The AEG Liquidation Trust v. Toobro NY LLC et al

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
---------------------------------------------------------------X
In re: FOR PUBLICATION
AMERICAN EQUITIES GROUP, INC., et al., Chapter 11
No. 00-15487 (BRL)
(Jointly Administered)
Debtors.
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THE AEG LIQUIDATION TRUST on behalf of
American Equities Group, Inc.,
Plaintiff, Adv. Pro. No. 11-02489 (BRL)
v.
TOOBRO NY LLC, TOOBRO DAG LLC, FJB,
LLC, AHAVA FOOD CORP. d/b/a NORTH
COUNTRY CHEESE CORP., LEWIS COUNTY
DAIRY CORP., ST. LAWRENCE FOOD CORP.,
SCHWARTZ & SONS QUALITY
DISTRIBUTORS, INC., AHAVA OF
CALIFORNIA d/b/a BEST VALUE KOSHER
FOOD and d/b/a AHAVA NATIONAL FOOD
DISTRIBUTOR and d/b/a NORTH COUNTRY
MANUFACTURNG, RTB SPECIALTY FOOD,
LLC, YOMO QUALITY FOOD LLC d/b/a BEST
VALUE KOSHER FOOD, MSBRO, LLC,
AHAVA DAIRY PRODUCTS CORP., and
SIGNATURE BANK,
Defendants.
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APPEARANCES:
DICKSTEIN SHAPIRO LLP
1633 Broadway
New York, New York 10019
Telephone: (212) 277-6500
Facsimile: (212) 277-6501
By: Shaya M. Berger
Attorneys for Plaintiff
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HERRICK, FEINSTEIN LLP
2 Park Avenue
The Chrysler Building
New York, New York 10016
Telephone: (212) 592-1400
Facsimile: (212) 592-1500
By: Gary F. Eisenberg
Joshua J. Angel
Mara. B. Levin
Attorneys for Defendant Signature Bank
Before: Hon. Burton R. Lifland
United States Bankruptcy Judge
MEMORANDUM DECISION AND ORDER REMANDING ADVERSARY
PROCEEDING TO STATE COURT
This is a confirmed chapter 11 plan with a liquidation trust created therein. American
Equities Group, Inc. (―AEG‖) had its Chapter 11 plan confirmed on October 20, 2008,1 and
closed on January 29, 2009.2 The AEG liquidation trust (the ―Liquidation Trust‖), as plaintiff,
brought suit in the New York State Supreme Court (the ―State Court‖) against a host of
defendants3 based on a variety of activities, many occurring subsequent to the AEG bankruptcy
(the ―State Court Action‖). Litigation in the State Court is relatively matured and has been the
subject of a recent and reasoned decision of that court (Kornreich, J.).4 In parsing motions to
1 See Order Confirming Debtors‘ Second Amended Plan of Liquidation [hereinafter the ―Confirmation Order], Case
No. 00-15487, Dkt. No. 973.
2 See Order Granting Application for Final Decree [hereinafter the ―Final Decree‖], Case No. 00-15487, Dkt. No.
985.
3 Specifically, the defendants were: the Toobro Entities, which are Toobro NY LLC, Toobro DAG LLC and FJB
LLC; the Ahava Entities which are Ahava Food Corp. (―Ahava Food‖), Lewis County Dairy Corp. (―Lewis Dairy‖),
St. Lawrence Food Corp. (―St. Lawrence‖), Shwartz & Sons Quality Distributors, Inc., Ahava of California, LLC
(―Ahava California‖), RTB Specialty Food, LLC, Yomo Quality Food LLC and Ahava Dairy Products Corp.
(―Ahava Dairy‖); and MSBRO LLC (collectively, the ―Defendants‖).
4 Justice Kornreich‘s decision (the ―Motion to Dismiss Decision‖) is attached as Exhibit H to the Declaration of
Joshua J. Angel. See Declaration of Joshua J. Angel [hereinafter ―Angel Decl.‖], (Adv. Pro. No. 11-02489, Dkt. No.
