PAUL A. ENGELMAYER, District Judge.
The motions pending in this case together present the question of whether a federal bankruptcy court in Delaware, or a New York state court, should resolve a dispute as to how to allocate a debtor-in-bankruptcy's monthly cash collateral payments among its creditors.
On April 29, 2014, Texas Competitive Electric Holdings Company LLC ("TCEH") and several affiliates filed voluntary petitions for reorganization in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). On June 5, 2014, the Bankruptcy Court heard argument as to how to allocate, among various of TCEH's creditors, monthly cash collateral and adequate protection payments. The Bankruptcy Court determined that there was no need, at that time, to resolve the allocation dispute. It left open whether that dispute would ultimately be resolved by it or another court.
The latter issue, relating to the forum in which that dispute is to be resolved, now comes before this Court. In March 2015, plaintiff Delaware Trust Company ("Delaware
Resolution of these motions turns largely on whether the dispute over allocation of cash collateral payments among creditors is a "core" proceeding within TCEH's bankruptcy, ie., one that either "arises under" or "arises in" that bankruptcy proceeding. For the reasons that follow, the Court holds that this dispute "arises in" the TCEH bankruptcy proceeding and thus is a core bankruptcy proceeding, supplying federal jurisdiction; that the federal courts ought not abstain from hearing it; and that the case is properly heard, within the federal system, by the Bankruptcy Court. The Court accordingly denies Delaware Trust's remand motion and grants Wilmington Trust's transfer motion. The Court also grants the proposed intervenors' motions to intervene.
On April 29, 2014 (the "Petition Date"), TCEH and several affiliates (collectively, "the Debtors") filed voluntary petitions for reorganization pursuant to 11 U.S.C. § 101 et seq., in the Bankruptcy Court (the "Chapter 11 Cases"). The Chapter 11 Cases are being jointly administered as In re Energy Future Holdings Corp., et aL, No. 14 Bk. 10979(CSS) (Bankr.D.Del).
As of the Petition Date, the Debtors represented that they had more than $25 billion of first lien debt, falling into three categories: (1) $22.6 billion of debt out-standing under a credit agreement (the "Bank Debt"; the Court refers to holders of such debt as the "Lenders"); (2) $1.75 billion of debt outstanding under a first lien indenture (the "First Lien Notes"; the Court refers to holders of such notes as the "First Lien Noteholders"); and (3) $1,255 billion of debt outstanding under first lien interest rate swap and commodity hedge agreements (the "Swap Agreements"; the Court refers to holders of such agreements as "the Secured Swap Providers"). See Dkt. 41, Declaration of Ellen M. Halstead ("Halstead Deck"), Ex. D at 30-31, 93 n. 61.
Delaware Trust is the indenture trustee for the First Lien Noteholders who hold the $1.75 billion of First Lien Notes. Compl. ¶ 2. The First Lien Notes were issued in 2009 by TCEH and TCEH Finance, Inc. Dkt. 1, ¶ 9.
Wilmington Trust is the First Lien Administrative Agent and First Lien Collateral Agent for the $22.6 billion of First Lien Bank Debt. Id. ¶ 4. In 2007, the Debtors issued the First Lien Bank Debt as part of a leveraged buy-out of TCEH's ultimate parent company, Energy Future Holdings Corporation. See id. ¶ 8. One proposed intervenor, Titan Investment
As noted, besides the First Lien Notes and the First Lien Bank Debt, there are also First Lien Swaps, pursuant to which the Debtors have $1.255 billion of debt. Most of the swap debt is held by two proposed intervenors: (1) Morgan Stanley Capital Group ("MSCG"), whose secured claims total more than $225 million, see Halstead Decl., Ex. E at 5; and (2) J. Aron & Co. ("J. Aron"), whose secured claims total more than $950 million, see id., Ex. F at 6.
An Intercreditor Agreement governs the relative rights and priorities of the First Lien Notes, the First Lien Bank Debt, and the First Lien Swaps. Compl. ¶ 21. The Intercreditor Agreement requires equal priority of payment in respect of "Secured Obligations" then due and payable, with some exceptions. It provides that all First Lien Creditors have equal priority with respect to the collateral securing the First Lien Debt. Id. 21-24. It also contains a permissive, non-exclusive forum-selection clause consenting to jurisdiction in New York. See Dkt. 60, Declaration of Jonathan Rosenberg ("Rosenberg Decl."), Ex. A, § 9.6. It further provides that Wilmington Trust shall distribute collateral in accordance with a specific waterfall based on all then-outstanding secured obligations. Id. § 4.1. Finally, the Intercreditor Agreement contemplates the possibility that the Debtors would file for bankruptcy. Id. § 1.1.
On April 29, 2014, the Debtors initiated bankruptcy proceedings in the Bankruptcy Court. Compl. ¶ 30. To obtain the required consent to the continued use of cash collateral during the bankruptcy proceedings, the Debtors agreed to make monthly payments to Wilmington Trust (in its capacity as First Lien Administrative Agent), to Delaware Trust (in its capacity as Indenture Trustee), and directly to the Secured Swap Providers to protect all First Lien Creditors against any diminution in value of the collateral securing the First Lien Debt. See id.
