Guttman v. Chemence, Inc. et al

Filing 4

MEMORANDUM. Signed by Judge William M Nickerson on 7/1/2015. (hmls, Deputy Clerk)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND

In re: COMMERCE, LLC
(Debtor)
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ZVI GUTTMAN, TRUSTEE
v.
CHEMENCE, INC. et al.
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Bankr. Case No. 13-12598-JFS
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(Chapter 7)
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Bankr. Adv. No. 15-69-JFS
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Civil No. WMN-15-1294
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MEMORANDUM
Before the Court is a motion filed by Defendants Chemence,
Inc. and Chemence Medical Products, Inc. (collectively Chemence)1
to withdraw the reference of this adversary proceeding to the
Bankruptcy Court.

ECF No 1.

The motion is fully briefed.

Upon

review of the filings and the applicable case law, the Court
determines that no hearing is necessary and that the motion
should be granted.
This action was filed as an adversary action in the
bankruptcy case of Debtor Commerce, Inc. (Commerce).
Zvi Guttman is the Debtor’s Chapter 7 Trustee.

Plaintiff

Commerce was

once a major wholesale distributor of lawn, garden, outdoor
1

There are four related “Chemence” entities named as Defendants
in the adversary proceeding: Chemence, Inc.; Chemence Medical
Products, Inc.; Chemence Medical, Inc.; and Chemence, LLC. For
purposes of this memorandum, the Court will treat them as a
single entity.

living, and holiday products.

During all times relevant to the

instant dispute, Commerce’s president was Malcolm Cork.

It is

alleged in the Complaint that, in 2011, Cork formed a new
company, Medical Solutions International, Inc. (Medical
Solutions), of which he was either the sole or majority
shareholder.

AP ECF No. 1 ¶ 14.2

Medical Solutions then entered

into a business relationship with Chemence, an enterprise which
is engaged in the manufacture of adhesives used in the assembly
of certain medical products.
On or about July 15, 2011, Cork, in his capacity as
President of Commerce, caused Commerce to wire $187,500.00 to
Chemence (the Payment).

This Payment is believed to have been

made in connection with the anticipated purchase of Chemence
products by Cork’s newly formed company, Medical Solutions.
Plaintiff alleges that Chemence knew that the Payment came from
Commerce, knew that it had no business relationship with
Commerce, and thus, knew that it had no right to retain the
wired funds.

Id. ¶¶ 21-24.

In August of 2012, Commerce filed a suit in this Court
against Medical Solutions relating to a $150,000.00 Commerce
check that Cork allegedly had issued to Medical Solutions.
No. WMN-12-2393.

Civ.

This complaint asserted claims for “Money Had

2

Filings in the Adversary Proceeding in the Bankruptcy Court
will be designated as “AP ECF.”
2

and Received,” “Unjust Enrichment,” and “Conversion.”

Also in

August 2011, Commerce filed a separate suit in this Court
against Cork alleging that he had breached his agreement to
repay a $450,000.00 shareholder loan made to him by Commerce.
Civ. No. RDB-12-2513.

These cases were consolidated and on

February 19, 2013, the parties submitted a stipulation of
dismissal, with prejudice.
Four days before that, on February 15, 2013, creditors of
Commerce filed an involuntary bankruptcy petition against
Commerce.

Bankr. Case No. 13-12598-JFS.

Two years later, on

February 13, 2015, Plaintiff filed the instant adversary action
complaint which includes counts for “Unjust Enrichment” (Count
I), “Constructive Trust” (Count II), “Declaratory Relief” (Count
III), and “Turnover” (Count IV).

On April 2, 2015, Chemence

filed an Answer to the Complaint as well as a jury demand.
ECF No. 10.

AP

In that Answer, Chemence also indicated that there

was no consent to the entry of final orders or judgment by the
Bankruptcy Judge.

Id. ¶ 3.

On April 15, 2015, Chemence filed

the instant motion for withdrawal of reference.
This action was referred to the Bankruptcy Court under 28
U.S.C. § 157.