24), Ex. H.
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dismiss brought by many of the State Court defendants, Justice Kornreich found that Signature
Bank (―Signature‖) was a necessary party. Almost immediately thereafter, Signature removed
the State Court Action to this Court as the instant adversary proceeding (the ―Adversary
Proceeding‖).
This Adversary Proceeding is only one of the many arising from AEG‘s secured party
relationship with a number of the Defendants, the latest of which is Signature Bank. The original
causes of action from which the current proceeding derives have been subject to various
settlements, judgments and enforcement proceedings in several courts, including withdrawal by
the United States District Court for the Southern District of New York (the ―District Court‖) and
proceedings in a bankruptcy court in California. In this Adversary Proceeding, the Liquidation
Trust seeks relief based on state-law causes of action, such as breach of contract, breach of
settlement agreement, alter ego liability, successor liability, conversion and unjust enrichment.
On October 27, 2011, an Order to Show Cause was entered by this Court why it should
not remand the Adversary Proceeding to the State Court. Signature, the only party to submit a
response, opposes remand to the State Court. As the parties do not dispute whether this Court
has subject matter jurisdiction, the only issue outstanding is whether the Adversary Proceeding
should be remanded. This Court answers in the affirmative, finding that adjudication of the
Adversary Proceeding is more appropriate for the State Court. First, as the AEG bankruptcy has
been closed—indeed, the plaintiff in the instant proceeding, the Liquidation Trust, is a creation
of AEG‘s confirmed Chapter 11 plan, the outcome of the Adversary Proceeding could not impact
the administration of the bankruptcy estate in any meaningful way. Second, the action
underlying the Adversary Proceeding has been pending in State Court for over a year and that
court has adjudicated several matters, including a motion to dismiss for which the State Court
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issued an extensive decision. Third, state law issues predominate, including relatively unsettled
areas of state law. Finally, the case has a strong New York nexus, resulting in New York‘s
compelling interest to adjudicate the action. In light of the aforementioned considerations, this
Court hereby EQUITABLY REMANDS the Adversary Proceeding to the State Court.
BACKGROUND
The Adversary Proceeding originated as a lawsuit filed by the Liquidation Trust in 2010
in the State Court, but in reality, is based on a prolonged and convoluted history of litigation.
The following facts, unless noted otherwise, are taken from the complaint filed in this Adversary
Proceeding. See Copy of Certified Order Transferring Case, Dkt. No. 1, Ex. D [hereinafter the
―Complaint‖].
The Agreement Between AEG and Ahava Dairy
In 2000, AEG filed for bankruptcy in this Court, and in 2001, initiated an adversary
proceeding (the ―2001 Adversary Proceeding‖) against Ahava Dairy, Lewis Dairy, Ahava Food
and M. Banayan5 (the ―SDNY Defendants‖) for failure to pay $8,081,819.30 pursuant to an
account receivable factoring agreement (the ―Agreement‖) entered between AEG and Ahava
Dairy in 1996. Moise Banayan a/k/a Moshe Banayan (―M. Banayan‖), the sole owner of Ahava
Dairy, and Lewis Dairy personally guaranteed all of Ahava Dairy‘s obligations under the
Agreement, and Ahava Dairy and Lewis Dairy each granted AEG a first priority security interest
in all of their respective assets to secure their obligations under the Agreement. AEG perfected
its liens by filing Uniform Commercial Code (―UCC‖) financial statements on November 13,
1996.
5 AEG subsequently added Ahava Food, alleging it was an alter ego of Ahava Dairy.
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The Liquidation Trust contends that as early as 2000, M. Banayan instigated sham
transfers of assets between the Ahava Entities in an effort to escape liability under the
Agreement. See Compl., ¶¶ 62-71, 74. Specifically, over the course of several years, St.
