Gemini Computers, Inc. v. POS Computers USA, Inc. et al

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NEW YORK
------------------------------------------------------------x
In re: Case No. 1-07-43574-dem
EDWARD BABEKOV, Chapter 7
Debtor.
------------------------------------------------------------x
In re: Case No. 1-07-43573-dem
POS COMPUTERS USA, INC., Chapter 7
Debtor.
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GEMINI COMPUTERS, INC.,
Adv. No. 1-07-01467-dem
Plaintiff,
-against-
POS COMPUTERS USA, INC.,
and EDWARD BABEKOV,
Defendants.
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GEMINI COMPUTERS, INC.,
Adv. No. 1-07-01483-dem
Plaintiff,
-against-
EDWARD BABEKOV,
Defendant.
------------------------------------------------------------x
DECISION AND ORDER ON APPLICATIONS REGARDING THE REMOVAL OF
THE STATE COURT ACTION AND RELIEF FROM THE AUTOMATIC STAY
Appearances:
Paul D. Feinstein, Esq.
Attorney for Plaintiff
102 Sunnyside Drive
Yonkers, New York 10705
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Stuart Davis, Esq.
Attorney for Defendants
2931 Westchester Avenue
Bronx, New York 10461
DENNIS E. MILTON
UNITED STATES BANKRUPTCY JUDGE
INTRODUCTION
The matter is before the Court on the application of the defendant Edward
Babekov and the Cross Motion of the plaintiff Gemini Computers, Inc. for Orders regarding
plaintiff's notice of removal of a state court civil action. On August 16, 2007, Gemini
Computers, Inc. (the “plaintiff”) filed a notice of removal of the state court civil action, thereby
instituting an adversary proceeding against the debtors, Edward Babekov and POS Computers
USA, Inc. (“POS Computers”) (the “defendants”). Adv. Pro. No. 1-07-01467. On or about
August 30, 2007, plaintiff commenced a second adversary proceeding against the defendant
Edward Babekov. Adv. Pro. No. 1-07-01483.
On or about November 8, 2007, counsel for defendant Babekov filed a motion for
an order remanding the case and imposing sanctions for violation of the automatic stay. On
November 20, 2007, this Court denied the defendant's motion as untimely filed. Counsel
subsequently re-filed the motion in a timely manner, with a hearing date of February 26, 2008.
Plaintiff filed a Cross Motion to Lift Automatic Stay Nunc Pro Tunc and to Confirm Removal
and all Prior Proceedings. This Court held hearings on these motions on February 26, 2008,
March 27, 2008, May 22, 2008 and July 21, 2008. Based upon the papers submitted and the
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arguments of counsel, the Court finds that plaintiff’s notice of removal was proper. The Court
also finds that equitable grounds exist warranting the remand of Adversary Proceeding No. 1-07-
01467-dem. Accordingly, this matter is remanded to the Supreme Court of the State of New
York, Queens County. This Court shall retain jurisdiction over Adversary Proceeding No. 1-07-
1843-dem.
JURISDICTION
This Court has jurisdiction over this core proceeding under 28 U.S.C. §§ 1334(b)
and 157(b)(2) and the Eastern District of New York standing order of reference dated August 28,
1986. This Decision and Order constitutes the Court’s findings of fact and conclusions of law to
the extent required by Fed. R. Bankr. P. 7052.
FACTUAL AND PROCEDURAL BACKGROUND
On August 7, 2006, plaintiff filed a complaint in the Supreme Court of New York
State, Queens County, against Edward Babekov and POS Computers USA, Inc. Gemini
Computers, Inc. v. Edward Babekov and POS Computers, Inc. Index No. 17319/06 (Supreme
Court, Queens County)(the "state court action"). The Complaint alleged unfair competition,
breach of duty of loyalty, breach of contract, misappropriation of trade secrets, and
replevin/conversion. Pl.’s Complaint at ¶ 5-11. Both Gemini Computers, Inc. and POS
Computers are corporations organized under the laws of the State of New York. Id. at ¶ 1-2.
Edward Babekov resides in Flushing, New York. Id. at ¶ 3.
