Town of Newmarket v. Harvard Indus. CV-96-249-JD 07/31/96 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE
Town of Newmarket, N.H.
v. Civil No. 96-249-JD
Harvard Industries, Inc., et al.
O R D E R
The plaintiff, the Town of Newmarket, New Hampshire, brought
this action to enforce a settlement agreement against the
defendants. Harvard Industries, Inc. and Kingston-Warren
Corporation. Before the court is defendants' motion to dismiss
for improper venue, or in the alternative, to transfer (document
no. 2), and the plaintiff's motion for remand (document no. 5).
Background
The town is a municipal corporation. Harvard is
incorporated in Delaware, and maintains its principal place of
business in New Jersey. Kingston-Warren, a subsidiary of
Harvard, is incorporated in New Hampshire, and maintains its
principal place of business in New Hampshire.
From 1951 to 1985 the town operated the municipal landfill
in Newmarket. Writ of Summons 5 5. In 1985, the New Hampshire
Department of Environmental Services ordered the landfill closed
because of hazardous waste. Id. 5 6. After the town informed Harvard and Kingston-Warren that they were potentially liable for
the costs of cleaning and closing the landfill, the parties
entered into various agreements to investigate contaminants at
the landfill. Id. 5 7-8. On April 11, 1991, before the cleanup
was complete, an involuntary petition under chapter 11 of the
bankruptcy code was filed against Harvard in the United States
Bankruptcy Court for the District of Delaware. On May 2, 1991,
Harvard and nine of its wholly owned subsidiaries, including
Kingston-Warren, filed voluntary petitions for relief under
chapter 11. The bankruptcy court consolidated the cases.
Affidavit in Support of Defendants' Motion to Dismiss or, in the
Alternative, for a Transfer of Venue 5 2.
On August 13, 1991 the town filed a proof of claim against
all of the debtors, seeking contribution for the cost of closing
the landfill. Writ of Summons 55 13-14. In an amended proof of
claim, the town alleged that the debtors owed fifty percent of
the estimated total costs, or $9,602,701.94. Affidavit 5 5. The
bankruptcy court limited the town's claims to include only
Harvard and Kingston-Warren and called for an estimation hearing.
Id. 5 6. Negotiations followed, and the parties drafted a
settlement agreement on July 8, 1992. Writ of Summons 5 15. The
agreement detailed the town's claims for the costs of cleanup,
which included, inter alia, "up to [$300,000] pre-petition
2 engineering fees, as approved by the Harvard Bankruptcy Court."
Settlement Agreement between Harvard Industries, Inc., the
Kingston-Warren Corp., and the Town of Newmarket ("Settlement
Agreement") 5 1(b)(vi). The agreement also included an
Administrative Expense Claim:
Newmarket shall have an Administrative Expense Claim as defined in the plans of reorganization filed in the Harvard Bankruptcy Proceeding . . . , in the amount actually paid pursuant to paragraph 4 (a)(i), but in no event shall the Administrative Expense Claim be greater than [$160,000].
Settlement Agreement I 2 (a). The parties further agreed that
[p]romptly upon the latter of the signing and delivery of this settlement agreement by all parties or the approval of the terms and conditions of this settlement agreement by the Harvard Bankruptcy Court, Harvard shall execute and deliver to Newmarket a guaranty, which guaranty shall be in the form and contain the terms set forth on Schedule A annexed.1
Settlement Agreement I 7.
At some point following the parties' execution of the
settlement agreement, the defendants filed a motion to approve
the agreement, attaching an affidavit in which the town
administrator estimated the pre-petition engineering costs at
$301,332.42. The bankruptcy court approved the settlement
agreement on July 21, 1992, "in all respects." In re Harvard
Indus., Inc., Case No. 91-404, Clm. No. 2524, slip op. at 2
1 The parties have not provided the court with Schedule A.
3 (Bankr. D. Del. July 21, 1992). On August 5, 1992, "in
consideration of and as an inducement to the Town of Newmarket to
enter into a settlement agreement dated July 8, 1992," Harvard
guaranteed to the town "the full and punctual payment and
performance by Kingston-Warren of all of its obligations under
the Settlement Agreement." Guaranty at 1. The guaranty included
the following provision:
This Guaranty shall be governed by New Hampshire law in all respects, whether as to interpretation or enforcement. The parties agree that jurisdiction over any action brought under the terms of this Guaranty or the underlying settlement agreement shall be vested in the courts of New Hampshire.
