Butler et al v. Moore et al

UNITED STATES BANKRUPTCY COURT
FOR THE
DISTRICT OF MASSACHUSETTS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
In re
EASTERN TOWERS, INC., 	Chapter 7
Debtor. 	Case No. 06-14092-JNF
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
JOSEPH G. BUTLER, CHAPTER 7 TRUSTEE,
JOHN STRACHAN, and
TIMBERLINE CONSTRUCTION CORPORATION,
Plaintiffs,
v. 	Adv. P. No. 07-1313
EDWARD T. MOORE, et al.
Defendants
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
MEMORANDUM
I. INTRODUCTION
The matter before the Court is the Motion of Defendants, Edward T. Moore
(“Moore”), 	Lawrence 	W. 	Rosenfeld 	(“Rosenfeld”), 	Eastern 	Towers, 	LLC, 	Eastern
Properties, 	LLC, 	Horizon 	Towers, 	LLC, 	Tower 	Investors 	Trust, 	Glover 	Property
Management, Inc., 5G Towers, LLC, and 5G Investment Trust, LLC (collectively, the
“Defendants”) to Dismiss Claims Asserted by John Strachan (“Strachan”) and Timberline
Construction Corporation 	(“Timberline”) for Lack of Subject Matter Jurisdiction (the
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“Motion”). In particular, the Defendants seek the dismissal of Counts 4 through 8 of the
Plaintiffs’ Second Amended Complaint as those counts have been asserted by Strachan,
individually, as well as Counts 9 through 11 to the extent that Timberline seeks relief, on
the ground that this Court lacks subject matter jurisdiction under 28 U.S.C. §§ 1331, 1332,
or 1334(a), (b), and (e). The Plaintiffs, Joseph G. Butler, the Chapter 7 Trustee of the estate
of Eastern Towers, Inc. (the “Debtor”), Strachan, and Timberline, oppose the Motion. For
the reasons set forth below, the Court shall enter an order granting the Motion.
II. BACKGROUND
For purposes of this decision, the Court incorporates by reference the facts set forth
in the Plaintiffs’ Second Amended Complaint. In their Second Amended Complaint, the
Plaintiffs summarized litigation which was originally commenced prepetition by Strachan
in the Suffolk Superior Court, Department of the Trial Court, as follows:
The Strachan Litigation arises out of the wrongful actions of Moore and
Rosenfeld, who, acting in concert with others, engaged in a series of
transactions and course of conduct designed (i) to strip away meaningful
assets and opportunities of the Debtor, a business venture to created [sic]
construct and own telecommunications towers to be used by licensed
wireless telecommunications carriers, and (ii) to freeze Strachan out of that
business venture that he initially started and worked for over two years to
build. Accordingly, Strachan . . . filed a verified complaint against, among
others, Moore and Rosenfeld for their continuous and repeated breaches of
fiduciary duties and wrongful conduct; against certain named corporate and
trust entities, that, upon information and belief, were and are owned,
controlled and used by those individual defendants in furtherance of their
wrongful conduct, and/or received assets or opportunities that were
wrongfully diverted away from the business that was started and built by
Strachan.
. . . Strachan also asserted claims derivatively on behalf of, and for the benefit
of, the Debtor against Moore and Rosenfeld, as the directors of the Debtor,
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for continuously and repeatedly breaching their fiduciary duties and their
duties of loyalty, for self-dealing, and for usurping corporate opportunities
and transferring assets - - which should have been owned and held by the
Debtor - - to other entities in which they have a controlling interest. . . .
The Plaintiffs, in their Second Amended Complaint, also summarized litigation
originally commenced prepetition by Timberline in the Essex Superior Court, Department
of the Trial Court, as follows:
The Timberline Litigation involves an action to recover monies due and
owing for labor, materials and equipment provided by Timberline. The
Debtor engaged Timberline to construct certain telecommunications (or
“cell”) towers in Massachusetts and New Hampshire. Timberline completed
the construction work and delivered the cell towers to the Debtor, at which
point the Debtor failed to pay Timberline for its work. 	Further, the
controlling shareholders of the Debtor informed Timberline that Timberline
would only receive payment of the previously-agreed to contract price for
the cell towers if Timberline performed additional services for the Debtor
and/or its related entities and controlling shareholders by completing
additional construction work (gratis), and by locating tenants for the cell
towers which Timberline had constructed and delivered.
