Maintainco, Inc. v. Mitsubishi Caterpillar Forklift America, Inc. (In Re Mid-Atlantic Handling Systems, LLC)Maintainco, Inc. v. Mitsubishi Caterpillar Forklift America, Inc. (In Re Mid-Atlantic Handling Systems, LLC)
OPINION
Before the Court is the motion filed by Maintainco, Inc. (“Maintainco”), the Plaintiff in an action captioned, Maintainco, Inc. v. Mitsubishi Caterpillar Forklift America, Inc. and Mid-Atlantic Handling Systems, LLC, seeking an order remanding the matter to the New Jersey Superior Court-Chancery Division, pursuant to 28 U.S.C. § 1452(b). In addition, Maintainco requests that this Court enter an order: 1) declaring that the automatic stay does not apply to Mitsubishi Caterpillar Forklift America, Inc. (“MCFA”); and 2) vacating the automatic stay with respect to Mid-Atlantic Handling Systems, LLC (“Mid-Atlantic”).
The Court has jurisdiction under 28 U.S.C. §§ 1334(b), 151, and 157(a). Venue is proper under 28 U.S.C. § 1409(a). The following shall constitute the Court’s findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052.
I. Procedural History and Factual Background
MCFA manufactures Mitsubishi brand forklift trucks and sells the trucks to consumers through authorized dealers. In 1985, Maintainco and Machinery Distribution, Inc. (“MDI”) 1 entered into a “Mitsubishi Forklift Trucks Standard Distributor Sales and Service Agreement,” making Maintainco an authorized distributor of Mitsubishi forklift trucks and products in the designated area of the twelve northern counties in the State of New Jersey. {See Certification of Theodore Margolis, Esq., Exhibit “4,” ¶ 4)(hereinafter “Margolis Cert.”).
Despite a fifteen-year business relationship, Maintainco filed a civil lawsuit in the Superior Court of New Jersey-Chancery Division against MCFA on September 12, 2000. (Margolis Cert., Exhibit “4”). In this complaint, Maintainco alleges that MCFA,
inter alia,
failed to provide Main-tainco with the necessary business support to successfully market Mitsubishi forMift products in the northern New Jersey region. (Margolis Cert., Exhibit “4,” ¶ 13). Further, Maintainco alleges that MCFA “wrongfully undercut [its] efforts to improve its market share and obtain the profits it deserves.” (Margolis Cert., Exhibit “4,” ¶ 14). Maintainco asserted several causes of action against MCFA, including wrongful termination under the
After Maintainco filed suit in New Jersey State Court, MCFA removed the action to the New Jersey District Court on September 19, 2000 based on diversity of citizenship jurisdiction. (Margolis Cert., Exhibit “6”). While the matter was pending in federal district court, Maintainco moved to amend its complaint to add Mid-Atlantic as an additional defendant and to remand the matter to state court. (Mar-golis Cert., Exhibit “6”).
On June 13, 2001, The Honorable Stаnley R. Chesler, U.S.M.J., entered an order granting Maintainco’s motion for leave to amend its complaint to add Mid-Atlantic as a defendant. (Margolis Cert., Exhibit “6”). 3 Because the addition of Mid-Atlantic as a defendant destroyed diversity of citizenship between the parties 4 , Judge Chesler recommended that the matter be remanded to state court. (Margolis Cert., Exhibit “6”). On June 26, 2001, MCFA appealed Judge Chesler’s decision recommending that the case be remanded to state court. (Margolis Cert., Exhibit “6”). On August 21, 2001, The Honorable John C. Lifland, U.S.D.J., adopted the Report and Recommendation issued by Judge Chesler and remanded the litigation to the Superior Court of New Jersey-Chancery Division. (Margolis Cert., Exhibit “6”).
In his decision to remand, Judge Lifland particularly relied on the following analysis set forth by Judge Chesler:
[T]he Court notes that the claims involved in this case are state law claims; there is no particular federal interest in litigating the state court issues involved in either plaintiffs original claim against Mitsubishi or in litigating the claims to be brought against [Mid-Atlantic] and, indeed, there’s a good argument to be made that given the nature of these claims which have a tendency to be on what might be called the cutting edge of the area of franchise litigation and franchise practices litigation that’s more appropriate for the state courts in fact to decide such cutting edge issues.