On January 16, 2007, the plaintiff obtained preliminary injunctive relief in the
state court action. The injunction enjoined the defendants “from operating any competitive
enterprise.” Pl.’s Compl. Objecting to Discharge at ¶ 18. Plaintiff filed a Motion for an Order of
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Contempt in the state court action against the defendants for violation of this injunction. Id. at ¶
19.
On July 4, 2007, Edward Babekov and POS Computers filed a voluntary petition
for relief under Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for the
Eastern District of New York. On August 16, 2007, the plaintiff filed a notice of removal,
instituting an adversary proceeding. Adv. Proc. No. 1-07-1467-dem. On September 5, 2007, the
plaintiff filed a Motion for an Order of Contempt in the adversary proceeding. On October 29,
2007, the plaintiff filed a Motion for Default Judgment and Contempt. On January 3, 2008, this
Court granted the Motion for Default Judgment and scheduled a hearing to determine the
damages pertaining to the citation for contempt.
On January 29, 2008, the defendants filed a Motion seeking damages based upon
an alleged violation of the Automatic Stay in removing the state court action to the bankruptcy
court and moving for entry of a default judgment in the resulting adversary proceeding. The
plaintiff filed a Cross Motion to Lift Automatic Stay Nunc Pro Tunc and to Confirm Removal
and all Prior Proceedings Herein on February 28, 2008. This Court held hearings on these
motions on February 26, 2008, March 27, 2008, May 22, 2008 and July 21, 2008 and took the
matter under advisement.
DISCUSSION
A. Plaintiff’s Notice of Removal was Proper
The first matter before the Court is the determination whether the Notice of
Removal which plaintiff filed properly removed the state court action to this Court. Bankruptcy
Rule 9027(a)(2) provides the basis for timely filing of a notice of removal. Bankruptcy Rule
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9027(a)(2) provides:
If the claim or cause of action in a civil action is pending
when a case under the Code is commenced, a notice of
removal may be filed only within the longest of (A) 90 days
after the order for relief in the case under the Code, (B) 30
days after enter of an order terminating a stay, if the claim or
cause of action in a civil action has been stayed under §362 of
the Code, or (C) 30 days after a trustee qualifies in a chapter
11 Reorganization case but not later than 180 days after the
order of relief.
An “order for relief” in a voluntary action is the filing of the petition under
section 301 or 302. 11 U.S.C. §102(6). See also Edge Petroleum Operating Co., Inc. v.
Duke Energy Trading & Marketing, L.L.C., 312 B.R. 139, 144 (S.D.Tex., 2002). Here the
defendants argued that the plaintiff’s removal action is in violation of the automatic stay
granted under 11 U.S.C. §362(a), and that Bankruptcy Rule 9027(a)(2)(B) determined that
the only time period in which plaintiff in this case could have filed a timely notice of removal
was 30 days after entry of an order terminating a stay. Bankruptcy Rule 362(a)(1) provides
in pertinent part for an automatic stay of
(1) the commencement or continuation, including the issuance or
employment of process, of a judicial, administrative, or other
action or proceeding against the debtor that was or could have
been commenced before the commencement of the case under
this title, or to recover a claim against the debtor that arose before
the commencement of the case under this title;
The defendants' acts in filing the Chapter 7 petitions stayed the plaintiff’s state court
action. The automatic stay, however, does not apply to plaintiff’s adversary proceeding. Courts have
found an “important and fundamental” exception to the automatic stay. In re Atreus Enterprises,
Ltd., 120 B.R. 341, 346 (Bankr.S.D.N.Y., 1990). Any action to assert a pre-petition claim against
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the debtor which would otherwise be enjoined by 11 U.S.C. 362(a), if initiated in any other context,
is not subject to the automatic stay if commenced in the bankruptcy court where the debtor’s
bankruptcy case is pending. See id.; See also In re North Coast Village, Ltd., 135 B.R. 641, 644 (9th
Cir.BAP (Cal.), 1992)(holding that the automatic stay does not apply to proceedings against the
debtor in the home bankruptcy court and did not prevent plaintiff’s adversary proceeding seeking
specific performance and declaratory relief). The automatic stay would not apply to a case removed
to the forum of the debtor’s bankruptcy case, see In re Thomson McKinnon, Inc., 130 B.R. 721, 724
(Bankr.S.D.N.Y., 1991), because “The automatic stay is intended as an umbrella to protect a debtor
temporarily from the shower of law suits and collection efforts by creditors outside the bankruptcy
court...” In re Atreus Enterprises, Ltd., 120 B.R. at 346 (emphasis added). The bankruptcy court is
expressly authorized to hear and determine any and all core proceedings described in 28 U.S.C. §
157(b)(1), and any actions against the debtor which might be otherwise related to a case under title
11, as provided under 28 U.S.C. § 157(c)(1). See id.