. . . Timberline incurred [damages] as a result of Debtor’s breach of contract,
and unfair, deceptive and inequitable actions. In the Timberline Litigation,
Timberline asserted counts against the Debtor, Eastern Towers, LLC, Eastern
Properties, LLC, Moore and Rosenfeld, including breach of contract,
quantum meruit, and violation of Chapter 93A of the Massachusetts General
Laws . . . and that Moore and Rosenfeld, as the controlling shareholders of
the Debtor, orchestrated a fraudulent transfer of the Debtor’s assets to their
related companies in order to bankrupt the Debtor, and deprive Timberline
of the monies it was rightfully owed.
The Defendants answered the Second Amended Complaint, denying all material
allegations. Additionally, they made a demand for a jury trial on all issues so triable, and
did not consent to the entry of final orders or judgment by this Court. They also noted that
they have not filed proofs of claim in the Debtor’s Chapter 7 case.
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The counts set forth in the Plaintiffs’ Second Amended Complaint can be
summarized as follows:
COUNT 	PLAINTIFF 	DEFENDANT(S) 	GROUNDS ALLEGED
One 	Trustee 	M oore and Rosenfeld 	Derivative Claim of Breach of
Fiduciary Duty
Two 	Trustee 	M oore, Rosenfeld,
Eastern Towers, LLC,
Eastern Properties, LLC,
5G Investment Trust,
LLC, Horizon Towers,
LLC, Tower Investors
Trust, and Glover
Property M anagement,
Inc.
Action for an Accounting
Three 	Trustee 	M oore, Rosenfeld,
Eastern Towers, LLC,
Eastern Properties, LLC,
5G Investment Trust,
LLC, Horizon Towers,
LLC, Tower Investors
Trust, and Glover
Property M anagement,
Inc.
Constructive Trust
Four 	Strachan 	M oore and Rosenfeld 	Breach of Fiduciary Duty/Freeze
Out
Five 	Strachan 	M oore and Rosenfeld 	Promissory Estoppel
Six 	Strachan 	M oore and Rosenfeld 	Breach of Contract
Seven 	Strachan 	M oore and Rosenfeld 	Breach of the Covenant of Good
Faith and Fair Dealing
Eight 	Strachan 	M oore and Rosenfeld 	W rongful Termination
Nine 	Trustee and
Timberline
All Defendants 	Fraudulent Conveyance/Fraudulent
Transfer
Ten 	Trustee and
Timberline
All Defendants 	Avoidance and Recovery of
Constructively Fraudulent Transfers
Eleven 	Trustee and
Timberline
M oore and Rosenfeld 	Unfair and Deceptive Acts and
Practices/M .G.L. c. 93A
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III. POSITIONS OF THE PARTIES
A. The Defendants
The Defendants argue that the claims of Strachan and Timberline neither “arise
under” the Bankruptcy Code nor “arise in” the Debtor’s case within the meaning of 28
U.S.C. § 1334(b). That section provides:
(b) Except as provided in subsection (e)(2), and 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. § 1334(b). Citing inter alia Wood v. Wood (In re Wood), 825 F.2d 90, 96 (5th Cir.
1987), the Defendants state that proceedings “arising under” title 11 are “those
proceedings that involve a cause of action created or determined by a statutory provision
of title 11.” Id. at 96. Citing Concerto Software, Inc. v. Vitaquest Intern., Inc., 290 B.R. 448
(D. Me. 2003), they state that proceedings “arising in “ cases under title 11 “‘are those that
are not based on any right expressly created by title 11, but nevertheless, would have no
existence outside of the bankruptcy.’” Id. at 452. 	Based upon those parameters, the
Defendants maintain that “[n]one of the Strachan and Timberline Counts arises [sic] under
the Bankruptcy Code or arise in the Debtor’s Chapter 7 case within the meaning of Section
1334(b)” because they existed prepetition and were amended and consolidated by the
Plaintiffs as part of the adversary proceeding.
