Krasny et al v. Bagga et al

In 	the 	United 	States 	Bankruptcy 	Court
For 	the 	Eastern 	District 	of 	Pennsylvania
In re 	: Chapter 7
:
JAMUNA REAL ESTATE, LLC 	: Bankruptcy No. 04-37130
UNITED MANAGEMENT SERVICES, INC. 	: Bankruptcy NO. 04-37132
BAGGA ENTERPRISES, INC. 	: Bankruptcy No. 04-37136
Debtor(s) 	:
:
MARVIN KRASNY, IN HIS CAPACITY AS 	:
CHAPTER 7 TRUSTEE OF UNITED 	:
MANAGEMENT SERVICES, INC.; 	:
MARVIN KRASNY, IN HIS CAPACITY AS 	:
CHAPTER 7 TRUSTEE OF JAMUNA REAL 	:
ESTATE LLC; GARY SEITZ, IN HIS 	:
CAPACITY AS CHAPTER 7 TRUSTEE OF 	:
BAGGA ENTERPRISES, INC. AND FL 	:
RECEIVABLES TRUST 2002-A 	:
:
Plaintiffs 	:
:
v. 	:
:
PRATPAL BAGGA; KHUSHVINDER BAGGA; 	:
RAVINDER CHAWLA; HARDEEP CHAWLA; 	:
WELCOME GROUP, INC.; K&P REAL 	:
ESTATE LLC; WORLD APPAREL PRODUCTS,:
INC. D/B/A/ SJM TRADING COMPANY, 	:
D/B/A TEN TIGERS; AMERICAN 	:
MERCHANDISE CO., INC., A/K/A 	:
AMERICAN MERCHANDISING CO.,INC.; 	:
21 ST CENTURY RESTAURANT SOLUTIONS, 	:
INC.; BRAND TRADE, INC.; H.B. 	:
PROPERTIES, INC.; H.B. PROPERTIES 	: Advs. No. 06-128
LLP; SANT PROPERTIES; JOHN AND 	: Advs. No. 06-129
JANE DOES AND ABC COMPANIES 	: Advs. No. 06-130
:
Defendants 	:
__________________________________ :
Opinion
By: Stephen Raslavich, United States Bankruptcy Judge.
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1That is the extent of the District Court’s directive: to
determine which counts raise “core” claims and which counts raise non-
core claims.
2See 28 U.S.C. § 157(b)(3) (“The bankruptcy judge shall
determine, on the judge’s own motion or on timely motion of a
party, whether a proceeding is a core proceeding under this
subsection or is a proceeding that is otherwise related to a case
under Title 11.” (emphasis added)) Whether a proceeding is core
or non-core is important in determining if the reference should
be withdrawn. 	In re American Capital Equipment, LLC, 325 B.R.
372, 377 (Bankr.W.D.Pa.2005)
2
Introduction.
The Plaintiffs filed in this Court a fifteen count complaint
against the debtor corporations, related entities, and their
principals. 	The Defendants have filed a motion to withdraw the
reference of this adversary proceeding from the Bankruptcy to
District Court. 	The District Court has remanded the motion to
the Bankruptcy Court with a limited instruction: this Court must
determine to what extent the Complaint raises core versus non-
core matters. 1 Upon receipt of the remand order, the parties
contacted this Court to request the opportunity to brief the
issues. 	That request was allowed, the parties submitted briefs,
and the matter was taken under advisement. 2
Background
These claims had been originally brought by the creditor FL
Receivables (FL) in the District Court. 	There, the Defendants
filed a motion to dismiss two of the counts for failure to state
a claim. 	That motion would be granted and as discovery was about
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3Mr. Krasny is the Trustee for United and Jamuna; Mr. Seitz
serves as Trustee of Bagga Enterprises.
4The Court entered a Joint Prosecution Order permitting the
Trustee and FL to join as plaintiffs. 	See Order dated August 17, 2005
filed in the main case.
5Title 28 provides, in pertinent part, that “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) (emphasis added). 	District Courts are therefore empowered to refer
bankruptcy matters to bankruptcy court:
Each district court may provide that any or all cases
under title 11 and any or all proceedings arising
under title 11 or arising in or related to a case
under title 11 shall be referred to the bankruptcy
judges for the district.
28 U.S.C. § 157(a)(emphasis added).
3
to proceed on the remaining claims, three of the corporate
defendants—United Management, Jamuna Real Estate, and Bagga
Enterprises—filed for bankruptcy under Chapter 7. 	The two
Trustees assigned to handle the cases (Messrs. Krasny and Seitz) 3
joined with FL to file the same claims in this Court. 4 	The
Defendants filed a motion in the District Court requesting that
the reference be withdrawn. That prompted the District Court to
remand the case to this Court to determine which of the counts
are core and which are non-core.
