MARY F. WALRATH, Bankruptcy Judge.
Before the Court are two motions filed by Global Kato HF, LLC ("Global Kato"): The first is a motion to dismiss, for lack of subject matter jurisdiction or for failure to state a claim, the adversary proceeding commenced by Seagate Technology (US) Holdings, Inc. ("Seagate"). The second is a motion to remand an action initiated by Global Kato against Seagate in California state court that was subsequently removed to this Court. Because the Court concludes it has no subject matter jurisdiction over either adversary proceeding, both motions will be granted.
In September 2003, Global Kato, as landlord, and Maxtor Corporation ("Maxtor"), as tenant, entered into an industrial lease (the "Lease") for a manufacturing facility in Fremont, California (the "Premises"). (Adv. 1 at D.I. 1, ¶ 18.)
On September 6, 2011, the Debtor and its affiliate, Solyndra LLC, filed chapter 11 bankruptcy petitions. The Debtor also filed a motion to reject both the Sublease and the Direct Lease. (
Under the Stipulation, Global Kato's rejection damages claim was allowed in the amount of approximately $17.5 million. (D.I. 905, ¶ 11.) The Stipulation further provided that Global Kato would retain and pay the Debtor's environmental contractor an amount up to $848,318 (the "Work Cap") to remediate environmental damages at the Premises. (
On October 22, 2012, the Court entered an order confirming the Debtor's Amended Joint Plan (the "Plan"), which became effective on November 7, 2012. (D.I. 1224.) As a component of the Plan, the Solyndra Settlement Trust (the "Trust") was established for the purpose of collecting, liquidating, and distributing certain of the Debtor's assets. (D.I. 1124.)
On March 8, 2013, Global Kato served a demand letter on Seagate requesting that Seagate: (i) reimburse Global Kato for environmental closure costs in excess of the Work Cap, (ii) remove certain equipment from the Premises left behind by the Debtor, and (iii) pay damages for lost rent caused by the environmental contamination. (Adv. 1 at D.I. 1.) In response to the demand letter, Seagate hired its own firm to complete remediation efforts at the Premises. (
On April 20, 2015, Seagate filed a complaint in this Court (the "Seagate Complaint") against Global Kato and the Trust alleging: (1) breach of contract, (2) equitable indemnity, (3) unjust enrichment, and (4) declaratory relief. (Adv. 1 at D.I. 1.)
On May 19, 2015, Global Kato filed an action against Seagate for breach of the Lease in the California Superior Court for the County of Alameda (the "California Action"). (Adv. 2 at D.I. 1, ¶ 1). In the California Action, Global Kato has alleged the following causes of action against Seagate: (1) breach of the Lease, (2) express contractual indemnity, (3) breach of the implied covenant of good faith, and (4) declaratory relief. (Adv. 2 at D.I. 26.) On July 9, 2015, Seagate removed the California Action which was thereafter transferred to this Court. (Adv. 2 at D.I. 22.)
On May 20, 2015, Global Kato filed a motion to dismiss the claims against it in the Seagate Complaint, or, in the alternative, to abstain. (Adv. 1 at D.I. 5.) In the removed adversary proceeding, Global Kato filed a motion to remand. (Adv. 2 at D.I. 26.) Notices of completion of briefing on both motions were filed and those matters are now ripe for decision. (Adv. 2 at D.I. 29; Adv. 1 at D.I. 31.)
A bankruptcy court has the authority to determine whether it has subject matter jurisdiction over an adversary proceeding.
Rule 12(b)(1) of the Federal Rules of Civil Procedure provides that a federal court may dismiss a complaint for lack of subject matter jurisdiction. A motion to dismiss under Rule 12(b)(1) challenges the power of the federal court to hear a claim or case.
Courts may consider subject matter jurisdiction at any time and must dismiss an action if subject matter jurisdiction is lacking. Fed. R. Civ. P. 12(h)(3). The issue can be raised in any manner, including on motion of one of the parties or by the court sua sponte.
In addition, a party may make a "factual" attack arguing that, although the pleadings facially satisfy jurisdictional prerequisites, one or more of the allegations is untrue, thereby rendering the controversy outside the court's jurisdiction.
In a Rule 12(b)(1) motion to dismiss, the party invoking the federal court's jurisdiction bears the burden of establishing that the court has jurisdiction.
