Walter v. Freeway Foods, Inc. (In Re Freeway Foods of Greensboro, Inc.)Walter v. Freeway Foods, Inc. (In Re Freeway Foods of Greensboro, Inc.)
MEMORANDUM OPINION
This matter came before the Court on January 20, 2011, upon the Plaintiffs Mo
I. JURISDICTION
The Court has jurisdiction over the subject matter of this proceeding pursuant to 28 U.S.C. §§ 151, 157 and 1334, and Local Rule 83.11 of the United States District Court for the Middle District of North Carolina. This is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(A), which this Court has the jurisdiction to hear and determine.
II. FACTS
A. Procedural Background
Freeway Foods of Greensboro, Inc. (the “Debtor”) was in the business of operating 36 Waffle House franchises in North Carolina until an involuntary bankruptcy was filed against it on July 13, 2010. On July 30, 2010, Walter, the owner of certain real property on which was located a Waffle House franchise operated by the Debtor, filed suit in the Superior Court of Guilford County, North Carolina, against the Debt- or, Gary and Lynne Fly (the principals of the Debtor and, collectively, the “Flys”), Waffle House (the franchisor of the Debt- or’s Waffle House locations), and YSI (an affiliate of Waffle House), seeking damages as a result of an alleged scheme between and among the Defendants to defraud her. The Walter complaint set forth eleven causes of action: (1) breach of lease agreement against the Debtor; (2) fraud against the Debtor and the Flys; (3) unfair and deceptive trade practices against the Debtor; (4) piercing the corporate veil against the Flys; (5) breach of lease agreement against Waffle House and YSI; (6) successor liability against Waffle House and YSI; (7) lender liability against Waffle House and YSI; (8) interference with contract against Waffle House and YSI; (9) fraud against Waffle House and YSI; (10) unfair and deceptive trade practices against Waffle House and YSI; and (11) conspiracy against the Debtor, Waffle House, YSI, and the Flys.
Prior to both the bankruptcy and the commencement of Walter’s suit, on February 18, 2010, YSI filed an action for declaratory judgment against the Debtor and the Flys in Fulton County, Georgia (the “Georgia Action”), seeking a determination that the Debtor was in default under a note and credit agreement owned by YSI. On March 24, 2010, the Debtor and the Flys filed an Answer and Counterclaim (the “Georgia Counterclaim”) against YSI. That same day, the Debtor and the Flys filed suit in North Carolina state court (the “North Carolina Action”) seeking to enjoin a foreclosure sale of its assets. The complaint filed in the North Carolina Action
On October 26, 2010, the Debtor filed a notice of removal of the Georgia Action to the United States District Court for the Northern District of Georgia, and then, on November 12, 2010, the Debtor and the Flys filed a motion to transfer the case to the Middle District of North Carolina. The case was transferred on December 6, 2010, and referred to the Bankruptcy Court as an adversary proceeding (Adv. No. 11-2008) on April 7, 2011. Walter takes many of the factual allegations in her Complaint directly from the Debtor Complaint — -which, as discussed above, contains allegations identical to those found in the Georgia Counterclaim in the Georgia Action that is now before this Court — often citing to the Debtor Complaint or quoting it, word for word, as a basis for her claims against the Defendants.
On October 4, 2010, Waffle House and YSI filed a Motion to Dismiss Walter’s claims against them as well as a motion to stay Walter’s state court action for six months pending the resolution of the claims in the Georgia Action and the Trustee’s decision on whether to assume or reject the Debtor’s lease with Walter. On October 5, 2010, the Flys filed an Answer to the Complaint. On November 5, 2010, the Debtor filed a Notice of Removal to the United States District Court for the Middle District of North Carolina. On November 19, 2010, Walter filed a Notice of Dismissal, voluntarily dismissing her claims in this Adversary Proceeding against the Debtors without prejudice, a Response to the Notice of Removal, and a Brief in Support of Motion for Remand.
On November 22, 2010, Walter filed the Motion to Remand, seeking remand to state court of her remaining nine claims, as follows: (1) fraud against Mr. Fly, (2) piercing the corporate veil against the Flys; (3) breach of lease agreement against Waffle House and YSI; (4) successor liability against Waffle House and YSI; (5) lender liability against Waffle House and YSI; (6) interference with contract against Waffle House and YSI; (7) fraud against Waffle House and YSI; (8) unfair and deceptive trade practices against Waffle House and YSI; and (9) conspiracy against Waffle House, YSI, and the Flys. The case was referred to the Bankruptcy Court on December 2, 2010, and this Adversary Proceeding was opened on December 7, 2010. On January 3, 2010, the Trustee, as well as Waffle House and YSI, filed objections to the Motion to Remand.
