and thus is particular to plaintiffs | Held: Veil-piercing claims against non-debtors are not estate property and are particular; injunction denied as to those claims |
| Preliminary injunction / balance of harms & necessity under §105 | Trustee: irreparable harm to estate administration; injunction necessary to protect estate claims | Fund Group: proceeding is appropriate because claims are outside estate and plaintiffs have statutory rights; injunction would prejudice plan beneficiaries | Held: Trustee did not show likelihood of success or that hardships tip decidedly in his favor; injunctive relief under Rule 65 and §105 denied |
Key Cases Cited
- Celotex Corp. v. Edwards, 514 U.S. 300 (U.S. 1995) (broad construction of bankruptcy jurisdiction to address matters connected to estate)
- Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir. 1984) (related-to jurisdiction test assessing conceivable effect on the estate)
- Stern v. Marshall, 564 U.S. 462 (U.S. 2011) (limits on bankruptcy courts entering final judgment on certain private right claims)
- Wellness Int’l Network, Ltd. v. Sharif, 575 U.S. 665 (U.S. 2015) (Article III considerations for bankruptcy adjudications)
- In re Quigley Co., Inc., 676 F.3d 45 (2d Cir. 2012) (bankruptcy courts historically enjoin litigation to protect estates)
- St. Paul Fire & Marine Ins. Co. v. PepsiCo, Inc., 884 F.2d 688 (2d Cir. 1989) (creditor’s suits against non-debtors that assert estate-type claims can violate automatic stay)
- Caplin v. Marine Midland Grace Trust Co., 406 U.S. 416 (U.S. 1972) (trustee cannot collect money not owed to the estate; limits trustee’s ability to pursue third-party claims)
- Tronox Inc. v. Kerr‑McGee Oil & Gas Corp. (In re Tronox Inc.), 855 F.3d 84 (2d Cir. 2017) (derivative/non-derivative inquiry focused on whether creditor’s injury is particular or a generalized harm to the estate)
- Picard v. Fairfield Greenwich Ltd., 762 F.3d 199 (2d Cir. 2014) (declined to extend stay automatically to third-party claims that only factually may affect the estate)
- Schimmelpenninck v. Byrne (In re Schimmelpenninck), 183 F.3d 347 (5th Cir. 1999) (framework categorizing estate actions, generalized creditor actions, and particular creditor actions)