Janusz Kecki v. Texas Enterprises, LLC

• Court: Court of Chancery of Delaware
• Decided: July 30, 2021
• Docket: C.A. No. 2017-0892-MTZ
• Status: Published

Opinion

COURT OF CHANCERY OF THE STATE OF DELAWARE

MORGAN T. ZURN LEONARD L. WILLIAMS JUSTICE CENTER VICE CHANCELLOR 500 N. KING STREET, SUITE 11400 WILMINGTON, DELAWARE 19801-3734

July 30, 2021

Via U.S. Mail Via File & ServeXpress Janusz Kecki Tiffany M. Shrenk, Esquire 9050 Cherry Avenue MacElree Harvey, Ltd. Orangevale, CA 95662 5721 Kennett Pike Centreville, DE 19807 Via U.S. Mail Derek Chabrowski 43021 North 43rd Drive Phoenix, AZ 85087

RE: Janusz Kecki, et al. v. Texas Enterprises, LLC, Civil Action No. 2017-0892-MTZ

Dear Mr. Kecki, Mr. Chabrowski, and Counsel,

I write to address the motion for summary judgment and to dismiss

(the “Motion”) filed by defendant Texas Enterprises, LLC (“Enterprises,” or

the “Company”), which has been deemed unopposed by plaintiffs Janusz Kecki

and Derek Chabrowski (collectively, “Plaintiffs”).1 The Motion presents the

question of whether Plaintiffs may ask this Court to revisit the accuracy of the

Company’s equityholders as of March 2, 2015, as presented to the United States

Bankruptcy Court for the Eastern District of Texas (the “Bankruptcy Court”) with

1 Docket Item (“D.I.”) 77. Janusz Kecki, et al. v. Texas Enterprises, LLC, Civil Action No. 2017-0892-MTZ July 30, 2021 Page 2 of 9

the Company’s petition for bankruptcy. I conclude this Court lacks subject matter

jurisdiction to do so, and grant the Motion and dismiss Plaintiffs’ claim.

I. BACKGROUND

On March 2, 2015, Enterprises filed a voluntary petition for Chapter 11

proceedings in the Bankruptcy Court.2 The petition included a “List of Equity

Security Holders” (the “List”) listing four individuals, including Kecki with a 15%

stake3 Chabrowski was not on the List, and was instead identified as a creditor.4

On March 17, 2016, the Bankruptcy Court entered an Order Confirming the First

Amended Plan of Reorganization of the Company.5

On December 14, 2017, Plaintiffs filed a pro se complaint in this Court

seeking a declaratory judgment to identify the equity owners of the Company at the

time it entered into the Chapter 11 proceedings.6 Specifically, Plaintiffs challenge

the accuracy of the List; Chabrowski contends he held a 15% stake in the

Company on March 2, 2015,7 when the bankruptcy petition was filed (the “Petition

2 D.I. 78. The bankruptcy case is Case No. 15-20032. 3 Id. 4 Id. 5 See D.I. 21 Ex A. 6 See D.I. 1 [hereinafter “Compl.”]. 7 D.I. 11 at 10. Janusz Kecki, et al. v. Texas Enterprises, LLC, Civil Action No. 2017-0892-MTZ July 30, 2021 Page 3 of 9

Date”). Plaintiffs allege the List and bankruptcy petition were submitted “for the

sole purpose of defrauding the shareholders of their investments in the company.”8

On April 17, 2018, Plaintiffs moved for summary judgment, which I denied

at the November 14 hearing and in an order that same day.9 While Kecki’s interest

appeared undisputed, Chabrowski’s interest was disputed and other issues

precluded summary judgment.10 In particular, I asked the parties to provide

supplemental briefing on “(i) whether the confirmation plan in the Chapter 11

proceedings released or barred any of Plaintiffs’ claims, [and] (ii) whether the

Bankruptcy Court made any factual or legal findings regarding the Company’s

equity ownership as of March 2, 2015.”11 No supplemental briefing followed; the

Company’s counsel withdrew; and the case languished.

