NANCY V. ALQUIST, Bankruptcy Judge.
This Memorandum addresses whether this Court should return to Maryland state court, a case which was removed to federal court under 28 U.S.C. § 1452. The Court concludes that it should.
This case originated as a civil action demanding $600 million in damages filed in the Maryland Circuit Court for Baltimore City (Case No. 24C 11-001014). The action was removed to the United States Bankruptcy Court for the District of Maryland by four of the ten state court defendants. The four removing defendants consist of three trusts, the J. Oliver Cunningham Trust, the Anne C. McLure Trust, and the Jane C. Warriner Trust (the "Trust Defendants") and Ross Mangano (together with the Trust Defendants, the "Removing Defendants").
The Removing Defendants own over 95% of a company known as Indiana Downs, LLC ("Indiana Downs") which controls a pari-mutuel racetrack, casino and two betting facilities in Indiana. Mr. Mangano acts as CEO of Indiana Downs, and oversees the three Trust Defendants as Trustee. Two months after the commencement of the state court action, Indiana Downs filed a voluntary Chapter 11 case in the United States Bankruptcy Court for the District of Delaware (Case No. 11-11046 BLS).
The plaintiffs in this action are the Cordish Company and two members of its "Power Plant Entertainment" group —
The Plaintiffs claim that the Removing Defendants and Indiana Downs entered into a "Support Agreement" stating that the management fees payable by Indiana Downs to PPE Indiana, would be substantially financed by Removing Defendants. The Plaintiffs claim that this arrangement was memorialized in a letter dated October 30, 2007 between the Removing Defendants and Indiana Downs, and that the management fees payable by Indiana Downs under the Management Agreement, were to be funded according to a formula set out in the Support Agreement. It appears that the bulk of the management fees payable to PPE Indiana under the Management Agreement were supposed to have been funded by the Removing Defendants. The Plaintiffs allege that the Removing Defendants either never made their required payments to Indiana Downs, or directed Indiana Downs not to pay the management fees to PPE Indiana. In any event, the Plaintiffs allege that these monies were due to them but not paid by PPE Indiana, and that the failure to pay was caused one way or another by the Removing Defendants.
In 2009, Cordish formed PPE Maryland for the purpose of bidding on the rights to construct and manage a casino adjacent to the Arundel Mills Mall in Anne Arundel County, Maryland. In 2010, PPE Maryland was awarded the license to construct and manage the Maryland Live Casino. During the time PPE Maryland was attempting to obtain the license in Maryland, its Cordish affiliate company, PPE Indiana, was pursuing collection of its management fees from Indiana Downs through arbitration. The Plaintiffs allege that throughout this process, all of the defendants named in the state court action maliciously and intentionally interfered with Cordish and PPE Maryland's business relationship with Anne Arundel County and other business partners throughout the state of Maryland. Specifically, the Plaintiffs claim that the Removing Defendants tried to coerce Cordish to cause
The Plaintiffs further claim that Removing Defendants conspired with parties based in Maryland (the "Non-removing Defendants"), to strip PPE Maryland of the right to build and manage Maryland Live. They claim that Mr. Mangano made threats in a June 21, 2010 e-mail to Jonathan Cordish. Plaintiffs allege that Mr. Mangano, in his capacity as trustee to the Trust Defendants that make up the remaining Removing Defendants, acted on his threats by conspiring with the Non-Removing Defendants to acquire the necessary signatures to overrule the Anne Arundel County Board's vote to allow PPE Maryland to build the casino, and together they were able to have that issue placed on the November 2, 2010 state election ballot through a petition. The Plaintiffs argue that the signatures needed for that petition were acquired through the use of fraudulent, deceitful, and illegal techniques. They claim that negative commercials were made, and other forms of propaganda were used to discredit the Plaintiffs' ability to manage a casino. The Plaintiffs claim these tactics caused delays in the development of the project, until PPE Maryland finally won the vote on the referendum on November 2, 2010.
On February 15, 2011, the Plaintiffs filed their action in the Maryland Circuit Court for Baltimore City, seeking to recover damages related to the cost of defending their rights to build Maryland Live, and for defamation of character, among other claims. The Plaintiffs' suit contains six counts: 1) Tortious Interference by Trust Defendants and Mr. Mangano, 2) False Light Invasion of Privacy by Mr. Mangano and The Trust Defendants against PPE Indiana, 3) False Light Invasion of Privacy by Mr. Mangano and the Trust Defendants against PPE Maryland and Cordish, 4) Defamation by Mr. Mangano and the Trust Defendants, 5) Civil Conspiracy by All the Ten Defendants, and 6) False Light Invasion of Privacy by the Non-Removing Defendants against PPE Indiana. The Plaintiffs demand $600 million in relief.