A dispute arose, however, as to the calculation of these monthly payments under the Intercreditor Agreement. Under the order as initially drafted, monthly payments were to be calculated by using the principal amount of debt owed to first lien creditors as of April 29, 2014, and a rate of LIBOR plus 450 basis points (the "Petition Date Allocation Method"). However, a First Lien Noteholder, Aurelius Capital Management, LP ("Aurelius"), argued that the Intercreditor Agreement requires a different methodology (the "Postpetition Allocation Method"). Under it, monthly payments among the creditors would be apportioned based on the outstanding amount (including accrued but unpaid interest) on each debt instrument as of each payment date. Because the creditors have varying interest rates, the use of this methodology would tend to benefit First Lien Noteholders like Aurelius, whose notes have a higher interest rate—11.5%. Several First Lien Bank Debt Holders opposed Aurelius's bid. They urged the Bankruptcy Court to adopt the Petition Date Allocation Method. See Rosenberg Deck, Ex. H at 31-39.
The Bankruptcy Court received briefs and heard argument on the allocation dispute.
Significant here, Judge Sontchi emphasized that he was not deciding the proper venue of this dispute, nor whether he had jurisdiction to resolve it—rather, he stated, he was simply not ruling on those matters at that time. See id. Ex. I at 232 ("[I]t may be at some point it would be appropriate for me to get involved in this. And it may be I get involved in what is being set aside to be decided by a Court of competent jurisdiction. I'm not saying I won't do that. . . . But I can't deal with it in this context."); see also id. at 224-25 ("You can fight here maybe, you can fight, somewhere else maybe.").
As to the mechanics of the escrow fund, on July 31, 2014, TCEH and Bank of New York Mellon ("BNY Mellon") entered into an Escrow Agreement governing the deposit and distribution of the escrowed funds. See Rosenberg Deck, Ex. J. Under that agreement, to which the First Lien Notes Trustee is a notice party, BNY Mellon holds the escrowed funds until a further order of the Bankruptcy Court (or another court of competent jurisdiction) regarding the distribution of these funds. Id. at ¶ 2. At argument in this Court, counsel represented that the account (as of mid-May 2015) held less than $3 million, although it continues to accumulate and is expected to grow substantially. Dkt. 68 ("Tr."), 11, 60.
On April 14, 2015, the Debtors filed a proposed plan of reorganization, which includes a "tax-free spin-off' of TCEH that would result in the First Lien Creditors owning, pro rata, the equity in a newly formed entity that will own TCEH's assets. Rosenberg Decl., Ex. D; see also Dkt. 56, Declaration of Zoe E. Shea ("Shea Deck"), Ex. B. At a May 4, 2015 hearing, the Bankruptcy Court set aside 20 trial days, starting on November 18, 2015 and concluding by December 23, 2015, to consider confirmation of the proposed plan of reorganization. Rosenberg Decl., Ex. D at 104; see also id. at 105-06; id. at 112.
On March 13, 2015, Delaware Trust filed a Complaint in the Supreme Court of New York in Manhattan. It sought (i) a declaratory judgment that the escrowed funds be allocated for the benefit of the First Lien Notes, and (ii) specific performance directing the escrow agent to turn over the escrowed funds to Delaware Trust for the benefit of First Lien Noteholders. Compl. ¶¶ 43, 47. Delaware Trust thereby seeks to resolve the issue on which Judge Sontchi reserved judgment: the allocation of monthly cash collateral payments. Delaware Trust's proposed resolution, under
On April 13, 2015, Delaware Trust voluntarily dismissed BNY Mellon, whom it had named as a defendant, without prejudice. See Dkt. 9.
On April 14, 2015, Wilmington Trust, in its capacity as First Lien Administrative Agent, removed this action to this Court. Dkt. 1. Before the removal, the proposed intervenors here-Titan, MSCG, and J. Aron-had each moved to intervene in state court. Dkt. 9; Dkt. 12. Those motions were pending as of the time of removal. Dkt. 9; Dkt. 12.
On April 20, 2015, this Court held an initial conference and set a briefing schedule for the proposed intervenors' motions for intervention, Delaware Trust's anticipated motion for remand (including based on a claim of mandatory abstention), and Wilmington Trust's anticipated motion to transfer the case to the Bankruptcy Court. See Dkt. 26; Dkt. 63.
As to the issue of intervention: (1) on April 24, 2015, Titan moved to intervene, Dkt. 31, and filed a memorandum of law and two declarations in support, Dkt. 34, 37, 38; (2) on April 27, 2015, MSCG and J. Aron jointly moved to intervene, Dkt. 39, and filed a memorandum of law and two declarations in support, Dkt. 40-42; (3) on May 1, 2015, Delaware Trust filed a memorandum of law in opposition, Dkt. 46, and (4) on May 6, 2015, Titan filed a reply brief in further support, Dkt. 53, as did MSCG and J. Aron, Dkt. 62.
