DVI FINANCIAL SER. INC. v. CARDIOVASCULAR LABS. (Bankr.E.D.Pa. 2004)

Adversary No. 03-1257DWSUnited States Bankruptcy Court, E.D. Pennsylvania.
March 18, 2004

Dimitri Karapelou, Esquire, Philadelphia, PA COUNSEL FOR PLAINTIFFS

Michael D. Shaffer, Esquire, SHAFFER FARRELL, JFK Boulevard Philadelphia COUNSEL FOR DEFENDANTS

Dave P. Adams, Esquire, Office of the U.S. Trustee, West Philadelphia, PA UNITED STATES TRUSTEE

ORDER
DIANE SIGMUND, Bankruptcy Judge

AND NOW, this 18th day of March 2004, for the reasons stated in the accompanying Memorandum Opinion;

It is hereby ORDERED and DECREED that his proceeding is transferred to the Bankruptcy Court for the District of Delaware, pursuant to 28 U.S.C. § 1412. The Clerk is directed to transmit all pleadings in Adv. No. 03-1257 to the Delaware court and close this case.

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MEMORANDUM OPINION
Pursuant to this Court’s sua sponte show cause order dated December 30, 2003 a hearing was held to elicit the parties’ positions on the appropriateness of the above-captioned removed litigation (the “Action”) proceeding in this bankruptcy court. Following the hearing held on February 2, 2004 at which counsel made arguments in favor and opposition to adjudication in this forum, the record was supplemented. Based on the uncontested factual record, the parties’ memoranda of law and arguments, I find that I have jurisdiction to

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adjudicate this adversary proceeding but I will transfer venue to the United States Bankruptcy Court for the District of Delaware for the reasons set forth below.

BACKGROUND

DVI Business Credit Corporation and DVI Financial Services (“Plaintiffs”) are financial services companies which finance leases and purchases of equipment and accounts receivables. Plaintiffs filed a petition for relief under Title 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware on August 25, 2003. The case is pending before the Honorable Mary Walrath. Plaintiffs’ counsel was appointed by that Court as special counsel to represent Plaintiffs in the Action and certain other lawsuits and is to be paid on an hourly basis upon approval by Judge Walrath.[1] While special counsel’s knowledge of the bankruptcy case was limited, he indicated that Plaintiffs intended to file a liquidating plan to be funded by the proceeds of the Action and other similar collection suits. A creditors’ committee has been appointed in the bankruptcy case and is represented by counsel.

On November 24, 2003, Plaintiffs properly and timely removed the Action from the Court of Common Pleas of Montgomery County (“State Court”) to this Court pursuant to

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28 U.S.C. § 1452(a) and Federal Bankruptcy Rule 9027. There was no motion for remand made by any of the Defendants nor motion for change of venue made by the Plaintiffs.

The Action had been commenced in State Court as Civil Action 01-15846 on August 17, 2001 against Cardiovascular Laboratories, Inc. of PA (“CLPA”), Cardiovascular Laboratories, Inc. (“CLI”), Cardiovascular Laboratories, LLC (“CL — LLC”), Comprehensive Medical Diagnostics Group, Inc. (“Comprehensive”), Cardiovascular Laboratories Holding, Inc. (“CL Holding”) and Phoenix Cardiovascular, Inc. (“Phoenix”). The Complaint seeks, inter alia,[2] specific performance (Count V) and damages against some or all of the defendants for breach of contract (Counts VI, VII, VIII, IX), conversion (Count X), fraud (Count XI) and intentional interference with contractual relations (Count XII) in connection with a secured loan made by Plaintiffs to CLPA and guaranteed by CLI and certain leases of equipment with CLI. Verified Complaint. According to the State Court docket[3] of the Action, in the two and one-half years since the Complaint was filed, the following events have occurred: (1) a joint and several judgment was entered against CL — Holding and CL — LLC by default in the amount of $951,527.23 on January 25, 2002; (2) summary judgment was granted against CLPA and CLI on September 5, 2003 and judgment was entered in the amount of $467,824.42 and $622,350.03 against them respectively;

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(3) Comprehensive filed an answer but its counsel withdrew with court approval on August 27, 2003;[4] (4) Phoenix filed an answer and new matter as well as cross claims against the other defendants; (5) both Phoenix and DVI have engaged in limited discovery; (6) there are no outstanding motions pending before the State Court. Phoenix appears to be the only defendant still in business and notwithstanding its crossclaims, none of the other defendants appear to be defending the Action.

In addition to the Action removed to this Court, the Plaintiffs have commenced eleven other adversary proceedings in the Delaware Bankruptcy Court, and according to the dockets, Judge Walrath has been asked to consider questions of abstention and improper venue in some of these proceedings.[5] A lawsuit commenced pre-bankruptcy in the District Court for the Southern District of New York remains in that forum. All of these actions seek to collect loan and/or lease receivables.