On April 7, 2011, Indiana Downs, still under Mr. Mangano's leadership, filed its Chapter 11 case in the United States Bankruptcy Court for the District of Delaware. At the time of its filing, Indiana Downs listed $208,319,814.00 in assets, $545,774,048.00 in secured claims, and $310,195.44 in unsecured claims.
Twenty-two days later, on April 29, 2011, Mr. Mangano and the Trust Defendants removed the Plaintiffs' state court to this Court on the grounds that Indiana Downs, now a debtor in a bankruptcy case, may have to indemnify Mr. Mangano and the Trust Defendants if they are found liable in the state court action, and that this would impact the bankruptcy estate.
As CEO of Indiana Downs, Mr. Mangano is a party to an Operating Agreement ("Operating Agreement") with Indiana Downs which includes an indemnification clause. (The Operating Agreement is appended to the Defendants' Response to the Plaintiffs' Motion to Remand.) Under Article IV of the Operating Agreement, Mr. Mangano is indemnified by Indiana Downs for actions he takes while acting as CEO
The Removing Defendants believe that Mr. Mangano's actions — the actions about which they complain — are within the indemnification clause and that Indiana Downs would be responsible to provide coverage. Accordingly, the Removing Defendants believe that given the possibility of indemnification and the potential impact on the bankruptcy estate, the action is sufficiently "related to" the bankruptcy case that removal to United States Bankruptcy Court is proper under 28 U.S.C. § 1452(a). After the case was removed, the Plaintiffs filed their Motion for Abstention and for Remand ("Motion to Remand").
Shortly before this Court heard the Motion to Remand, an additional event occurred. A settlement was reached through arbitration in the management fee dispute between Indiana Downs and PPE Indiana. In August 2011, Indiana Downs, the debtor party to the settlement, submitted its settlement to the Delaware Bankruptcy Court for approval. The effect of this agreement would have been to make Cordish and PPE Indiana unsecured creditors of the Indiana Downs bankruptcy estate. Unsecured creditors objected to approval of this agreement. The Delaware Bankruptcy Court did not approve or reject the settlement agreement. A week before a hearing in this Court on the Motion to Remand, Indiana Downs withdrew its motion for approval.
On November 21, 2011 this Court held a hearing on the Plaintiffs' Motion to Remand and the Removing Defendants' opposition.
Under 28 U.S.C. § 1452(a) a party may remove a claim to this Court provided that jurisdiction exists in this Court under 28 U.S.C. § 1334. Pursuant to 28 U.S.C. § 1334(b), United States district courts have jurisdiction over civil proceedings "related to cases under title 11." The Fourth Circuit has found that a claim or action is "related to" a bankruptcy case when "the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy."
The Third Circuit has held that "related to" jurisdiction is not instantaneously triggered by the mere possibility
The Fourth Circuit does not provide guidance as to whether the mere possibility of indemnification is sufficient to confer related to jurisdiction, but states only that related to jurisdiction exists if indemnity is certain.
This Court need not go as far as to determine whether, in this case, indemnification is contractually mandated and a certainty, and whether the requirements of related to jurisdiction in the Fourth Circuit have been met. When this Court considers all the bases upon which this case could be sent back to state court or retained in federal court, the Court concludes that it must send this case back to state court on Mandatory Abstention grounds, and that in addition, the case may properly be sent back to state court on the basis of Permissive Abstention and Equitable Remand.
Pursuant to 28 U.S.C. § 1334(c)(2), the Bankruptcy Court must
Here, the Court has determined that the only criterion about which there could be any possible factual dispute with respect to this Court's duty to mandatorily abstain from hearing this case is whether this case could be timely adjudicated in state court. There is a complete absence of evidence as to this issue in the record and the Court has no basis on which to make a factual finding. Accordingly, the resolution of this issue, and thus the resolution of the entire mandatory abstention issue hinges on which party has the burden to show that a matter can be timely adjudicated in state court. If the party seeking abstention has the burden, the case stays in federal court because the moving party will have failed to meet its burden by failing to show that the case can be timely adjudicated in state court. On the other hand, if the party opposing abstention has the burden to show that the matter cannot be timely adjudicated in state court, the case goes back to state court because the party opposing remand had not met its burden.