Lawrence received assets of the SDNY Defendants, and in 2007, M. Banayan transferred the
business operations of the SDNY Defendants and St. Lawrence to Ahava California. Compl., ¶¶
63-66. In a further attempt to escape liability, in November 2008, M. Banayan attempted to sell
the assets of Ahava California free and clear of all liens and encumbrances as part of Ahava
California‘s bankruptcy case in California. The bankruptcy court denied the motion and
dismissed the bankruptcy case as a ―bad faith filing.‖ Compl., ¶¶ 75-78.
The Settlement Agreement
On September 27, 2001, the District Court withdrew the reference with respect to the
2001 Adversary Proceeding. In 2008, AEG and the SDNY Defendants entered into a settlement
agreement (the ―Settlement Agreement‖), whereby (1) a judgment for $3.5 million would be
entered, jointly and severally, against Ahava Dairy, Lewis Dairy, and M. Banayan; (2) a
judgment of $325,000 would be entered against Ahava Food; (3) Ahava Dairy, Lewis Dairy, and
M. Banayan, jointly and severally, would pay $250,000 to AEG in ten monthly installments; and
(4) if the monthly installments were not paid, a judgment of $3.5 million would be entered
against Ahava Food. See Compl., ¶ 41. Pursuant to the Settlement, the District Court entered a
final money judgment and order of dismissal with prejudice. The Settlement Agreement was
breached almost immediately, and the District Court entered a final money judgment against
Ahava Food for $3.5 million. Compl., ¶¶ 43-45. Thus, the District Court litigation ended.
The Liquidation Trust’s Dispute with Signature
In 2002, UCC-3 termination statements (the ―Termination Statements‖) were filed
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purporting to terminate AEG‘s security interest in the assets of Ahava Dairy and Lewis Dairy.
The Termination Statements indicated that they were filed by Ahava Dairy and Lewis Dairy, not
by AEG, the secured party and the only party authorized to file such a statement. Compl., ¶¶ 48-
49. AEG did not discover the Terminating Statements until 2006, at which time it filed UCC
correction statements. Compl., ¶¶ 50-51.
In 2005, Signature became a secured creditor of many of the Ahava Entities, including
Lewis Dairy. Compl., ¶¶ 53, 85. In 2008, after default and judgment against these entities,
Signature sought to conduct a secured sale (the ―Secured Sale‖) of their assets (the ―Secured Sale
Assets‖). AEG objected, noting that any action taken by Signature that ―would infringe upon or
purport to affect, negate or modify AEG‘s interest in the subject collateral would constitute a
breach of the automatic stay of Section 362 of the Bankruptcy Code.‖ Angel Decl., Ex. A.
Signature moved by order to show cause for relief from the automatic stay in this Court. By
order dated July 8, 2008, this Court granted a limited form of relief,6 permitting Signature to
conduct the Secured Sale, but noting:
all liens of Signature and AEG shall attach to the proceeds of the Sale (subject to prior
security interests, if any, of any third party), and the proceeds of the Sale shall be held in
escrow pending further adjudication of this Court with respect to competing claims of
priority as to the proceeds of the Sale.
Order Granting Limited Relief From Automatic Stay [hereinafter the ―Lift Stay Order‖] (Case
No. 00-15487, Dkt. No. 932). On January 29, 2009, this Court granted AEG‘s application for
entry of a final decree, stating ―that this Court shall retain jurisdiction over any disputes arising
out of this Court‘s Order Granting [Signature] Limited Relief from the Automatic Stay.‖ See
The Final Decree, p. 1.
6 The undersigned not being available, another judge in this Court entertained and signed the order granting limited
relief.
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At the Secured Sale, a wholly owned subsidiary of Signature purchased the Secured Sale
Assets, which it later sold to Toobro NY. MSBRO also claims to be part owner of the Secured
Sale Assets. Compl., ¶¶ 97-98.