The Defendants also argue that bankruptcy courts generally lack subject matter
jurisdiction to hear controversies between third parties that do not involve the estate or
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estate property. They rely on the seminal case of Pacor, Inc. v. Higgins, 73 F.2d 984, 994 (3d
Cir. 1984), rev’d on other grounds by Things Remembered, Inc. v. Petrarca, 516 U.S. 124
(1995), and In re G.S.F. Corp., 938 F.2d 1467 (1st Cir. 1991), for the proposition that the
Strachan and Timberline counts are not “related to” the Debtor’s bankruptcy case because
their outcome could have no conceivable effect on the Debtor’s bankruptcy case.
With respect to Timberline’s counts, the Defendants, citing, inter alia, Morley v.
Ontos, Inc. (In re Ontos, Inc.), 478 F.3d 427, 431 (1st Cir. 2007), cert. denied, 552 U.S. 823
(2007), and Sears Petroleum & Transport Corp. v. Burgess Construction Servs., Inc., 417
F.Supp.2d 212 (D. Mass. 2006), add that creditors lack standing to seek avoidance of
fraudulent transfers as those claims are assets of the bankruptcy estate.
Finally, the Defendants assert that this Court lacks supplemental jurisdiction under
28 U.S.C. § 1367 to exercise jurisdiction over the claims asserted by Strachan and
Timberline, citing Vienneau v. Saxon Capital, Inc. (In re Vienneau), 410 B.R. 329, 334-35
(Bankr. D. Mass. 2009); see also In re Adamson, 334 B.R. 1, 12 (Bankr. D. Mass. 2005).1
Section 1367 provides:1
Except as provided in subsections (b) and (c) or as expressly provided
otherwise by Federal statute, in any civil action of which the district courts
have original jurisdiction, the district courts shall have supplemental
jurisdiction over all other claims that are so related to claims in the action
within such original jurisdiction that they form part of the same case or
controversy under Article III of the United States Constitution. Such
supplemental jurisdiction shall include claims that involve the joinder or
intervention of additional parties.
28 U.S.C. § 1367.
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B. The Plaintiffs
The Plaintiffs maintain that the Strachan and Timberline claims “are directly related
to the administration of the bankruptcy estate of Eastern Towers, Inc. . . . and fall within
the Court’s jurisdiction for three distinct reasons.” They stated the following:
The Strachan Proof of Claim filed in the bankruptcy shows that Strachan
seeks recovery from the Debtor for his lost salary due to his wrongful
termination as President of the Debtor. The Timberline Proof of Claim shows
that Timberline seeks recovery of nearly $1 million in proceeds for its work
completed, attorneys’ fees, interest and treble damages in the Chapter 7
proceeding. The Strachan and Timberline Counts at issue in the Motion [to
Dismiss] seek, among other things, the same relief, with Strachan seeking the
same lost salary from his termination under Counts 4-8 and Timberline
seeking the same claim for work completed and related damages through
Counts 9-11 that are at issue in the bankruptcy. As any recovery under the
Strachan or Timberline Counts in this Adversary Proceeding would reduce
or limit the largest liabilities facing the Debtor in its bankruptcy proceeding,
these claims necessarily qualify for assertion of related to jurisdiction.
(emphasis in original).
The Plaintiffs also maintain that the alternative theories of recovery asserted by the
Trustee, on the one hand, and Strachan and Timberline on the other, might directly impact
what the Trustee may recover from the same Defendants, resulting in “related to”
jurisdiction. Finally, they maintain that the procedural posture of the litigation serves as
an alternative basis for denial of the Motion. Specifically, they request that they be allowed
the opportunity to move to withdraw the reference, stating that “the Defendants are
opportunistically seeking dismissal of claims that may otherwise be heard in District Court
through an exercise of supplemental jurisdiction.”
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IV. DISCUSSION
The arguments of the parties establish that the only contested issue raised by the
Motion is whether this Court has “related to” jurisdiction over the counts advanced by
Strachan and Timberline. There is, and can be, no dispute that the counts at issue are non-
core, with the exception of the Trustee’s fraudulent conveyance counts (Counts Nine and
Ten). On September 16, 2009, the Court granted the “Amended Motion of Defendants to
Determine Core and Noncore Nature of the Counts Contained in the Second Amended
Complaint,” ruling that “all counts of the amended complaint are non core with the
exceptions of the counts seeking to avoid fraudulent transfers, which are the subject of a
jury demand.” 	Thus, if this Court were to have jurisdiction, it would have, at most,
“related to” jurisdiction because, as the court in Concerto Software, observed, “proceedings
that ‘arise in’ and ‘arise under’ title 11 constitute the bankruptcy court’s ‘core’ jurisdiction.”