Accordingly, the resolution of this matter requires that the Court determine which party bears the burden of proving whether or not timely adjudication can be met in state court. The statute itself is silent on this point. See 28 U.S.C. § 1334(c)(2).
Several inferior courts within the Fourth Circuit have addressed the issue and there does not appear to be uniformity. Some courts within the Fourth Circuit have found, expressly or impliedly, that the party seeking abstention has the burden to show affirmatively that the matter can be timely adjudicated. See, e.g. Freeway Foods, Inc., Freeway Foods of Greensboro, Inc., 449 B.R. 860, 879 (Bankr. M.D.N.C.2011); Suntrust Bank v. Ferrell, 2000 WL 33673752 (Bankr.M.D.N.C.2000); In re 3G Properties, 2010 WL 4027770 (Bankr.E.D.N.C.2010); In re Griffin Services, 2002 WL 31051042 (Bankr.M.D.N.C. 2002). Other courts within the Fourth Circuit have taken the opposite view: that the party opposing abstention must show that the matter cannot be timely adjudicated in state court. See, Cline v. Quicken Loans Inc., 2011 WL 2633085 (N.D.W.Va.
Many courts in other circuits, at both the circuit and lower levels, seem to favor placing the burden on the party seeking abstention to show that a case in state court can be timely adjudicated. Indeed, this comports with traditional jurisprudential notions of moving parties bearing the burden. See, e.g., Stoe v. Flaherty, 436 F.3d 209, 219 n. 5 (3d Cir.2006) (indicating that the moving party had the "burden of proving his right to mandatory abstention); In re Lorax Corp., 295 B.R. 83, 93 (Bankr. N.D.Tex.2003) (the party seeking abstention must prove all elements of mandatory abstention, including timely adjudication); In re National Century Financial Enterprises, Inc., Inv. Litigation, 323 F.Supp.2d 861, 881 (S.D.Ohio 2004) (timely adjudication must be proven by the moving party). Many of these courts do not offer their rationale for the presumption that federal jurisdiction is the automatic default position in the event that there is no evidence of timely adjudication.
In contrast, the Second Circuit recently offered a more comprehensive review of the "timely adjudication" element in Parmalat Capital Finance Ltd. v. Bank of America Corp., 639 F.3d 572, 582 (2nd Cir.2011). In Parmalat, the court explained that placing the "timely adjudication" burden on the party who seeks abstention and remand to state court "may [] be inconsistent with the mandatory nature of abstention under § 1334(c)(2) as well as the principles of comity, which presume that a state court will operate efficiently and effectively."
The Court finds this rationale compelling. The idea that the party seeking mandatory abstention bears the burden of proof as to timely adjudication seemingly conflicts with the general rule that the "burden of demonstrating jurisdiction resides with `the party seeking removal.'"
Accordingly, this Court determines that the better view is that there is a
As an equal and alternative basis for its holding, this Court exercises permissive abstention. The court is permitted to abstain from hearing a case that arises under or arises in or related to a case under title 11 "in the interest of justice, or in the interest of comity with State courts or respect for State law."
MacLeod v. Dalkon Shield Claimants Trust, 967 F.Supp. 856, 858 (D.Md.1997); See also, In re HQ Global Holdings, Inc., 293 B.R. 839, 842 (Bankr.D.Del.2003); In re Porter-Hayden Co., 304 B.R. 725, 735 (Bankr.D.Md.2004).
The Court addresses each factor herein:
There is the possibility that a judgment against Mr. Mangano in this case would affect the pending bankruptcy case because there would be a request for indemnification of that claim in the bankruptcy court. While this may be true, it is not uncommon for a claim to be liquidated in state court and for indemnification rights, if any, to be dealt with in the context of the bankruptcy case. Liquidating the underlying claim in the bankruptcy court will not make the bankruptcy case more efficient. Moreover, the efficiency of the bankruptcy case will be preserved if it can be determined whether there is any real dollar value to be had from the allowance of an indemnity claim or if the pro rata distribution on such a claim would be such that the return is not worth the effort.
The claims that are central to this litigation are based in state law. As stated previously, the complaint filed in the Circuit Court sounds in six counts: 1) Tortious Interference by Trust Defendants and Mr. Mangano, 2) False Light Invasion of Privacy by Mr. Mangano and The Trust Defendants against PPE Indiana, 3) False Light Invasion of Privacy by Mr. Mangano and the Trust Defendants against PPE Maryland and Cordish, 4) Defamation by Mr. Mangano and the Trust Defendants, 5) Civil Conspiracy by All the Ten Defendants, and 6) False Light Invasion of Privacy by the Non-Removing Defendants against PPE Indiana. There is not even one pendent or related federal or bankruptcy law claim. This factor weighs in favor of abstention and remand.