As to the issues of remand and transfer: (1) on April 28, 2015, Delaware Trust filed a motion to remand the case to state court, Dkt. 43, and a declaration and memorandum of law in support, Dkt. 44-45; (2) on May 6, 2015, Wilmington Trust filed a motion to transfer the case to the District of Delaware, Dkt. 61, and a declaration and a memorandum of law in support, Dkt. 58, 60; (3) the same day, all three proposed intervenors filed a joint motion to transfer the case to the District of Delaware, Dkt. 55, and two declarations and a memorandum of law in support, Dkt. 56, 57, 59, which also opposed Delaware Trust's remand motion, and (4) on May 11, 2015, Delaware Trust filed a reply brief, Dkt. 65, as well as a declaration in further support of remand and opposing transfer, Dkt. 66. On May 13, 2015, the Court held argument. See Dkt. 68 ("Tr").
Federal Rule of Civil Procedure 24(a)(2) provides that "[o]n timely motion, the court must permit anyone to intervene who . . . claims an interest relating to the property or transaction that is the subject of the action, and is so situated that disposing of the action may as a practical matter impair or impede the movant's ability to protect its interest, unless existing parties adequately represent that interest." The Second Circuit has set out a four-part test, each part of which must be satisfied for a party to intervene as of right:
As to the first requirement, timeliness, courts consider the case chronology as well as "(1) how long the applicant had notice of the interest before it made the motion to intervene; (2) prejudice to existing parties resulting from any delay; (3) prejudice to the applicant if the motion is denied; and (4) any unusual circumstances militating for or against a finding of timeliness." United States v. Pitney Bowes, Inc., 25 F.3d 66, 70 (2d Cir.1994).
As to the second requirement, interest, a party is entitled to intervene when it "claims an interest relating to the property or transaction which is the subject matter of the action." Jakubik v. Schmirer, No. 13 Civ. 4087(PAE), 2013 WL 3465857, at *1 (S.D.N.Y. July 9, 2013) (quoting Bolton, 450 Fed.Appx. at 83). This interest "must be `direct, substantial, and legally protectable.'" Brennan v. N.Y.C. Bd. of Educ., 260 F.3d 123, 129 (2d Cir.2001) (quoting Wash, Elec. Coop., Inc. v. Mass. Muni. Wholesale Elec. Co., 922 F.2d 92, 97 (2d Cir.1990)).
As to the third requirement, impairment, the proposed intervenor must show that his interest may be impaired by the disposition of the action, see id., which can be satisfied by asserting that "as a practical matter," an adverse decision may "compromise[ ]" the party's claims, Hartford Fire Ins. Co. v. Mitlof 193 F.R.D. 154, 161-62 (S.D.N.Y.2000) (citing N.Y. Pub. Interest Research Grp., Inc. v. Regents of the Univ. of N.Y., 516 F.2d 350 (2d Cir. 1975)).
As to the final requirement, adequacy, a proposed intervenor's interests cannot be "identical" to those of other parties, and cannot be adequately represented by another party. See, e.g., Jakubik, 2013 WL 3465857, at *1. This burden, however, "should be treated as minimal." Trbovich v. United Mine Workers of Am., 404 U.S. 528, 538 n. 10, 92 S.Ct. 630, 30 L.Ed.2d 686 (1972).
Rule 24 also provides for permissive intervention: "On timely motion, the court may permit anyone to intervene who. . . has a claim or defense that shares with the main action a common question of law or fact." Fed. R. Civ. P. 24(b)(1). In exercising its discretion, the court must consider whether intervention "will unduly delay or prejudice the adjudication of the original parties' rights." Fed. R. Civ. P. 24(b)(3). Additional relevant factors include "[1] the nature and extent of the intervenors' interests,' [2] the degree to which those interests are `adequately represented by other parties,' and [3] `whether parties seeking intervention will significantly contribute to [the] full development of the underlying factual issues in the suit and to the just and equitable adjudication of the legal questions presented.' Diversified Grp., Inc. v. Daugerdas, 217 F.R.D. 152, 157 (S.D.N.Y.2003) (quoting H.L. Hayden Co. of N.Y. v. Siemens Med. Sys., Inc., 797 F.2d 85, 89 (2d Cir.1986)). This rule is "to be liberally construed" in favor of intervention. Degrafinreid v. Ricks, 417 F.Supp.2d 403, 407 (S.D.N.Y.2006).
Proposed intervenors MSCG and J. Aron easily satisfy the requirements for intervention as of right. Their motion to intervene was timely-they so moved almost immediately, and their intervention has neither delayed this proceeding nor prejudiced any party. They have significant interests at stake, and stand to be harmed if Delaware Trust prevails and the Postpetition Allocation Method is chosen: The interest rate on their debt instruments is lower than that applicable to the First Lien Noteholders whom Delaware Trust represents, such that choice of that methodology would disfavor them. Finally, no other party represents the swap holders or can adequately advocate their position. Perhaps for this reason, Delaware Trust has not opposed this intervention motion on the merits. See Dkt. 46, at 8 (conceding that it "does not object to the Secured Swap Providers intervening in this case before this Court"). The Court therefore grants the joint motion of MSCG and J. Aron to intervene.