290 B.R. at 452 (citing 28 U.S.C. § 157(b), and In re Wood, 825 F.2d at 96-97). 	Accordingly,2
The court in Vienneau, succinctly summarized the jurisdiction of the2
bankruptcy courts. It stated:
Bankruptcy courts, like other lower federal courts, cannot create its own
jurisdiction; they have only the jurisdiction permitted under the
Constitution and given to them by Congress. Celotex Corp. v. Edwards,
514 U.S. 300, 307, 115 S.Ct. 1493, 1498, 131 L.Ed.2d 403 (1995). With the
passage of 28 U.S.C. § 1334, Congress invested the district courts with
original and exclusive jurisdiction for cases “under title 11,” that is, the
actual bankruptcy case commenced by the filing of a petition, and original
but not exclusive jurisdiction for civil proceedings “arising under title 11,
or arising in or related to cases under title 11.” 28 U.S.C. § 1334(a) and (b).
Congress also granted the district courts the power to refer bankruptcy
cases as well as civil proceedings which arise in or under the Bankruptcy
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the Court must determine whether the counts asserted by Strachan and Timberline
“‘potentially have some effect on the bankruptcy estate, such as altering debtor’s rights,
liabilities, options, or freedom of action, or otherwise have an impact upon the handling
and administration of the bankrupt estate.’” New England Power & Marine, Inc. v. Town
of Tyngsborough (In re Middlesex Power Equip. & Marine, Inc.), 292 F.3d 61, 68 (1st Cir.
2002)(quoting In re G.S.F. Corp., 938 F.2d 1467, 1475 (1st Cir.1991), and Smith v.
Commercial Banking Corp. (In re Smith), 866 F.2d 576, 580 (3d Cir.1989)).
The Plaintiffs argue that the successful adjudication of the Strachan and Timberline
counts would necessarily reduce or eliminate the only substantial liabilities pending in the
Debtor’s bankruptcy case. The Court notes that Strachan, through his proof of claim, seeks
recovery from the Debtor for his lost salary due to his wrongful termination as president of
the Debtor and that Timberline, through its proof of claim, seeks recovery from the Debtor
for work it completed on its behalf together with attorneys’ fees, interest and treble
damages. The Plaintiffs, in their Opposition to the Defendants’ Motion to Dismiss, suggest
that the relief Strachan and Moore seek against the Debtor is the same as the relief they
Code and those related to bankruptcy cases to the bankruptcy courts. 28
U.S.C. § 157(a). In Massachusetts, the district court has referred the
broadest possible universe of cases which a bankruptcy court could hear,
namely all cases over which the district court may exercise jurisdiction
under either § 1334(a) or (b). LR, D. Mass 201.
Id. at 334.
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seek against Moore and Rosenfeld in the Second Amended Complaint, thus conferring
jurisdiction on this Court because their potential recoveries against Moore and Rosenfeld
would reduce the Debtor’s obligations to Strachan and Timberline pursuant to their proofs
of claim. The Court rejects this argument, particularly as the Plaintiffs do not allege that
Moore and Rosenfeld were the alter egos of the Debtor.
In the first place, the Debtor’s claims against Moore and Rosenfeld for breach of
fiduciary duty are property of the bankruptcy estate, see 11 U.S.C. § 541(a), and can be
brought only by the Chapter 7 Trustee. See In re Healthco Intern., Inc., 208 B.R. 288, 300
(Bankr. D. Mass. 1997) (a claim asserted by the debtor is an interest in property which
passed to the bankruptcy estate, and the trustee can bring any suit the debtor could have
brought, including suits against directors and controlling shareholders for breach of
fiduciary duty). See also Morley v. Ontos, Inc. (In re Ontos, Inc.), 478 F.3d 427, 432 (1st Cir.
2007). Thus, for Strachan’s claims against Moore and Rosenfeld to be viable, they must be
independent, separate and distinct from the Trustee’s claims against those defendants. In
other words, Strachan’s claims against Moore and Rosenfeld must be direct and not
derivative claims of the corporation asserted by the Trustee against Moore and Rosenfeld.