B. Factual Allegations
The claims in both the Georgia Action and this Adversary Proceeding stem from a series of events involving the takeover of the Debtor’s franchises by Waffle House and YSI and the eventual involuntary bankruptcy of the Debtor.
Prior to its bankruptcy, the Debtor had been a franchisee of Waffle House since 1972, and it owned and operated 36 Waffle House restaurants in North Carolina. On January 30, 2006, Walter sold some real property in Raleigh. In order to defer taxes, Walter elected to acquire replacement property for a Section 1031 like-kind exchange. I.R.C. § 1031(a)(1). Walter began to investigate the property at 3929 Battleground Avenue, Greensboro, NC — a location where the Debtor was operating a Waffle House franchise — as potential replacement property. In the course of due diligence for the transaction, Walter discovered that the Debtor was in a “technical default” under a loan with SunTrust
On April 19, 2006, the Debtor entered into a commercial lease (the “Lease”) with Walter effective until August 6, 2015, with the option to extend the term for additional five year periods. The Lease provided that the Debtor was in good standing as a franchisee of Waffle House and that the property would be used solely and exclusively as a Waffle House restaurant in accordance with the terms of the franchise agreement between the Debtor and Waffle House. Furthermore, the Lease contained a provision allowing the Debtor to assign the Lease to Waffle House, in which case Waffle House would take full responsibility under the Lease. Walter contends that Waffle House required that the above assignment provisions be included in the Lease.
Walter alleges that Waffle House then devised a scheme with YSI whereby they used misrepresentations and duress to obtain rent concessions from certain landlords of franchise property, including Walter, and then gained control of the franchises at a discount as a result. These same allegations are made in the Debtor Complaint from the North Carolina Action, as well as the Georgia Counterclaim in the Georgia Action, which has been removed to this Court. Walter cites to, or quotes from, the Debtor Complaint for each factual statement that she makes regarding the alleged scheme.
Specifically, by reference to the Debtor Complaint, Walter alleges that sometime in 2000, the Debtor borrowed funds from SunTrust (the “SunTrust Loan”) to finance the acquisition of the Waffle House franchises. She further alleges, by quoting the Debtor Complaint, that sometime during the pendency of the Lease, Waffle House “concocted a plan to begin taking control of the franchised Waffle House restaurants throughout the United States.” In furtherance of this scheme, Walter alleges, quoting the Debtor Complaint, Waffle House convinced the Debtor — “under the cloud of financial duress created by” Waffle House — to obtain rent concessions from the landlords of its restaurants in return for being allowed to continue operations as a franchisee. Walter alleges, quoting the Debtor Complaint, that Waffle House’s actual plan was to obtain the rent concessions “then terminate the franchise, take control of the restaurants, and essentially convert the better lease terms to its own benefit.”
Walter alleges that in furtherance of this scheme, YSI negotiated to purchase the SunTrust Loan from SunTrust sometime in 2009 and became the Debtor’s lender. Then, on September 2, 2009, Walter alleges, by reference to the Debtor Complaint, Waffle House and YSI sent a Notice of Termination to the Debtor alleging that it was insolvent and in default under the SunTrust Loan. At this point, Walter alleges that Waffle House, YSI, the Debtor, and the Flys began discussing a “friendly foreclosure” — the same term used in the Debtor Complaint — whereby the Flys would turn over the assets of the Debtor to YSI, which would then turn them over to Waffle House. As a result, Walter alleges, Waffle House would become the owner and/or operator of the Debtor’s
Walter alleges, again by quoting the Debtor Complaint, that “one of the preconditions to closing was that [the Debtor] obtain rent reductions from the landlords of the various Waffle House restaurants owned by [the Debtor] by November 15, 2009.” In furtherance of this plan, Walter alleges that in the beginning of October 2009, Bob Moore, the Vice President of Finance for Waffle House, called Walter to discuss the status of the Debtor’s financial condition. Mr. Moore, Waffle House CFO Kim Kraft, and Walter then had a meeting, at which Walter alleges Mr. Moore and Ms. Kraft represented that rent concessions from Walter were needed if the Debtor were to avoid bankruptcy. Walter refers to the Debtor Complaint for her allegation that the Debtor was not insolvent nor on the verge of bankruptcy at the time.