Federal bankruptcy jurisdiction extends to four types of matters: (1) cases under title 11, (2) proceedings arising under title 11, (3) proceedings arising in a case under title 11, and (4) proceedings related to a case under title 11. 28 U.S.C. §§ 157, 1334.
A case under title 11 is merely the bankruptcy petition itself.
Proceedings arising under title 11 refer to the steps within the bankruptcy case and any action within the case that may raise a disputed or litigated matter.
Proceedings arising in a case under title 11 refer to proceedings that are not based on any right expressly created by title 11, but nevertheless would have no existence outside the bankruptcy case.
Proceedings "related to" a case under title 11 constitute "the broader universe of all proceedings that are not core proceedings but are nevertheless `related to' a bankruptcy case."
Seagate asserts that the Court has "arising under," "arising in," and "related to" jurisdiction for each count in the Seagate Complaint. Global Kato argues that subject matter jurisdiction is lacking for all counts.
Seagate argues that the Court has "arising in" jurisdiction because the Stipulation and the Order approving the Stipulation granted relief under several provisions of the Bankruptcy Code. Seagate next argues the Court has "arising under" jurisdiction because its claims would have no practical existence but for the bankruptcy. (Adv. 1 at D.I. 25, ¶ 30.) Global Kato argues that Seagate's action involves a pre-petition contract between non-debtor parties and therefore the Complaint cannot "arise in" or "arise under" the Bankruptcy Code.
The Court agrees with Global Kato. Seagate's Complaint, though mentioning the Stipulation and Order approving it, is not founded on that Order and Stipulation but instead is grounded on its rights under the Seagate Lease. A matter "arises under" the Bankruptcy Code if its existence depends on a substantive provision of bankruptcy law, that is, if it involves a cause of action created or determined by a statutory provision of the Bankruptcy Code.
The Court is equally unpersuaded that it has "arising in" jurisdiction. "Arising in" jurisdiction exists only if the action would "have no existence outside of the bankruptcy case."
Finally, Seagate contends that the Court has "related to" jurisdiction over its claims. The test for "related to" jurisdiction is whether "the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy."
"Related to" jurisdiction gives the bankruptcy court the power to hear proceedings that do not fall under title 11 and that could exist independently of the bankruptcy case, but only when there is some close nexus between the proceeding and the title 11 case.
"Related to" jurisdiction "does not extend indefinitely, particularly after the confirmation of a plan and the closing of a case."
In this case, Seagate argues that there is a sufficiently close nexus between the Seagate Complaint and the bankruptcy case because: (1) the breach of contract claim hinges on interpretation of the Stipulation; (2) the Plan specifically identified the kind of dispute at issue in the breach of contract claim and reserved jurisdiction over it; and (3) resolution of the breach of contract claim is necessary for the Trust to execute and administer its duties under the Plan. In addition to its breach of contract claim, Seagate's Complaint asserts claims for unjust enrichment, equitable indemnification, and declaratory relief. For each of these claims, Seagate argues that "related to" jurisdiction exists because determination of each claim is "necessary for the Trust to execute and administer its duties under the Plan" in light of the impact each claim may have on resolving Seagate's proofs of claim. (Adv. 1 at D.I. 25, ¶ 30.)
Each claim in the Seagate Complaint essentially relies on the same grounds for the Court's jurisdiction: adjudication of the claims will affect indemnification claims Seagate allegedly has against the Trust.
Seagate argues that the Debtor's confirmed Plan retains jurisdiction to resolve the Seagate Complaint. The confirmed Plan states that the Court shall retain jurisdiction to "allow, disallow, determine, liquidate, classify, or estimate any Claim, . . . resolve any matters related to the rejection of any executory contract or unexpired lease" and "consider and act on the compromise and settlement of any Claim against . . . the [Trust]." (D.I. 1059 at 100-01.) Seagate asserts that these Plan provisions are sufficient to provide jurisdiction over the Seagate Complaint.
Global Kato disagrees and argues that a Plan must specifically describe a cause of action in order to retain "related to" jurisdiction.
The Court disagrees with Seagate and concludes that the Plan provisions that purport to preserve the bankruptcy court's jurisdiction over claim resolution are not alone sufficient to establish post-confirmation jurisdiction over Seagate's Complaint. Instead the Court must determine whether the Seagate Complaint "affects the interpretation, implementation, consummation, execution, or administration of [the] confirmed plan. . . ."
A "close nexus" may be found where the plan specifically enumerates the cause of action.