[ (Margolis Cert., Exhibit “6”).]
The First Amended Complaint filed by Maintainco asserted the following causes of action against Mid-Atlantic: 1) tortious
Since the remand to New Jersey State Court, the matter has been plagued by discovery disputes and procedural “jockeying” between the parties. As a result, The Honorable Gerald C. Escala, J.S.C., the state court judge presiding over the case, appointed Thomas J. Giblin, Esq. as a special Discovery Master on February 28, 2002. (Margolis Cert., Exhibit “7”). The Discovery Master was appointed to decide any contested issues arising during the discovery process, and any discovery rulings issued by the Discovery Master can be appealed by the parties to Judge Esca-la. (Margolis Cert., Exhibit “7”). Since his appointment approximately eighteen months ago, the Discovery Master has had extensive involvement in the underlying lawsuit. The Discovery Master has reviewed hundreds of pages of briefs, affidavits, and business records. (Margolis Cert., ¶21). Formal hearings have been held before the Discovery Master on at least four separate occasions, and the Discovery Master has already issued seven different rulings concerning specific discovery disputes between Maintainco and MCFA. 5 (Margolis Cert., ¶ 21).
To date, the paper discovery exchanged between the parties is voluminous. Main-tainco has produced over one million pages of documents, while MCFA has produced approximately twenty-seven thousand documents. (Margolis Cert., ¶ 23). Although the parties have not yet taken most of the fact or expert depositions, counsel for MCFA and Maintainco have proposed draft schedules for depositions and for the exchange of expert reports. (Certification of Thomas J. Collin, Esq., ¶ 12)(hereinafter “Collin Cert.”). The parties are awaiting approval of the proposed schedules by either the Discovery Master or the state court. (Collin Cert., ¶ 12).
In addition, there are four motions currently pending before Judge Escala in the New Jersey Superior Court. On November 5, 2002, MCFA appealed Ruling No.2 of the Discovery Master. (Margolis Cert., ¶ 24(a)). The issues have been fully briefed by both MCFA and Maintainco, and the parties are awaiting a decision from Judge Escala. On March 25, 2003, Maintainco filed an appeal of Ruling No.6 of the Discovery Master. (Margolis Cert., ¶ 24(b)). Similarly, the issues have been fully briefed by MCFA and Maintainco, and the parties are awaiting a decision from Judge Escala. (Margolis Cert., ¶ 24(b)). On April 2, 2003, Maintainco filed a motion for sanctions against MCFA and Mid-Atlantic stemming from Mid-Atlantic’s alleged refusal to comply with its discovery obligations. (Margolis Cert., ¶ 24(c)). Finally, on May 9, 2003, Main-tainco filed a motion seeking leave to file a Second Amended Complaint in order to add three additional counts against MCFA for alleged violations of the New Jersey Consumer Fraud Act and for common law fraud. (Margolis Cert., ¶ 24(d)). MCFA and Maintainco have fully briefed these issues and the parties are awaiting a decision from Judge Escala. (Margolis Cert., ¶ 24(d)).
It is contended by MCFA that it “removed the action because the relief sought by Maintainco would, if granted, destroy a major asset of Mid-Atlantic, its dealer agreement with MCFA for the sale and service of Mitsubishi forklift trucks in northern New Jersey.” (MCFA Br., pg. I). 8 In response to MCFA’s removal, Maintainco filed the present motion seeking to once again remand the underlying action to the Superior Court of New Jersey. Maintainco also moves for an order declaring that the automatic stay doеs not apply to MCFA and vacating the automatic stay with respect to Mid-Atlantic so that Maintainco can continue to prosecute its state law claims against Mid-Atlantic.
On October 6, 2003, after argument on the motion and one day before the bar date for filing proofs of claims, Maintainco filed a proof of claim with addendum stating it was neither consenting to bankruptcy court jurisdiction to adjudicate the pending litigation nor waiving its right to have the action tried in the state court.
II. Discussion
The first level of inquiry in evaluating a request for remand is to examine whether the action was properly removed.