Guaranty 5 6.
At some point before or after the bankruptcy court approved
the settlement agreement, it approved a reorganization plan for
Harvard. Writ of Summons 5 17. The plan states that
[s]ubject to the provisions of Section 502 of the Code, and unless it otherwise orders, the Court shall not have or retain jurisdiction, and the Debtor shall not seek to invoke the jurisdiction of the Court to determine or adjudicate the validity or extent of any Class Six or Class Seven Claim arising before or after the Petition Date, whether or not such Claim is disputed, contingent or unliguidated.
Sixth Amended Plan of Reorganization of Harvard Industries, Inc.
("Plan") § 9.04. The plan defines class seven claims as
"[a]flowed governmental claims arising out of any environmental
statute or regulation or environmental common law Claim against
4 the Debtor." Plan § 3.07. The plan defines "Administration
Expense" as
a Claim for payment of an administrative expense of the kind specified in Section 503(b) of the Code and referred to in Sections 507(a) (1) and 507(a) (2) of the Code, including, without limitation, the actual, necessary costs and expenses of preserving the Debtor's estate and operating the business of the Debtor, including wages, salaries, and commissions for services rendered after the commencement of the Debtor's Case, compensation for legal and other services, and reimbursement of expenses awarded under Sections 330(a) of the Code, and all fees and charges assessed against the Debtor's estate under Chapter 1930 of Title 28 of the Unites States Code.
Plan § 1.03.
Upon completion of the investigation and cleanup of the
landfill and construction of the landfill cap, the town
calculated that the defendants owed $7 96,125 under the terms of
the settlement agreement. Writ of Summons I 21. When the
defendants only paid $245,354.83, the town filed a writ of
summons in New Hampshire state court on April 3, 1996, claiming
that Harvard and Kingston-Warren had breached the settlement
agreement. Id. $[ 22-25. On May 3, 1996, the defendants removed
the action to this court pursuant to 28 U.S.C. §§ 1441, 1446,
1452 and Bankruptcy Rule 9027, and reguested that the court refer
the case to the United States Bankruptcy Court for the District
of New Hampshire pursuant to Local Rule 77.4(a). Notice of
Removal at 4. On May 10, 1996, the defendants filed the instant
5 motion to dismiss or transfer. On May 17, 1996, the town filed a
Motion for Remand.
The defendants' bankruptcy case is still pending in the
United States Bankruptcy Court for the District of Delaware.
Discussion
I. Motion for Remand
The court begins its inguiry into the plaintiff's motion for
remand by determining whether it has subject-matter jurisdiction
over the instant action. 28 U.S.C. § 1452(a) provides that
[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.
28 U.S.C.A. § 1452(a) (West 1994). 28 U.S.C. § 1334 defines the
range of federal jurisdiction over bankruptcy cases and
proceedings:
(a) Except as provided in subsection (b) of this section, the district court shall have original and exclusive jurisdiction of all cases under title 11.
(b) Notwithstanding any Act of Congress that confers exclusive jurisdiction on a court or courts other than the district courts, the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11.
28 U.S.C.A. § 1334 (West 1993). If a proceeding is "related to"
a bankruptcy case, § 1334(b) empowers all federal district courts
6 to adjudicate the action.2 Maritime Elec. Co. v. United Jersey
Bank, 959 F.2d 1194, 1211 (3d Cir. 1991); see also Brock v.
American Messenger Serv., Inc., 65 B.R. 670, 672 (D.N.H. 1986).
Neither the bankruptcy court nor the parties can independently
confer subject-matter jurisdiction on the federal courts. In re
Poplar Run Ltd. Partnership, 192 B.R. 848, 859 (Bankr. E.D. Va.
1995) .
