MARTIN C. CARLSON, Magistrate Judge.
There is a certain measure of jurisdictional irony in his case. This litigation began in the Court of Common Pleas of Luzerne County as a malpractice action against the law firm that represented the interests of the plaintiff in a complex bankruptcy case. That bankruptcy case, in turn, was litigated in the United States District Court for the Southern District of New York.
The lawsuit is now before this court. However, the one thing all parties seem to agree upon is that this case should not remain with this court. What divides these parties, and now requires the attention of this court, is the question of the next legal waystation for this litigation. The defendants insist that this litigation should be overseen by the federal court which presided over the bankruptcy litigation, the Southern District of New York. The plaintiff, in turn, invites us to return this litigation to the venue from whence it came, to the Court of Common Pleas of Luzerne County. Upon consideration of the parties' competing positions, for the reasons set forth below, we recommend the following roadmap for this peripatetic lawsuit: The defendants' motion to have this case transferred to the United States District Court for the Southern District of New York be GRANTED and that the Court decline to rule on the plaintiff's motion to remand or the defendants' motion to dismiss so that these motions may be addressed by the bankruptcy court, which has the greatest interest in, and the greatest familiarity with, the issues raised in this litigation.
Stanley Waleski initiated this action on behalf of himself and as many as 4,300 other unsecured creditors of Tronox, Inc., a large chemical company that filed for chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Southern District of New York in January 2009. Waleski and the putative class of plaintiffs he purports to represent (the "Avoca Plaintiffs") recovered a portion of $329 million in damages from a bankruptcy trust that was created as part of the Tronox bankruptcy to compensate victims of environmental contamination that Tronox caused. This recovery was funded by a $5.15 billion settlement of fraudulent transfer claims brought on behalf of the bankruptcy estate in the Southern District of New York — the largest settlement ever obtained in an environmental case. That settlement ensured that creditors like Waleski and the Avoca Plaintiffs — who were allegedly injured as a result of the release of toxic chemicals from Tronox's wood treatment plant in Avoca, Pennsylvania — would enjoy some recovery on their claims, as the settlement provided that 12% of the proceeds of the settlement, along with other funds, would be deposited into a bankruptcy trust for the benefit of these creditors. The terms of the fraudulent transfer settlement, the terms of the reorganization plan that was confirmed by the bankruptcy court, and the procedures for the allocation and distribution of trust funds were litigated and resolved in the Southern District of New York as part of the administration of the Tronox bankruptcy.
During the Tronox bankruptcy, and throughout the post-reorganization proceedings, the Avoca Plaintiffs were represented by the Powell Law Group, P.C. In late January 2009, the Powell Law Group and the defendant in the instant action, Montgomery McCracken Walker & Rhoads LLP ("MMWR") entered into a contingent fee agreement which provided that MMWR would assist in representing Powell Law Group's clients in the Tronox bankruptcy. That agreement provided that MMWR would represent the interests of the Avoca Plaintiffs "in a manner to be mutually agreed with [Powell Law Group]." (Compl., Ex. A, p. 1.) Pursuant to the agreement, MMWR represented the interests of the Avoca Plaintiffs during the Tronox bankruptcy, including being involved in the preparation and confirmation of the reorganization plan. MMWR also represented Avoca Plaintiff Michael E. Carroll as a member of the creditor's committee that was appointed to represent the interests of unsecured creditors, and the bankruptcy court approved payment of MMWR's fees for representing Mr. Carrol in his capacity on the creditor's committee. (Doc. 19, Ex. A, Order Confirming Plan at ¶ 156; Reorganization Plan (attached as Ex. A to Order), Art. XII, § E.)
The plan that the bankruptcy court approved also expressly provided that the United States Bankruptcy Court for the Southern District of New York would retain jurisdiction over all matters arising out of or related to the Tronox chapter 11 case or the reorganization plan, including jurisdiction to:
(Plan, Article XI, §§ 7, 9, 11, 14, 16, 19, 21-22.) The reorganization plan became effective on February 14, 2010. (Compl., ¶ 56.)