In re Montague Pipeline Technologies Corp.,
28 U.S.C. § 1334(a) рrovides federal district courts with “original and exclusive jurisdiction of all cases under title 11.” See 28 U.S.C. § 1334(a) (1993). In turn, § 1334(b) grants federal district courts with “original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11.” See 28 U.S.C. § 1334(b) (1993). 9
While the pre-petition state law tortious interference and breach of contract claims asserted by Maintainco against Mid-Atlantic clearly do not “arise under” or “arise in” a case under title 11, these claims are, at the least, “related to” Mid-Atlantic’s Chapter 11 case since the outcome of the underlying lawsuit could alter the Debtor’s rights concerning a significant asset of the estate, namely, the distribution agreement between Mid-Atlantic and MCFA. Thus, the state court action is a proceeding “related to” the Debtor’s bankruptcy case and bankruptcy court jurisdiction exists pursuant to § 1334(b). Therefore, the state court action was properly removed by MCFA under § 1452(a) and this Court may consider the remand motion filed by Maintainco.
A. Maintainco’s Request For The Bankruptcy Court To Abstain From Adjudicating The Underlying Litigation
The gravamen of Maintainco’s motion requests that the Court abstain from adjudicating the removed state court action filed by Maintainco against MCFA and Mid-Atlantic. Three methods exist through which a federal court may decline to exercise its jurisdiction over actions properly removed pursuant to the jurisdictional grant contained in 28 U.S.C. § 1334(b).
In re Donington, Karcher, Salmond, Ronan & Rainone, P.A.,
First, 28 U.S.C. § 1334(c)(2) contains a provision for mandatory abstention, whereby the court determines “that the action is ‘outside the removal jurisdiction granted to the federal courts by Congress’ ... and remands the suit back to state court.”
Id.
(quoting
Balcor/Morristown Ltd. P’ship v. Vector Whippany Assocs.,
I. Mandatory Abstention
Mandatory abstention derives from 28 U.S.C. § 1334(c)(2), which provides as follows:
Upon timely motion of a party in a proceeding based upon a State law claim or State law cause of action, related to a case under title 11 but not arising under title 11 or arising in a case under title II, with respect to which an action could not have been commenced in a court of the United States absent jurisdiction under this section, the district court shall abstain from hearing such proceeding if an action is commenced, and can be timely adjudicated, in a State forum of appropriate jurisdiction.
[28 U.S.C. § 1334(c)(2) (1993).]
Mandatory abstention by a district court is appropriate only when each of the following six prerequisites are satisfied: 1) a timely motion for abstention is made by a party in the proceeding; 2) the proceeding is based upon a state law claim or state law cause of action; 3) the proceeding is related to a case under title 11; 4) the proceeding does not arise under title 11; 5) the action could not have been commenced in a federal court absent jurisdiction under 28 U.S.C. § 1334; and 6) an action is commenced, and can be timely adjudicated, in a state forum of appropriate jurisdiction.
In re Donington,
It is undisputed that this case satisfies the first, second, and fifth factors of the mandatory abstention analysis, and MCFA does not challenge these factors. Main-tainco filed a timely abstention motion seeking remand to state court, and all of the claims present in this litigation stem from either state statutory or common law. With respect to the fifth factor, the dynamic of the underlying lawsuit in its present posture could not have been commenced in federal district court because no federal question exists, and complete diversity of citizenship no longer exists after Maintainco added Mid-Atlantic as an additional defendаnt. 10 However, MCFA and Mid-Atlantic argue that mandatory abstention is not appropriate since, they contend, the underlying lawsuit is a core proceeding under title 11 and Maintainco has failed to demonstrate that the action can be timely adjudicated in state court.
MCFA contends that the removed lawsuit is a “core” proceeding based upon 28 U.S.C. §§ 157(b)(2)(A), (B), and (0). These statutory provisions provide in relevant part:
Core proceedings include, but are not limited to-
(A) matters concerning the administration of the estate;
(B) [the] allowance or disallowance of claims against the estate ...; and
(0) other proceedings affecting the liquidation of the assets of the estate ....
[See 28 U.S.C. §§ 157(b)(2)(A), (B) and (0) (1994).]