When deciding whether a proceeding is related to a
bankruptcy case the court inguires
whether the outcome of the proceeding could conceivably have any effect on the estate being administered in bankruptcy. . . . 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 bankruptcy estate.
Pacor Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984)
(citations omitted); see also In re G .S .F . Corp., 938 F.2d 1467,
1475 (1st Cir. 1991). The federal courts have retained
jurisdiction over matters similar to this case. See In re Blue
2"Cases under title 11" refers only to bankruptcy petitions. In re Marcus Hook Dev. Park, Inc., 943 F.2d 261, 264 (3d Cir. 1991). Proceedings "arising under title 11" "involve a cause of action created or determined by a statutory provision of title 11." Wood v. Wood (In re Wood), 825 F.2d 90, 96 (5th Cir. 1987). Those proceedings "arising in" cases under title 11 are "not based on any right expressly created by title 11, but nevertheless, would have no existence outside of the bankruptcy." Id. at 97 .
7 Diamond Coal Co., 163 B.R. 798, 806 (Bankr. E.D. Tenn. 1994)
(dispute over settlement agreement between debtor and creditor
would "affect the amount of the distribution to unsecured
creditors" under reorganization plan where agreement was approved
by bankruptcy court); Searcy v. Knostman, 155 B.R. 699, 704 (S.D.
Miss. 1993) (suit attacking settlement agreement reached in
bankruptcy court between two defendants could "clearly have an
impact on the estate being administered in bankruptcy"); Franklin
Computer Corp. v. Apple Computer, Inc. (In re Franklin Computer),
60 B.R. 795, 802 (Bankr. E.D. Pa. 1986) (complaint alleging
breach of settlement agreement between creditor and debtor, which
was approved by bankruptcy court, arises in or relates to
bankruptcy case).
The outcome of this case conceivably could have an effect on
the defendant's bankruptcy estate. If the town is successful,
the amount available to the unsecured creditors will be reduced.
If the town is unsuccessful, the amount available will be
enhanced. Therefore, the court finds that this case is "related
to" the pending bankruptcy case and, as a result, that the
federal courts have jurisdiction over the dispute.
The plaintiff argues that even if the court has jurisdiction
over the proceeding, it should remand the case under 28 U.S.C. §
1452 (b), which provides that [t]he court to which such claim or cause of action is removed may remand such claim or cause of action on any equitable ground.
28 U.S.C.A. § 1452 (West 1994). Federal courts consider a number
of factors when deciding whether to remand a proceeding under §
1452 (b) :
(1) the effect of the action on the administration of the bankruptcy estate; (2) the extent to which issues of state law predominate; (3) the difficulty of applicable state law; (4) comity; (5) the relatedness or remoteness of the action to the bankruptcy case; (6) the existence of a right to a jury trial; and (7) prejudice to the party involuntarily removed from state court.
Cenith Partners, L.P. v. Hambrecht & Ouist, Inc. (In re
Videocart, Inc.), 165 B.R. 740, 744 (Bankr. D. Mass. 1994).
Compare Lindv's Operating, Inc. v. Lindv's Operating, Inc. (In re
Rockefeller Ctr. Properties), No. 95 CIV. 5142(PKL), 1995 WL
611183, 1 (S.D.N.Y. Oct. 17, 1995) (remand not warranted where,
inter alia, controversy involved property of the bankruptcy
estate and no difficult questions of state law were presented)
with Cenith Partners, 165 B.R. at 744 (remanding action in which
creditor sued nondebtor third parties primarily under state law
theories) and Searcy, 155 B.R. at 710 (remanding proceeding that
"mainly concern[ed] parties who have no connection to the
bankruptcy court") and Drexel Burnham Lambert Group, Inc. v.
Vigilant Ins. Co., 130 B.R. 405, 407 (S.D.N.Y. 1991) ("The
removing defendants are not creditors of Drexel's estate or parties otherwise involved in the bankruptcy proceeding.").
In this case, the plaintiff is a creditor and both
defendants are debtors. The town has supplied no evidence that
it will be prejudiced by the removal, that the case will present
difficult questions of state law, or that the state courts have a
special interest in the action. Accordingly, the court finds
that transfer is not warranted under the factors articulated
above.