Core, Non-Core Proceedings
and Bankruptcy Court Jurisdiction
The District Court’s reference to core versus non-core
matters necessarily implicates the jurisdictional parameters of
the Bankruptcy Court. 5 	A term of art, “core” in this context
derives from the Supreme Court’s ruling in Northern Pipeline
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6Core 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
(continued...)
4
Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102
S.Ct. 2858 (1982). 	There, the High Court held unconstitutional
the jurisdictional grants of the Bankruptcy Act of 1978.
Specifically, it struck down the provision which authorized
Article I bankruptcy courts to hear certain matters that
constitutionally could only be heard by courts whose judges are
protected by the safeguards in Article III. 	Id. at 84, 102 S.Ct.
at 2878 (bankruptcy courts do not constitutionally have
jurisdiction over claims for breach of contract and
misrepresentation, [because they] involve a right created by
state law, a right independent and antecedent to the
reorganization petition that conferred jurisdiction upon the
Bankruptcy Court”) (emphasis in original). 	That ruling prompted
Congress to pass the Bankruptcy Amendments and Federal Judgeship
Act of 1984. 	Under the 1984 Amendments, the
[b]ankruptcy 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.
28 U.S.C. § 157(b)(emphasis added). 6 	A proceeding is classified
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6(...continued)
confirming a plan 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;
(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;
(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;
and
(P) recognition of foreign proceedings and other
matters under chapter 15 of title 11.
28 U.S.C. § 157(b)(2).
5
as "core" under 28 U.S.C. § 157 "if it invokes a substantive
right provided by title 11 or if it is a proceeding that, by its
nature, could arise only in the context of a bankruptcy case." In
re Marcus Hook Development Park., Inc., 943 F.2d 261, 267 (3d
Cir.1991) (quoting Beard v. Braunstein, 914 F.2d 434, 444 (3d
Cir.1990)). 	Core proceedings represent those disputes so
intertwined with the bankruptcy process that Congress has the
power under Article I of the Constitution to direct a non-tenured
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7The statute does provide, however, that all parties may consent
to the Bankruptcy Court’s entry of a final judgment. See U.S.C. §
157(c)(2)
6
judicial officer (i.e., bankruptcy judge) to render a final
determination of their merits. 	See 1 Norton Bankruptcy Law and
Practice 2d, § 4.75 (1999) ("The word 'core' was a shorthand word
employed to signify issues and actions that traditionally formed
part of the functions performed under federal bankruptcy law").
Where a matter does not qualify as “core” but has some
meaningful nexus with the bankruptcy case, it may nevertheless be
heard by the Bankruptcy Court on a preliminary basis:
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.
28 U.S.C. § 157(c)(1)(emphasis added). 7 The Third Circuit has
defined a “non-core” yet “otherwise related” proceeding as one
whose:
outcome … could conceivably have any effect
on the estate being administered in
bankruptcy." Pacor v. Higgins, 743 F.2d
984,994 (3d Cir.1984) (emphasis omitted); see
In re Guild, 72 F.3d at 1180-81. "[T]he
proceeding need not necessarily be against
the debtor or against the debtor's property."
In re Guild, 72 F.3d at 1180-81. '" A key
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7
word in [this test] is conceivable.
Certainty, or even likelihood, is not a
requirement. Bankruptcy jurisdiction will
exist so long as it is possible that a
proceeding may impact on the debtor's rights,
liabilities, options, or freedom of action or
the handling and administration of the
bankrupt estate. '" Id. at 1181 (quoting In
re Marcus Hook, 943 F.2d at 264) (emphasis
omitted).
Halper v. Halper, 164 F.3d 830, 837 (3d Cir.1999)(footnote
omitted). 	A leading commentator opines:
In light of the Marathon case, the
legislative history surrounding the 1984
jurisdictional provisions and the post-1984
case law, it seems clear that civil
proceedings encompassed by section 1334(b)'s
''related proceedings'' are those whose
outcome could conceivably have an effect on
the bankruptcy estate and that (1) involve
causes of action owned by the debtor that
became property of a title 11 estate under
section 541 (as distinguished from
postpetition causes of action, i.e., those
that come into existence during the pendency
of the bankruptcy case), or (2) are suits
between third parties that ''in the absence
of bankruptcy, could have been brought in a
district court or a state court.''
1 Collier on Bankruptcy ¶ 3.01[4][c][ii] (Matthew Bender 15 th Ed.
revised). 	This matters for present purposes inasmuch as the
parties agree that three of the fifteen counts in the Complaint
do not raise core matters, but disagree as to whether all three
are “otherwise related” to the bankruptcies. 	The Third Circuit
has explained that a bankruptcy may neither hear nor determine
matters which are both non-core and unrelated. 	See Pacor, Inc.
v. Higgins, 743 F.2d 984, 994 (3d Cir.1984) overruled on other
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8That does not mean, however, that the Court will analyze each
count seriatim. 	Given that several counts raise the same cause of
action (albeit against different Defendants), the Court will analyze
each common cause of action as a group.
918 U.S.C. § 1961 et seq.
8
grounds by Things Remembered, Inc. v. Petrarca, 516 U.S. 124, 116
S.Ct. 494, 133 L.Ed.2d 461 (1995); see also Torkelson v. Maggio
(In re Guild and Gallery Plus, Inc.), 72 F.3d 1171, 1181 (3d
Cir.1996) (holding that third party’s claim against trustee for
failing to account for non-estate property was neither core nor
related proceeding). 	The Court now turns to each of the fifteen
counts to determine which raise “core” matters. 	See Halper,
supra, 164 F.3d at 837 (explaining that where Court is confronted
with disparate causes of actions in determining whether core
matters raised, analysis must proceed on a claim-by-claim basis) 8
Counts I and II - RICO
Counts I and II allege violations of the Racketeer
Influenced and Corrupt Organizations Act of 1984 9 (RICO). 	The
parties concur that these claims are non-core, although they are
silent as to whether the claims are related. 	See Plaintiff’s
Brief, 5; Defendants’ Brief, 6,7. 	In any event, the question is
a legal one which means that the Court is not bound by what the
parties agree on and must make the determination on its own.
Mintze v. American General Financial Services, Inc., 434 F.3d
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9
222, 228 (3d Cir.2006) citing Halper, 164 F.3d at 836-37.
While there is no controlling Third Circuit law on this
issue, the Seventh Circuit has observed that the weight of
authority holds that a RICO claim is a non-core, related
proceeding. 	See Barnett v. Stern, 909 F.2d 973, 979-80 (7 th
Cir.1990) (holding that RICO claims against debtor individual and
debtors’ son were non-core, explaining majority rule and citing
cases). 	In this jurisdiction, the two decisions on point follow
that majority rule. 	See In re Schlein, 188 B.R. 13, 14 (E.D.Pa.
1993) (granting withdrawal of reference of RICO claims against
family members); see also In re Humphreys Pest Control Co., Inc.,
35 B.R. 712, 714 (Bankr.E.D.Pa.1984) (on creditors' motion for
relief from automatic stay to proceed with district court action
alleging, inter alia, RICO claims, bankruptcy court noted that,
under the Emergency Rule [the precursor of the current
jurisdictional statute enacted in response to Marathon ], these
claims against the officers and agents of the debtor's
corporation would be “related proceedings”). 	This Court will be
guided by that authority.
In this case, the Plaintiffs have alleged RICO violations
against the individual defendants. 	Complaint, ¶¶ 160-186. 	A
successful outcome of either RICO count would stand to benefit
these bankruptcy estate. 	For that reason, the Court finds that
Counts I and II raise non-core, related claims.
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10Originally, the Plaintiffs had alleged that counts IV
(Fraudulent Transfer), VI, VII and VIII (all for Turnover under 11
U.S.C. § 542) were “core” proceedings and that the remaining counts
were non-core related proceedings. 	See Complaint, ¶ 8. 	Plaintiffs
now argue that all counts except I, II and IX are core. 	No
explanation for this change is offered except to point out that this
switch was articulated at the April 17, 2006 hearing. 	See Defendants’
Brief, 6 n.3.
11Plaintiffs explain that Count XV pleads a remedy as opposed to a
cause of action. 	See Plaintiff’s Brief, 10 (stating that “it
logically follows the core/non-core status of the individual causes of
action”). 	No authority for this unorthodox practice is offered.
10
Counts III, X and XV - Piercing the Corporate Veil
These three counts are premised on an alter ego theory. 	See
Crimmins v. Arco Chemical Company, 1999 WL 199750 * 5 (E.D.Pa.)
(noting that purpose of alter ego doctrine is to prevent
individuals who have acted fraudulently or unjustly from
protecting themselves from liability by using the corporate form)
The remedy for such offense is to disregard the corporate entity.
See Village at Camelback Property Owners Association Inc. v.
Carr, 371 Pa. Super. 452, 460-61, 538 A.2d 528, 532-33 (1988)
(“Piercing the corporate veil is a means of assessing liability
for the acts of the corporation against the equity holders of the
corporation.”)
It is here that the parties register their first
disagreement. 	Despite what is alleged in the Complaint, 10
Plaintiffs now maintain that Counts III and X are core and that
Count XV is neither core nor non-core. 11 	See Plaintiffs’ Brief,
6, 9-10. 	Plaintiffs argue that what is sought here is turnover
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11
of diverted funds to the Debtor’s estates. 	Id. 5, 9. That, they
conclude, brings the claims within the specific example of “core”
matters in § 157(b)(2). 	Id. 	Defendants argue that case law is
to the contrary. 	Claims to pierce the corporate veil are based
in common law. 	Defendants’ Brief, 8.
The Third Circuit has observed that “actions to pierce the
corporate veil, or alter ego action against the debtor
corporation, are often considered non-core, ‘related to’
proceedings.” 	In re Phar-mor, Inc., 22 F.3d 1228, 1239 (3d
Cir.1994) 	Here, the Plaintiffs alleged that the individual
defendants abused the corporate form of the debtor corporations
to defraud its creditors. 	See Complaint ¶¶ 187-202, 247-257,
273-74. 	The Court finds that while these claims are not “core”
matters, they have the potential to affect this bankruptcy
estate. 	Therefore, Counts III, X and XV are non-core, related
matters.
Count IV - Fraudulent Transfer
Both sides maintain that this count raises a “core” claim.
Among the illustrative examples of core proceedings in §
157(b)(2) are fraudulent transfers. 	See 28 U.S.C § 157(b)(2)(H).
In substance, Count IV alleges a classic case of both actual and
constructive fraud. 	It is alleged that the Baggas intentionally
siphoned off money from the debtor for their own benefit and to
the detriment of creditors. 	See 11 U.S.C. § 548(a)(1)(A);
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12
Complaint ¶ 206. 	Alternatively, it is alleged that this was done
at a time when the Debtors were insolvent and, in exchange for
which, the Debtors did not receive reasonably equivalent value.
See 11 U.S.C. § 548(a)(1)(B); Complaint ¶ 207. 	The Court thus
finds the parties to be correct in classifying this count as a
core proceeding.
Count V - Conversion
Plaintiffs argue that the conversion count raises a core
claim because it is “in effect,” a fraudulent transfer claim.
Plaintiffs’ Brief, 6. 	In arguing that the claim is non-core,
Defendants liken it to an alter-ego cause of action: both are
based on state common law, arose prepetition, and would exist
independently of bankruptcy. 	Defendants’ Brief, 9.
The Court takes up the Plaintiffs’ premise first; to wit,
that because the conversion claim is similar to the fraudulent
transfer claim, it, too, should be deemed core. 	Similarities
between a core claim and a non-core claim do not create
bankruptcy court jurisdiction over the latter claim. 	Cf. In re
Kamine/Besicorp Allegany, LP, 214 B.R. 953, 965
(Bankr.D.N.J.1999) (explaining that parties may not manufacture
core jurisdiction by their actions). 	To reiterate, the test for
what is a core proceeding is whether the claim invokes a
substantive right provided under title 11 or arises only in the
context of bankruptcy. 	Halper, 164 F.3d at 836. 	The conversion
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12The Court’s own research reveals one rather dated line of
authority which accepts Plaintiffs’ premise. 	See In re Lombard-Wall,
Inc., 48 B.R. 986, 991 (S.D.N.Y.1985) (finding that claim in question
“so logically connected” to an issue in the case “that judicial
economy and fairness dictate that they be decided in the same forum.”)
That reasoning, however, is contrary to controlling Third Circuit
authority.
13
claim does neither. 	This would explain, then, why the Plaintiffs
adduce no authority—statutory or decisional—for this
proposition. 12 	Indeed, the weight of authority is in Defendants’
favor. 	See In re Windsor Comm. Grp., Inc., 79 B.R. 210, 211
(E.D.Pa.1987)(referencing remanded opinion wherein conversion
claim deemed non-core); In re Naturally Beautiful Nails, Inc.,
252 B.R. 574, 576 (M.D.Fla.2000) (same); In re Haugen, 120 B.R.
124, 126 (D.N.D.1991) (same); In re CIS, Inc., 172 B.R. 748, 758
(S.D.N.Y.1994) (“Claims asserting the unlawful conversion of
property unquestionably arise under state law and are considered
non-core proceedings.”); Meadowlands Comm. v. Banker's Trust Co.,
79 B.R. 198, 200 (D.N.J.1987) (conversion action brought by
debtor was non-core); In re Reda, Inc., 60 B.R. 178, 181
(Bankr.N.D.Ill.1986) (same); see also Van Dorn Retail Mgmt., Inc.
v. Sovran Bank/DC National, 1991 WL 222061 *4 n. 2 (D.D.C.)
(noting in dictum that conversion claims are generally recognized
as non-core). 	Accordingly, the Court finds that the conversion
claim is non-core.
That, however, does not end the matter. 	The corollary issue
raised by this ruling is whether this non-core matter is
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13Counts VI and VII are brought by Mr. Krasny as Trustee for
United and Jamuna, respectively; Count VIII is brought by Mr. Seitz as
Trustee for Bagga Enterprises. 	See Complaint.
14
“related” or not. 	Curiously, Defendants never address that
issue. 	In any event, the Court observes that the count is
brought by all Plaintiffs against Mr. Bagga. 	If prosecuted
successfully, this claim could positively affect the bankruptcy
estate. 	For that reason, the Court finds that the conversion
claim is a “related” non-core claim.
Counts VI, VII and VIII - Turnover
These three counts are brought each by one of three Trustees
against all of the Defendants. 13 	Each count alleges that certain
individual defendants wrongfully transferred money of the
respective corporate Debtor to the individual defendants. Section
542 provides, in pertinent part, that “an entity … in possession,
custody or control, during the case of property that the trustee
may use, sell, or lease under § 363 of this title … shall deliver
to the trustee, and account for, such property or the value of
such property …” 	11 U.S.C. § 542(a). 	Although each count is
styled “turnover,” Defendants reject that characterization. They
argue that the assets which Plaintiffs demand to be turned over
are the subject of dispute between the parties. 	Defendants’
Brief, 12. 	Therefore, their argument goes, these counts are not
turnover claims. 	In response, Plaintiff offers the rather
circular argument that all they need to show to establish a
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15
viable turnover claim is that the money demanded is property of
the estate. 	Plaintiffs’ Brief, 7. 	Do these counts raise claims
for turnover?
Examination of the question whether an action is properly
characterized as a turnover proceeding typically occurs in
connection with a determination whether a matter is a core or
non-core proceeding. 	See e.g., Beard v. Braunstein, 914 F.2d
434, 443-44 (3d Cir.1990); see also In re Asousa Partnernership,
264 B.R. 376, 384 (Bankr.E.D.Pa.2001)(“Turnover under 11 U.S.C. §
542 is a remedy available to debtors to obtain what is
acknowledged to be property of the bankruptcy estate.”); see also
Creative Data Forms, Inc. v. Pennsylvania Minority Business
Development Authority (In re Creative Data Forms, Inc.), 41 B.R.
334, 336 (Bankr.E.D.Pa.1984) (“[I]f the debtor does not have the
right to possess or use the property at the commencement of the
case, a turnover action cannot be a tool to acquire such
rights.”), aff'd, 72 B.R. 619 (E.D.Pa.1985), aff'd, 800 F.2d 1132
(3d Cir.1986) (table). 	Numerous courts have held that a turnover
is not proper where a bona fide dispute exists. 	See In re
Allegheny Health Education and Research Foundation, 233 B.R. 671,
677 (Bankr.W.D.Pa.1999) citing U.S. v. Inslaw, Inc., 932 F.2d
1467, 1472 (D.C.Cir.1991) (“‘It is settled law’ that turnover
actions under § 542 cannot be used ‘to demand assets whose title
is in dispute’”) see also In re 2045 Wheatsheaf Associates, 1998
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WL 910228 *10 (Bankr.E.D.Pa.) (quoting In re Johnson, 215 B.R.
381, 386 (Bankr.N.D.Ill.1997), to the effect that “[t]urnover
under § 542 of the Code ‘is not intended as a remedy to determine
disputed rights of parties to property. Rather, it is intended as
a remedy to obtain what is acknowledged to be property of the
bankruptcy estate.’”); In re LiTenda Mortgage Corp., 246 B.R.
185, 195 (Bankr.D.N.J.2000) citing In re CIS Corp., supra, 172
B.R. at 760) (“The terms ‘matured, payable on demand, or payable
on order’ create a strong textual inference that an action should
be regarded as a turnover only when there is no legitimate
dispute over what is owed to the debtor.”); In re F & L Plumbing
& Heating Co., 114 B.R. 370, 376-77 (E.D.N.Y.1990) (explaining
that where no set fund exists and other parties may have legal
rights to the monies sought, no turnover action lies); In re Ven-
Mar Intern., Inc., 166 B.R. 191, 192-93 (Bankr.S.D.Fla.1994)
(holding that § 542 does not provide a means to recover property
where a dispute exists between the parties); In re Matheney, 138
B.R. 541, 546 (Bankr.S.D.Ohio 1992) (stating that an action is
properly characterized as one for turnover when the trustee or
debtor in possession is seeking to obtain property of the debtor,
not property owed to the debtor); In re Kenston Management Co.,
137 B.R. 100, 107 (Bankr.E.D.N.Y.1992) (holding that an action
for turnover only exists if the debt has matured and is “specific
in its terms as to the amount due and payable”); In re FLR
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17
Company, Inc., 58 B.R. 632, 634 (Bankr.W.D.Pa.1985) (“Implicit in
the bankruptcy context of turnover is the idea that the property
being sought is clearly the property of the Debtor but not in the
Debtor's possession. Turnover, 11 U.S.C. § 542, is not the
provision of the Code to determine the rights of the parties in
legitimate contract disputes.”) Do these counts involve a claim
subject to dispute?
The Third Circuit has explained that a “bona fide dispute”
exists only when there is “a genuine issue of material fact that
bears upon the debtor's liability, or a meritorious contention as
to the application of law to undisputed facts.” B.D.W. Associates
v. Busy Beaver Bldg. Ctrs., 865 F.2d 65, 66 (3d Cir.1989)
(adopting standard enunciated in In re Busick, 831 F.2d 745, 746
(7th Cir.1987) which, in turn adopted In re Lough, 57 B.R. 993,
997 (Bankr.E.D.Mich.1986) with gloss: requiring that fact or
legal issue in dispute be “substantial”). 	Applying this
definition to the three counts, the Court sees that the
Defendants “adamantly” dispute that they have done anything wrong
or that they diverted money from the Debtors to themselves.
Defendants’ Brief, 12. 	Thus, Plaintiffs’ argument that a finding
that the property sought to be turned over is property of the
estate begs the question. 	At this stage in the litigation, the
Court does not know whether the funds sought to be recovered are
(or are not) estate property. 	There exists, then, a bona fide
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dispute on that material issue which, in turn, means that the
claims in Counts VI through VIII are not strictly “turnover”
claims. 	For that reason, the Court finds that such claims are
non-core.
However, yet again, the Defendants’ analysis is incomplete.
Having confirmed their contention that these counts are non-core,
the Court must delve further to determine if any are nonetheless
“related” matters. 	Count VI alleges that property of United was
transferred by individual defendants to themselves and other
entities with no legitimate business purpose. 	Complaint ¶¶ 219-
222 	In Count VII, essentially the same thing is alleged as to
have happened to Jamuna. 	There, it is alleged that its revenues
were transferred to United, among other defendants, and with no
legitimate business purpose. 	Id. ¶¶ 223-28. 	Likewise, Count
VIII alleges that funds which were the property of Bagga
Enterprises were improperly transferred to other defendants. 	Id.
¶¶ 230-35. 	Should all or part of those transferred funds be
recovered, the respective estate would be affected in a positive
manner. 	Therefore, the Court finds that Counts VI, VII and VIII
are “related”, non-core matters.
Count IX - Fraud
This count raises a claim under the Pennsylvania common law
of fraud in the inducement. 	See Eigen v. Textron Lycoming
Reciprocating Engine Div., 874 A.2d 1179, 1185 (Pa.Super.2005)
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(listing the elements of fraud in the inducement as : (1) a
representation; (2) which is material to the transaction at hand;
(3) made falsely, with knowledge of its falsity or recklessness
as to whether it is true or false; (4) with the intent of
misleading another into relying on it; (5) justifiable reliance
on the misrepresentation; and (6) the resulting injury was
proximately caused by the reliance.) 	The Baggas are alleged to
have intentionally made materially false representations to
induce FL’s predecessor in interest to loan them money.
Complaint, ¶¶ 239-43. 	That lender justifiably relied on false
financial statements to its detriment. 	Id. 	¶¶244-46.
While both parties agree that this count is non-core, they
disagree on whether it is a “related” claim. 	Plaintiffs maintain
that the fraud claim is non-core but “related” for two reasons:
first, it is “factually related” to the core fraudulent transfer
claim; and, second, under the Joint Prosecution Order, any
recovery will inure to the benefit of the bankruptcy estate.
Plaintiffs’ Brief, 8. 	Defendants maintain that this count is
wholly unrelated to the case as it is brought by FL on its own
behalf only and does not involve the Trustee plaintiffs.
Defendants’ Brief, 9.
Plaintiffs’ first argument—that there is commonality between
the fraud and the fraudulent transfer claims sufficient to render
the former “related”— is as unsuccessful here as it was when
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raised in support of the argument that the conversion claim was
core. 	The same can be said, however, for Defendants’ argument;
to wit, that the Trustee must be one of the litigants for a
bankruptcy court to have even “related to” jurisdiction. 	What
matters, the Third Circuit explained in Pacor, is
whether the outcome of that proceeding could
conceivably have any effect on the estate
being administered in bankruptcy. E.g., In re
Hall, 30 B.R. at 802; In re General Oil
Distributors, Inc., 21 B.R. 888, 892 n. 13
(Bankr.E.D.N.Y.1982); In re U.S. Air Duct
Corp., 8 B.R. 848, 851 (Bankr.N.D.N.Y.1981);
1 Collier on Bankruptcy ¶ 3.01 at 3-49. Thus,
the proceeding need not necessarily be
against the debtor or against the debtor's
property. 	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.
743 F.2d at 994. 	This reveals as persuasive Plaintiffs’ second
argument; to wit, that the Joint Prosecution Order will affect
this bankruptcy estate. 	If prosecuted successfully, the fraud
claim would positively affect these bankruptcy estates. 	For that
reason, the Court finds that Count IX is a non-core proceeding
which is related to these bankruptcy estates.
Counts XI through XIV - Breach of Fiduciary Duty
Counts XI through XIV allege four instances of fiduciary
misfeasance and/or assisting or abetting such conduct. 	Certain
individual defendants—qua fiduciaries—are accused of unjustly
enriching themselves at the Debtors’ expense. 	See Count XI. 	Mr.
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and Mrs. Bagga are alleged to have stripped assets from their
companies, including the Debtors. 	See Count XII. 	At the same
time, they are charged with causing Bagga Enterprises and Jamuna
Real Estate to become even more insolvent. 	See Count XIII.
Finally, those individual defendants not fiduciaries are supposed
to have aided or abetted those who were as the latter violated
their oaths. 	See Count XIV. 	Each of these counts states a claim
under Pennsylvania law. 	See Westlake Plastic Co. v. O’Donnell,
182 F.R.D. 165, 171 (E.D.Pa.) (observing that self-dealing is an
example of a breach of fiduciary duty citing 15 Pa.C.S.A. § 512);
In re Specialty Tape Corp., 132 B.R. 297, 301 (Bankr.W.D.Pa.1991)
(holding that former officers-directors breached their fiduciary
duty to the debtor when they transferred the debtor’s assets,
including equipment that deprived the debtor from servicing its
customers and deriving income, to a corporation of which they
were also officers and directors; Official Committee of Unsecured
Creditors v. R.F. Lafferty & Co., 267 F.3d 340, 349 (3d Cir.2001)
(“[W]e conclude that, if faced with the issue, the Pennsylvania
Supreme Court would determine that ‘deepening insolvency’ may
give rise to a cognizable injury.”); Koken v. Steinberg, 825 A.2d
723, 732 (Pa.Comwlth 2003) citing Pierce v. Rossetta Corp., 1992
WL 165817 *8 (E.D.Pa.1992) (listing elements for a claim for
aiding and abetting breach of a fiduciary duty under Pennsylvania
law as: (1) a breach of a fiduciary duty owed to another; (2)
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14Here, again, Defendants do not specify whether the non-core
claims are related or not.
22
knowledge of the breach by the aider and abettor; and (3)
substantial assistance or encouragement by the aider and abettor
in effecting that breach). 	That takes the Court to the primary
question: are these counts core or non-core?
As with the conversion and fraud counts, Plaintiffs’
argument that Counts XI through XIV are core is made by
association. 	The breach of fiduciary duty claims, say the
Plaintiff, are “factually related” to the fraudulent transfer and
turnover claims. 	Plaintiff’s Brief, 10. 	For their part,
Defendants raise the same argument as they did towards the
conversion and fraud counts: the claims arise under state statute
and common law and preceded the bankruptcy. 	Defendant’s Brief,
9,10. 14
While the Third Circuit has not had occasion to decide
whether such claims are core or not, the majority of courts which
addressed the question have held that a cause of action for
breach of fiduciary duty is a non-core, related proceeding. 	See
Diamond Mort. Corp. v. Sugar, 913 F.2d 1233, 1239 (7 th Cir. 1990);
In re Cannon, 277 F.3d 838, 846 (6 th Cir.2002); McCord v.
Papantoniou (In re Papantoniou), 316 B.R. 113, 121 (E.D.N.Y.
2004); In re Delaware & Hudson Rwy, 122 B.R. 887, 894
(D.Del.1991); Johnson v. State Farm Mut. Ins. Co., (In re
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23
Guenther), 65 B.R. 650, 651 	(Bankr.D.Colo.1986); In re Michigan
REIT, 87 B.R. 447, 453 (E.D.Mich. 1988); In re SRC Holding Corp.,
352 B.R. 103, 166 (Bankr.D.Minn.2006); In re 4 Front Petroleum,
Inc., 345 B.R. 744, 750 (Bankr.N.D.Okla.2006); Allen v. J.K.
Harris & Co., 331 B.R. 634, 641 (E.D.Pa.2005) but see contra
Glinka v. Abram and Rose Co., Ltd., 1994 WL 905714 *8 (D.Vt.)
This Court has previously held with the majority. 	See Eagle
Enterprises, Inc., 259 B.R. 83, 87-88 (Bankr.E.D.Pa.2001)
(finding in abstention context that breach of fiduciary duty
claims are non-core related).