The Claims Purchase Agreement
On February 18, 2009, the Liquidation Trust and Toobro NY executed an agreement (the
―Claims Purchase Agreement‖) in which Toobro NY agreed to purchase the Trust‘s claims and
liens against the Ahava Entities. Compl., ¶ 104. Pursuant to the agreement, Toobro NY was
required to make certain payments. Failure to do so would result in the agreement being void ab
initio. Compl., ¶ 105. Toobro NY failed to make such payments. Compl., ¶¶ 106-08.
The State Court Action
On June 21, 2010, the Liquidation Trust filed the State Court Action seeking to recover
payments pursuant to the Agreement, the Settlement Agreement and the Claims Purchase
Agreement based on various theories of liability, including breach of contract, alter ego liability,
express and implied successor liability and de facto merger. Compl., ¶ 110. The Liquidation
Trust also sought a declaratory judgment that it maintains uninterrupted first priority security
interests in Ahava Dairy‘s and Lewis Dairy‘s assets despite a series of transfers to other entities
and the filing of the Termination Statements.
In the Motion to Dismiss Decision, the State Court denied in part and granted in part
motions to dismiss the state court action. Therein, the State Court determined that Signature
Bank was a necessary party that must be joined. Upon being served, Signature removed the
State Court Action to the District Court who referred it to this Court as this Adversary
Proceeding, wherein the Litigation Trust seeks the same relief that it sought in the State Court
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Action, as well as punitive damages of $5 million, and based on theories of conversion and
unjust enrichment, the proceeds of the Secured Sale.
ANALYSIS
Section 1452(b) of title 28 allows a court to remand ―on any equitable ground‖ a claim or
cause of action that has been removed to that court. 28 U.S.C § 1452(b). A court may remand
sua sponte ―notwithstanding the absence of a motion . . . by any party.‖ Little Rest Twelve, Inc.
v. Visan, No. 11-CIV-2306, 2011 WL 3055375, at *12 (S.D.N.Y. July 20, 2011); see First Fed.
Sav. and Loan Ass’n v. Drake (In re Ramada Inn-Paragould Gen. P’ship), 137 B.R. 31, 33
(Bankr. E.D. Ark. 1992) (―[T]his Court may, upon its own motion remand the matter to the state
court.‖). In determining whether remand is appropriate, courts in this District apply the factors
laid out in Drexel Burnham Lambert Group, Inc. v. Vigilant Ins. Co. (In re Drexel Burnham
Lambert Group, Inc.), 130 B.R. 405 (S.D.N.Y. 1991); see, e.g., CCM Pathfinder Pompano Bay,
LLC v. Compass Fin. Partners LLC, 396 B.R. 602, 607 (S.D.N.Y. 2008) (quoting Drexel for ―the
factors that courts consider when determining whether to exercise permissive abstention‖).
Those factors include:
(1) the effect on the efficient administration of the bankruptcy estate;
(2) the extent to which issues of state law predominate; (3) the difficulty
or unsettled nature of the applicable state law; (4) comity; (5) the degree
of relatedness or remoteness of the proceeding to the main bankruptcy
case; (6) the existence of the right to a jury trial; and (7) prejudice to the
involuntarily removed defendants.
Drexel, 130 B.R. at 407. All of these factors, however, ―are merely illustrative, and the Court
may remand on any equitable ground.‖ JMB Capital Partners, L.P. v. CRT Capital Gr’p LLC
(In re NTL, Inc.), 295 B.R. 706, 719 (Bankr. S.D.N.Y. 2003) (emphasis in original); see In re
Micro Design, Inc., 120 B.R. 363, 366 (E.D. Pa. 1990) (noting the broad discretion given to the
court when considering whether to remand a removed proceeding); see also Geruschat v. Ernst
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Young LLP (In re Seven Fields Dev. Corp.), 505 F.3d 245 (3d Cir. 2007) (specifying the term
―equitable‖ as used in this statute ―is not to be understood as distinguishing equitable from legal
grounds in a traditional sense, but, instead, ‗equitable‘ signals that which is reasonable, fair, or
appropriate‖) (quotations and citations omitted).