On May 16, 2019, Petitioners filed what I deemed another motion for

summary judgment.12 The Company failed to retain new counsel by the Court’s

deadline, and so the motion went unopposed. On August 20, I granted summary

judgment on the narrow undisputed issue that Kecki was a 15% equity holder in

8 Compl. ¶ 16. 9 D.I. 28; D.I. 29. 10 D.I. 29. 11 Id. ¶ 6. 12 D.I. 39. Janusz Kecki, et al. v. Texas Enterprises, LLC, Civil Action No. 2017-0892-MTZ July 30, 2021 Page 4 of 9

the Company on the Petition Date.13 I denied summary judgment as to

Chabrowski’s equity interest in the Company on that date, and again sought the

parties’ views on the effect of the bankruptcy proceedings on this case.14

Neither party addressed those issues until February 2021, when the

Company, represented by new counsel, filed the Motion.15 Plaintiffs did not timely

respond to the Motion, so it was deemed unopposed.16 The Motion contends

Chabrowski’s claim challenging the accuracy of the List are “pre-bankruptcy

claims not properly before this Court” under several theories, including a lack of

subject matter jurisdiction, preclusion under bankruptcy law and the bankruptcy

bar date, res judicata and issue preclusion, and overripeness.17 The Motion is

granted.

II. ANALYSIS

I address subject matter jurisdiction first, as I can only substantively review

the claims if I have jurisdiction to do so.18 “When considering a motion to dismiss

13 D.I. 48. 14 Id. 15 D.I. 77. 16 D.I. 89. 17 Op. Br. at 6–7. 18 See K & K Screw Prods., L.L.C. v. Emerick Cap. Invs., Inc., 2011 WL 3505354, at *6 (Del. Ch. Aug. 9, 2011) (“Because the issue of subject matter jurisdiction is a potentially Janusz Kecki, et al. v. Texas Enterprises, LLC, Civil Action No. 2017-0892-MTZ July 30, 2021 Page 5 of 9

under Court of Chancery Rule 12(b)(1), the Court’s first task, when appropriate, is

to assess whether the fundamental predicates to subject matter jurisdiction exist.”19

“The plaintiff ‘bears the burden of establishing this Court's jurisdiction,’ and when

determining whether that burden has been met, the Court may consider the

pleadings and matters ‘extrinsic to the pleadings.’”20 This Court does not have

subject matter jurisdiction to hear a claim if there is an adequate remedy at law.21

And, consistent with that principle and principles of comity and federalism, where

bankruptcy courts have been granted exclusive jurisdiction, this Court lacks subject

matter jurisdiction.22

This Court lacks jurisdiction to assess the accuracy of the List as presented

with the Company’s bankruptcy petition.

dispositive threshold issue, I consider first whether the Complaint pleads a justiciable case or controversy.”). 19 Hall v. Coupe, 2016 WL 3094406, at *2 (Del. Ch. May 25, 2016) (citing Dover Hist. Soc’y v. City of Dover Plan. Comm’n, 838 A.2d 1103, 1110 (Del. 2003)). 20 Id. (quoting Pitts v. City of Wilm., 2009 WL 1204492, at *5 (Del. Ch. Apr. 27, 2009)). 21 10 Del. C. § 342. 22 Anderson v. Pa. Mfr.’s Ass’n Ins. Co., 2007 WL 1248490, at *1 (Del. Com. Pl. Feb. 23, 2007). Janusz Kecki, et al. v. Texas Enterprises, LLC, Civil Action No. 2017-0892-MTZ July 30, 2021 Page 6 of 9

Filings of bankruptcy petitions are a matter of exclusive federal jurisdiction. State courts are not authorized to determine whether a person’s claim for relief under a federal law, in a federal court, and within that court’s exclusive jurisdiction, is an appropriate one. Such an exercise of authority would be inconsistent with and subvert the exclusive jurisdiction of the federal courts by allowing state courts to create their own standards as to when persons may properly seek relief in cases Congress has specifically precluded those courts from adjudicating. The ability collaterally to attack bankruptcy petitions in the state courts would also threaten the uniformity of federal bankruptcy law, a uniformity required by the Constitution. U.S. Const. art. I, § 8, cl. 4.23

“Congress’ grant to the federal courts of exclusive jurisdiction over bankruptcy

petitions precludes collateral attacks on such petitions in state courts . . . .”24 Even

if the bankruptcy court has not addressed the issue presented to the state court, the

state court lacks jurisdiction: “[i]n state cases concerning proper notice or other

bankruptcy matters never addressed by the bankruptcy courts, courts have ruled

that subject matter jurisdiction is exclusively federal.”25

To the extent Chabrowski claims he failed to receive adequate notice of the

Company’s bankruptcy proceeding, as a creditor or otherwise, the adequacy of that