The town also argues that remand is appropriate because the
forum selection clause of the guaranty, which provides that
jurisdiction over actions brought under the settlement agreement
"shall be vested in the courts of New Hampshire," requires that
the case be adjudicated in state court. The defendants argue
that the clause at issue is merely a consent to jurisdiction in
New Hampshire and does not require that the New Hampshire courts,
state or federal, have exclusive jurisdiction over the action.
Federal courts will enforce a clause that precludes a
federal forum with clear and unambiguous language. City of New
York v. Pullman Inc., 477 F. Supp. 438, 442 (S.D.N.Y. 1979).
However, the courts will "allow the scope of a [jurisdictional]
term's meaning to expand to its greatest natural perimeters,"
id., and will not enforce a waiver of federal forum unless the
waiver is unambiguous. Submersible Svs. v. 21st Century Film
10 Corp., 767 F. Supp. 266, 267 (S.D. Fla. 1991); see LFC Lessors,
Inc. v. Pacific Sewer Maintenance, 739 F.2d 4, 7 (1st Cir. 1984)
(clause providing that rights and liabilities of parties would be
determined by courts "of the Commonwealth of Massachusetts"
precluded federal jurisdiction because construction of clause to
include federal district courts would be nonsensical). Compare
Pullman, 477 F. Supp. at 442 (parties' agreement "to submit any
controversies or problems arising out of this contract to the New
York courts and the New York courts only" not an exclusive grant
of jurisdiction to the New York state courts) with Seward v.
Devine, 888 F.2d 957, 962 (2d Cir. 1989) (clause providing that
"the New York State Supreme Court, Delaware County, shall have
jurisdiction over all litigation which shall arise out of any
disputes or disagreements between the parties" precluded a
federal forum) and Spatz v. Nascone, 364 F. Supp. 967, 974 (W.D.
Pa.) (clause reguiring actions brought under agreement to be
tried before "Courts of the Commonwealth of Pennsylvania" granted
exclusive jurisdiction to state courts), motion to vacate denied,
368 F. Supp. 352 (1973).
The parties use of the phrase "the courts of New Hampshire"
in the forum selection clause could implicate either sovereignty
or geography. See Spatz, 364 F. Supp. at 970. However, the
widest scope of the meaning includes all courts in New Hampshire.
11 Further, the phrase "vested in the courts of New Hampshire" is
clearly distinguishable from those forum selection clauses cited
above that include a term of sovereignty such as "State" or
"Commonwealth". See Seward, 888 F.2d at 962 ("the New York State
Supreme Court"); LFC Lessors, Inc., 739 F.2d at 6 ("courts . . .
of the Commonwealth of Massachusetts"); Spatz, 364 F. Supp. at
969 ("Courts of the Commonwealth of Pennsylvania"). Each of
these clauses clearly indicate the sovereignty of the state
court. The instant clause merely indicates where the location of
the action must be by using the more general phrase "courts of
New Hampshire."3 As the forum selection clause of the guaranty
does not unambiguously preclude federal jurisdiction, the court
finds that remand is not warranted.
The plaintiff's motion for remand under 28 U.S.C. § 1452(b)
is denied.
3The court also notes that even if the clause at issue does not specifically authorize a federal forum, its language is merely permissive and does not unambiguously preclude one. See John Boutari & Son v. Attiki Importers & Distribs., 22 F.3d 51, 53 (2d Cir. 1994) ("'[A]n agreement conferring jurisdiction in one forum will not be interpreted as excluding jurisdiction in another unless it contains specific language of exclusion.'") (guoting Pullman, 477 F. Supp, at 442 n.ll) .
12 II. Motion to Dismiss or Transfer
A. 28 U.S.C. S 1409(a)
The defendants argue that the court should transfer the case
to the United States District Court for the District of Delaware
because a proceeding related to a bankruptcy case can be
commenced only in the district where the bankruptcy case is
pending. The plaintiff disputes this contention.
28 U.S.C. § 1409(a) provides that
a 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.
28 U.S.C.A. § 1409(a) (West 1993).
Relying on the plain meaning of the word "may," courts have
held that §1409(a)'s language is permissive and not mandatory.