As to Titan's motion to intervene, the Court holds that, at a minimum, Titan may intervene permissively. Its motion was timely and caused neither delay nor prejudice. Its interests, as a holder of some $50 million in bank debt, are substantial, and, as with MSCG and J. Aron, stand to be impaired if the Postpetition Allocation Method were chosen. The Court cannot assess at this time whether Titan's interests will be adequately represented by Wilmington Trust, but it is clear from Titan's submissions that its participation will helpfully contribute to the Court's understanding and just resolution of the issues in play. Courts have similarly found permissive intervention justified where a party "assert[s] an interest in a portion of the escrow fund at issue," because "common questions of law and fact exist that warrant joint adjudication." Tide Nat'l Gas Storage, 2012 U.S. Dist. LEXIS 188864, at *5. Titan's motion to intervene is therefore granted.
A "federal court has leeway `to choose among threshold grounds for denying audience to a case on the merits.'" Sinochem Int'l Co. v. Malaysia Int'l Shipping Corp., 549 U.S. 422, 431, 127 S.Ct. 1184, 167 L.Ed.2d 15 (2007) (quoting Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 585, 119 S.Ct. 1563, 143 L.Ed.2d 760 (1999)). Here, Delaware Trust's motion to remand and Wilmington Trust's motion to transfer are, in large measure, two sides of the same coin. In brief, if this dispute arises under, or arises in, TCEH's ongoing bankruptcy proceeding, it must be transferred to the Delaware Bankruptcy Court, which is overseeing that ongoing-and swiftly progressing-proceeding. If, however, this dispute does not arise under or in that bankruptcy proceeding, but merely relates to it, then abstention in favor of state-court resolution may be warranted, provided that the state court can timely resolve the dispute. Finally, if this dispute does not have any nexus to a bankruptcy proceeding, then federal jurisdiction is lacking and this case must be remanded to state court.
The Court first addresses the remand motion, and then analyzes the transfer motion. See Lothian Cassidy, LLC v. Lothian Exploration & Dev. II, L.P., 487 B.R. 158,
Under 28 U.S.C. § 1452(a), "[a] party may remove any claim or cause of action in a civil action . . . to the district court for the district where such civil action is pending, if such district court has jurisdiction of such claim or cause of action under section 1334 of this title." The party that seeks to remove the case to federal court bears the burden of establishing that the federal district court has jurisdiction. McNutt v. Gen. Motors Acceptance Corp., 298 U.S. 178, 189, 56 S.Ct. 780, 80 L.Ed. 1135 (1936); Linardos v. Fortuna, 157 F.3d 945, 947 (2d Cir.1998). "[O]ut of respect for the limited jurisdiction of the federal courts and the rights of states, [courts] must `resolv[e] any doubts against removability.'" In re Methyl Tertiary Butyl Ether Prods. Liab. Litig., 488 F.3d 112, 124 (2d Cir.2007) (quoting Somlyo v. J. Lu-Rob Enters., Inc., 932 F.2d 1043, 1045-46 (2d Cir.1991)); accord Purdue Pharma L.P. v. Kentucky, 704 F.3d 208, 220 (2d Cir.2013).
Under 28 U.S.C. § 1334(b), district courts-and thus bankruptcy courts-have jurisdiction over "all civil proceedings arising under title 11, or arising in or related to cases under title 11." See generally Stern v. Marshall, ___ U.S. ___, 131 S.Ct. 2594, 2603, 180 L.Ed.2d 475 (2011); see also Baker v. Simpson, 613 F.3d 346, 350-51 (2d Cir.2010). The three types of jurisdiction that such courts may exercise under § 1334 are "colloquially referred to as `arising under,' arising in,' and `related to' jurisdiction." Lothian Cassidy, 487 B.R. at 161 (quoting In re Ames Dep't Stores, Inc., 317 B.R. 260, 269 (Bankr.S.D.N.Y. 2004)). Thus, the threshold question for this Court is whether jurisdiction exists on any of these three grounds here. These grounds are defined as follows:
"Arising in" jurisdiction: Although the precise definition of a proceeding "arising in" Title 11 is "not entirely clear," the Second Circuit has held that "it covers claims that `are not based on any right expressly created by [T]itle 11, but nevertheless, would have no existence out-side of the bankruptcy.'" Baker, 613 F.3d at 350-51 (quoting In re Wood, 825 F.2d 90, 97 (5th Cir.1987)). A claim arises in a bankruptcy proceeding if it "would have no practical existence but for the bankruptcy." Id. at 351 (quoting Grausz v. Englander, 321 F.3d 467, 471 (4th Cir.2003)).
"Related to" jurisdiction: Finally, a civil action is "related to" a Title 11 case if the action's "outcome might have any `conceivable effect' on the bankrupt estate." Parmalat Capital Fin. Ltd. v. Bank of Am. Corp., 639 F.3d 572, 579 (2d Cir.2011) (quoting In re Cuyahoga Equip. Corp., 980 F.2d 110, 114 (2d Cir.1992)). Thus, an "action is related to bankruptcy if the outcome could alter the debtor's rights, liabilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankrupt estate." In re New 118th LLC, 396 B.R. 885, 890 (Bankr.S.D.N.Y.2008) (quoting Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984)).