See generally Liston v. Gottsegen (In re Mi-Lor Corp.) 348 F.3d 294 (1st Cir. 2003). In that
case, the United States Court of Appeals for the First Circuit explained:
The Creditors Trustees may properly stand in the shoes of the corporation
and its shareholders for purposes of the suit because they are continuing the
corporation’s cause of action, not initiating a separate action on behalf of
creditors. See Collier on Bankruptcy ¶ 541.08 (15th ed. rev.) (“The trustee .
. . stands in the shoes of the debtor corporation in prosecuting a cause of
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action belonging to the debtor . . . .”); id. ¶ 323.01 . . . . When a corporation
sues its fiduciaries or a stockholder brings a derivative suit against corporate
fiduciaries to enforce the corporation’s rights, any recovery for the fiduciary
breach belongs to the corporation. See, e.g., Bessette v. Bessette, 385 Mass.
806, 434 N.E.2d 206, 208 (1982) (“It is a basic principle of corporate law that
if a majority shareholder receives corporate cash distributions and a salary
in excess of the reasonable value of services rendered, the right to recover the
overpayments 	belongs 	to 	the 	corporation.”). 	Sums 	recovered 	by 	a
corporation in such suits are paid first to creditors, before any distributions
are made to shareholders. See Bagdon v. Bridgestone/Firestone, Inc., 916
F.2d 379, 383 (7th Cir.1990) (“Recoveries [in derivative suits] pass through
the corporate treasury, a process that both protects creditors (who get first
dibs) and avoids questions of apportionment. . . .”). . . .
348 F.3d at 301 (footnotes omitted). The court added that “[i]n some circumstances, the
Donahue doctrine permits stockholders of close corporations to sue for direct injuries and
recover personal relief for breaches of fiduciary duties owed directly to them.” Id. at n.
10 (citing Donahue v. Rodd Electrotype Co., 367 Mass. 578, 328 N.E.2d 505, 515 (1975), a
case in which the Supreme Judicial Court permitted such a suit for personal relief in the
case of a freeze-out of minority shareholders).
In Donahue, the court distinguished between the standard of duty owed by majority
stockholders to minority stockholders to the “less stringent standard of fiduciary duty to
which directors and stockholders of all corporations must adhere in the discharge of their
corporate responsibilities.” 367 Mass. at 593-94. It stated:
Because of the fundamental resemblance of the close corporation to the
partnership, the trust and confidence which are essential to this scale and
manner of enterprise, and the inherent danger to minority interests in the
close corporation, we hold that stockholders in the close corporation owe one
another substantially the same fiduciary duty in the operation of the
enterprise that partners owe to one another. In our previous decisions, we
have defined the standard of duty owed by partners to one another as the
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‘utmost good faith and loyalty.’ Cardullo v. Landau, 329 Mass. 5, 8, 105
N.E.2d 843 (1952); DeCotis v. D’Antona, 350 Mass. 165, 168, 214 N.E.2d 21
(1966). Stockholders in close corporations must discharge their management
and stockholder responsibilities in conformity with this strict good faith
standard. They may not act out of avarice, expediency or self-interest in
derogation of their duty of loyalty to the other stockholders and to the
corporation.
We contrast this strict good faith standard with the somewhat less stringent
standard of fiduciary duty to which directors and stockholders of all
corporations must adhere in the discharge of their corporate responsibilities.
Corporate directors are held to a good faith and inherent fairness standard
of conduct (Winchell v. Plywood Corp., 324 Mass. 171, 177, 85 N.E.2d 313
(1949)) and are not ‘permitted to serve two masters whose interests are
antagonistic.’ Spiegel v. Beacon Participations, Inc., 297 Mass. 398, 411, 8
N.E.2d 859, 904 (1937). ‘Their paramount duty is to the corporation, and their
personal pecuniary interests are subordinate to that duty.’ Durfee v. Durfee
& Canning, Inc., 323 Mass. 187, 196, 80 N.E.2d 522, 527 (1948).