During the Tronox bankruptcy proceedings, another group of alleged environmental tort victims from Mississippi also alleged that they had claims against the estate stemming from environmental contamination. (Compl., ¶47.) An ad hoc committee representing the Mississippi claimants filed a collective proof of claim in the bankruptcy court in advance of the claims bar date. (
Frustrated by the diminution of their claims by the bankruptcy court, and foreclosed from seeking relief in Luzerne County, Waleski initiated the instant action by filing another complaint in the Luzerne County Court of Common Pleas, this time naming MMWR and two of its lawyers, Natalie D. Ramsey and Leonard A. Busby, as defendants, alleging that the settlement that he received from Tronox was unreasonably diluted and undervalued, and seeking to recover additional monies from the law firm and its attorneys under a malpractice theory. Waleski now seeks to represent himself and the other Avoca Plaintiffs who previously settled their claims with the bankruptcy trust, alleging that the defendants breached the contingent fee agreement between MMWR and Powell Law Group, and for breach of the same agreement under an intended beneficiary theory. (Compl., Counts I and II.)
On June 4, 2018, MMWR removed the case to this Court pursuant to 28 U.S.C. § 1441(a) and 1452(a). (Doc. 1.) On June 11, 2018, MMWR filed a motion to dismiss the complaint, (Doc. 6), and a second motion to have the case transferred to the United States District Court for the Southern District of New York (Doc. 7). Waleski has opposed these motions and has filed a motion to remand this case to the Court of Common Pleas. (Doc. 11.)
Although the parties disagree about the facts and the law applicable, the motions do make it clear that the parties agree on one thing: neither Waleski nor the defendants believe that this case should remain venued in the United States District Court for the Middle District of Pennsylvania. Upon consideration of the motions, and guided by the substantial weight of relevant legal authority as applied to Waleski's claims and the factual background that gave rise to them, we recommend that the case be transferred to the Southern District of New York, where the plaintiff's motion for remand and the defendants' motion to dismiss may be considered by the Court having the greatest interest in, and familiarity with, this dispute.
The first question we must address in this matter relates to the order in which we should consider, and address, the parties' competing suggestions regarding where his lawsuit should be litigated. In contexts such as this one, where a party's claims either arise out of or relate to a bankruptcy proceeding that is pending or was administered in another court, courts have generally found that motions to transfer venue should be considered before a motion for remand or dismissal.
In the bankruptcy context, 28 U.S.C. § 1412 specifically provides that "[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." Courts have construed this disjunctive language as it is written and found that an action may be transferred if the transfer would be in the interest of justice
The "interest of justice" prong is "broad and flexible,"
Motions to transfer bankruptcy-related proceedings brought under 28 U.S.C. §1412 are also typically subject to certain presumptions regarding transfer. Chief among these presumptions is the principle that when a civil case is filed that is related to a bankruptcy proceeding venued elsewhere, the case should be litigated in the district where the bankruptcy was filed.
Second, this resumption in favor of transfer of an action to the bankruptcy court is further buttressed in a case such as this where the bankruptcy court has expressly retained continuing jurisdiction over matters arising out of the bankruptcy. In such instances courts presume that the bankruptcy court is generally the appropriate venue if the bankruptcy court expressly retained jurisdiction over the dispute.
Third, courts frequently find that transfer to the bankruptcy court is more likely to achieve judicial economy and avoid inconsistency.
Applying these presumptions to the instant case, we find that they weigh in favor of transferring Waleski's claims to the Southern District of New York.
At the outset, Waleski's claims plainly arose in the context of the Tronox bankruptcy and seek to challenge MMWR's representation of his and other creditor interests in that proceeding. Moreover, the bankruptcy court expressly retained jurisdiction over the very claims that Waleski seeks to bring here, regardless of the theories he applies to them. Waleski is challenging counsel's representation of the Avoca Plaintiffs' interests, but that representation also goes directly to the plan that the bankruptcy court approved, the tort claims distribution procedures that were thoroughly litigated in those proceedings, and the eventual allowance of claims, (Compl., ¶¶ 49, 53, 56, 58, 66-67, 85-87, 103-05), all of which falls squarely within the broad reservation of the bankruptcy court's jurisdiction as set forth in the plan that the court confirmed. (Plan, Art. XI, §§ 7, 9, 11, 14, 16, 19, 21-22.)