A court asked to abstain on this ground must be mindful, on the one hand, that Congress "inten[ded] to define `core' bankruptcy proceedings expansively," Baker, 613 F.3d at 351 (citing In re CBI Holding Co., 529 F.3d 432, 460-61 (2d Cir.2008)), and that "core" proceedings are to be given "broad interpretation that is close to or congruent with constitutional limits," In re U.S. Lines, Inc., 197 F.3d 631, 637 (2d Cir.1999) (quoting In re Best Prods. Co., 68 F.3d 26, 31 (2d Cir.1995); accord In re S.G. Phillips Constructors, Inc., 45 F.3d 702, 705 (2d Cir.1995), and on the other, that mere efficiency cannot justify an unlawful exercise of authority, see, e.g., Stern, 131 S.Ct. at 2619. Where (as here) a case has been removed from state court and a party (like Delaware Trust here) urges mandatory absention, six criteria must be met to support such abstention: (1) a "timely" motion for abstention must have been brought; (2) the action must be based upon a state law claim; (3) the action must be "related to" a bankruptcy proceeding, as opposed to "arising under" the Bankruptcy Code or "arising in" a case under the Bankruptcy Code; (4) the sole federal jurisdictional basis for the action must be Section 1334; (5) the action must have been "commenced" in state court; and (6) the action must be capable of being "timely adjudicated" in state court. Trs. of Masonic Hall & Asylum Fund v. Pricewaterhousecoopers LLP, No. 08 Civ. 10494(GEL), 2009 WL 290543, at *4 (S.D.N.Y. Feb. 6, 2009); In re World-Com, Inc. Sec. Litig., 293 B.R. 308, 331 (S.D.N.Y.2003); see generally Mt. McKinley Ins. Co. v. Corning Inc., 399 F.3d 436, 446 (2d Cir.2005).
A final potentially relevant doctrine is that of permissive abstention, based on 28 U.S.C. § 1334(c)(1). It provides that, where federal jurisdiction exists, "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). In deciding whether to abstain on this ground, courts weigh considerations of comity and federalism, judicial economy, and efficiency, including:
Lothian Cassidy, 487 B.R. at 165 (citations omitted). A court should proceed carefully before permissively abstaining, however, because federal courts have a "`virtually unflagging obligation . . . to exercise the jurisdiction given them,' and may abstain only for a few `extraordinary and narrow exception[s]: " In re WorldCom, 293 B.R. at 332 (quoting Co/o. River Water Conserv. Dist. v. United States, 424 U.S. 800, 817, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976)).
The requirements for "relating to" jurisdiction are clearly met in this case because resolution of the allocation dispute certainly could have, at a minimum, a "conceivable effect" on TCEH's bankruptcy estate. Among other things, the present dispute will directly affect the allocation of money currently in TCEH's coffers-i.e., the distribution of the debtor's current property-because plaintiff Delaware Trust seeks a declaration, and specific performance, that all past and future monthly adequate protection payments be allocated based on the Postpetition Allocation Method. See Compl. ¶ 43; see also infra, pp. 20-21. In addition, TCEH's proposed plan of reorganization itself uses the Petition Date Allocation Method rather than the Postpetition Allocation Method, see Rosenberg Deck, Ex. D; see also Shea Decl., Ex. B, which reflects the extent to which the choice of allocation here is intertwined with, and may well affect, broader confirmation issues in this bankruptcy. See generally In re WorldCom, 293 B.R. at 317 ("[A]n action has a `conceivable effect' if the outcome could alter the debtor's rights, liabilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankrupt estate.") (quoting Celotex Corp. v. Edwards, 514 U.S. 300, 308 n. 6, 115 S.Ct. 1493, 131 L.Ed.2d 403 (1995)); see also infra, pp. 21-24.
Federal jurisdiction therefore exists here. However, the determination that "related to" jurisdiction alone exists here would not resolve the key issue that divides the parties: whether the allocation dispute is to be resolved in a federal or state forum. That is because Delaware Trust vigorously argues that if the only basis for federal jurisdiction is "related to" jurisdiction, the Court must abstain in favor of the New York state courts, which, it argues, can promptly resolve this dispute by applying familiar principles of state contract law to the Intercreditor Agreement. The Court therefore must resolve whether "arising under" or "arising in" jurisdiction exists (in which case this is a core proceeding and the doctrine of mandatory jurisdiction does not apply).
For several independent reasons, the Court holds that this dispute "arises in" Title 11. As a result, this is a core proceeding, and mandatory abstention does not apply.
First, reviewing the history of this dispute, it is clear that it "would have no practical existence but for" the bankruptcy proceedings, Baker, 613 F.3d at 351 (citation omitted), as the need to afford adequate protection for creditors with respect to their interests in cash collateral flows directly from the Bankruptcy Code, which in turn was triggered by TCEH's bankruptcy filing.
That is what happened in this case. However, complicating matters, TCEH's creditors dispute among themselves the methodology for prioritizing their respective interests in such collateral because, it appears, the Intercreditor Agreement is less than optimally clear as to which allocation methodology would apply upon a bankruptcy filing: the Petition Date or the Postpetition Allocation Method. Given this dispute's origins and nature, it could only have arisen during, and in connection with, ongoing bankruptcy proceedings.