Walter further claims that after the meeting, Waffle House sent letters and emails to her, emphasizing the need for rent reductions, and stressing the dire financial conditions of the Debtor. Walter alleges that the Flys and the Debtor knew or should have known that these misrepresentations were happening but did nothing to inform Walter that the statements were false. Walter alleges, by quoting the Debtor Complaint, that
the goal of [Waffle House] and YSI was to bully the landlords into deeper rent discounts. [Waffle House] and YSI stated that if [the Debtor] filed bankruptcy [the Debtor] would reject the leases in the bankruptcy proceeding, leaving the landlords without a tenant and with an unsecured, and likely uncollectible claim for back rent. The only option presented to the landlords was a rent concession to avoid the bankruptcy filing.
Walter alleges that she initially refused the $40,000 to $60,000 in rent reductions that the Defendants sought from her, but ultimately, based on the representations regarding the financial condition of the Debtor, agreed to rent reductions totaling $7,000 per year, as well as agreeing to no increases on renewals of the Lease.
Walter alleges that once Waffle House and YSI obtained the rent reductions they wanted from the landlords, Waffle House and YSI declined to pursue the “friendly foreclosure” they had negotiated with the Debtor, and instead decided to foreclose on the Debtor’s operations and either operate the stores themselves under the new lease terms or force the landlords to sell the properties to Waffle House at a discount. In furtherance of this plan, Walter alleges, as does the Debtor Complaint, that YSI sent a letter to the Debtor in January 2010 stating that it was in default under the SunTrust Loan and demanding payment in full; it then began foreclosure proceedings. Walter alleges, as does the Debtor Complaint, that as a result of the foreclosure, the Debtor assigned and conveyed all of its assets — including the Lease — to YSI and Waffle House in April of 2010. Walter alleges that the Debtor defaulted under the Lease by, among other things, ceasing payment of rent, assigning the Lease to a creditor, and abandoning the premises. Walter alleges that it was the foreclosure proceedings instituted by Waffle House and YSI that caused the Debtor to breach the Lease, and that, in fact, Waffle House and YSI anticipated and intended that such a breach would occur. Walter further alleges that despite a “valid assignment” by the Debtor of the Lease to Waffle House and YSI under the language in the Lease (that she alleges Waffle House
III. ANALYSIS
In the Motion to Remand, Walter argues that the Court should remand this Adversary Proceeding to state court due to the Court’s lack of subject matter jurisdiction. Although Walter conceded at hearing that the Court at least has “related to” jurisdiction under 28 U.S.C. § 1334(b), that does not end the issue. For purposes of abstention and remand, the Court must determine whether the causes of action in the Adversary Proceeding are “related to” the Debtor’s bankruptcy case or are “core” causes of action. To do so, the Court must first lay the groundwork for bankruptcy jurisdiction.
A. Bankruptcy Jurisdiction
The jurisdiction of a bankruptcy court is established by 28 U.S.C. § 1334(b), which gives district courts jurisdiction over cases under Title 11 and proceedings arising under, arising in, or related to cases under Title 11. 28 U.S.C. § 1334(b). District courts may refer such matters to bankruptcy courts. 28 U.S.C. § 157(a). Proceedings “arising under” Title 11 are causes of action created or determined by a statutory provision of Title 11.
In re Harris,
Bankruptcy courts may make binding decisions only in “core proceedings” that arise under or arise in a case under Title 11. 28 U.S.C. § 157(b)(1). A bankruptcy court may conduct a jury trial in a core proceeding only with the consent of all the parties. 28 U.S.C. § 157(e). Proceedings “related to” the bankruptcy are non-core and can be heard by the bankruptcy court, but it must submit proposed findings of fact and conclusions of law to the district court, not issue final orders.
In re Exide Technologies,
A non-core proceeding has four characteristics: (1) it is not specifically listed as a core proceeding in 28 U.S.C. § 157(b)(2)(B)-(N); (2) it existed prior to the bankruptcy case; (3) it would continue to exist independent of the provisions of Title 11; and (4) the parties’ rights, obligations, or both are not significantly affected by the filing of the bankruptcy.