The plaintiff's initial adversary proceeding against the debtors in this case is not
enjoined under 11 U.S.C. § 362(a). The Court finds that there is no violation of the automatic stay,
and that plaintiff’s notice of removal is proper. In the alternative, the Court finds that Bankruptcy
Rule 9027(a)(2)(A) requires that a notice of removal be filed within 90 days after the order of relief
in the case under the Code. Plaintiff’s notice of removal was filed approximately forty-seven days
after defendants filed under chapter 7 of the Bankruptcy Code. Therefore, plaintiff’s notice of
removal was timely under Bankruptcy Rule 9027(a)(2)(A).
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B. Although Properly Before this Court, the
Adversary Proceeding Commenced by the
Notice of Removal (Adv. Pro. No 1-07-1467)
Should Be Remanded to the State Court.
Although the removal of the state court action to this Court suffers from no
procedural defect, it is for this Court to determine whether this Court is the appropriate Court for
resolution of its causes of action. It is often more appropriate to permit proceedings to continue in
their place of origin. See H.R.Rep. No. 595, 95th Cong., 1st Sess. 341 (1977); S.Rep. No. 989, 95th
Cong., 2d Sess. 50 (1978), U.S.Code Cong. & Admin.News 1978, pp. 5836, 6297.
1. Remand of the State Court Action
28 U.S.C.§ 1452 addresses the removal of claims related to bankruptcy cases. It
provides:
(a) A party may remove any claim or cause of action in a civil
action other than a proceeding before the United States Tax
Court or a civil action by a governmental unit to enforce
such governmental unit's police or regulatory power, 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.
(b) The 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. § 1452. The determination whether to remand a removed proceeding is left to the
discretion of the bankruptcy judge. See In re Irwin, 325 B.R. 22, 28 (Bankr.M.D.Fla., 2005)(quoting
TIG Insurance Company v. Smolker, 264 B.R. 661, 665 (Bankr.C.D.Cal., 2001)).
Courts generally consider a variety of factors when deciding whether a cause of action
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should be remanded under 28 U.S.C. § 1452. These include:
(1) forum non conveniens; (2) the importance of trying the entire
action in the same court; (3) the extent to which state law dominates;
(4) the state court's familiarity with state law; (5) the existence of a
right to a jury trial; (6) judicial economy; (7) comity; (8) prejudice to
the involuntarily removed party; (9) the degree of relatedness of the
action to the main bankruptcy case; (10) the possibility of inconsistent
results; and (11) the effect of bifurcating claims of the parties.
In re Brooks, 389 B.R. 790, 793 -794 (Bankr.M.D.Fla., 2008)(citations omitted); See also Drexel
Burnham Lambert Group, Inc. v. Vigilant Ins. Co., 130 B.R. 405, 407 (S.D.N.Y., 1991)(listing
factors to consider when determining to remand a cause of action).
The state court action alleges unfair competition, breach of duty of loyalty, breach of
contract, misappropriation of trade secrets, and replevin/conversion. Plaintiff’s Complaint at ¶ 5-11.
These are tort and contract causes of action in which state law dominates. None of the claims in the
Complaint depends on federal bankruptcy law. The Court finds that the following legal and
equitable grounds exist to remand plaintiff’s action to the State Court. The State Court matter was
commenced prior to the filing of the bankruptcy petition and the initiation of these adversary
proceedings. The State Court heard the parties’ arguments and issued an initial temporary injunction
against the defendants. The State Court is familiar with the facts of the case, and it would be
beneficial to the parties for all actions in this matter to be heard in the same court. The State Court
is also the proper forum for plaintiff’s action.
In addition, the Court finds that the factor of comity weighs in favor of remand.
“Comity focuses on the state’s interest in developing its law and applying its law to its citizens.”