23 Gonzalez v. Parks, 830 F.2d 1033, 1035 (9th Cir. 1987) (citation omitted). 24 Id. at 1035–36. 25 Anderson, 2007 WL 1248490, at *3 (citing In re McGhan, 288 F.3d 1172, 1180 (9th Cir. 2002)). Janusz Kecki, et al. v. Texas Enterprises, LLC, Civil Action No. 2017-0892-MTZ July 30, 2021 Page 7 of 9

notice is also an issue exclusively for the Bankruptcy Court.26 “Determination of

the adequacy of notice required for automatic discharge is a core proceeding over

which [Delaware] Court[s] lack authority.”27 “Determination of whether a creditor

was listed and whether notice was adequate are core proceeding[s] over which I

should not exercise jurisdiction.”28

Indeed, it appears Plaintiffs have already pursued the avenue available to

them: petitioning the Bankruptcy Court for relief. That Court denied

Chabrowski’s motion to reopen the proceedings after the Chapter 11 plan was

confirmed.29 This Court cannot disturb that order. “[B]ankruptcy court orders are

not subject to collateral attack in other courts.”30 A state court modification of a

bankruptcy court order “would constitute an unauthorized infringement upon the

bankruptcy court’s jurisdiction.”31 And “[a] Bankruptcy Court’s order of

confirmation is treated as a final judgment. If the Bankruptcy Court had

26 See McGhan, 288 F.3d at 1178 (addressing a state court’s consideration of notice to a listed creditor, like Chabrowski, and noting state courts have statutory concurrent jurisdiction to adjudicate the adequacy of notice to unlisted creditors). 27 Anderson, 2007 WL 1248490, at *2; see McGhan, 288 F.3d at 1190. 28 Anderson, 2007 WL 1248490, at *2. 29 D.I. 21, Ex. A, at D.I. 134-35. 30 Anderson, 2007 WL 1248490, at *2; McGhan, 288 F.3d at 1179 (quoting Gruntz v. Cty. of L.A., 202 F.3d 1074, 1082 (9th Cir. 2000)). 31 Gruntz, 202 F.3d at 1082. Janusz Kecki, et al. v. Texas Enterprises, LLC, Civil Action No. 2017-0892-MTZ July 30, 2021 Page 8 of 9

jurisdiction to render that judgment, a party bound by that judgment cannot attack

that judgment in a collateral proceeding.”32

Finally, I note Plaintiffs’ allegation that the Company filed for bankruptcy

as part of a scheme to defraud Chabrowski and Kecki of their investments in the

Company and net the Company’s president sole ownership of the Company for a

low price.33 Federal authority appears split on the question of whether state courts

may entertain a claim that filing for bankruptcy was improper because it was part

of a fraudulent scheme or an abuse of process.34 Plaintiffs’ claim does not require

me to wade into this issue today; they seek only declaratory relief “identifying the

names and the percentage of ownership in the company, held by each shareholder

at the time that the company was entered into voluntary Chapter 11 bankruptcy.”35

I read Plaintiffs to allege that the bankruptcy proceeding was part of a fraudulent

scheme only for color and context, not as a standalone claim for abuse of process

32 In re Bally’s Grand Deriv. Litig., 1997 WL 305803, at *7 (Del. Ch. June 4, 1997); accord Anderson, 2007 WL 1248490, at *2 (“[A]ny state judicial proceeding that modifies a discharge order would also be void.”). 33 Compl. ¶ 16. 34 Nelson v. Emerson, 2008 WL 1961150, at *8 n.51 (Del. Ch. May 6, 2008). Since then- Vice Chancellor Strine noted the split of authority in 2008, the split has deepened. Compare In re Bral, 622 B.R. 737, 744–47 (9th Cir. 2020), with Rosenberg v. DVI Receivables XVII, LLC, 835 F.3d 414 (3d Cir. 2016), and Robbins v. Fulton Bank, N.A., 2018 WL 1693386 (E.D. Pa. Apr. 6, 2018). 35 Compl. ¶ 23. Janusz Kecki, et al. v. Texas Enterprises, LLC, Civil Action No. 2017-0892-MTZ July 30, 2021 Page 9 of 9

or similar. Today, I hold only that this Court lacks subject matter jurisdiction over

collateral attacks on the bankruptcy petition itself, including the List, and the

Bankruptcy Court’s order denying Chabrowski’s motion to reopen the proceedings

to challenge that List. That holding disposes of Plaintiffs’ claim.

III. CONCLUSION

For the foregoing reasons, the Company’s motion to dismiss for lack of

subject matter jurisdiction is GRANTED. The August 20, 2019, order granting

summary judgment on Kecki’s interest is VACATED as having been entered

without subject matter jurisdiction.36 IT IS SO ORDERED.

Sincerely,

/s/ Morgan T. Zurn

Vice Chancellor

MTZ/ms

36 D.I. 48.