Gertz v. Twin City Fire Ins. Co. (In re Infotopia, Inc.),
No. 4:07 CV 02936,
B. Determination of Core Status
Core proceedings are those that invoke a substantive right provided by Title 11 or by their nature could arise only in the context of a bankruptcy.
Morrison,
The nature of the proceeding is also important. “Proceedings can be core by virtue of their nature if either (1) the type of proceeding is unique to or uniquely affected by the bankruptcy proceedings, or (2) the proceedings directly affect a core bankruptcy function.”
Mt. McKinley,
As explained by the Third Circuit, a court must examine each claim to determine if it is core.
We reiterate that courts must engage in a claim-by-claim analysis to determine whether a proceeding is core. Each state court claim removed to bankruptcy court must be considered individually; non-core claims do not become core simply by virtue of being pursued in the same litigation as core claims.
Exide Technologies,
In enacting 28 U.S.C. § 1334(b), Congress intended to grant comprehensive jurisdiction to the bankruptcy courts so that they might deal efficiently and expeditiously with all matters connected with the bankruptcy estate.
In re WorldCom, Inc. Sec. Litig.,
The Second Circuit has observed, “Congress realized that the bankruptcy court’s jurisdictional reach was essential to the efficient administration of bankruptcy proceedings” and that “both the Supreme Court and this court have ... broadly construed the jurisdictional grant in the 1984 Bankruptcy Amendments.” Broadly construing the federal courts’ bankruptcy jurisdiction is essential to their ability to preserve assets and reorganize the estate, particularly where there is a “complex factual scenario, involving multiple claims, policies and insurers.”
Id.
at 329 (citations omitted). Thus, the term “core” must be construed broadly— close to or congruent with constitutional limits.
LFD Operating, Inc. v. Gen. Elec. Capital Corp. (In re Ames Dep’t Stores, Inc.),
The Court now turns to Walter’s causes of action
1
to determine if they are core. The Court notes that Walter filed a proof of claim in the Debtor’s bankruptcy. However, while the filing of a proof of claim by a plaintiff may cause the plaintiffs claims against non-debtor defendants to be “related to” proceedings, it will not, taken alone, result in their being considered “core” proceedings.
Exide Technologies,
Two of Walter’s causes of action (the first and fifth) involve allegations that the Debtor, Waffle House, and YSI breached the Lease. To determine whether a contract dispute is core, the court should look to (1) whether the contract is antecedent to the reorganization petition (i.e., whether it existed before the petition was filed) and (2) the degree to which the proceeding is independent of the reorganization.
Mt. McKinley,
The rest of Walter’s causes of action (fraud, unfair and deceptive trade practices, piercing the corporate veil, successor liability, lender liability, interference with contract, and conspiracy) are non-core, “related to” proceedings. They do not invoke a substantive right provided by Title 11, and they are not, by their nature, matters that could arise only in the context of a bankruptcy.
See Wilson,
C. Mandatory Abstention
Walter argues that the Court is required to abstain from hearing the case under the doctrine of mandatory abstention set forth in 28 U.S.C. § 1334(c)(2). The Defendants argue that mandatory abstention does not apply in this case because Walter filed her cause of action post-petition. As explained below, the Court agrees with the Defendants and concludes that mandatory abstention does not apply to the Adversary Proceeding.
The doctrine of mandatory abstention is found in 28 U.S.C. § 1334(c)(2), which provides:
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 11, 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).
The United States District Court for the Middle District of North Carolina has held that
mandatory abstention is appropriate under § 1334(c)(2) when the following requirements are met: (1) a timely motionis made; (2) the proceeding is based on a state law claim or a 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.
Blanton v. IMN Fin. Corp.,
1. This Adversary Proceeding Was Not Commenced Prior to the Debtor’s Bankruptcy
The sixth requirement states, in part, that the “action is commenced.” Must the action be filed prior to bankruptcy for mandatory abstention to apply?