Abbatiello v. Monsanto Co., 2007 WL 747804, 5 (S.D.N.Y., 2007)(citing Renaissance Cosmetics,
Inc. v. Development Specialists Inc., 277 B.R. 5 (S.D.N.Y., 2002)). In this matter all of the parties
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are residents of New York. Both Gemini Computers, Inc. and POS Computers are corporations
organized under the laws of the State of New York. Pl.’s Compl. at ¶ 1-2. Edward Babekov is also
a resident of New York. Id. at ¶ 3. Thus the state has an interest in governing its businesses and
residents. Further, the plaintiff seeks an injunction which would be more easily enforced by state
authorities as the parties are all New York State residents.
Although this matter is sufficiently related to the defendants’ bankruptcy case for
jurisdictional purposes under § 1334(b), the Court finds that plaintiff’s action is largely independent
of defendants’ bankruptcy case. Plaintiff and defendants are not intertwined through property and/or
assets. Plaintiff’s Complaint alleges replevin/conversion and seeks the return of property; however,
such property includes software, computer code, and pictures, not major assets of the estate. Any
debt owed to the plaintiff will result from this action. Therefore this action is sufficiently remote
from defendants’ bankruptcy case to warrant remand.
In conclusion, the Court finds that the commencement of this matter in the New York
state court prior to the filing of defendants’ bankruptcy petition, the presence of state law claims, the
fact that all parties in the action are residents of New York State, the familiarity of the state court
with the facts of the case in view of its entry of a preliminary injunction, and that this action is
sufficiently remote from defendants’ bankruptcy proceeding so as not to interfere with the efficient
administration of the bankruptcy estate. The Court finds that these factors, taken individually or
together, compel a remand of the state court action to the State Court.
2. Remand of Second Adversary Proceeding [Adversary
Proceeding No. 1-07-1483-dem] Is Not Warranted
In Gemini Computers, Inc. v. Edward Babekov, Adversary Proceeding No. 07-1483,
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the plaintiff seeks Orders denying a discharge in bankruptcy to the debtor Edward Babekov. As a
general rule, state and federal courts have concurrent jurisdiction over civil proceedings that arise
under, arise in, or are related to a bankruptcy case. See In re Rex, 378 BR. 672, 675
(Bankr.M.D.Fla., 2007)(citing In re Franklin, 179 B.R. 913, 919 (Bankr.E.D.Cal., 1995)). 28 U.S.C
§ 1334 provides:
(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. § 1334(b). Courts have acknowledged that dischargeability actions constitute proceedings
that “arise under” a bankruptcy case within the meaning of § 1334(b), and that bankruptcy courts
therefore share concurrent jurisdiction with state courts over certain dischargeability actions. See
In re Rex, 378 B.R. at 675.
Section 523(c) of the Bankruptcy Code also supports the proposition that bankruptcy
courts and state courts maintain concurrent jurisdiction to decide dischargability. See In re Crocker,
362 B.R. 49, 55 (1st Cir.BAP (Mass.) 2007); Whitehouse v. LaRoche, 277 F.3d 568, 576 (1st Cir.
2002); In re Iannacone, 21 B.R. 153, 155 (Bankr.D.Mass., 1982). Bankruptcy courts do, however,
have exclusive jurisdiction to decide exceptions to discharge that arise under Sections 523(a)(2), (4),
(6), and (15) of the Bankruptcy Code. See 11 U.S.C. § 523. Since the causes of action in this
adversary proceeding arise under sections of the Bankruptcy Code over which this Court has
exclusive jurisdiction, this Court shall retain jurisdiction of this adversary proceeding.
CONCLUSION
For the reasons set forth more fully above, the Court finds that plaintiff’s notice of
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removal was proper. The Court also finds that equitable grounds exist warranting the remand of
Adversary Proceeding No. 1-07-01467-dem. Accordingly, this matter is remanded to the Supreme
Court of the State of New York, Queens County. This Court shall retain jurisdiction over Adversary
Proceeding No. 1-07-1843-dem.
IT IS SO ORDERED.
Dated: Brooklyn, New York
May 5, 2009
S/Dennis E. Milton
DENNIS E. MILTON
United States Bankruptcy Judge
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