Contra to Seagate's argument, the Court concludes that the Plan must specifically describe a cause of action in order to retain "related to" jurisdiction, irrespective of who the plaintiff may be.
Therefore, the Court concludes that where, as here, the Plan only broadly provides for retention of jurisdiction over claims resolution, it provides no evidence of a sufficiently close nexus between the Seagate Complaint and the bankruptcy case to support post-confirmation "related to" jurisdiction.
Seagate argues that resolution of the Seagate Complaint is necessary for the Trust to execute and administer its duties because the Trust, as successor to the Debtor, owes indemnity obligations to Seagate arising from the Sublease to the extent Seagate is found to be liable to Global Kato. As such, Seagate argues that "related to" jurisdiction exists over its breach of contract claim against Global Kato because resolution of that claim has a direct bearing on significant liabilities owed by the Trust to Seagate.
Global Kato responds that "related to" jurisdiction is not absolute even when a debtor has contractual indemnity obligations.
While additional liability of the Trust may reduce recovery for other creditors, that is not enough to confer jurisdiction over Seagate's claims. The Court must evaluate the potential to increase (or decrease) recovery for creditors with other contributing factors, "including whether the suit is post-confirmation and its relatedness to the Plan."
Seagate argues that the
591 F.3d at 174 n.9.
Notwithstanding Seagate's contractual right to indemnification, the Court concludes that the facts alleged in the Seagate Complaint do not warrant "related to" jurisdiction. At its core, the Seagate Complaint concerns the Lease between Seagate and Global Kato that is governed by state law. It is only after adjudication of the claims that Seagate has against Global Kato that it may be determined that Seagate has any indemnity claims against the estate. That is insufficient to warrant jurisdiction in this Court.
Seagate contends that the Court has "related to" jurisdiction because its causes of action require interpretation of the Stipulation regarding Global Kato's remediation obligations and its agreement to give a credit to Seagate.
Even if adjudication of the Seagate Complaint requires such interpretation, however, the Court concludes that this factor alone does not support "related to" jurisdiction. To the extent the Stipulation affords Seagate certain rights, a state court is fully able to interpret the Stipulation and give effect to those rights.
For the foregoing reasons, the Court concludes that it has no subject matter jurisdiction over the claims asserted in the Seagate Complaint against Global Kato because they are not sufficiently "related to" the bankruptcy case.
Global Kato argues in the motion to remand that this Court: (1) must remand because subject matter jurisdiction is lacking over the California Action, (2) should remand on equitable grounds in the event the Court finds subject matter jurisdiction exists, (3) must abstain, or (4) should abstain on discretionary grounds.
Seagate responds that: (1) the Court has subject matter jurisdiction over the California Action; (2) equitable remand is inappropriate because of the relatedness of the California Action to the Debtor's chapter 11 case; (3) the grounds for mandatory abstention are absent; and (4) discretionary abstention is unwarranted.
Section 1447 of title 28 provides that, "[i]f at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded." 28 U.S.C. § 1443(c).
Unlike the Seagate Complaint which Seagate asserts required interpretation of the Plan, Trust and Stipulation, the California Action is solely a dispute between non-debtor parties concerning a pre-petition contract. Nonetheless, Seagate argues that the Court has "related to" jurisdiction over the California Action because: (1) the Stipulation reserved exclusive jurisdiction to the Court to resolve any dispute related to it; and (2) the California Action cannot be adjudicated without interpretation of the Stipulation and Order approving it.
Even if the Stipulation reserved exclusive jurisdiction, the Court concludes that is irrelevant.
As stated above, a bankruptcy court's jurisdiction is substantially narrowed post-confirmation.
The California Action was filed more than two and one half years after confirmation of the Debtor's Plan. The California Action did not arise "in connection" with the Plan and does not require construction or interpretation of the Plan for its resolution.
Seagate argues nonetheless that because adjudication of the California Action implicates Seagate's rights under the Stipulation, the close nexus requirement is satisfied. The Court disagrees. The Court concludes that where, as here, the Plan only broadly provided for retention of jurisdiction over causes of action, there is not a sufficiently close nexus with the bankruptcy proceeding to support post-confirmation jurisdiction over the California Action which is a breach of contract action between two non-debtors.
For the reasons set forth above, the Court will grant Global Kato's Motion to Dismiss Seagate's Complaint for lack of subject matter jurisdiction for the claims asserted against Global Kato and will grant Global Kato's Motion to Remand the California Action to the California Superior Court for Alameda County.
Appropriate orders to follow.