2
A leading treatise states that “many courts have held that for the statute to be applicable, the cause of action must have been commenced prior to the filing of the petition commencing the title 11 case.” 1
Collier on Bankruptcy,
¶ 3.05[2] (Alan N. Resnick & Henry J. Sommer eds., 16th ed.);
see also Container Transport, Inc. v. Scott Paper Co. (In re Container Transport, Inc.),
The clear majority of cases supports the position that the cause of action must be pending in state court prior to the bank
The minority position is inconsistent with the legislative history and the plain language of the statute. As
Collier
notes, “a forebear of section 1334(c)(2) referred to a state court action that ‘has been or will be timely instituted.’ ” The currently applicable statute uses different language, with no reference to an action that “will be timely instituted.” This fact strongly suggests that the viewpoint espoused in
World Solar Corp.
is incorrect.
See
1
Collier on Bankruptcy,
¶ 3.05[2], n. 17 (Alan N. Resnick & Henry J. Sommer eds., 16th ed.). The minority view is further weakened by the plain language of the statute, which states that the court shall abstain “if an action
is commenced
... in a State forum of appropriate jurisdiction.” 28 U.S.C. § 1334(c)(2) (emphasis added);
see also Flores Rivera v. Telemundo Group,
2. This Adversary Proceeding Cannot Be Timely Adjudicated in State Court
The sixth requirement also necessitates that the “action ... can be timely adjudicated ... in a state forum of appropriate jurisdiction.” There are seven factors to consider in determining whether an action can be timely adjudicated in state court: (1) the backlog of the state court and federal court calendars; (2) the status of the proceeding in state court prior to being removed; (3) the status of the proceeding in the bankruptcy court; (4) the complexity of the issues to be resolved; (5) whether the parties consent to the bankruptcy court entering judgment in the non-core case; (6) whether a jury demand has been made; and (7) whether the underlying bankruptcy case is a reorganization or a liquidation case.
3G Properties,
Walter’s complaint was not filed in state court until after the Debtor’s bankruptcy was filed. Only the Flys have answered, and no discovery has occurred. The matter has not progressed in this Court — all recent proceedings have been concerned with removal of the case to this Court and remand to state court. The issues in this Adversary Proceeding are factually and legally complex and involve non-debtor defendants. The record does
D. Permissive Abstention
Walter argues that if mandatory abstention does not apply, then the Court should permissively abstain from hearing this Adversary Proceeding pursuant to 28 U.S.C. § 1334(c)(1) and allow the case to go forward in state court. The Court begins with the understanding that a federal court must accept the jurisdiction granted it, and only in rare occasions is discretionary abstention warranted.
In re Bostic Constr., Inc.,
Many courts have articulated the factors that a court should consider when determining whether to permissively abstain from hearing a case.
See, e.g., Monmouth Investor, LLC v. Saker,
No. 09-3063(FLW),
1. Efficiency in the Administration of the Debtor’s Estate
This factor weighs heavily against remand. The bulk of the allegations in Walter’s complaint are taken directly from the Debtor Complaint in the North Carolina Action, which contains identical allegations to those found in the Georgia Counterclaim in the Georgia Action that is now before the Court.
See Broadhollow Funding, LLC v. Bank of America, N.A. (In re American Home Mortgage Holdings, Inc.),
It is more efficient if only one court is required to familiarize itself with the voluminous record that is sure to evolve in these cases.
Rahl,
The Defendants argue that they may assert third-party claims for indemnification for breach of the Lease, pursuant to the franchise agreement between Waffle House and the Debtor, and that such claims, if raised, would further affect the administration of the Debtor’s estate. Although the franchise agreement and the Debtor’s rights thereunder are assets of the estate,
Vylene Enters., Inc. v. Naugles, Inc. (In re Vylene Enters., Inc.),
2. The Extent to Which State Law Issues Predominate/Whether the Issues Involve Difficult or Unsettled Issues of State Law/Feasibility of Severing State Law Claims from Core Bankruptcy Matters
Since the second, third, and eighth factors all deal with the importance
3. The Presence of a Related Proceeding Commenced in State Court
This factor also weighs against abstention. There is no related proceeding pending in state court.
Broadhollow Funding,
4. The Existence of a Jurisdictional Basis Other Than 28 U.S.C. § 1334
The Trustee does not allege that there is any jurisdictional basis for the Adversary Proceeding in federal court other than 28 U.S.C. § 1334, and the Court concludes there is none. This factor favors abstention.
