Tuffy Associates Corp. v. Yeager et al

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
In Re
DONALD V. YEAGER
Debtor
TUFFY ASSOCIATES CORP.
Plaintiff
vs.
DONALD V. YEAGER
and
AUTOMOTIVE 1, INC.
and
AUTOMOTIVE 1, LLC
Defendants
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Case No. 05-24818
Chapter 7
Judge Hopkins
Adversary Case No. 05-1281
MEMORANDUM OF DECISION ON MOTION TO DISMISS
Presently before the Court is a Motion To Dismiss For Lack Of Jurisdiction And Request For
Additional Time To Plead ("Motion") (Doc. 8), filed by Donald V. Yeager ("Yeager"). 	By his
This document has been electronically entered in the records of the United
States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
Dated: October 16, 2006
____________________________________________________________
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Motion, Yeager seeks dismissal of the entire action based upon his contention that the Court does
not possess subject matter jurisdiction over the same.
Bankruptcy jurisdiction is divided into “core” proceedings, over which the bankruptcy courts
exercise full jurisdiction, and “non-core” or “otherwise related” proceedings where bankruptcy
courts have limited power. Wood v. Wood (In re Wood), 825 F.2d 90, 91 (5th Cir. 1987). Yeager
argues that all seven counts asserted in the complaint must be dismissed because they do not even
constitute "otherwise related" proceedings. Consequently, the issue presented is whether this Court
has subject matter jurisdiction under either the “core proceeding” jurisdictional standard, or the
“related to” jurisdictional standard.
Plaintiff, Tuffy Associates Corp. (“Tuffy”) is a Delaware corporation that has its principal
place of business in Toledo, Ohio. Yeager, who is also the Debtor, is a resident of Westchester,
Ohio, and is president of Defendant Automotive 1, Inc., an Ohio corporation. 	Yeager is also
allegedly named as the contact person, on the filing documents, for Defendant Automotive 1, LLC,
an Ohio limited liability company. Tuffy and Yeager entered into a licensing agreement which gave
Yeager franchise rights to operate a Tuffy Automotive service center in return for monetary
consideration, royalty fees, and advertising fees.
The complaint (Doc. 1) lists seven counts. Counts one and two were brought against Yeager
and Automotive 1, Inc. Counts three and six were brought solely against Yeager. Counts four and
five were brought against Defendant Automotive 1, Inc. 	Count seven was brought against
Automotive 1, LLC. 	A joint Answer (Doc. 7) was filed by Yeager, Automotive 1, Inc. and
Automotive 1, LLC. Yeager then filed the Motion (Doc. 8).
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“The source of the bankruptcy court’s jurisdiction is 28 U.S.C. §§ 1334 and 157.” Thickstun
Bros. Equip. v. Encompass Serv. Co. (In re Thickstun Bros. Equip.), 344 B.R. 515, 520 (B.A.P. 6th
Cir. 2006). Pursuant to § 1334(b) the district courts have jurisdiction over “cases under title 11,”
and proceedings “arising under,” “arising in a case under,” or “related to a case under” title 11. Id.
(quoting 28 U.S.C. § 1334(b)). 	District courts typically refer this jurisdictional grant over
bankruptcy cases to the bankruptcy courts. See § 157(a).
Bankruptcy Court jurisdiction is further governed by 28 U.S.C. § 157(b)(1) which states:
“Bankruptcy judges may hear and determine all cases under title 11 and all core proceedings arising
under title 11, or arising in a case under title 11, referred under subsection (a) of this section, and
may enter appropriate orders and judgments, subject to review under section 158 of this title.” The
bankruptcy judge rules on whether a particular proceeding is a core proceeding. See § 157(b)(3).
The court looks at both the form and the substance of the proceeding in making its determination.
Mich. Employment Sec. Comm’n v. Wolverine Radio Co. (In re Wolverine Radio Co.), 930 F.2d
1132, 1144 (6th Cir. 1991).