With respect to § 157(b)(2)(A), MCFA maintains that since the underlying action concerns the validity of a major asset of the estate, namely, the dealer agreement between Mid-Atlantic and MCFA, “the legal status of [this] major asset of the estate will greatly affect the administration of the Debtor’s estate as any removal of the asset from the estate will hinder the Debtor’s attempts to reorganize.” (MCFA Br., pgs. 11-12). MCFA claims that § 157(b)(2)(B) is sаtisfied because Main-tainco is effectively “attempting to seek allowance of a claim against the Debtor’s estate. If Maintainco were successful in the [underlying action], it would have a claim against the Debtor’s estate for damages, fees, costs, and interest.” (MCFA Br., pg. 12). Finally, under § 157(b)(2)(0), MCFA submits that Maintainco “is attempting to liquidate an asset of the estate,” and as such, the underlying action is a core proceeding forestalling the exercise of mandatory abstention.
As previously noted, it can hardly be disputed that the underlying lawsuit relates to Mid-Atlantic’s Chapter 11 case so as to confer “related to” jurisdiction upon this Court. However, whether the underlying proceeding “arises under” either title 11 or is a case under title 11 “depends on whether the nature of the action falls within the core jurisdiction of the bankruptcy court and is therefore found to be a ‘core proceeding.’ ”
In re Donington,
First, with respect to § 157(b)(2)(B), although it may be true that if successful in the underlying lawsuit Maintainco may have a claim against Mid-Atlantic, it cannot be said that by prosecuting its pre-petition, state law claims against Mid-Atlantic Maintainco is attempting to seek allowance of a claim against the
Debtor’s estate
in the traditional sense. (MCFA Br., pg. 12)(emphasis added). Maintain-co’s potential damages claim against Mid-Atlantic may quantify damages for Mid-Atlantic’s alleged tortious interference with Maintainco’s business relations, but the damages claim “does not involve the ‘allowance or disallowance of claims against the estate’ in the traditional sense that it will determine whether [Maintainco] has a claim against [Mid-Atlantic’s bankruptcy] estate.”
Bevilacqua v. Bevilacqua,
However, subsequent to oral argument and on the eve before the Court was prepared to issue this decision, Maintainco filed an “unliquidated” proof of claim in the Chapter 11 proceeding. An addendum to the proof of claim contains the following provision: “[b]y the filing of this proof of claim, Maintainco is neither consenting to the jurisdiction of the Bankruptcy Court to adjudicate the pending litigation nor waiving any of its rights to have the action
Following the filing of this proof of claim, MCFA immediately filed a supplemental letter brief with the Court, arguing that the filed proof of claim eviscerated Maintainco’s attempt to have this Court mandatorily аbstain from adjudicating the underlying litigation. MCFA argues the underlying litigation was transformed into a core proceeding upon the fifing of the proof of claim. Ordinarily, this assertion is correct. “When a creditor files a proof of claim it submits itself to the Bankruptcy Court’s equitable power, and the claims, even though arising under state law, become core proceedings within the jurisdiction of the bankruptcy court.”
Pan Am. World Airways, Inc. v. Evergreen Int’l Airlines, Inc.,
In reply, Maintainco filed its own responsive letter brief. Maintainco advances several arguments that the proof of claim does not convert the matter into a core proceeding and also submits it should be permitted to withdraw the proof of claim without prejudice. The Court will accept this statement as a formal request by Maintainco to withdraw the proof of claim it filed against Mid-Atlantic.
See, e.g., In re Overly-Hautz Co.,
The withdrawal of a proof of claim is guided by Federal Rule of Bankruptcy Procedure 3006, which provides in relevant рart:
A creditor may withdraw a claim as of right by filing a notice of withdrawal, except as provided in this rule. If after a creditor has filed a proof of claim an objection is filed thereto or a complaint is filed against that creditor in an adversary proceeding, or the creditor has accepted or rejected the plan or otherwise has participated significantly in the case, the creditor may not withdraw the claim except on order of the court after a hearing on notice to the trustee or debt- or in possession ....
[Fed. R. BaNKR. P. 3006].