5. The Degree of Relatedness or Remoteness of the Proceeding to the Bankruptcy Case
This factor overlaps with many of the factors discussed above. Walter is one of the largest non-defendant creditors in the main bankruptcy case, and she has filed a proof of claim. Furthermore, the Lease was negotiated between the Debtor and Walter, and, as discussed above, despite the fact that Walter has dismissed her claims against the Debtor, resolution of the issues surrounding the Lease will have a significant impact on the Debtor’s estate and the allowance of Walter’s proof of claim. Also, as explained above, because of the Debtor’s involvement in Walter’s claims against Waffle House, YSI, and the Flys, the Debtor may in fact be a necessary party to the Adversary Proceeding. Accordingly, this factor weighs against abstention.
Broadhollow Funding,
6. The Substance Rather Than the Form of an Asserted “Core” Proceeding
As discussed above, two of Walter’s causes of action are core, and the rest are “related to” the Debtor’s bankruptcy. This factor is neutral.
7. The Burden of the Bankruptcy Court’s Docket
No party presented evidence that the burden of this Court’s docket in any way affects abstention. The Court does not believe that hearing the Adversary Proceeding would burden its docket any more than it would a state court docket. As such, this factor is neutral.
8. The Likelihood that Removing the Proceedings to Bankruptcy Court Involved Forum Shopping
No party presented evidence that the removal of the Adversary Proceeding to
9. The Existence of a Right to a Jury Trial
Walter has demanded a trial by jury of all her claims. Rule 39(a) of the Federal Rules of Civil Procedure, which applies to bankruptcy cases pursuant to Rule 9015(a) of the Federal Rules of Bankruptcy Procedure, provides that a party has a right to a jury trial unless a court determines that the right does not exist. Fed.R.Civ.P. 39(a); Fed. R. Bankr.P. 9015(a). After a general review of the right to a trial by jury provided by the Seventh Amendment, and how that right may be lost, the Court will examine each of Walter’s claims in turn.
a. The Seventh Amendment Right to a Jury Trial
The Seventh Amendment provides that “[i]n Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved.” U.S. Const, amend. VII. “Suits at common law” refers to suits where legal rights are to be ascertained, as opposed to equitable rights and remedies.
Granfinanciera, SA. v. Nordberg,
In deciding whether a particular action is a suit at law that triggers this important protection, we are instructed to apply the two-step test set forth in Granfi-nanciera. First, we ask “whether the action would have been deemed legal or equitable in 18th century England.” Second, “ ‘we examine the remedy sought and determine whether it is legal or equitable in nature.’ ” We then “balance the two, giving greater weight to the latter.”
Pereira v. Farace,
The Seventh Amendment confers a right to a jury trial for a cause of action that is legal, rather than equitable in nature, and involves a private right rather than a public one.
Granfinanciera,
b. Triggering the Claims Allowance Process
The filing of a claim against the estate makes any litigation against the claimant “part of the claims allowance process.”
Langenkamp v. Culp,
c. Walter Has a Right to Try Some of Her Claims to a Jury
i. Breach of Contract Claims
Walter’s first and fifth causes of action allege a breach of the Lease by the Debtor, Waffle House, and YSI.
4
A claim for breach of contract is a legal claim that would have been brought in a court of law in 1791.
Chauffeurs, Teamsters and Helpers, Local No. 391 v. Terry,
Under Granfinanciera, once a court decides that the claims at issue are legal in nature, it must determine whether Congress has “withdrawn jurisdiction over [the Trustee’s] action by courts of law and assigned it exclusively to non-Article III tribunals sitting without juries.... ” In other words, the court must decide whether the Seventh Amendment confers on [the plaintiff] a right to a jury trial in the face of Congress’ decision to allow a non-Artiele III tribunal to adjudicate the claims against it. This question hinges on whether the plaintiff is pursuing private or public rights. TheCourt reasoned that, while “Congress may devise novel causes of action involving public rights free from the strictures of the Seventh Amendment if it assigns their adjudication to tribunals without statutory authority to employ juries as factfinders, ... it lacks the power to strip parties contesting matters of private right of their constitutional right to a trial by jury.”
Automotive Professionals,
“The right to a jury trial in bankruptcy exists only as long as the party does not assert a claim against the bankruptcy estate.”
Automotive Professionals,
ii. Fraud Claims
Walter’s second and ninth causes of action allege fraud by the Debt- or, Waffle House, YSI, and the Flys. A claim for fraud is a legal claim that would have been brought in a court of law in 1791.