Indeed, tellingly, the parties had been signatories to the Intercreditor Agreement since 2007, but no such dispute emerged until TCEH's bankruptcy filing. In re Ben Cooper, Inc., 896 F.2d 1394, 1400 (2d Cir.1990) ("We hold that the timing of a dispute may render it uniquely a bankruptcy case."), vacated sub nom. Ins. Co. of State of Pa. v. Ben Cooper, Inc., 498 U.S. 964, 111 S.Ct. 425, 112 L.Ed.2d 408 (1990), and opinion reinstated, 924 F.2d 36 (2d Cir.1991). Such is unsurprising, as the concept of adequate protection derives from the Bankruptcy Code. See 11 U.S.C. § 362(d)(1); In re Markos Gurnee P'ship, 252 B.R. 712, 713 (Bankr.N.D.Ill.1997), aff'd sub nom. First Midwest Bank v. Steege, No. 97 Civ. 3571(CRN), 1998 WL 295507 (N.D.Ill. May 21, 1998) ("Adequate protection is a concept created by the Bankruptcy Code (Title 11, U.S.C.), and hence the present proceeding, which seeks to enforce an order for adequate protection could only take place in a bankruptcy case. Such proceedings `arise in' cases under Title 11, and therefore are within the jurisdiction of the district court pursuant to 28 U.S.C. § 1332(b).") (citing In re Wolverine Radio Co., 930 F.2d 1132, 1144-45 (6th Cir.1991)). Moreover, integral to the creditors' dispute itself is the concept of a "petition date"-hence the choice between "Petition Date" and "Postpetition" allocation methodologies. The petition date pivot, of course, would not exist but for TCEH's bankruptcy petition.
Second, the present dispute among creditors will affect the allocation of money currently in the Debtors' coffers, and the allocation of such money is itself a core bankruptcy function. See 28 U.S.C. § 157(b)(2)(A); see also In re Orion Pictures Corp., 4 F.3d 1095, 1102 (2d Cir. 1993) ("[I]t is clear that Congress intended § 157(b)(2)(A)'s designation of matters relating to the administration of the estate as core to encompass a wide range of matters. . . ."). To be sure, money previously paid into escrow is outside the bankruptcy estate. But Delaware Trust, the plaintiff, seeks a declaration, and specific performance, that all past and future monthly adequate protection payments be allocated based on the Postpetition Allocation Method. Compl. ¶ 43 ("Plaintiff Delaware Trust requests a declaratory judgment that the Monthly Payments must be allocated among the First Lien Creditors using the Post-Petition Interest Allocation Calculation and, as a result, all Holdback Amounts with respect to past and future Monthly Payments must be allocated for the benefit of the First Lien Noteholders.") (emphasis added). In other words, Delaware Trust wants all future adequate protection payments-funds currently in the Debtors' coffers-to be allocated pursuant to its preferred method. See Tr. 33 ("THE COURT: This is not a purely retrospective action-[C UNSE L FOR PLAINTIFF]: That's correct.").
In light of this request for relief, the present dispute unavoidably affects current property of the Debtors' estate. See 11 U.S.C. § 541(a). Arid because it directly bears on the distribution of the Debtors' current property, this controversy "concern[s] the administration of the estate" by the Bankruptcy Court, which in turn is a core bankruptcy function under 28 U.S.C. § 157(b)(2)(A). See, e.g., U.S. Lines, Inc., 197 F.3d at 637 ("Core bankruptcy functions. . . include . . . `administer[ing] all property in the bankrupt's possession.")
Third, although Delaware Trust characterizes this matter as merely a contract dispute, the case law makes clear that a contract dispute can be core to bankruptcy proceedings depending on its nature, and the nature of the dispute here makes it a core bankruptcy dispute. In In re U.S. Lines, Inc., supra, the Second Circuit explained that: whether a contract proceeding is core depends on (1) whether the contract is antecedent to the reorganization petition; and (2) the degree to which the proceeding is independent of the reorganization. The latter inquiry hinges on "the nature of the proceeding." In re S.G. Phillips Constructors, Inc., 45 F.3d at 707 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, see, e.g., id. at 706 (claim allowance), or (2) the proceedings directly affect a core bankruptcy function, see, e.g., In re Best Prods. Co., 68 F.3d at 31 (contractual subordination agreements affecting priority of claims). Core bankruptcy functions of particular import to the instant proceedings include "[f]ixing the order of priority of creditor claims against a debtor," id., "plac[ing] the property of the bankrupt, wherever found, under the control of the court, for equal distribution among the creditors,'" M acArth ur Co. v. Johns-Manville Corp. (In re Johns-Man vilie Corp.), 837 F.2d 89, 91 (2d Cir.1988) (quoting Straton v. New, 283 U.S. 318, 320-21, 51 S.Ct. 465, 75 L.Ed. 1060 (1931)), and "administer[ing] all property in the bankrupt's possession," Straton, 283 U.S. at 321, 51 S.Ct. 465.
197 F.3d at 637.
Here, although the contract in the present case preceded the bankruptcy, the dispute did not. Far from being "independent" of the bankruptcy, this dispute emerged in the bankruptcy proceedings, would not exist absent those proceedings, and is intertwined with them. Indeed, notably, in the bankruptcy court, Aurelius-one of the First Lien Noteholders whom plaintiff Delaware Trust represents-advised the bankruptcy court that the monthly payment allocation dispute was "an issue that's going to flow through this case." Rosenberg Deck, Ex. I at 232. And Aurelius described the outcome of the allocation dispute as a "precursor to how distributions might be made under a plan" of reorganization. Id. Consistent with Aurelius's forecast, the Debtors have recently filed a proposed plan of reorganization that would use the Petition Date Allocation Method, rather than the Postpetition Allocation Method that plaintiff seeks here.