See Calumet N a t '1 Bank v. Levine, 179 B.R. 117, 121 (N.D. Ind.
1995) ("[PJarties have the option of commencing an action in the
district court of the bankruptcy district, but are not reguired
to commence the action there."); Farmers Bank v. March (In re
March), 140 B.R. 387, 389 n.3 (E.D. Va. 1992) ("Because section
1409(a) uses the term 'may,' the section is permissive rather
than mandatory and, thus, reflects a legislative purpose to
promote flexibility in determining proper bankruptcy venue."),
aff'd , 988 F.2d 498 (4th Cir.), cert, denied, 114 S.Ct. 182
(1993); Brock v. American Messenger Serv., Inc., 65 B.R. 670, 672
13 (D.N.H. 1986) ("§ 1409(a) directs where an action "may be"
brought, not where it must be brought."). See generally Collier
on Bankruptcy 5 3.02, at 3-135-39 (Lawrence P. King et al. eds.,
15th ed. 1996) .
The plain language and judicial interpretation of the
statute give clear guidance to the court. Because § 1409(a) does
not reguire that actions related to a bankruptcy case be brought
in the district in which the bankruptcy case is pending, the
District of New Hampshire is a proper venue for this action under
the general venue statute. See 28 U.S.C.A. § 1391(c) (West
1993) .
_____ B. 28 U.S.C. S 1412
The defendants next assert that the court should transfer
this case pursuant to 28 U.S.C. § 1412, which 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.
28 U.S.C.A. § 1412 (West 1993). Courts generally have reserved
the use of § 1412 for "core proceedings" as defined by 28 U.S.C.
§ 157, and have stated that 28 U.S.C. § 1404 is the proper
statute for transfer of all "non-core" proceedings. See Searcy
v. Knostman, 155 B.R. 699, 706-07 & n.17 (S.D. Miss. 1993)
(citing In re Thomson McKinnon Sec., Inc., 126 B.R. 833, 834-35
14 (S.D.N.Y. 1991); Goldberg Holding Corp. v. NEP Prods., Inc., 93
B.R. 33, 34 (S.D.N.Y. 1988)). 4 However, because § 1412 and §
1404 are so similar, the court need not decide whether this
action is a "core" or "non-core" proceeding. C f . In re Spillane,
884 F .2d 642, 645 n.4 (1st Cir. 1989).
The court may not disturb the plaintiff's choice of forum
unless the defendant proves by a preponderance of the evidence
that the transfer is warranted.5 Brock, 65 B.R. at 672.
The court considers the following factors when determining if
transfer is warranted under § 1404:
(1) the convenience of the parties; (2) the convenience of witnesses; (3) the relative ease of access to sources of proof; (4) the availability of process to compel attendance of unwilling witnesses; (5) the cost of obtaining willing witnesses; (6) the practical problems indicating where the case can be tried more expeditiously and inexpensively; and (7) the interests of justice, a term broad enough to cover the particular circumstances of each case, which in sum indicate that the administration of justice will be advanced by a transfer.
428 U.S.C. § 1404 provides: "For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought." 28 U.S.C.A. § 1404 (West 1993).
5The court acknowledges the existence of authority supporting a presumption in favor of transferring venue to the district in which the bankruptcy case is pending. See Maritime Elec. Co., v. United Jersey Bank, 959 F.2d 1194, 1212 (3d Cir. 1992); 3 David G. Epstein et al., 1 Bankruptcy 216 (1992). However, even assuming arguendo the correctness of such a presumption, the court finds the presumption to be rebutted for the reasons discussed infra.
15 Id. at 672; see also In re Waits, 70 B.R. 591 (Bankr. S.D.N.Y.
1987) (considering the following factors when deciding whether to
transfer an action under § 1412: the proximity of the creditors,
debtors, assets, witnesses, and evidence; the relative economic
harm to debtors and creditors caused by a transfer; the economics
of administering the estate; the effect on parties willingness or
ability to participate in the case or in adversary proceedings;
and the availability of compulsory process and the cost
associated with the attendance of unwilling witnesses).