The plain language of Bankruptcy Rule 3006 establishes bright-line tests marking the termination of a creditor’s “otherwise unfettered right voluntarily and unilaterally to withdraw a proof of claim.”
In re Cruisephone, Inc.,
The four circumstances requiring an order from the Court in order for Maintainco to withdraw its proof of claim are not present. In order to trigger the requirement of judicial approval, an objection to a proof of claim must precede proof of claim withdrawal.
Id.
Because MCFA and Mid-Atlantic did not object to the proof of claim filed by Maintainco prior to the request to withdraw on October 14, 2003, the first circumstance necessitating Court approval is not met. The second situation is also not met because an adversary proceeding against Maintainco has not been filed by either Mid-Atlantic or MCFA after Maintainco filed its proof of claim on October 6, 2003. Finally, the third and fourth instances requiring Court approval are not satisfied since Maintainco has not accepted or rejected any plan of reorganization proposed by Mid-Atlantic nor participated significantly in the bankruptcy case. The filing of a motion in this Court by Maintainco seeking to remand an involuntarily removed case does not constitute “significant participation” for purposes of Bankruptcy Rule 3006. Therefore, this Court will permit Maintainco to withdraw its proof of claim and the parties are left as if the claim had never been filed.
In re Cruisephone, Inc.,
In addition, even if the proof of claim were not allowed to be withdrawn, in view of the fact that the proof of claim was filed: (i) on the eve of the bar date for filing claims; (ii) after the Court had reserved decision on the motion for abstention and remand; and (iii) with a specific reservation of rights stating that under the circumstances, Maintainco was not consenting to the jurisdiction of the bankruptcy court, this Court finds such reservation to be effective under the particular circumstances of this case. As a result, the filing of the proof of claim with its reservation of rights does not transform Maintainco’s pre-petition state law claims into a core proceeding nor constitute an acceptance of this Court’s equitable jurisdiction.
Finally, MCFA’s attempt to categorize the underlying lawsuit as a core proceeding under the general, catch-all provisions of §§ 157(b)(2)(A) and (O) must also fail. In
In re Meyertech,
the Third Circuit Court of Appeals aptly recognized the difficulty “to perceive of a proceeding which would not fall under the all-encompassing language of’ either § 157(b)(2)(A) or § 157(b)(2)(O).
Contrary to MCFA’s argument, courts still hold such adversary proceedings to be non-core, related proceedings even if any eventual recovery may drastically effect the debtor’s estate.
See, e.g., In re Don-
No matter how critical it is for MCFA to treat the underlying litigation as a core proceeding, the nexus between the litigation and the Bankruptcy Code is insufficient to warrant classifying the matter as a core proceeding for purposes of mandatory abstention. Simply put, no substantive right under the Bankruptcy Code is at issue in the litigation.
In re Donington,
The sixth and final factor in the mandatory abstention analysis requires this Court to determine whether the underlying lawsuit can be timely adjudicated in state court.
In re Donington,
While MCFA implicitly blames the Superior Court of New Jersey for the delay in moving the underlying action to trial, the procedural history of this case strongly suggests otherwise. The record before the Court demonstrates that the parties themselves are responsible for the prolonged and protracted pre-trial litigation. Simply put, MCFA and Maintainco have been embroiled in a contentious discovery dispute for well over two years. Even as far back as August of 2001, Judge Lifland surmised that “a significant amount of ‘discovery jockeying’ ” was occurring between the parties. This finding is amplified by Judge Escala’s need to appoint a Discovery Master in the state court proceeding to help facilitate the discovery process, foster cooperation between the parties, and resolve the countless discovery disputes in a timely fashion. Absent the parties’ discovery disagreements, there is no reason to believe that this matter could not be timely adjudicated in the Superior Court of New Jersey.
Importantly, notions of comity and judicial economy warrant a conclusion that the state court is the proper forum for adjudicating this dispute. There is no legitimate reason to believe that the necessary time frame will be short-circuited by having the federal court adjudicate this matter. To the contrary, logic dictates that it may take more time to bring this ease to trial in federal court because the Court would need time to familiarize itself with the voluminous record and pending motions presently before the state court.