Additional jurisdiction to hear related claims is granted via 28 U.S.C. § 157(c)(1) which
states: “A bankruptcy judge may hear a proceeding that is not a core proceeding but that is otherwise
related to a case under title 11. In such proceeding, the bankruptcy judge shall submit proposed
findings of fact and conclusions of law to the district court, and any final order or judgment shall
be entered by the district judge after considering the bankruptcy judge’s proposed findings and
conclusions and after reviewing de novo those matters to which any party has timely and specifically
objected.” 	Thus, whether a claim is classified as core or non-core defines the extent of the
Bankruptcy Court’s jurisdiction, and the standard used by the District Court to review the
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1 The statutory grant of jurisdiction over core proceedings is set out in 28 U.S.C. §
157(b)(2) which states:
Core proceedings include, but are not limited to–
(A) matters concerning the administration of the estate;
(B) allowance or disallowance of claims against the estate or
exemptions from property of the estate, and estimation of claims or
interests for the purposes of confirming a under chapter 11, 12, or 13
of title 11 but not the liquidation or estimation of contingent or
unliquidated personal injury tort or wrongful death claims against the
estate for purposes of distribution in a case under title 11;
(C) counterclaims by the estate against persons filing claims against
the estate;
(D) orders in respect to obtaining credit;
(E) orders to turn over property of the estate;
(F) proceedings to determine, avoid, or recover preferences;
(G) motions to terminate, annul, or modify the automatic stay;
(H) 	proceedings 	to 	determine, 	avoid, 	or 	recover 	fraudulent
conveyances;
(I) determinations as to the dischargeability of particular debts;
(continued...)
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Bankruptcy Court’s factual findings. Halper v. Halper, 164 F.3d 830, 836 (3d Cir. 1999).
“Core Proceeding” Legal Standard
To determine the extent of this Court’s jurisdiction each claim must be examined and
classified as core, non-core, or wholly unrelated to the bankruptcy case. Id. at 839. As an initial
matter this Court will determine whether the Counts alleged by Tuffy are core proceedings. A non-
exclusive list of core proceedings is set out in 28 U.S.C. § 157(b)(2).1 “A core proceeding either
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1(...continued)
(J) objections to discharges;
(K) determinations of the validity, extent, or priority of liens;
(L) confirmations of plans;
(M) orders approving the use or lease of property, including the use
of cash collateral;
(N) orders approving the sale of property other than property
resulting from claims brought by the estate against persons who have
not filed claims against the estate; and
(O) other proceedings affecting the liquidation of the assets of the
estate or the adjustment of the debtor-creditor or the equity security
holder relationship, except personal injury tort or wrongful death
claims.
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invokes a substantive right created by federal bankruptcy law or one which could not exist outside
of bankruptcy.” Sanders Confectionary Prod. v. Heller Fin., 973 F.2d 474, 483 (6th Cir. 1992). The
Counts against Yeager and the non-debtor defendants consist of common law, state law, and federal
trademark infringement claims. These claims could exist outside of a bankruptcy proceeding, and
no substantive rights created by federal bankruptcy law are invoked. Thus, this Court holds that
Counts I-VII are not core proceedings.
“Related to” Legal Standard
The issue then becomes whether this court has “related to” jurisdiction under § 157(c)(1).
The test for determining “related to” jurisdiction is “whether the outcome of that proceeding could
conceivably have any effect on the estate being administered in bankruptcy. In re Dow Corning
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Corp. 86 F.3d 482, 489 (6th Cir. 1996) (quoting Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir.
1984)). The proceeding need not necessarily be against the debtor or the debtor’s property. Pacor,
743 F.2d at 994. “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 bankrupt estate.” Id. Whatever test is used,
precedent holds that bankruptcy courts lack jurisdiction over proceedings not affecting the debtor.
Celotex Corp. v. Edwards, 514 U.S. 300, 308 n. 6 (1995). Jurisdiction over non-bankruptcy issues
involving third parties who are “otherwise strangers to the civil proceeding and to the parent
bankruptcy does not exist.” Pacor, 743 F.2d at 994.