We also agree with the defendants that having Waleski's case transferred to the Southern District of New York is likely to lead to greater judicial economy by having the entire controversy considered in the venue with the most familiarity with the complex bankruptcy proceedings that were litigated and resolved there. This is particularly true because Waleski's attack on counsel's representation relates directly to the bankruptcy court's own rulings regarding the Avoca Plaintiffs' objections to the Mississippi claims, and its rulings on the allowance of claims and the trust distribution process. It would seem to make little sense to have this Court evaluate counsel's representation in that context, which would involve analyzing and potentially questioning the bankruptcy court's own resolution of the Avoca Plaintiffs' objections, and the distribution that the Avoca Plaintiffs eventually received.
Aside from finding that these factors strongly counsel for a transfer of this action to the bankruptcy court, we also agree with the defendants that a number of the § 1404 factors militate in favor of transfer. Although the Avoca Plaintiffs' choice of forum is to be given consideration, we believe that the court best suited to determining whether their preferred choice of forum — the Luzerne County Court of Common Pleas — is the proper place to resolve dispute is the Southern District of New York. Transferring the case to the court which presided over the underlying bankruptcy will allow that matter to be addressed by the court in the best position to determine this threshold question. Yet, that transfer does not necessarily prejudice Waleski since the bankruptcy presiding court would remain entirely free to grant the plaintiff's motion to remand. Furthermore, regardless of Waleski's preference regarding forum, the "overwhelmingly significant factor" of judicial economy,
The second and third factors — the defendant's choice of forum, and the place where the underlying claim arose — both weigh in favor of transfer. The defendants prefer to be in the Southern District of New York, and Waleski's claims grew directly out of the defendants' representation of the Avoca Plaintiffs in the bankruptcy proceedings that were administered in that district.
Most of the other remaining factors we are called upon to consider are generally neutral, and do not supply sufficient basis to override the presumption that this case should be transferred. The location of the parties and witnesses would not make the transfer of these proceedings to the Southern District of New York a particular hardship. Moreover, and Waleski's counsel is sophisticated and would appear to have the resources to litigate this matter in either venue. Further, nothing in the complaint suggests that potential witnesses would be unavailable if this case were transferred at most two hours from where it is currently venued, and Waleski has not persuasively argued that either of these factors militates in favor of this Court retaining jurisdiction.
Considerations regarding the enforceability of judgments, administrative burdens, or public policies that may be implicated are at most neutral and may in fact favor transfer given the Southern District of New York's predominant interest in this matter as it relates to a large bankruptcy that was administered in that district. Moreover, factors relating to expense and efficiency tilt in favor of transferring the case, because the bankruptcy court has far more familiarity with the bankruptcy proceedings and the issues raised in the instant litigation as they relate to those proceedings.
The tenth factor regarding local interest in the matter, and the twelfth factor concerning familiarity with the applicable law, likewise weigh in favor of transfer. The Southern District of New York has substantially more familiarity with the events and circumstances that give rise to Waleski's claims than does this Court, particularly since Waleski is challenging the adequacy of counsel's representation within the bankruptcy proceedings and the claims allowance process that were fully litigated in the Southern District of New York. Again, given that judicial economy is of paramount importance in this analysis, these factors combine to weigh in favor of transfer.
In summary, given that Waleski's and the Avoca Plaintiffs' claims arise out of the Tronox bankruptcy, and the representation of counsel in those proceedings, we recommend that the Court conclude that these claims should be considered in the first instance by the "home court" that oversaw the bankruptcy and has familiarity with counsel's conduct during the bankruptcy litigation.
Accordingly, IT IS RECOMMENDED that the defendants' motion to have this case transferred to the United States District Court for the Southern District of New York (Doc. 7),be GRANTED and that the Court decline to rule on the plaintiff's motion to remand (Doc. 11), or the defendants' motion to dismiss (Doc. 6) so that these motions may be addressed by the bankruptcy court, which has the greatest interest in, and the greatest familiarity with, the issues raised in this litigation.
The parties are placed on notice that pursuant to Local Rule 72.3: