Frost & Co, Inc. nka Frost Mechanical Holdings, In v. Smithey et al

OCR transcription for search; preserved printed pages are authoritative

UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF OHIO

In Re: )
) JUDGE RICHARD L. SPEER
James Lee Smithey )
) Case No. 10-3100
Debtor(s) )
) (Related Case: 10-30310)
Frost & Co, Inc. nka Frost Mechanical )
Holdings, Inc., et al. )
)
Plaintiff(s) )
)
Vv. )
)
James Lee Smithey, et al )
)
Defendant(s) )
DECISION AND ORDER

The Defendant, James Lee Smithey, is before this Court, having filed a petition for relief
under Chapter 7 of the United States Bankruptcy Code on January 22, 2010. At the time he filed for
bankruptcy relief, the Debtor/Defendant was the sole owner of Frost Roofing, Inc., the co-defendant

in this action.

On February 14, 2010, this adversary proceeding was commenced by the Plaintiffs filing a
notice of removal in this Court for an action which was pending before the Auglaize County
Common Pleas Court, Civil Division, Wapakoneta, Ohio, Case Number 2009-CV-0185. (Doc. No.
1). The action removed to this Court from the state court was grounded in fraud, with the Plaintiffs

setting forth the following statement in their notice of removal:

The State Court Action is a civil proceeding that is directly related to a
Chapter 7 bankruptcy case. In the State Court Action, Plaintiff Frost
challenges the actions of Defendant/Debtor at a time when both Debtor and
Plaintiff John McCormick were co-owners of Frost & Co., Inc., and Debtor
was operating the .. . company under a formal employment Agreement.

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Frost & Co, Inc. nka Frost Mechanical Holdings, et al. v. James Lee Smithey, et al.
Case No. 10-3100

Plaintiffs’ [sic] allege that Debtor converted and concealed assets of Frost &
Co., Inc. by, among other things, initiating “a series” of checks and electronic
fund transfers which were payable to Frost Roofing, Inc. (a company owned
and controlled by Debtor) and to other persons/entities which were not
legitimate corporate obligations of Frost and Co., Inc., all with purpose to
deprive Frost of their legal interest in such property and to secret and conceal
them from Frost as well as from his personal estate.

In this adversary proceeding, the Defendant, Frost Roofing, Inc., presently has a Motion for
Summary Judgment pending before the Court. A central point of the Defendant’s Motion for
Summary Judgment is based on this argument: “Under the UCC, Plaintiffs cannot bring a claim for
conversion because they are each, respectively, the “issuer” of the checks at issue.” (Doc. No. 45,
at pg. 6). The Court, however, at this time declines to entertain this Motion, and finds that this entire

action should be remanded.
DISCUSSION

Pursuant to 28 U.S.C. § 1452(a), and subject to a couple of limited exceptions, a case brought
in state court may be removed to the bankruptcy court so long as a valid jurisdictional basis exists
to adjudicate the removed matter under bankruptcy law. Notwithstanding, even though an action is
properly removed, nothing requires that a bankruptcy court actually hear and determine the removed
matter. Under 28 U.S.C. § 1452(b), it is provided that the “court to which such claim or cause of
action is removed may remand such claim or cause of action on any equitable ground.” In this

matter, equitable grounds exist to remand this case.

By its use of the standard “on any equitable ground,” 28 U.S.C. § 1452(b) confers on the
bankruptcy courts a broad degree of authority and discretion in determining whether remand is
proper. Jn re Cedar Funding, Inc., 419 B.R. 807, 817 (9" Cir. B.A.P. 2009). Such authority and
discretion allows the bankruptcy court to remand an action sua sponte. Inre Ramada Inn-Paragould

General Partnership, 137 B.R. 31, 33 (Bankr. E.D. Ark. 1992).

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Frost & Co, Inc. nka Frost Mechanical Holdings, et al. v. James Lee Smithey, et al.
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Section 1452(b), and its counterpart 1334(c), governing abstention, evince a strong
congressional policy that certain matters should be heard and tried in state court, particularly where
the action sought to be heard in the bankruptcy court does not retain a strong nexus to the bankruptcy
case. See Roddam vy. Metro Loans, Inc., 193 B.R. 971, 976 (N.D.Ala.1996). In this regard, it has been
held that “absent countervailing circumstance, the trial of state law created issues and rights should
be allowed to proceed in state court, at least where there is no basis for federal jurisdiction
independent of section 1334(b) and the litigation can be timely completed in state court.” Patterson
v. Morris, 337 B.R. 82, 96 (E.D.La.2006). Resultantly, a strong consideration in favor of remand is
dependent on whether the removed action is a core proceeding. Shiboleth v. Yerushalmi, 412 B.R.

113, 117 (S.D.N.Y.2009)

A core proceeding may be generally defined as “a proceeding that invokes a substantive right
provided by the Bankruptcy Code or is a proceeding that by its nature could only arise in the context
of a bankruptcy case.” Halper v. Halper, 164 F.3d 830, 836 (3 Cir.1999). Under 28 U.S.C.
§ 157(b)(2), anonexclusive list of 16 categories of proceedings are deemed to be core proceedings.
These categories include matters concerning the administration of the estate, matters concerning the
allowance and disallowance of claims against the estate and actions to determine the dischargeability

of a particular debt.

Nothing, however, indicates that the Plaintiffs’ action against the Defendant/Debtor, James
Smithey, and the co-defendant, Frost Roofing Inc., qualifies as a core proceeding or otherwise has
a strong nexus to the Debtor’s bankruptcy case. To the contrary, the co-defendant, Frost Roofing
Inc., specifically maintained in a filing with the Court that this action against it is a “non-core
proceeding.” (Doc. No. 9). Moreover, as it regards the Debtor/Defendant, James Smithey, this action

has none of the attributes of a core proceeding.

To begin with, this proceeding is not necessary to the claims determination process because
earlier, during the administration of the Debtor’s bankruptcy case, the Plaintiffs agreed to the

compromise of their claims. Similarly, the adjudication of this adversary proceeding will not impact
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Frost & Co, Inc. nka Frost Mechanical Holdings, et al. v. James Lee Smithey, et al.
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the Debtor’s bankruptcy estate, with the Trustee having recently filed his final report, thereby placing
the Debtor’s case in a position to be soon administratively closed. Further supporting the remand of

this adversary proceeding are these additional considerations.

First, state law predominates, with the substantive causes of action underlying this adversary
proceeding being based entirely on state law. AEG Liquidation Trust v. Toobro (Inre Am. Equities
Group, Inc.), 460 B.R. 123 (Bankr.S.D.N.Y.2011) (considerations bearing on remand include the
extent to which issues of state law predominate; the difficulty or unsettled nature of the applicable
state law; comity; and the degree of relatedness or remoteness of the proceeding to the main

bankruptcy case).

Second, still pending before this Court, and ready for adjudication, is the complaint brought
by the Plaintiffs to have a dischargeability determination made against the Debtor/Defendant.
Importantly, for this purpose, both the instant adversary proceeding and the Plaintiffs’ complaint to
determine dischargeability involve almost identical allegations, with these allegations being based
on the Debtor’s alleged fraud. As a result, with substance of the dispute between the Parties being
capable of being heard by this Court in another adversary proceeding, little prejudice, if any, will
befall the Parties if this particular adversary proceeding is remanded. Walter v. Freeway Foods of
Greensboro, Inc. (In re Freeway Foods of Greensboro, Inc.), 449 B.R. 860, 888
(Bankr.M.D.N.C.2011) (when determining whether a case should be remanded, a court should

consider the possibility of prejudice to other parties in the action).

Finally, supporting the remand of this case is the fact that, as observed by this Court in a
previous decision, this bankruptcy case is essentially a dispute between two parties: the Debtor and
the Plaintiff, John McCormick. In re Smithey, Slip Copy, 2011 WL 3102308 (Bankr. N.D.Ohio
2011). Such a use of the bankruptcy process, however, does not comport with the function the
bankruptcy laws of the United States were meant to serve — that of marshaling and consolidating a

debtor’s assets into a broadly defined estate from which, in an equitable and orderly process, the

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Frost & Co, Inc. nka Frost Mechanical Holdings, et al. v. James Lee Smithey, et al.
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debtor’s unsatisfied obligations to creditors are paid to the extent possible. Andrews v. Riggs Nat'l

Bank of Wash., D.C. (In re Andrews), 80 F.3d 906, 909-10 (4" Cir.1996).

<

In sum, for the reasons set forth herein, the Court finds that this adversary proceeding should

be remanded. It is therefore

ORDERED that, pursuant to 28 U.S.C. § 1452(b), this case is hereby Remanded to the
Auglaize County Common Pleas Court, Civil Division, Wapakoneta, Ohio, Case Number

2009-CV-0185.

Dated: February 16, 2012

Lid ZZ

Richard L. Speer
a United States
Bankruptcy Judge

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CERTIFICATE OF SERVICE

Copies were mailed this 16" day of February, 2012 to:

Bruce C French
PO Box 839
Lima, OH 45802

Dick Nagel Electric, Inc.
9 Broadway
Wapakoneta, OH 45895

Frost & Co, Inc.

nka Frost Mechanical Holdings, Inc.

9 Broadway Street
Wapakoneta, OH 45895

Frost Mechanical, Inc.
9 Broadway
Wapakoneta, OH 45895

John McCormick
9 Broadway
Wapakoneta, OH 45895

Quentin M Derryberry, I

PO Box 2056

103 South Blackhoof St, #200
Wapakoneta, OH 45895

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Derek A Younkman
101 N. Elizabeth Street
Suite 607

Lima, OH 45801

James Lee Smithey
16260 Nottingham Dr
Wapakoneta, OH 45895

Randy Lee Reeves
973 W North St
Lima, OH 45805

Frost Roofing, Inc.
2 Broadway
Wapakoneta, OH 45895

Joshua Koltak
100 S Main Ave, #300
Sidney, OH 45365

Michael A Staudt

100 S Main Ave, #300
Sidney, OH 45365

/s/Diana Hernandez

Deputy Clerk US Bankruptcy Court