It is simply more economical and efficient at this point in the proceedings for
2. Discretionary Abstention
Although the Court finds that mandatory abstention is warranted in this instance, it will nonetheless address the doctrines of discretionary abstention and equitable remand, which require a similar conclusion. “The equitable consideratiоns relevant to the appropriateness of equitable remand and discretionary abstention under sections 1452(b) and 1334(c)(1), respectively, are essentially identical, and, therefore, a court’s analysis is substantially the same for both types of relief.”
In re Donington,
Nothing in this section prevents a district court in the interest of justice, or in the interest of comity with State courts or respect for State law, from abstaining from hearing a particular proceeding arising under title 11 or arising in or related to a case under title 11.
[28 U.S.C. § 1334(c)(1) (1993).]
When deciding to exercise discretion by abstaining from a matter, a court will consider among the following factors: 1) the effect on the efficient administration of the bankruptcy estate; 2) the extent to which issues of state law predominate; 3) the difficulty or unsettled nature of the applicable state law; 4) comity; 5) the degree of relatedness or remoteness of the proceeding to the main bankruptcy case; 6) the existence of the right to a jury trial; and 7) prejudice to the involuntarily removed defendants.
11
In re Donington,
The second, third, and fourth factors favoring discretionary abstention are met and require little elaboration. As previously indicated, all of the causes of action asserted by the parties involve either New Jersey statutory or common law claims.
With respect to the effect on the efficient administration of the estate, this Court concludes that the administration of Mid-Atlantic’s estate will not be harmed by abstention of the underlying litigation. Rather, resolving the various state law claims “will be quicker in the forum where the process of adjudication is already well underway. Any task left over for the bankruptcy court will [only] be made simpler thereby.”
Balcor/Morristown Ltd. P’ship,
The Court has already addressed factor number five, the degree of relatedness between the litigation and the main bankruptcy case. As stated in the analysis under § 157(b)(2), no substantive right under the Bankruptcy Code is at issue in the underlying litigation. The acts giving rise to Maintainco’s lawsuit against MCFA and Mid-Atlantic involve pre-petition events alleging violations of state law. The only connection between the litigation and the Bankruptcy Code is the fact that Mid-Atlantic happened to file for relief under Chapter 11 during the pendency of the removed action. As such, the Court finds that the relationship between the litigation and Mid-Atlantic’s bankruptcy case is too attenuated to warrant retaining jurisdiction under § 1334(c)(1).
With respect to factor six, the right to a jury trial, the parties disagree as to whether a jury trial is possible in the litigation given that the lawsuit was initially filed in the Chancery Division of the New Jersey Superior Court. Significantly, however, Maintainco demanded a jury trial in both its initial complaint and First Amended Complaint, and MCFA also demanded a jury trial in its answer and counterclaim to Maintainco’s First Amended Complaint. (See Margolis Cert., Exhibits “2,” “3,” and “4”). Nonetheless, MCFA now claims the parties cannot obtain a jury trial under the New Jersey Franchise Practices Act, but concedes that this particular issue has not yet been squarely addressed by the New Jersey state courts. Moreover, MCFA also maintains that a jury triаl is not available because “Maintainco’s request for in-junctive relief ... precludes a jury trial.” (MCFA Br., pg. 25). This Court will not decide whether Maintainco can ultimately receive a jury trial in the Superior Court of New Jersey given the specific posture of this litigation. Such a decision is not critical to the Court’s determination regarding discretionary abstention.
Based upon all of the foregoing, the Court finds equitable factors compel the conclusion that the remand of this action is appropriate under the doctrines of discretionary abstention and equitable remand, pursuant to 28 U.S.C. § 1334(c)(1) and 28 U.S.C. § 1452(b), respectively.
Finally, assuming,
arguendo,
that Main-tainco’s proof of claim is not allowed to be withdrawn and the reservation of rights is ineffective, and thus the underlying litigation is deemed a core proceeding, the Court believes, for all of the reasons set forth above, that discretionary abstention and equitable remand are still appropriate
B. Maintainco’s Request For A Determination That The Automatic Stay Does Not Apply To MCFA
Maintainco submits that as a non-debtor, MCFA is not entitled to the protections of the bankruptcy stay. (Maintainco Br., pg. 15). In contrast, MCFA contends that Maintainco’s claims against it are subject to the bankruptcy stay because “unusual circumstances” exist in this case warranting its application to a non-debtor party. (MCFA Br., pg. 17).