The present dispute is therefore particular to and "uniquely affected by" this bankruptcy. U.S. Lines, Inc., 197 F.3d at 637; S.G. Phillips Constructors, Inc., 45 F.3d at 706. It also appears likely to "directly affect a core bankruptcy function"-whether to confirm a proposed plan of reorganization. U.S. Lines, Inc., 197 F.3d at 637; Best Prods. Co., 68 F.3d at 31. The determination in U.S. Lines therefore applies here: "Notwithstanding that the . . . claims are upon pre-petition contracts, we conclude that the impact these contracts have on other core bankruptcy functions nevertheless render the proceedings core." 197 F.3d at 638; accord Straton, 283 U.S. at 321, 51 S.Ct. 465; 28 U.S.C. § 157(b)(2)(A).
Delaware Trust's depiction of this dispute as a routine contract action involving a pre-bankruptcy contract is, therefore, misleading. It presents this action outside of, its legal and factual context, which are essential to determining whether the claim at issue is "independent" of the bankruptcy proceedings. U.S. Lines, Inc., 197 F.3d at 637. For the reasons reviewed above, the context here reveals that the resolution of this dispute arises from and is bound up with the broader bankruptcy and plan confirmation process.
Fourth, it appears that the court that resolves the allocation dispute may be called upon to consider the interaction between provisions of the Intercreditor Agreement and bankruptcy law and principles. Two examples illustrate the point. First: As noted, Delaware Trust seeks a declaration that monthly adequate protection payments should be allocated based on the accrual of post petition interest. However, under the Bankruptcy Code, interest is no longer to accrue on the First Lien obligations unless they are oversecured or the Debtors are solvent. See 11 U.S.C. § 506(b); United Say. Ass'n of Texas v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365, 372-73, 108 S.Ct. 626, 98 L.Ed.2d 740 (1988) ("Since this provision [§ 506(b)] permits post-petition interest
To be sure, the merits of the dispute over allocation methodology have not been briefed to this Court. The Court does not intend for the above commentary to limit or focus the analysis ultimately used to resolve this dispute. But the Court has been given enough of a preview to suggest that applying and construing bankruptcy law may well prove relevant to its resolution. And any need to consider such law would be a byproduct of the pending bankruptcy proceeding. Otherwise, these issues would not arise. The likely relevance of bankruptcy law supports a finding of "arising in" jurisdiction. See U.S. Lines, Inc., 197 F.3d at 637.
The Court therefore holds that "arising in" jurisdiction exists.
In light of this holding that the claims here are core bankruptcy claims, Delaware Trust's claim of mandatory abstention is moot. See 28 U.S.C. § 1334(c)(2).
The Court has, however, considered Delaware Trust's alternative application that the Court exercise permissive abstention. After considering the relevant
There is, therefore, "every reason practically and substantively to handle this case as part of the [TCEH] bankruptcy," and "comity will not be offended by declining abstention." Lothian Cassidy, 487 B.R. at 165 (quoting Lothian Cassidy LLC v. Ransom, 428 B.R. 555, 560 (E.D.N.Y. 2010)).
Transfer of venue with respect to "core" proceedings is governed by 28 U.S.C. § 1412, which provides: "A district court may transfer a case or proceeding under title 11 to a district court for another district, in the interest of justice or for the convenience of the parties." See also McHale v. Citibank, N.A., No. 09 Civ. 6064(SAS), 2009 WL 2599749, at *5 (S.D.N.Y. Aug. 24, 2009). In determining whether to transfer under 28 U.S.C. § 1412, courts consider the same factors as under the general transfer provision, 28 U.S.C. § 1404(a). Lothian Cassidy, 487 B.R. at 165. The goals of § 1404 are to prevent waste of time, energy, and money, and to protect litigants, witnesses, and the public against unnecessary inconvenience and expense. See Ritchie Capital Mgmt., L.L.C. v. U.S. Bank Nat'l Ass'n, No. 14 Civ. 8513(PAE), 2015 WL 1611391, at *3 (S.D.N.Y. Apr. 10, 2015); Ritchie Capital Mgmt., L.L.C. v. BMO Harris Bank, N.A., No. 14 Civ.1936(ER), 2015 WL 1433320, at *7 (S.D.N.Y. Mar. 30, 2015).