Buzard v. Houston,
The more difficult question is whether the filing of a proof of claim by Walter transforms a legal dispute into an equitable one. Many courts limit the scope of the “waiver” of a plaintiffs jury trial right. They hold that the plaintiff/creditor who files a proof of claim in a bankruptcy loses his jury trial right only with respect to claims whose resolution affect the allowance or disallowance of the proof of claim “or is otherwise so integral to restructuring the debtor-creditor relationship.”
CBI Holding,
Walter’s third and tenth causes of action allege that the Debtor, Waffle House, and YSI are liable for unfair and deceptive trade practices pursuant to N.C. Gen.Stat. § 75-1.1 et seq. She seeks a monetary judgment. Section 75-1.1(a) states that “[u]nfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are declared unlawful.” N.C. Gen.Stat. § 75 — 1.1(a). Section 75-1.1(b) provides that “ ‘commerce’ includes all business activities, however denominated.” N.C. Gen.Stat. § 75-1.1(b). Whether a claim based on an unfair and deceptive trade practice is a legal claim that would have been brought in a court of law in 1791 is unclear.
5
However, Walter seeks solely monetary damages, and therefore the remedy sought is legal in nature. Section 75-16 provides a private right of action for “any person” injured “by reason of any act or thing done by any other person, firm or corporation in violation of the provisions of this Chapter.... ” N.C. Gen.Stat. § 75-16;
Marshall v. Miller,
iv. Claim for Piercing the Corporate Veil
Walter’s fourth claim alleges that the Flys are the alter ego of the Debtor, and she seeks to pierce the Debt- or’s corporate veil. A claim for piercing the corporate veil is a legal claim that would have been brought in a court of law in 1791.
Geltzer,
v.Successor Liability Claim
Walter’s sixth cause of action alleges that Waffle House and YSI expressly or impliedly agreed to assume all of the debts and liabilities of the Debtor. A claim for successor liability is a legal claim that would have been brought in a court of law in 1791.
Bonds Distrib. Co.,
vi.Lender Liability Claim
Walter’s seventh cause of action alleges that Waffle House and YSI dominated and controlled the Debtor, causing the Debtor to become a mere instrumentality of Waffle House and YSI, which proximately harmed Walter. Walter’s claim is a legal claim that, if it existed at the time, would have been brought in a court of law in 1791.
Germain,
vii.Interference with Contract Claim
Walter’s eighth cause of action alleges that Waffle House and YSI interfered with her contract with the Debtor (i.e., the Lease). She seeks a money judgment against Waffle House and YSI. A claim for tortious interference with contract is a legal claim.
In re Jensen,
viii.Conspiracy Claim
Walter’s eleventh cause of action alleges that the debtor, Waffle House,
ix. Conclusion
Walter has a right to a jury trial on nine of her eleven claims. This factor favors abstention.
Kerusa,
10. Whether Non-Debtor Parties Are Involved in the Proceeding
Non-debtor parties are involved in this proceeding, which usually favors abstention.
Broadhollow Funding,
11. Conclusion
“Evaluating these twelve factors is not a mathematical formula.”
Monmouth Investor,
E. Equitable Remand
Section 1452(b) of Title 28 of the United States Code states: “The court to which such claim or cause of action is removed may remand such claim or cause of action
on any equitable ground.”
28 U.S.C. § 1452(b) (emphasis added). Equitable remand is to be determined by reference to fourteen factors: (1) the effect or lack thereof on the efficient administration of the estate if the Court recommends remand; (2) the extent to which state law issues predominate over bankruptcy issues; (3) the difficult or unsettled nature of applicable law; (4) the presence of related proceeding commenced in state court or other nonbankruptcy proceeding; (5) the jurisdictional basis, if any, other than § 1334; (6) the degree of relatedness or remoteness of proceeding to main bankruptcy case; (7) the substance rather than the form of an asserted core proceeding; (8) the feasibility of severing state law claims from core bankruptcy matters to allow judgments to be entered in state court with enforcement left to the bankruptcy court; (9) the burden on the bankruptcy court’s docket; (10) the likelihood that the commencement of the proceeding in bankruptcy court involves forum shopping by one of the parties; (11) the exis
Many courts have noted that the permissive abstention analysis of Section 1334(c)(1) is essentially identical to the equitable remand analysis of Section 1452(b).