Section 362 of the Bankruptcy Code provides in relevant part:
[A] petition filed ... under this title ... operates as a stay, applicable to all entities, of-
(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title ....
[11 U.S.C. § 362(a)(1) (1993)(emphasis added).]
Without question, the scope of the automatic stay is broad.
Maritime Elec. Co. v. United Jersey Bank,
The automatic stay is generally not available to non-bankrupt co-defendants of a debtor even if they are in a similar legal or factual nexus with the debtor.
Id.
at 1205 (citing
Lynch v. Johns-Manville Sales Corp.,
First, where there is such identity between the debtor and the non-debtor co-defendant that the debtor may be said to be the real party defendant and that a judgment against the non-debtor co-defendant will in effect be a judgment or finding against the debtor.
Id.
This exception has ordinarily been limited to proceedings against a third-party defendant who is entitled to absolute indemnity by the debtor on account of any judgment that might result against the non-debtor.
See, e.g., A.H. Robins Co. v. Piccinin,
The Court concludes that the circumstances of this case do not mandate that the benefit of Mid-Atlantic’s automatic stay protection be extended to MCFA as a non-debtor co-defendant. While a similar legal and factual nexus exists between MCFA and Mid-Atlantic because the combination of their alleged improper conduct gave rise to the claims asserted by Maintainco against both entities, no “unusual circumstances” exist compelling this Court to extend stay protectiоn to MCFA.
First, it cannot be said that within the context of the underlying litigation against both MCFA and Mid-Atlantic that Mid-Atlantic is the “real party defendant.” To the contrary, based upon Maintainco’s claims in the First Amended Complaint, while MCFA and Mid-Atlantic are crucial defendants to the action, Maintainco asserts distinct claims against MCFA existing independently of the claims brought forth against Mid-Atlantic. While the remedy Maintainco seeks, namely, a determination that its dealer agreement with MCFA is exclusive, would certainly affect the business of both MCFA and Mid-Atlantic, it cannot be said that this outcome alone warrants a finding extending the automatic stay to MCFA. In addition, the Court considers the second unusual exception to be lacking in this case. Although the dealer agreement might be considered an important asset of Mid-Atlantic’s bankruptcy estate, this is not a situation where the principals of Mid-Atlantic have guaranteed their company’s corporate debt or are required to indemnify the company for any рotential losses. Therefore, this Court concludes that the automatic stay shall not be extended to MCFA as a non-debtor co-defendant in the underlying action.
C. Maintainco’s Request For A Determination That The Automatic Stay Should Be Lifted As to Mid-Atlantic
Maintainco also seeks an order vacating the automatic stay so as to permit Main-tainco to continue pursuing its claims against Mid-Atlantic in state court. Motions for relief from the automatic stay are guided by § 362(d) of the Bankruptcy Code, which provides in pertinent part:
On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay-
(1) for cause, including the lack of adequate protection of an interest in property of such party in interest ....
[11 U.S.C. § 362(d)(1) (1993).]
As evidenced by the foregoing provision, the Bankruptcy Code does not define the term “for cause,” leaving courts
Although lack of adequate protection is the most common basis for granting relief from the automatic stay for “cause,” other bases exist for finding “cause” as well.
In re Telegroup, Inc.,
[I]t will often be more appropriate to permit proceedings to continue in their place of origin, when no great prejudice to the bankruptcy estate would result, in order to leave the parties to their chosen forum and to relieve the bankruptcy court frоm many duties that may be handled elsewhere.
[S.Rep. No. 95-989 at 50 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5836.]