The Court, applying the Drexel factors, finds that remand of the Adversary Proceeding is
appropriate, as demonstrated below.
(1) Efficient Administration of the Estate
Remanding this adversary proceeding will in no way be a detriment to ―the efficient
administration of the bankruptcy estate.‖ First, no such estate exists since the plan in AEG‘s
bankruptcy case was confirmed on October 20, 2008, and a final decree closing that case was
entered on January 29, 2009. See Towne Partners v. RJZM LLC (In re RJZM LLC), Adv. No.
09-01264, 2009 WL 2929433, at *4 (Bankr. S.D.N.Y. July 28, 2009) (―No bankruptcy estate
exists, as the Plan was confirmed and the case was closed long ago.‖). Second, even if the
Liquidation Trust is successful in this Adversary Proceeding, AEG‘s already-approved
liquidation plan—not this Court—would govern the allocation of any additional funds for
distribution to creditors. Accordingly, there is ―no possible impact on the administration of the
bankruptcy estate,‖ and thus no justification for keeping the case in the Bankruptcy Court. In re
RJZM LLC, 2009 WL 2929433 at *4.
(2) Predominance of State Law Issues
The claims in this Adversary Proceeding all center on state law; no cognizable
bankruptcy issues remain. The claims against the Ahava Entities and Toobro Entities are based
on allegations of breach of contract, breach of settlement, successor liability and alter ego
liability, all of which are generic state-law causes of actions. Similarly, the claims against
Signature regarding the proceeds of the Secured Sale are based on state law conversion and
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unjust enrichment causes of action that will be determined pursuant to Article 9 of New York‘s
UCC (―Article 9‖). None of these claims implicate any federal or bankruptcy law issues.
Signature argues that resolution of its dispute with the Liquidation Trust may require
interpretation of this Court‘s Lift Stay Order, and this Court is in the best position to interpret its
own orders. In particular, Signature contends the Court must determine: (1) whether the Order
requires all proceeds of the Secured Sale, or only the proceeds from Lewis Dairy‘s assets, to be
kept in escrow; and (2) whether pursuant to the Order AEG‘s security interests attach to the
proceeds of the Secured Sale or remain with the Secured Sale Assets. While resolution of this
case may require interpretation of the Lift Stay Order, it ―does not mean that State law is
superseded.‖ In re NTL, Inc., 295 B.R. 706, 717 (Bankr. S.D.N.Y. 2003). Indeed, interpretation
of the Lift Stay Order will be limited to its effect on conflicting security interests between
Signature and AEG, which is primarily an issue of state UCC law. See Longacre Master Fund,
Ltd v. Telecheck Servs., Inc., (In re Casual Male Corp.), 317 B.R. 472, 479 (Bankr. S.D.N.Y.
2004) (remanding where the case ―would require interpretation‖ of a bankruptcy court order, but
where ―the essence of the controversy‖ was nevertheless an issue of state law); NTL, 295 B.R.
at 717 (―[T]he real issues today do not involve the interpretation of the order, but rather its effect
on the rights of parties to private contracts.‖); Bayside Fuel Oil Corp. v. Savino (In re Savino Oil
& Heating Co.), No. CV–91–0038, 1992 WL 118801, at *4 (E.D.N.Y. May 21, 1992) (―In this
context, the prior orders of the bankruptcy court are relevant principally as they aid in the
resolution of various state law issues, and this Court has every confidence that . . . the state court
will give the [prior] Order the full weight due it.‖) (internal quotations omitted).
The predominance of state law issues therefore weighs heavily in favor of remand.
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(3) Difficulty or Unsettled Nature of State Law Issues
This case presents unsettled questions of law regarding Article 9, specifically, the effect
of an allegedly unauthorized termination statement on a subsequently acquired security interest.