Without question, these claims cannot be said to invoke a
substantive right provided by title 11 or to arise only in the
context of a bankruptcy. 	Thus, they are not “core” claims.
However, what can be said with certainty is that if the
Plaintiffs prevail on these counts, the estate stands to benefit.
Accordingly, this Court concludes that these counts raise “non-
core, related” matters.
Conclusion
The Court makes the following determination as to the
core/non-core status of each of the fifteen counts of the
Complaint: Counts I, II, III, V, VI, VII, VIII, IX, X, XI, XII,
XIII, XIV, and XV are non-core, related claims. 	Count IV is a
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15 This ruling is specifically limited to the precise directive
set forth in the District Court’s Remand Order. 	The Court was not
asked or directed by the District Court to opine on the other issues
which the parties in their written submissions have asked the Court to
discuss. 	Under the circumstances the Court believes it would be
inappropriate to unilaterally go beyond the issue referred to it.
Accordingly, the Court declines to address other issues raised by the
parties in their briefs concerning the motion for withdrawal of the
reference pending in the District Court.
24
core proceeding. 15
By the Court:
_________________________________
Stephen Raslavich
United States Bankruptcy Judge
Dated: 	December 20, 2006
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In 	the 	United 	States 	Bankruptcy 	Court
For 	the 	Eastern 	District 	of 	Pennsylvania
In re 	: Chapter 7
:
JAMUNA REAL ESTATE LLC 	: Bankruptcy No. 04-37130
UNITED MANAGEMENT SERVICES, INC. 	: Bankruptcy NO. 04-37132
BAGGA ENTERPRISES, INC. 	: Bankruptcy No. 04-37136
Debtor(s) 	:
:
MARVIN KRASNY, IN HIS CAPACITY AS 	:
CHAPTER 7 TRUSTEE OF UNITED 	:
MANAGEMENT SERVICES, INC.; 	:
MARVIN KRASNY, IN HIS CAPACITY AS 	:
CHAPTER 7 TRUSTEE OF JAMUNA REAL 	:
ESTATE LLC; GARY SEITZ, IN HIS 	:
CAPACITY AS CHAPTER 7 TRUSTEE OF 	:
BAGGA ENTERPRISES, INC. AND FL 	:
RECEIVABLES TRUST 2002-A 	:
:
Plaintiffs 	:
:
v. 	:
:
PRATPAL BAGGA; KHUSHVINDER BAGGA; 	:
RAVINDER CHAWLA; HARDEEP CHAWLA; 	:
WELCOME GROUP, INC.; K&P REAL 	:
ESTATE LLC; WORLD APPAREL PRODUCTS,:
INC. D/B/A/ SJM TRADING COMPANY, 	:
D/B/A TEN TIGERS; AMERICAN 	:
MERCHANDISE CO., INC., A/K/A 	:
AMERICAN MERCHANDISING CO.,INC.; 	:
21 ST CENTURY RESTAURANT SOLUTIONS, 	:
INC.; BRAND TRADE, INC.; H.B. 	:
PROPERTIES, INC.; H.B. PROPERTIES 	: Adv.No. 06-00128
LLP; SANT PROPERTIES; JOHN AND 	: Adv.No. 06-00129
JANE DOES AND ABC COMPANIES 	: Adv.No. 06-00130
:
Defendants 	:
______________________________ 	:
Order
And Now, in accordance with the District Court’s Order dated
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2
October 6, 2006, it is hereby:
Ordered, that Counts I, II, III, V, VI, VII, VIII, IX, X,
XI, XII, XIII, XIV, and XV of this adversary proceeding are non-
core, related claims. 	Count IV is a core proceeding.
By the Court:
Stephen Raslavich
Dated: 	December 20, 2006 	United States Bankruptcy Judge
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3
Interested Parties:
George Conway, Esquire
Office Of The U.S. Trustee
833 Chestnut Street
Suite 500
Philadelphia PA 	19106
Counsel for Plaintiffs
Lawrence J. Tabas, Esquire
OBERMAYER REBMAN MAXWELL & HIPPEL LLP
One Penn Center, 19 th Fl.
1617 JFK Blvd
Philadelphia, PA 19103
Christopher F. Graham, Esquire
THATCHER PROFFIT & WOOD LLP
50 Main Street
White Plains, NY 10606
Counsel for Defendants
Richard M. Simins, Esquire
Jami B. Nimeroff, Esquire
BUCHANAN INGERSOLL & ROONEY PC
1835 Market Street, 14 th Fl
Philadelphia, PA 19103-2985
Andrew Teitelman, Esquire
380 Red Lion Road, Ste 202
Huntingdon Valley, PA 19006
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