In deciding motions to transfer venue under § 1404(a), courts inquire, first, "whether the action could have been brought in the transferee district and, if yes, whether transfer would be an appropriate exercise of the Court's discretion," taking into account a variety of factors, including, inter alia, convenience to affected
The answer to the first question under § 1404(a) is yes: This action could have been brought in the District of Delaware. Delaware is where the bankruptcy proceedings are pending. See 28 U.S.C. § 1409(a) ("[Al proceeding arising under title 11 or arising in or related to a case under title 11 may be commenced in the district court in which such case is pending."). And in the Cash Collateral Order, the Bankruptcy Court retained non-exclusive jurisdiction, stating: "The Holdback Amount shall be held in the Escrow Account pending further order of this Court (or another court of competent jurisdiction) approving an allocation of the Holdback Amount among the Prepetition First Lien Creditors." Rosenberg Deck, Ex. B at 33. Moreover, even apart from the nexus to the bankruptcy proceedings, this case could have been initiated in Delaware because Delaware Trust is a Delaware entity with its main corporate headquarters in Delaware, and Wilmington Trust also has its main office in Delaware. Compl. 1111 9-10; see also Hertz Corp. v. Friend, 559 U.S. 77, 92-93, 130 S.Ct. 1181, 175 L.Ed.2d 1029 (2010) (finding corporation to be citizen of state where it has its principal place of business, referring to the "place where the corporation's officers direct, control, and coordinate the corporation's activities"). Accordingly, venue would be proper in the District of Delaware.
As to the second question under § 1404(a), involving whether transfer would be a proper exercise of discretion, the interests of justice are furthered when a case is transferred to a venue that would promote judicial economy. See, e.g., JPMorgan Chase Bank, N.A. v. Coleman-Toll Ltd. P'ship, No. 08 Civ. 10571(RJS), 2009 WL 1457158, at *8 (S.D.N.Y. May 26, 2009). The "existence of a related action pending in the transferee court weighs heavily towards transfer." Id. (citation omitted); accord CCM Pathfinder Pompano Bay, LLC v. Compass Fin. Partners LLC, 396 B.R. 602, 608 (S.D.N.Y.2008); Nat'l Union Fire Ins. Co. v. Torte); 743 F.Supp. 260, 263 (S.D.N.Y.1990). A transfer is particularly appropriate when the related lawsuit "involv[es] the same facts, transactions, or occurrences." Coleman-Toll Ltd. P'ship, 2009 WL 1457158, at "8 (quoting Nieves v. Am. Airlines, 700 F.Supp. 769, 773 (S.D.N.Y.1988)). The reason is clear: Litigating related actions in the same tribunal fosters efficient case administration, avoids needless expense, See, e.g., Wyndham Assocs. v. Bintliff, 398 F.2d 614, 619 (2d Cir.1968); Ritchie Capital Mgmt., L.L.C. v. JPMorgan Chase & Co., 532 B.R. 461, 472-473 (S.D.N.Y.2014).
These considerations strongly favor transferring this matter to the District of Delaware, within which it will be referred to the Bankruptcy Court under the standing order of reference in that District. See Amended Standing Order of Reference (D.Del. Feb. 29, 2012). As noted, this action is closely related to the
A transfer is also convenient for the parties. It gives them a single court to resolve their various disputes. Further, of the key parties to this particular dispute, plaintiff Delaware Trust and defendant Wilmington Trust are Delaware citizens; the Debtors are present and actively litigating in Delaware; and the intervenors have indicated their support for transfer, see Dkt. 55, 59, and regularly participate in the bankruptcy proceedings.
Here, perhaps the only factor meaningfully weighing against transfer is the plaintiffs choice of forum. See U.S. Nat'l Bank, 2015 WL 1611391, at *7; Keitt, 2013 WL 3479526, at *3. That choice is "presumptively entitled to substantial deference," Gross v. British Broad. Corp., 386 F.3d 224, 230 (2d Cir. 2004), although less so "where the connection between the case and the chosen forum is minimal," U.S. Nat'l Bank, 2015 WL 1611391, at *7 (quoting Keitt, 2013 WL 3479526, at *3). Here, there is a genuine connection to a New York forum, as the Intercreditor Agreement contains a non-exclusive forum selection clause under which the parties consented to jurisdiction and venue in the New York courts. This factor therefore does weigh against transfer. It does not, however, invariably carry the day, as actions have frequently been transferred to jurisdictions where bankruptcy proceedings have been pending notwithstanding permissive forum selection clauses. See, e.g., Foothill Capital Corp. v. Kidan, No. 03 Civ. 3976(RMB), 2004 WL 434412, at *4-5 (S.D.N.Y. Mar. 8, 2004) (action transferred to district where bankruptcy was pending notwithstanding permissive forum selection clause); Industri & Skipsbanken A/S v. Levy, 183 B.R. 58, 64 (S.D.N.Y.1995) (same).
Having carefully considered the § 1404(a) factors in totality, the Court has determined that they compellingly support transfer to the District of Delaware, in the expectation that this matter will then be referred to the Delaware Bankruptcy Court. The Court is particularly convinced by the relative efficiency and convenience of siting this case in the court that is familiar with the general and specific disputes, and is currently overseeing a swiftly proceeding bankruptcy with which the present dispute is intertwined. See Cuyahoga Equip. Corp., 980 F.2d at 117 (retaining bankruptcy court jurisdiction based in part on "strong bankruptcy code policy" favoring "centralized and efficient administration" in bankruptcy court).
For the foregoing reasons, the Court (1) grants the intervenors' motions to intervene, (2) denies Delaware Trust's motion to remand the case to state court, and (3) grants Wilmington Trust's and the intervenors' motions to transfer the case to the District of Delaware, from which it will be referred to the Delaware Bankruptcy Court.
The Clerk of Court is respectfully directed to terminate the motions pending at docket numbers 31, 39, 43, 55, and 61, and to close this case.
SO ORDERED.