In the Motion to Dismiss Decision, the State Court found that the allegedly unauthorized
Termination Statement did not affect AEG‘s security interest. In addressing this issue, the State
court identified a recent Southern District of New York case that held otherwise. In that case,
Roswell Capital Partners LLC v. Alternative Construction Technologies, the court, analyzing
Florida‘s UCC, determined that the UCC ―places the burden of monitoring for potentially
erroneous UCC–3 filings on existing creditors, who are aware of the true state of affairs as to
their security interests, rather than potential creditors who will not be in a position [to] know
whether a termination statement was authorized or not.‖ 08-CIV-10647, 2010 WL 3452378, at
*7 (S.D.N.Y. Sept. 1, 2010) aff’d sub nom. Roswell Capital Partners LLC. v. Beshara, 10-4037-
CV, 2011 WL 3849613 (2d. Cir. Sept. 1, 2011). The State Court, on the other hand, found the
district court‘s analysis to be undermined by both the sample form for termination statements
promoted by the UCC as well as the ―notice filing system‖ adopted by the UCC. See Motion to
Dismiss Decision, pp. 16-17 n.1. This unsettled question of law, as well as the competing policy
considerations underlying the same, therefore weigh in favor of remand to the State Court,
which, ―by greater knowledge of what [it wants] to accomplish, and a greater interest in
regulating the area in question,‖ provides ―the best forum for determining issues of this nature.‖
In re Lyondell Chemical Co., 402 B.R. 596, 614 (Bankr. S.D.N.Y. 2009).
(4) Comity
―Comity focuses on the state‘s interest in developing its law and applying its law to its
citizens.‖ In re Casual Male Corp., 317 B.R. at 480 (quoting ML Media Partners, LP v.
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Century/ML Cable Venture (In re Adelphia Commc’ns Corp.), 285 B.R. 127, 146 (Bankr.
S.D.N.Y. 2002)) (internal quotations omitted). Here, as discussed above, New York has a strong
interest in developing unsettled Article 9 law in accordance with its policy considerations. These
comity concerns are buttressed by the parties‘ strong connection to New York. AEG was a New
York corporation until its dissolution pursuant to the Confirmation Order. Compl., ¶ 9.
Signature is a publicly-traded bank organized under the laws of the state of New York.
Compl., ¶ 22. All of the remaining Defendants—other than Ahava of California, LLC, which is
a California limited liability company—are either New York limited liability companies or New
York corporations, and every Defendant conducted or continues to conduct business in New
York. Compl., ¶¶ 10-22. Accordingly, this Adversary Proceeding has a strong nexus with New
York resulting in New York‘s having an interest in its adjudication of the matter. This factor
therefore points heavily towards remand.
(5) Relatedness or Remoteness to the Main Bankruptcy Case
The fact that the bankruptcy case was closed weighs in favor of remand based on the fifth
Drexel factor. The state law claims at issue bare very little ―relatedness‖ to a now-completed
Chapter 11 case. In re RJZM LLC, 2009 WL 2929433 at *4. Disposition of this case may have a
significant impact on the amount of money available for creditors, but its effect ―on the
proceedings in the main bankruptcy case will be remote.‖ Tougher Industries, Inc. v. Dormitory
Authority of New York (In re Tougher Indus., Inc.), No. 07-90017, 2009 WL 2872842, at * 5
(Bankr. N.D.N.Y. Feb.17, 2009). While this action is sufficiently related to AEG‘s bankruptcy
cases for this Court to retain subject matter jurisdiction, such an attenuated relationship to the
bankruptcy cases does not merit this Court‘s retention of the proceedings at issue. Drexel, 130
B.R. at 407-08.