In determining whether to grant relief from the automatic stay so as to permit a party in interest to continue prosecuting a matter in another forum, courts will often rely upon the following factors: 1) whether relief would result in a partial or complete resolution of the issues; 2) lack of any connection with or interference with the bankruptcy case; 3) whether the other proceeding involves the debtor as a fiduciary; 4) whether a specialized tribunal with the necessary expertise has been established to hear the cause of action; 5) whether the debtor’s insurer has assumed full responsibility for defending it; 6) whether the action primarily involves third parties; 7) whether litigation in another forum would prejudice the interests of other creditors; 8) whether the judgment claim arising from the other action is subject to equitable subordination; 9) whether the moving party’s success in the other proceeding would result in a judicial lien avoidable by the debtor; 10) the interests of judicial economy and the expeditious and economical resolution of litigation; 11) whether the parties are ready for trial in the other proceeding; and 12) impact of the stay on the parties and the balance of the harms.
In re Ice Cream Liquidation, Inc.,
In this matter, the most relevant factors are one, seven, and ten. On balance, these factors point towards the granting of Maintainco’s motion for relief from the automatic stay as to Mid-Atlantic. Permitting the state court litigation to proceed will result in a complete resolution of the issue of Mid-Atlantic’s alleged liability to Maintainco. Further, the record before the Court suggests that permitting
III. Conclusion
Based upon the foregoing, this Court will grant the forms of relief requested by Maintainco. Accordingly, this Court will abstain from adjudicating the removed litigation based upon the principles of mandatory, discretionary, and equitable abstention. The removed litigation is hereby remanded to the Superior Court of New Jersey, Chancery Division. In addition, the Court concludes that the automatic stay does not apply to MCFA as a non-debtor co-defendant, and Maintainco shall be granted relief from the automatic stay as to Mid-Atlantic in order to continue prosecuting its civil law claims against Mid-Atlantic in state court.
An accompanying Order is hereby entered.
Notes
. In 1985, MDI was a subsidiary of MCFA.
. N.J.S.A. 56:10-1 to-29.
. In response to the First Amended Complaint, MCFA filed a counterclaim alleging that Maintainco disparaged MCFA and Mitsubishi products, impermissibly convinced customers to purchase Toyota brand products instead of Mitsubishi products, and failed to achieve adequate market penetration for MCFA. (Margolis Cert., ¶ 11).
.Mid-Atlantic and Maintainco are both New Jersey corporations.
. Hearings were held on the following dates: April 4, 2002, April 24, 2002, November 25, 2002 and April 25, 2003.
. The designation "Maint. Br.” refers to the moving brief filed by Maintainco, at page 3.
. By operation of 28 U.S.C. § 157 and the 1984 District Court of New Jersеy "Standing Order of Referral of Cases to the Bankruptcy Court,” the matter was referred to the Bankruptcy Court from the District Court of New Jersey.
. The designation "MCFA Br.” refers to the opposition brief filed by MCFA, at page 1.
. The jurisdictional grant in § 1334 is applicable to the bankruptcy court through 28 U.S.C. § 157(a), which allows the district court to refer cases under title 11 and proceedings arising under title 11 or arising in or
. Mid-Atlantic argues that independent federal jurisdiction exists so long as the Court "strips” the claims against Mid-Atlantic from the underlying lawsuit. That is, counsel for Mid-Atlantic submits that "[s]ince the action has now been stayed against Mid-Atlantic, there is once again diversity.” Not only does counsel for Mid-Atlantic fail to provide any legal support for this theory, but the argument begs the Court to ignore the procеdural history of this case. Whether or not the action against Mid-Atlantic is stayed is of no moment since the question of whether federal jurisdiction exists is a separate inquiry and it surely does not exist in the absence of Mid-Atlantic being dismissed from the litigation.
. MCFA removed the underlying action with the approval of Mid-Atlantic. Therefore, factor seven has no applicability to these two parties. Nonetheless, since MCFA filed a counterclaim against Maintainco, Maintainco is technically an "involuntarily removed” defendant in the underlying action. Because Maintainco is moving to remand the litigation to state court, the Court will assume for purposes of this Opinion that the arguments set forth by Maintainco in support of remanding the matter evidence “prejudice,” thus satisfying factor seven.
. MCFA concedes that factors three, five, eight, and nine are not applicable in this case. (MCFA Br., pg. 22). Further, the Court con-eludes that factor four is also not implicated in the present matter. Accordingly, the Court will not address these factors.