The District of New Hampshire is the most convenient forum
for this action. The cleanup for which the town is seeking
contribution occurred in New Hampshire. The documents that
record the town's expenditures are presumably in New Hampshire.
Witnesses most likely will reside in New Hampshire.
Moreover, the "interests of justice" militate in favor of
keeping the action in New Hampshire. Most notably, the guaranty,
which was cross-referenced in the settlement agreement, served as
consideration for the settlement agreement, and was approved by
the bankruptcy court, contains a forum selection clause that
reflects the parties' intent to adjudicate claims concerning the
settlement agreement in New Hampshire.6
6The defendants have asserted two additional grounds for transfer, which the court considers in conjunction with the
16 After considering the convenience of the parties and the
interests of justice, the court finds that the defendant has
failed to establish by a preponderance of the evidence that
transfer is warranted.
C. Administrative Expenses
The defendants argue as a final matter that the instant
action seeks payment, at least in part, for administrative
expenses, and that the only proper venue for administrative
matters is the court where the bankruptcy case is pending, the
Delaware bankruptcy court. The defendants are correct concerning
the proper venue for administrative matters; Congress clearly
interests of justice. First, the defendants contend that transfer is warranted because paragraph 1 (b)(vi) of the settlement agreement reguires that the bankruptcy court approve the town's claim for pre-petition engineering fees. Notice of Removal 5 7. The argument is unavailing. The bankruptcy court approved the fees when it approved the settlement agreement in full, including the calculation of the pre-petition engineering fees. Second, the defendants contend that the bankruptcy court retained jurisdiction over the entire case because Section 9.04 of the reorganization plan is not applicable to the instant action. Specifically, the defendants contend that section 9.04's disclaimer of jurisdiction is "[s]ubject to the provisions of Section 502 of the [Bankruptcy] Code," and that the action is governed by that statutory provision. The argument fails. The parties are adjudicating a dispute that arose out of the settlement agreement, and not the allowance of a particular claim under § 502. Thus, to the extent the instant action seeks to determine the validity or extent of a class seven claim, the bankruptcy court has not retained jurisdiction over it.
17 intended that such matters should be adjudicated in the district
in which the bankruptcy case is filed. See H.R. Rep. No. 95-595,
95th Cong., 1st Sess. 447 (1977), reprinted in 1978 U.S.C.C.A.N.
5963 ("Though these venue provisions are phrased in broad terms,
with respect to administrative matters in a case they generally
will not apply. The bankruptcy court in which the case is filed
will hear those matters."). However, the defendants have failed
to provide any evidence that the claims at issue properly are
characterized as administrative expenses, and merely ask that the
entire case, including claims over which the bankruptcy court has
relieved itself of jurisdiction, be transferred. Absent a
showing that any of these claims must be brought in the Delaware
bankruptcy court, the defendant's motion must be denied.
III. Transfer to New Hampshire Bankruptcy Court
The defendants reguested in their notice of removal that the
instant action be referred to the United States Bankruptcy Court
for the District of New Hampshire. Notice of Removal at 4
(citing Local Rule 77.4(a)). Under Local Rule 77.4(a), which
incorporates the court's standing order of January 18, 1994, the
court refers actions related to ongoing bankruptcy cases to the
New Hampshire bankruptcy court. However, the court considers the
rule inapplicable to the instant action because the bankruptcy
18 case to which the instant action is related is pending in another
district. Accordingly, referral is not warranted.
Conclusion
The plaintiff's Motion for Remand (Document No. 5) is
denied. The defendants' Motion to Transfer (Document No. 2) is
denied. The court will retain jurisdiction over the case. The
parties would be well advised at this point in time to direct
their efforts to the merits of the case and to engage in good
faith settlement discussions in order to resolve this action
without trial. The matter shall be scheduled for a preliminary
pretrial before the Magistrate Judge. Counsel shall be prepared
to discuss mediation with the Magistrate Judge.
SO ORDERED.
Joseph A. DiClerico, Jr. Chief Judge July 31, 1996
cc: Robert J. Gallo, Esguire Steven E. Grill, Esguire Martin F. Siegal, Esguire Sheldon Schacter, Esguire