600 B.R. 214
S.D. Ill.2019Background
- Appvion, Inc. (debtor-in-possession) entered a post-petition DIP financing arrangement (Original DIP Agreement/Order) with multiple lenders including KeyBank, Fifth Third, and several defendant funds; the DIP gave lenders superpriority liens and allocated rights (pari passu, pro rata sharing, consent for material modifications, restrictions on priming liens and collateral releases).
- Appvion later defaulted; defendants negotiated an Amended DIP Agreement and stalking-horse sale process that rolled the Original New Money Loans into a new senior New DIP Facility, effectively subordinating Original Roll-Up Loans held by KeyBank and Fifth Third.
- KeyBank and Fifth Third sued defendants in New York State Supreme Court asserting breach of contract, breach of implied covenant, tortious interference, and declaratory relief based on alleged violations of the Original DIP Agreement/Order; defendants timely removed under the bankruptcy removal statute.
- Bankruptcy Court approved the Amended DIP Agreement/Order but stated its rulings were without prejudice to inter-creditor claims; parties agreed (in the DIP documents) to submit disputes to New York courts or the bankruptcy court.
- This Court consolidated the two actions, found federal bankruptcy jurisdiction ("arising in" and "related to"), denied plaintiffs' motion to remand and request for mandatory abstention, and denied defendants' motion to transfer venue to Delaware, deferring the matter to the Southern District of New York Bankruptcy Court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether federal bankruptcy jurisdiction exists | Plaintiffs: claims are state-law contract/tort and do not "arise under" or "arise in" Title 11; mand. abstention/remand required | Defendants: disputes arise from post-petition DIP Orders/Section 364 and thus fall within bankruptcy jurisdiction (arising in / related to) | Court: "arising in" and "related to" jurisdiction exist; federal jurisdiction proper; remand/mandatory abstention denied |
| Whether permissive abstention or equitable remand is warranted | Plaintiffs: even if core, equitable factors favor remand to state court | Defendants: federal forum appropriate; bankruptcy factors favor keeping case here | Court: permissive abstention/remand denied on balance; claims tied to bankruptcy orders and federal courts should exercise jurisdiction |
| Whether venue transfer to District of Delaware is appropriate | Plaintiffs: forum-selection clause in DIP (New York courts or SDNY) governs; do not consent to Delaware transfer | Defendants: centralization with Appvion’s Delaware bankruptcy court favors transfer | Held: transfer denied—mandatory New York forum-selection clause (post-petition, binding) controls; interests in centralizing bankruptcy were insufficient to override clause |
| Whether defendants had a reasonable basis to assert indemnity claims against debtor (impacting "related to" jurisdiction) | Plaintiffs: any indemnity theory against Appvion would not encompass these claims | Defendants: Original DIP indemnity covers losses/claims arising from litigation related to the DIP | Held: Court finds a reasonable legal basis for potential indemnity under Original DIP Agreement, supporting "related to" jurisdiction |
Key Cases Cited
- McNutt v. General Motors Acceptance Corp., 298 U.S. 178 (federal courts bear burden to establish jurisdiction)
- Stern v. Marshall, 564 U.S. 462 (distinction among "arising under," "arising in," and "related to" bankruptcy jurisdiction)
- Baker v. Simpson, 613 F.3d 346 (2d Cir. test for "arising in" jurisdiction; "but-for" analysis)
- Parmalat Capital Fin. Ltd. v. Bank of America Corp., 639 F.3d 572 ("related to" jurisdiction when outcome might have conceivable effect on estate)
- Travelers Indemnity Co. v. Bailey, 557 U.S. 137 (bankruptcy courts' authority to interpret and enforce their own orders)
- SPV Osus Ltd. v. UBS AG, 882 F.3d 333 (reasonable basis for indemnity claims can support "related to" jurisdiction)
- In re U.S. Lines, Inc., 197 F.3d 631 (factors for assessing whether contract disputes "arise in" bankruptcy)
- In re Manville Forest Products Corp., 896 F.2d 1384 (party seeking transfer under §1412 bears burden)