Jurisdiction as to Donald Yeager
Tuffy alleges four counts against Yeager. Count I alleges trademark infringement and unfair
competition. Count II alleges violation of the Ohio Deceptive Trade Practices Act and common law.
Count III alleges breach of contract. Count VI alleges breach of a non-compete provision contained
in the license agreement.
Tuffy requests monetary damages in Counts I and III. Because the Trustee was able to
locate assets in Yeager's bankruptcy case, a judgment against Yeager would affect the estate. See
Case No. 05-24818 at Doc. 25. Therefore, as to Yeager, Count I and III are related. Tuffy requests
injunctive relief on Counts I, II, III and VI. Injunctive relief, if granted, would alter the Debtor’s
rights or options, and negatively impact Yeager’s freedom of action. Accordingly, as to Yeager
Counts I, II, III, and VI of the Complaint are related to the administration of the bankruptcy estate
over which this Court has subject matter jurisdiction.
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Jurisdiction as to Automotive 1, Inc.
Tuffy brings four counts against Automotive 1, Inc. Count I alleges trademark infringement
and unfair competition. Count II alleges violation of the Ohio Deceptive Trade Practices Act and
common law. Count IV alleges breach of contract on a promissory note. Count V alleges replevin.
A. Count I & II Trademark Infringement, Unfair Competition and Violation of
Ohio Deceptive Trade Practices Act and Common Law
Tuffy alleges that despite the termination of the license agreement Yeager and Automotive
1, Inc. continued jointly operating the Tuffy Automotive center, and thereby wrongly used Tuffy
trademarks and intellectual property. As a result Tuffy is seeking monetary damages from both
parties under federal trademark statute. 	Tuffy also alleges the continued joint use of Tuffy
trademarks by Yeager and Automotive 1, Inc. violated Ohio Revised Code §§ 4165.01 - 4165.04,
and that this conduct is unfair competition under Ohio common law. In addition to monetary relief
under federal trademark statutes and Ohio Revised Code §§ 4165.02 - 4165.03, the plaintiff is also
seeking injunctive relief.
Both counts hinge on the allegation of joint conduct and the potential for joint liability
through contribution. The Sixth Circuit does not require a finding of definite liability of an estate
as a condition precedent to holding an action related to a bankruptcy proceeding. In re Salem
Mortgage Co., 783 F.2d 626, 635 (6th Cir. 1986). However, the mere presence of common facts
between a civil proceeding and a controversy involving the bankruptcy estate does not establish
jurisdiction. Pacor, 743 F.2d at 994.
In Dow Corning, the Sixth Circuit Court of Appeals stated: “We find support in the Court
of Appeals for the Sixth Circuit and lower courts, which have held that when the plaintiff alleges
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liability resulting from the joint conduct of the debtor and non-debtor defendants, bankruptcy
jurisdiction exists over all claims.” In re Dow Corning Corp. 86 F.3d at 492 (citing In re Wood, 825
F.2d at 94); see also Fox v. J&J Towne Pharmacy, Inc., No. 99-17560DWS, 2000 WL 568355, at
*7 (Bankr. E.D. Pa. May 5, 2000) (collecting cases supporting the proposition). 	When filing a
complaint against a debtor and third party defendants, for joint conduct, success against any of the
defendants will have an effect on the estate. In re Dow Corning Corp. 86 F.3d at 492 (citing In re
Wood, 825 F.2d at 94). The degree of liability for the joint conduct placed on third party defendants
will necessarily impact the burden, on the estate, for a portion of the judgment. Id.
Tuffy’s allegations of joint conduct and request for monetary damages indicates there is a
conceivable effect on the bankruptcy estate. The degree of liability attributable to each party must
be determined by this Court. The two claims could alter Yeager’s liabilities and the handling of the
estate. Thus, this Court has “related to” jurisdiction over Counts I and II.