367 Mass. at 592-94 (footnotes omitted). Thus, this Court finds that Strachan’s claims as
a minority shareholder of the Debtor against Moore and Rosenfeld, which are predicated
upon a corporate freeze-out theory against them as majority shareholders, while nominally
identical to those against the Debtor, are not, in fact, the same as those asserted by him in
his proof of claim against the Debtor because they arise from separate legal theories,
namely breach of fiduciary duty by stockholders in a closely held corporation and breach
of contract. As such, any recovery he might have against Moore and Rosenfeld arising
from his “partnership-like” relationship with them would not diminish his claim against
the Debtor corporation which has been deemed allowed as the Trustee has not objected to
his proof of claim. See 11 U.S.C. § 502(a).
With respect to Timberline’s claims which duplicate those of the Trustee, the Court
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concludes that those claims belong solely to the bankruptcy estate and cannot be asserted
independently by the creditor. The fraudulent conveyance claims (Counts Nine and Ten)
asserted by the Trustee and Timberline are the estate’s causes of action, see Morley v.
Ontos, Inc. (In re Ontos, Inc.), 478 F.3d 427, 431 (1st Cir. 2007); Sears Petroleum & Transport
Corp. v. Burgess Construction Serv., Inc., 417 F.Supp.2d 212, 221 (D. Mass. 2006) (“It is
well-established that creditors may not ‘vie with the bankruptcy trustee for the right to
pursue fraudulent conveyance actions. To the contrary, the commencement of bankruptcy
gives the trustee the right to pursue fraudulently conveyed assets to the exclusion of all
creditors.’”). Accordingly, Timberline has no standing to assert those claims against Moore
and Rosenfeld and the other defendants. See Klingman v. Levinson, 158 B.R. 109, 113 (N.D.
Ill.1993); In re Bluestone, 102 B.R. 103, 105 (Bankr. N.D. Ohio1989)(creditor “has no
standing to seek avoidance of an alleged fraudulent transfer under § 548.”).
With respect to Timberline’s claims set forth in Count 11 against Moore and
Rosenfeld, the Court finds that those claims only superficially duplicate Timberline’s proof
of claim against the Debtor, which is deemed allowed. See 11 U.S.C. § 502(a). To the extent
that Timberline has a cause of action against Moore and Rosenfeld for ch. 93A damages,
as opposed to its breach of contract claim and ch. 93A claim against the Debtor as set forth
in its proof of claim, this Court has no jurisdiction over that claim. More importantly, the
Court finds that the Trustee has no claim upon which relief can be granted against Moore
and Rosenfeld for ch. 93A damages. Through Count 11, the Plaintiffs failed to allege that
the conduct of Moore and Rosenfeld, which Timberline asserts harmed it, harmed the
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Debtor. 	Indeed, the Debtor was the instrument of the harm to the Timberline.
Accordingly, the Chapter 7 Trustee, as plaintiff, has failed to state a cause of action on behalf
of the Debtor for unfair and deceptive trade practices committed by Moore and Rosenfeld
against the Debtor. Although Moore and Rosenfeld may have breached fiduciary duties
to the Debtor or fraudulently conveyed property which the Trustee may recover for the
benefit of all creditors of the Debtor’s estate, the Plaintiffs have failed to set forth a viable
cause of action against Moore and Rosenfeld for damages caused by the Debtor as a result
of the conduct of Moore and Rosenfeld toward Timberline. Given that failure, Timberline’s
claims against Moore and Rosenfeld stand alone as an alternate claim that is not the same
as its claim against the Debtor, and the Court has no jurisdiction to consider its ch. 93A
claim against them.
In summary, the Court concludes that the reasons advanced by the Plaintiffs in
support of “related to” jurisdiction are unpersuasive. Just because Strachan and Timberline
are the only two unsecured creditors with significant claims against the estate does not
confer jurisdiction under 28 U.S.C. § 1334(b) over their claims against third parties.
Because the Trustee has not objected to the claims of Strachan and Timberline, their proofs
of claim constitute prima facie evidence of their validity and amount. See Fed. R. Bankr.
P. 3001(f). If the Trustee is successful with respect to his claims against the Defendants, his
recoveries can satisfy those claims in part or in full. If Strachan and Timberline elect to
pursue their claims against Moore and Rosenfeld in another forum and succeed against
either or both of them, they may elect to withdraw their claims against the Debtor
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corporation or the Trustee may elect to object to their claims, if he concludes that their
claims against the estate have been substantially satisfied by those potential recoveries.