Both parties agree that the legal issues are not novel or complex. While the issues may not be legally complex, the parties undoubtedly rely on a complex, extensive and in all likelihood, disputed factual record. A state court is best suited to apply its knowledge and expertise of its legal standards in such circumstances.
This factor weighs heavily in favor of abstention and remand. This case has only been partially removed to federal court. There are five defendants who remain in state court regardless of the decision of this Court. If the Court keeps this case in the bankruptcy court system there will be two proceedings with the same facts and claims being heard simultaneously. This is antithesis of efficiency.
Both parties agree that § 1334 is the only jurisdictional basis that allows this case to be brought to the United States Bankruptcy Court. This factor weighs in favor of abstention and remand.
The only potential link to the main bankruptcy proceeding is the possibility that there could be an indemnification claim against the bankruptcy estate as a result of pending litigation. The Court does not believe that there are any valid collateral estoppels concerns. See supra. While the state-based litigation is related to a pending bankruptcy case, it remains somewhat remote. The Court finds that this factor is neutral.
The Removing Defendants concede that the state-based litigation is not a core proceeding. The Removing Defendants attempt to assign ulterior motives to the Plaintiffs' failure to name debtors as defendants in the state-based litigation. The Removing Defendants assert that the Plaintiffs were attempting to avoid the litigation being labeled a core matter and also attempting to avoid the effect of the automatic stay. Whatever the Plaintiffs' motives may have been, simply adding an additional party would not be sufficient to make this state-law litigation a core proceeding. It also bears noting that the
Because the claims at issue are all state law claims, there is nothing to sever. This factor weighs in favor of abstention and remand.
This is undoubtedly a major piece of litigation with motivated parties and able counsel. The Court has no doubt that the matter will be masterfully prepared and tried, thus greatly aiding the assigned court. Nevertheless, the federal courts' docket must be considered. This factor weighs in favor of abstention and remand.
The Court sees no evidence of forum shopping by either side. This factor is neutral.
The Removing Defendants concede that the Plaintiffs have a right to a jury trial. This right is best protected in state court. See, In re Merry-Go-Round, 222 B.R. 254, 256-58 (D.Md.1998). Even though a jury trial may be had in federal court, the idea that two jury trials could go forward on the same facts in two different for a seems a particularly useless waste of resources. This factor weighs in favor of abstention and remand.
The only parties involved in this case are non-debtors. Although the Removing Defendants may have an indemnification claim against a debtor estate after the state court litigation is complete, there are no debtors in this litigation. This factor weighs in favor of abstention and remand.
An analysis of the foregoing factors tips heavily in favor of permissive abstention. The state law nature of the claims predominates and several of the defendants remain in state court regardless of the outcome of this motion. Based on all applicable considerations, the Court will permissively abstain, and send this matter back to state court.
Remand may also be made, in appropriate circumstances, on general equitable grounds. See 8 U.S.C. § 1452(b). Factors that indicate that a case is appropriate for equitable remand include, in addition to consideration of several of the permissive abstention factors, the "efficient use of judicial resources, the possibility of inconsistent results and the expertise of the court where the action originated." In re Merry-Go-Round, supra, 222 B.R. at 257-258.
In Merry-Go-Round, the chapter 7 trustee sued the former accountants for the debtor for fraud, malpractice, and negligence by a Chapter 7 trustee. Even though the case was brought by a chapter 7 trustee and even though the proceeds of the lawsuit would fund the chapter 7 estate, the Merry Go Round Court remanded the case on equitable grounds. Id. at 256. Accordingly, the fact that aspects of this litigation are somewhat tethered to a
The Court believes that the goal of judicial efficiency is promoted by remand because there exist in this litigation several Non-Removing Defendants. If this Court were to retain jurisdiction over this case, there is the very real possibility that the claims against the Non-Removing Defendants would be tried in state court, setting in motion the wheels of duplicative justice and allowing for the possibility of inconsistent rulings. Accordingly, for the foregoing reasons, this Court remands this case on equitable grounds.
For the foregoing reasons, this Court will abstain from hearing this matter and this case will be remanded to the Circuit Court for Baltimore City. A separate order will enter.