647 B.R. 76
Bankr. E.D. Mich.2022Background
- Lightning Technologies filed an involuntary Chapter 7; the Chapter 7 Trustee sold substantially all assets (including trade secrets and IP) to Palltronics under a court-approved Asset Purchase Agreement and Sale Order that vested the assets in Palltronics "free and clear."
- PALIoT was the back-up bidder but did not purchase the assets; Palltronics alleges PALIoT (founded/managed by former Lightning employees) retained and used sold assets (notably the Debtor’s LinkedIn page and alleged trade secrets) after the closing.
- Palltronics moved to enforce the Sale Order and for contempt; the bankruptcy court conditionally found PALIoT in contempt and entered an order awarding certain relief (attorney fees, lists, phone records) after briefing on subject-matter jurisdiction.
- Palltronics filed an adversary complaint (six counts: declaratory judgment re Sale Order; DTSA misappropriation; Michigan trade-secret statute; CFAA; common-law unfair competition; tortious interference) against PALIoT.
- PALIoT moved to dismiss for lack of subject-matter jurisdiction or, alternatively, for permissive abstention under 28 U.S.C. § 1334(c)(1); the court concluded it had jurisdiction over all counts but exercised permissive abstention and dismissed the adversary on abstention grounds.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the bankruptcy court has subject-matter jurisdiction over all six counts | All counts arise from PALIoT’s violation of the Sale Order; at minimum "related to" jurisdiction exists | Court only has jurisdiction to enforce the Sale Order itself; other claims do not arise under, in, or relate to the bankruptcy case | Court found subject-matter jurisdiction over all counts, principally under an "arising in" theory tied to enforcement of the Sale Order (though acknowledged doubt for some counts) |
| Whether federal statutory and state-law tort/IP claims (Counts II–VI) are core/arising-in, or non-core/related | Claims are integrally related to enforcement of the Sale Order and thus within bankruptcy jurisdiction | These claims arise independently of bankruptcy and do not affect the estate or administration | Court ruled Counts II–VI are "arising in" because Palltronics’ ownership of the assets (and thus the claims) exists "but for" the sale order, but noted the analysis is close and not free from doubt |
| Whether the court should abstain under 28 U.S.C. § 1334(c)(1) despite having jurisdiction | Court should retain and decide because these are core matters and no parallel state action exists; abstention would undermine enforcement of sale orders | Permissive abstention is available without a pending state action; factors favor abstention (non-debtor dispute, state-law predominance, docket burden, remoteness from estate) | Court permissively abstained under § 1334(c)(1) and dismissed all counts on abstention grounds |
| Whether permissive abstention requires a pending parallel state-court action | Abstention requires a parallel state proceeding | §1334(c)(1) has no such requirement; a pending state action is only relevant under §1334(c)(2) | Court held §1334(c)(1) does not require a pending parallel state action; existence of such a proceeding is only one factor in the abstention analysis |
Key Cases Cited
- Travelers Indem. Co. v. Bailey, 557 U.S. 137 (2010) (bankruptcy court has jurisdiction to interpret and enforce its prior orders)
- In re Motors Liquidation Co., 829 F.3d 135 (2d Cir.) (2016) (interpreting/enforcing a sale order falls within "arising in" jurisdiction)
- Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir.) (1984) (test for "related to" jurisdiction: conceivable effect on estate)
- Taggart v. Lorenzen, 139 S. Ct. 1795 (2019) (standard for civil contempt of a bankruptcy order)
- Binder v. Price Waterhouse & Co., LLP, 372 F.3d 154 (3d Cir.) (2004) (subject-matter jurisdiction cannot be conferred by party consent)
- Wolverine Radio Co. v. Michigan Employment Sec. Comm'n, 930 F.2d 1132 (6th Cir.) (1991) (definitions of "arising under," "arising in," and "related to" bankruptcy jurisdiction)
- In re Allegheny Health, Educ. & Research Found., 383 F.3d 169 (3d Cir.) (2004) (motions to enforce sale orders are core proceedings)