By reason of the pending bankruptcy case in Delaware, both parties concur that this Court has subject matter jurisdiction as the Action is related to Plaintiffs’ bankruptcy case. 28 U.S.C. § 1334. However, they have different views as to where the Action should be

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adjudicated. Plaintiffs contend that the bankruptcy court, preferably in Delaware, is the appropriate forum. They argue that the Delaware bankruptcy court has familiarity with the litigation by reason of the other collection suits commenced in that Court and that its interest in the Plaintiffs’ reorganization would motivate it to move the Action with dispatch. They believe bankruptcy courts in general dispose of discovery disputes more quickly than the state court which would result in an earlier trial date. Phoenix urges remand to the State Court.[6] It points out that the Action involves purely state law issues. Moreover, it argues that the State Court proceedings have languished because Plaintiffs have not moved them along. It claimed additional discovery was needed and noted the prospects of a long and factually complex trial.

DISCUSSION

It is undisputed that the Action has been properly removed to this Court.[7] I also agree with the parties that I have subject matter jurisdiction to adjudicate the Action. However, even though the Action has been properly removed under 28 U.S.C. § 1452(a) and I have jurisdiction to adjudicate it, a bankruptcy court has the equitable power to remand some or all of the claims removed under § 1452(b).See, e.g. In re RBGSC Investment Corp.,

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253 B.R. 369 (E.D. Pa. 2000). Both citing to RBGSC.id. at 377-78, the parties agree that the factors that inform a decision to equitably remand are (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 a right to a jury trial;[8] and (7) prejudice to the involuntarily removed defendants. DVI Memorandum of Law in Support of their Notice of Removal under 28 U.S.C. § 1452 and Bankruptcy Rule of Civil Procedure 9027 at 6; Phoenix Brief at 8-9.[9]

Central to the determination of whether equitable remand is warranted are judgments that relate to the bankruptcy case itself: i.e., the effect of the Action on the efficient

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administration of the bankruptcy estate and the degree of relatedness or remoteness of the proceeding to the main bankruptcy case. Thus, the threshold issue I must address is whether this court to which the Action was removed or the home court where the bankruptcy case is pending should be rendering this decision. In general, 28 U.S.C. § 1412 permits a bankruptcy court to transfer venue to another bankruptcy court “in the interests of justice and for the convenience of the parties.” While application of this standard is driven by the facts of each case,[10] a presumption exists that civil proceedings should be tried in the “home” court, namely the court where the bankruptcy case itself is pending. See, e.g. Krystal CadillacOldsmobile — GMC Truck, Inc. v. General Motors Corp., 232 B.R. at 627; Bank of America v. Nickele, 1998 WL 181827, at *5 (E.D. Pa. April 16, 1998).

In this case, the relevant facts do not rebut the application of the presumption. The bankruptcy judge charged with administering the bankruptcy case has the knowledge of in the Plaintiffs’ Chapter 11 case to accurately assess whether the bankruptcy court or State

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Court should adjudicate the Action. Judge Walrath is best positioned to understand the extent of the relationship between the adversary proceeding and the main bankruptcy case. The Delaware court is overseeing the reorganization process and its ultimate objective of a confirmed Chapter 11 plan. The Action is an asset which is earmarked to fund the plan. Judge Walrath is able to determine whether the Action is an asset that plays a significant role in funding the plan and whether her in management of that litigation is necessary to prevent delay and concomitant prejudice to creditors. Judge Walrath has knowledge of the debtors’ operations gained from overseeing the Chapter 11 case and handling the other pending adversaries. She can best determine whether this knowledge would provide special insight that would facilitate the economic administration of the Action in the home court. Moreover, as Plaintiffs’ counsel has been retained on an hourly basis by bankruptcy court order, she will be required to approve the fees associated with this litigation. To the extent such fees are challenged, she may find it useful to have been the jurist overseeing the litigation. Finally, there is a creditors’ committee in this case who may have an interest in monitoring the progress of this litigation, another factor that she, not I, can evaluate.

I note that Phoenix asserts that a transfer to Delaware will be prejudicial to it since it does not conduct business in Delaware and counsel and the witnesses are located in Bucks and Montgomery Counties in Pennsylvania. As no evidentiary record was developed on this issue, I will leave it to Judge Walrath in her balancing of the applicable factors to determine the significance of this argument as it relates to equitable remand. Since the convenience of

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witnesses is not implicated at this juncture, I do not find it persuasive in my decision to transfer venue to Delaware for the rendering of the threshold determination of where this case should be tried.

In conclusion, I will transfer this Action to the Bankruptcy Court for the District of Delaware to allow the bankruptcy judge administering the Plaintiffs’ Chapter 11 case to exercise her discretion to determine where the litigation should proceed.[11] An Order consistent with this Memorandum Opinion shall be entered.