B. Count IV Breach of Contract (Promissory Note)
Tuffy alleges that Automotive 1, Inc. failed to pay scheduled payments as required by a
promissory note (“Note”). Automotive 1, Inc. allegedly executed the Note, and the corporation was
obligated to pay $128,646.18. Yeager is not alleged to have signed the Note in a personal capacity.
The Note is secured by an agreement that gives Tuffy an interest in the assets of Automotive 1, Inc.
Tuffy requests monetary relief from Automotive 1, Inc. in the amount of the Note. Plaintiff also
seeks a declaratory judgment against Automotive 1, Inc. allowing Tuffy to execute on the security
agreement.
The issue is whether there is sufficient relation to Yeager’s bankruptcy to give this Court
jurisdiction to hear Count IV. Because Tuffy did not allege that Yeager personally guaranteed the
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Note there is no conceivable effect on the bankruptcy estate. A judgment against Automotive 1, Inc.
for breach of contract will not alter the “debtor’s rights, liabilities, options, or freedom of action,”
or impact the administration of the bankrupt estate. Pacor, 743 F.2d at 994.
Additionally, there is no allegation of joint conduct, or existence of an indemnification
agreement, which have both been deemed to confer “related to” jurisdiction. See In re Dow Corning
Corp. 86 F.3d at 492. Thus, Count IV is not related to Yeager’s bankruptcy case and this Court does
not have jurisdiction.
C. Count V Replevin
Plaintiff claims that the security agreement entered by Automotive 1, Inc. gives Tuffy the
right to enter the premises of Automotive 1, Inc. and remove collateral. Tuffy seeks a declaratory
judgment that Automotive 1, Inc. is in default on the Note and the security agreement. Tuffy also
requests a court order allowing entry to defendant corporation’s premises and leave to seize
collateral per the terms of the security agreement.
Tuffy does not claim that Yeager guaranteed the Note or the security agreement. 	No
allegation of joint conduct was made, and Count V is brought solely against Automotive 1, Inc. A
judgment against Automotive 1, Inc. will not alter the “debtor’s rights, liabilities, options, or
freedom of action,” or impact the administration of the bankrupt estate. Pacor, 743 F.2d at 994.
Thus, Count V is not related, and this Court does not have jurisdiction.
Jurisdiction as to Automotive 1, LLC
A. Count VII Injunctive Relief
Tuffy claims that Yeager jointly with Automotive 1, LLC, has continued to operate a Tuffy
Automotive service center despite termination of the license agreement. Tuffy alleges that Yeager
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is a partner or officer of Automotive 1, LLC, and is listed as the contact person on the formation
documents. However, despite the allegation of joint conduct, Tuffy has brought Count VII solely
against Automotive 1, LLC. 	Tuffy requests injunctive relief against Automotive 1, LLC, a
declaratory judgment that Automotive 1, LLC, is in violation of the license agreement, and
reasonable attorney’s fees.
Because Tuffy is seeking injunctive relief solely against Automotive 1, LLC there is no
conceivable effect on the bankruptcy estate. A grant of injunctive relief against Automotive 1, LLC
will not alter the “debtor’s rights, liabilities, options, or freedom of action,” or impact the
administration of the bankrupt estate. Pacor, 743 F.2d at 994. Thus, Count VII is not related and
this Court does not have jurisdiction over the claim.
Conclusion
In conclusion, the Court holds that it possesses "related to" subject matter jurisdiction over
Counts I, II, III and VI of the Complaint. The Court further concludes that it does not possess
"related to" jurisdiction over Counts IV, V and VII. For the foregoing reasons Plaintiff’s Motion
will be GRANTED IN PART AND DENIED IN PART. An order consistent with this
memorandum will be entered.
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Copies to:
Steven F. Alexsy, Esq.
salexsy@seyburn.com
Donald V. Yeager
8060 Plantation Drive
West Chester, OH 45069
Melancthon W. Chatfield, Esq.
mchatfield@fuse.net
U.S. Trustee
ustpregion09.ci.ecf@usdoj.gov
# # #
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