U.S. Eagle Corp. v. Westphal (In re U.S. Eagle Corp.)

484 B.R. 640
CourtUnited States Bankruptcy Court, D. New Jersey
DecidedDecember 20, 2012
DocketBankruptcy No. 11-10392 (NLW); Adversary No. 11-2399
StatusPublished
Cited by1 cases

This text of 484 B.R. 640 (U.S. Eagle Corp. v. Westphal (In re U.S. Eagle Corp.)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, D. New Jersey primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
U.S. Eagle Corp. v. Westphal (In re U.S. Eagle Corp.), 484 B.R. 640 (N.J. 2012).

Opinion

OPINION

NOVALYN L. WINFIELD, Bankruptcy Judge.

In the instant adversary proceeding two motions have been presented to the court: [643]*643(i) Plaintiffs motion to dismiss Defendant’s counterclaim, and (ii) Third Party Defendants’ motion to dismiss the third party complaint. As set forth below both motions are granted.

JURISDICTION

This court has jurisdiction to consider this matter pursuant to 28 U.S.C. §§ 1334 and 157(a) and the Standing Order of Reference issued by the United States District Court for the District of New Jersey on September 18, 2012. This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (B), (C) and (0). To the extent that this matter is determined by the district court to constitute a non-core proceeding, it is requested that the district court treat this opinion as proposed finding of fact and conclusion of law.

STATEMENT OF FACTS

I. The Parties

U.S. Eagle Corporation (“Plaintiff’ or “U.S. Eagle”) is a closely held Delaware corporation with its headquarters in Elizabeth, New Jersey. (See Certification of Bernard J. Cooney, Esq., Feb. 17, 2012 (“Cooney Cert.”), Compl., dated May 25, 2011 attached to Cooney Cert, as Ex. A (“Complaint”) ¶ 2) It is owned by various members of the Westphal family. The percentage of stock ownership is as follows: defendant Scott Westphal (“Scott”) owns 19.72% of the Debtor’s stock; Scott’s sister and third-party defendant Dawn Westphal Thompson (“Dawn”) owns 21.4%; Scott’s brother and third-party defendant James J. Westphal (“Jim”) owns 35.66%; James J. Westphal, III owns 8%; Erik C. Westphal owns 8%; and Douglas Westphal owns 7.2%. (See Complaint ¶ 7) Scott indicates, however, that he holds 19.72% of the stock, but that he controls 35.7% of the stock. (See Amended Counterclaim, dated Jan. 24, 2012, (“Am. Countercl.”) ¶ 6) However, either percentage ownership stake constitutes a minority shareholder interest.

The Debtor has operated and largely continues to operate through its wholly owned subsidiaries: Julius Realty Corporation (“Julius”), Eagle One Gold Products, Inc. (“Eagle One”), and Traffic Control Services, Inc. (“TCS”). (See Compl. ¶ 8) All three subsidiaries maintain a principal place of business in California. (Id.) Dawn is the president of Julius, her husband Philip Thompson (“Philip”) is the president of Eagle One, and Jim is the former president of TCS. (Id. ¶ 9) Dawn, Philip, and Jim are also each members of the Debtor’s board of directors (“Board”). (Id.)

U.S. Eagle, Eagle One, Julius, and TCS filed petitions for relief under Chapter 11 of the Bankruptcy Code (“Code”) on January 6, 2011 (“Petition Date”). As debtors-in-possession, U.S. Eagle and its subsidiaries operated their businesses and managed their properties under §§ 1107(a) and 1108 of the Code. The Joint Plan of Reorganization was confirmed by order dated September 12,1012.1

II. Procedural History

The instant adversary has a somewhat lengthy pre-bankruptcy history, and is the second suit commenced by U.S. Eagle against Scott. Initially, in October 2010 U.S. Eagle filed a complaint against Scott in the United States District Court for the Southern District of Florida (“Florida District Court”). (Cooney Cert. Ex. B) That complaint sought (i) a declaratory judgment that Scott’s termination as an employee, officer and director was valid and enforceable; (ii) replevin of company prop[644]*644erty, including a company car; and (iii) judgment under the Lanham Act based on Scott’s alleged unauthorized use in interstate commerce of the company email. This complaint was amended to eliminate the Lanham Act count, and Scott subsequently moved to dismiss the amended complaint for failure to meet the amount in controversy threshold. (Cooney Cert. Ex. C) Before the matter could be heard, U.S. Eagle voluntarily dismissed the complaint pursuant to Fed.R.Civ.P. 41(a)(1). (Coo-ney Cert. Ex. D) The Florida District Court entered an order dismissing the case without prejudice on May 27, 2011. (Cooney Cert. Ex. E)

At the same time that it was seeking dismissal in the Florida District Court, U.S. Eagle filed a complaint in the Circuit Court of the Eleventh Circuit in and for Miami-Dade County, Florida (“State Complaint”). (Cooney Cert. Ex. E) The State Complaint contained a count for declaratory judgment and a count for replevin, in language substantially similar to the complaint filed in the Florida District Court.2

Despite his earlier reluctance to litigation in the federal court system, on June 23, 2011 Scott filed a Notice of Removal under 28 U.S.C. §§ 1334 and 1452 to bring the State Complaint to the Florida District Court. (Cooney Cert. Ex. F) asserting that original jurisdiction exists in the district court because of the pending U.S. Eagle bankruptcy. On that same day Scott filed a motion under 28 U.S.C. § 1404(a) to change the venue from the Florida District Court to the District of New Jersey. (Cooney Cert. Ex. G) U.S. Eagle and Scott stipulated to the change of venue and transfer of the case to the bankruptcy court, and the Florida District Court transferred the matter by order dated July 29, 2011 (Cooney Cert. Ex. H, I) The United States District Court for the District of New Jersey referred the matter to this court by order dated August 15, 2011. (Cooney Cert. Ex. J)

III. Circumstances giving rise to current litigation

Once the adversary proceeding was opened in the bankruptcy court, Scott filed his answer together with a counterclaim and a third party complaint against Dawn, Philip and Jim (collectively, “Third Party Defendants”). Scott’s counterclaim demanded judgment against U.S. Eagle for improper termination through minority shareholder oppression, and both consequential and punitive damages. A few weeks later, Scott filed an amended answer (“Amended Answer”), counterclaim (“Amended Counterclaim”) and third party complaint (“Amended Third Party Complaint”). It is the Amended Counterclaim and Amended Third Party Complaint that are the subject of the motions to dismiss. The Amended Counterclaim relies on N.J.S.A. 14A:12-7 and Scott further seeks reinstatement as an officer and director of U.S. Eagle. The Amended Third Party Complaint against Dawn, Philip and Jim likewise alleges a claim for minority shareholder oppression under the New Jersey statute, and alleges a breach of fiduciary duty by Dawn, Jim and Philip. Consequential and punitive damages are requested under all counts of the third party complaint.

Of course, the parties have different recollections of the important facts that un-derly the present dispute. Scott emphasizes the length of his tenure with U.S.

Free access — add to your briefcase to read the full text and ask questions with AI

Related

SER Tobby Lynn Small v. Hon. Russell M. Clawges, Jr.
745 S.E.2d 192 (West Virginia Supreme Court, 2013)

Cite This Page — Counsel Stack

Bluebook (online)
484 B.R. 640, Counsel Stack Legal Research, https://law.counselstack.com/opinion/us-eagle-corp-v-westphal-in-re-us-eagle-corp-njb-2012.