609 B.R. 101
Bankr. D. Del.2019Background
- Welded Construction (Debtor) performed construction on Transcontinental Gas Pipe Line Co. (Transco) Atlantic Sunrise Spurs 5–7 under a written contract (Appendix G payment/true-up procedure; contract contains Oklahoma choice‑of‑law and forum clause).
- Welded alleges Transco withheld and refused to pay true‑ups and invoices: initial withholdings in October 2018 and further postpetition withholdings, totaling about $71.31 million; Transco filed state‑court breach claims and later filed two proofs of claim in the bankruptcy.
- Welded filed an adversary complaint (12 counts) in the Delaware Bankruptcy Court objecting to Transco’s proofs of claim and asserting related claims against Transco, Williams Partners, and The Williams Companies.
- Defendants moved (in the alternative) to: (1) permissively abstain under 28 U.S.C. § 1334(c)(1); (2) transfer venue to Oklahoma; and (3) dismiss Counts II, IV, V, VI, and VII under Rule 12(b)(6).
- The court found the dispute central to the claims‑resolution process, denied abstention and venue transfer, and resolved the dismissal motions: dismissed Count IV (turnover), Count V (§ 362(a)(3) stay violation), and Count II to the extent it sought an independent tort; denied dismissal of Count VI (impermissible setoff under § 362(a)(7)); allowed unjust enrichment (Count VII) as to Transco but dismissed it as to Williams Partners and Williams Co.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Permissive abstention under 28 U.S.C. § 1334(c)(1) | Dispute arises in context of objections to Transco's proofs of claim; central to claims resolution so bankruptcy court should decide | State law contract dispute; related state action pending in Oklahoma; forum clause favors state court | Denied — factors (effect on estate, claims resolution, relatedness) favor retention in bankruptcy court |
| Transfer venue to Oklahoma (28 U.S.C. §§ 1412 / 1404(a)) | Forum in Delaware is appropriate because the bankruptcy case and claims process are here; transfer would increase estate costs and duplicate litigation | Contract contains Oklahoma forum selection clause; local interest and law favor Oklahoma | Denied — Jumara factors favor keeping venue in Delaware (centralization, judicial economy) |
| Count IV — Turnover (11 U.S.C. § 542) | Withheld funds are property of the estate and must be turned over | Ownership and entitlement to the funds are bona fide disputed — resolution requires merits ruling on the contract | Granted dismissal — turnover premature because a bona fide dispute exists over entitlement |
| Count V — Automatic stay violation (§ 362(a)(3)) | Defendants possessed and controlled estate property (withheld funds) and refused to remit postpetition; declaratory relief warranted | Failure to pay is not an affirmative postpetition act that violates § 362(a)(3) | Granted dismissal — mere withholding/failure to pay is passive; no actionable affirmative postpetition act shown |
| Count VI — Impermissible setoff (§ 362(a)(7)) | Withholding was effectuated to offset Transco's proofs of claim; setoff violated § 362(a)(7) | No setoff was effectuated; premature/non‑ripe | Denied dismissal — complaint plausibly alleges a postpetition setoff; claim survives pleading stage |
| Count II — Breach of implied covenant of good faith and fair dealing | Transco acted in bad faith in timing and withholding, supporting independent claim | Any implied‑covenant claim is either duplicative of breach of contract or, if asserted as tort, requires a special relationship not alleged | Granted dismissal — independent tort claim dismissed; implied‑covenant remedies subsumed within breach‑of‑contract claim |
| Count VII — Unjust enrichment | In the alternative to contract relief, Welded pleads unjust enrichment because defendants retained benefits from Welded’s performance | Unjust enrichment barred where an express contract covers the subject; Williams entities did not directly receive benefit | Denied dismissal as to Transco (alternative pleading allowed); granted dismissal as to Williams Partners and Williams Co. (no direct benefit alleged) |
Key Cases Cited
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (plausibility pleading standard)
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading standard and two‑step Iqbal analysis)
- Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487 (federal courts apply forum state choice‑of‑law rules)
- Citizens Bank of Maryland v. Strumpf, 516 U.S. 16 (setoff requires intent to permanently settle accounts)
- Penson Technologies LLC v. Schonfeld Group Holdings LLC (In re Penson Worldwide), 587 B.R. 6 (objections to proofs of claim implicate bankruptcy court’s core function)
- DHP Holdings II Corp. v. Home Depot, Inc. (In re DHP Holdings II Corp.), 435 B.R. 264 (venue/transfer analysis in bankruptcy context)
- In re APF Co., 274 B.R. 408 (failure to pay disputed contract amounts is passive and does not constitute § 362(a)(3) violation)
- In re Hechinger Investment Co. of Delaware, Inc., 282 B.R. 149 (turnover/ripeness principles)