Such a determination, however, is premature.
With respect to the Plaintiffs’ additional arguments, in the absence of any evidence
that Moore, Rosenfeld and the other Defendants have insufficient assets to pay potential
judgments in favor of the Trustee, on the one hand, and Strachan and Timberline on the
other, the possibility that the bankruptcy estate may be hampered in its collection efforts
against Moore and Rosenfeld resulting from any success on the part of Strachan and
Timberline in litigation against them is conjectural at best and insufficient to confer
jurisdiction. See In re Doctors Hospital of Hyde Park, Inc., 308 B.R. 311, 317 (Bankr. N.D.
Ill. 2004).
Lastly, a decision by the Court to delay a ruling on the Defendants’ Motion to
Dismiss to permit the Plaintiffs to move to withdraw the reference ignores the threshold
issue of the Court’s jurisdiction, see Work/Family Directions, Inc. v. Children's Discovery
Centers, Inc. (In re Santa Clara County Child Care Consortium), 223 B.R. 40, 44 (B.A.P. 1st
Cir. 998); Rayonier Wood Products, L.L.C. v. Scanware, Inc. (In re Scanware, Inc.), 411 B.R.
889, 893 (Bankr. S.D. Ga. 2009), aff’d, __ F.Supp.2d __, 2009 WL 4281262 (S.D. Ga. Nov. 30,
2009), as well as the opportunity which has been available to the Plaintiffs to move to
withdraw the reference before the inception of the present round of pleadings in view of
the denial of the Defendants’ Motion to Withdraw the Reference by the district court over
a year and a half ago in June of 2008. As stated by the court in Miller v. Kemira, Inc. (In re
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Lemco Gypsum, Inc.), 910 F.2d 784, 789 (11th Cir. 1990), “[j]udicial economy itself does not
justify federal jurisdiction.”
The Court also rejects the Plaintiffs’ assertion that bankruptcy courts may exercise
supplemental jurisdiction pursuant to 28 U.S.C. § 1367 in the absence of jurisdiction under
28 U.S.C. § 1334. The Court adopts the reasoning of the court in In re Vienneau, 410 B.R.
at 334-35. 	Because this Court lacks both “related-to” and supplemental jurisdiction, and3
because the parties have not consented to a jury trial in this Court, see 28 U.S.C. § 157(e),
The court in Vienneau stated:3
By its very language that section [28 U.S.C. § 1367]applies only to district
courts. This Court has previously rejected the idea that a non-article III
court, such as the bankruptcy court, could exercise supplemental
jurisdiction. In re Perez, 2008 WL 4164372, *4 (Bankr. D. Mass. 2008). See
also In re Adamson, 334 B.R. 1, 12 (Bankr. D. Mass. 2005) (argument that
bankruptcy courts have supplemental jurisdiction is a “dubious
proposition”); In re Found. for New Era Philanthropy, 201 B.R. 382, 398
(Bankr. E.D. Pa. 1996) (deciding that bankruptcy courts do not have
supplemental jurisdiction because § 1367 “makes no reference to the
bankruptcy court”); In re Remington Development Group, Inc., 180 B.R.
365, 373 (Bankr. D. R.I. 1995) (“ Section 1367’s supplemental jurisdiction
grant extends district court jurisdiction virtually to the limits of Article III.
. . . It would be anomalous to conclude that the bankruptcy court, which
obtains jurisdiction by circumscribed statutory reference from the district
court, may exercise § 1367 supplemental jurisdiction at the outer limits of
Article III. . . . To conclude otherwise is asking to run another
Marathon.”).
401 B.R. at 334-35.
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the district court has exclusive authority to conduct further proceedings with respect to the
remaining counts of the Plaintiffs’ Second Amended Complaint.
V. CONCLUSION
In view of the foregoing, the Court shall enter an order granting the Defendants’
Motion to Dismiss and sua sponte dismissing Count 11 of the Second Amended Complaint.
By the Court,
Joan N. Feeney
United States Bankruptcy Judge
Dated: January 21, 2010
cc: Steven J. Torres, Esq., Doreen M. Zankowski, Esq., Michael T. Marcucci, Esq., Douglas
E. Hausler, Esq., Joseph G. Butler, Esq.
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