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Signature unsuccessfully argues that this Court should adjudicate this proceeding because
the Lift Stay Order and the Final Decree specifically retained jurisdiction to determine the
parties‘ rights in the proceeds of the Sale. This argument would be stronger had the Order or the
Decree retained exclusive jurisdiction over the matter. But neither of them did. While this
Court‘s retention of non-exclusive jurisdiction allows the Court to adjudicate this proceeding
even after the close of AEG‘s bankruptcy case, equitable considerations can still compel this
Court to remand the action. See, e.g., In re V. Savino Oil & Heating Co., Inc., 1992 WL 118801,
at *4 (remanding action to state court and noting ―nothing in the Consent Order or other
bankruptcy court orders requires exclusive federal jurisdiction‖).
(6) Prejudice to Involuntarily Removed Defendants
While no other party has argued that it will be prejudiced by this Court‘s retention of the
Adversary Proceeding, Signature alone claims that it will face prejudice in the State Court if the
case is remanded. But the State Court ordered Signature to be joined as a necessary party. This
reflects the State Court‘s regard for the best interests of Signature, certainly not a prejudice
against it.
Signature further argues that it will be prejudiced by certain of the State Court‘s findings
of fact in the Motion to Dismiss Decision. But such findings were made pursuant only to the
Toobro Defendant‘s motion to dismiss, and in that decision the State Court did not purport to
determine the status of Signature‘s security interest, instead it merely found that the defendants
failed to demonstrate that Signature‘s interest was superior to AEG‘s. See Motion to Dismiss
Decision, p. 14 (―Defendants fail to show that AEG‘s security interests in Ahava Dairy‘s and/or
Lewis‘ assets were subordinate to those of Signature Bank.‖). Given the above, this Court is not
willing to preclude its decision to remand this case based on Signature‘s perception of prejudice.
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If Signature is unhappy with a speculative and unknown future decision of the State Court and
feels it is a result of prejudice, Signature is free to appeal that decision.
Finally, Signature argues that if the Court remands the proceeding due to the State
Court‘s familiarity with the underlying issues, then the Liquidation Trust would be rewarded for
initiating an ―ex parte‖7 proceeding against Signature in State Court since that proceeding would
effectively prevent Signature from being heard in the forum of its choice. Signature also brings
up the parade of horribles, suggesting that remand here would incentivize future parties‘
initiating proceedings like the one initiated by the Liquidation Trust. But both of these
arguments by Signature overlook the fact that the State Court‘s familiarity is but one small factor
informing this Court‘s decision to remand, which is based on many other glaring reasons to do
so. Accordingly, it is not the case that the Liquidation Trust is being rewarded for filing the State
Court action without initially joining Signature; this Court is responding to more than that one
fact. And were a future hypothetical litigant to initiate an ―ex parte‖ [sic] proceeding in the
absence of these additional facts, there is no guarantee that proceeding would have the same
persuasive effect it does here. In addition, the Court is remanding to the jurisdiction with the
greater interest.
At bottom, it is clear that this Court should remand the Adversary Proceeding. For more
than a year, the State Court has entertained and adjudicated several matters in the State Court
Action, including motions to dismiss. Remanding, therefore, promotes comity and judicial
economy and efficiency especially since there are no cognizable bankruptcy issues remaining—
those that remain center on state law.
7 Signature engages in a curious labeling distortion of the nature of the State Court proceeding transparently
instituted against twelve defendants based on a variety of legal theories, a proceeding that was certainly not
conducted ―for the benefit of one party only, and without notice to, or argument by, any person adversely
interested.‖ BLACK‘S LAW DICTIONARY 616 (8th ed. 2004) (defining ―ex parte‖).
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CONCLUSION
For the reasons set forth above, this Court finds, in its discretion, that the Adversary
Proceeding should be remanded to the state court pursuant to 28 U.S.C. section 1452(b). The
Clerk of the Court is directed to effect the remand and transfer to State Court.
IT IS SO ORDERED.
Dated: New York, New York /s/ Burton R. Lifland
November 29, 2011 United States Bankruptcy Judge
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