See, e.g., Digital Satellite Lenders, LLC v. Ferchill,
No. 03 Civ. 8803(RWS),
Considerations of comity are neutral. Federal courts will give deference to state courts when appropriate under the notions of comity.
See, e.g., In re Arcadius Dev., LLC,
No. 07-01462-5-SWH,
As for prejudice to the removed parties, the only party that has not stated a preference for litigation of the Adversary Proceeding in this Court is Walter. Her counsel speculates that Walter might be prejudiced by the increased cost to litigate in federal court, a position supported by neither evidence nor argument. It is hard to imagine how moving the case to a courtroom a few blocks away will prejudice anyone, including Walter.
In
ML Media Partners,
the court considered a motion for equitable remand in a situation similar to the facts before the Court.
ML Media Partners,
The right to jury trial, in this Court’s view, tilts in favor of remand, but to only a very minor extent. Many of [the plaintiffs] claims have been and reasonably can be expected to be for equitable relief, for which there is no right to a jury trial in any event. On some matters, one or more of the litigants might wish a jury trial, which a bankruptcy judge could not preside over in the absence of consent, but which a district judge could; in this respect, this factor does favor remand, but it is tempered substantially by the fact that [the plaintiffs] claims could be heard, if necessary, by a district judge. This Court gives this factor some weight but not very great weight, as in this Court’s view, the most important concerns are that [the plaintiffs] claims against all defendants be litigated together and in a coordinated way, and that they be coordinated with proceedings in the bankruptcy court. These concerns are far more important, in this Court’s view, than concerns as to whether a bankruptcy judge, on the one hand, or a district judge, on the other, handles any ultimate jury trial.
Id.
at 147 (footnotes omitted). This passage encapsulates much of the reasoning of the Court in this matter. The majority
CONCLUSION
Because mandatory abstention does not apply, and because the majority of the factors in this case weigh against permissive abstention and equitable remand, the Motion to Remand will be denied. For the time being, the Adversary Proceeding will proceed in this Court.
6
The Court realizes that issues involving
This memorandum opinion constitutes the Court’s findings of fact and conclusions of law. A separate order will be entered contemporaneously herewith pursuant to Fed. R. Bankr.P. 9021.
ORDER
Consistent with the memorandum opinion entered contemporaneously herewith, it is ORDERED that the Motion to Remand, filed by the above-referenced Plaintiff on December 7, 2010, is DENIED.
Notes
. Despite the fact that Walter has dropped her claims against the Debtor, she has dismissed those claims without prejudice and is free to bring them again whenever she chooses. In fact, counsel for Walter conceded at the hearing on the Motion to Remand that she is likely to re-assert her claims against the Debtor if her case remains in bankruptcy court. In addition, since Walter's claims involve a determination of whether the Lease was validly assigned to Waffle House, the Debtor is potentially a necessary party to this Adversary Proceeding under Rule 19(1) of the Federal Rules of Civil Procedure. Rule 19(1) requires the joinder of a party if the court cannot accord complete relief among the parties in that party's absence. In
In re Cook,
the Court reasoned that even though a debtor had been dismissed from a case, "[t]he debtor was the property owner, and it is difficult to understand how the litigation could go forward in state court without the debtor joined as a party.”
In re Cook,
. This issue is similar to, but different from, the question of whether mandatory abstention is applicable to a removed case.
Cf. Stoe,
. Walter attached to her brief a statistical analysis of the disposition of cases in Guilford County, North Carolina, from July 1, 2009 through June 30, 2010, but did not offer it into evidence.
. While the Court has concluded that these two causes of action are core, the classification of a claim as core does not itself deprive a litigant of the right to a jury trial.
Mirant Corp.,
. Obviously no such claim existed in 1791. Historically, a claim for “unfair or deceptive trade practices” might have been brought before court of law or a court of equity. One court found that "deceptive” conduct based on intentional or reckless misrepresentation was similar to a common law claim of deceit, but also found that actions based on misrepresentation could also be brought in equity courts.
Puretest Ice Cream, Inc. v. Kraft, Inc.,
. Bankruptcy courts are not divested of pretrial jurisdiction over matters which they ultimately may be unable to decide.
Nilsen,