Section 157 provides that “[t]he district court

may withdraw, in whole or in part, any case or proceeding
referred under this section, on its own motion or on timely
motion of any party, for cause shown.”
3

28 U.S.C. § 157(d).

“The district court has broad discretion in deciding whether
reference should be withdrawn for cause shown.”

In re

Millennium Studios, Inc., 286 B.R. 300, 303 (D. Md. 2002).
Courts determining whether cause exists for withdrawal are to
consider the following factors: (1) whether the proceeding is
core or non-core; (2) the uniform administration of bankruptcy
proceedings; (3) expediting the bankruptcy process and promoting
judicial economy; (4) the efficient use of the resources of
debtors and creditors; (5) reduction in forum shopping; and (6)
the preservation of a right to a trial by jury (or likelihood of
a jury trial).
2013).

Mason v. Ivey, 498 B.R. 540, 549 (M.D.N.C.

The first factor — whether the matter is core or non-

core — is generally afforded more weight than the other factors.
In re O'Brien, 414 B.R. 92, 98 (S.D.W. Va. 2009).

Furthermore,

it is the movant's burden to show cause for the permissive
withdrawal of reference to bankruptcy court.

Millennium

Studios, 286 B.R. at 303.
This action is clearly not a “core” proceeding.

“[C]ore

proceedings are those that arise in a bankruptcy case or under
Title 11 [of the Bankruptcy Code].”

Stern v. Marshall, 131 S.

Ct. 2594, 2605 (2011); see also 28 U.S.C § 157(b)(1).

To fit

within the category of cases “arising in” a bankruptcy case, the
controversy at issue is generally one that “‘would have no
practical existence but for the bankruptcy.’”
4

Albert v. Site

Management Inc., 506 B.R. 453, 456 (D. Md. 2014) (quoting Grausz
v. Englander, 321 F.3d 467, 471 (4th Cir. 2003), emphasis in
Grausz).

The controversy giving rise to Plaintiff’s claims

arose more than a year before the filing of the bankruptcy case
and certainly would have had “practical existence” outside the
bankruptcy.

The controversy at issue here is, in fact, very

similar to the previous claims that were brought in this Court
in Civil Action Nos. WMN-12-2393 and RDB-12-2513.

In addition,

the substantive claims here cannot be said to be claims that
“arise under” Title 11 of the Bankruptcy Code as they are
premised on state law and not on any provision of the Bankruptcy
Code.
Furthermore, there is clearly a right a jury trial as to the
primary claim here asserted.

Maryland courts and federal courts

have consistently held that a defendant facing an unjust enrichment
claim to recover money is entitled to a jury trial.

See, e.g., Ver

Brycke v. Ver Brycke, 843 A.2d 758, 775 (Md. 2004); Mona v. Mona
Elec. Group, Inc., 934 A.2d 450, 480 (Md. Ct. Spec. App. 2007); In
re Auto. Prof’ls, Inc., 389 B.R. 621, 627 (E.D. Ill. 2008).
Plaintiff offers no argument that Chemence does not have the right
to have the unjust enrichment claim resolved by a jury.

See ECF

No. 2 at 2 (conceding that Chemence’s claim of entitlement to jury
trial on unjust enrichment claim “may be correct”).

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As to the other factors in determining whether cause exists

for withdrawal, this Court finds that none of those factors
support keeping this action in the Bankruptcy Court.

Plaintiff

makes no argument that this action is related to any other issue
pending in the bankruptcy case.

Except perhaps the remedy of

“turnover,” there is nothing in this action calling for the
unique expertise of the Bankruptcy Court.
Furthermore, Chemence has indicated that it intends to file
a third-party complaint against Cork and Medical Solutions
asserting that Cork and Medical Solutions would be liable to
Chemence to the extent that Chemence is found liable to the
bankruptcy estate.

ECF No. 1-1 at 10.

There is some question

as to whether the jurisdiction of the Bankruptcy Court could
extend to this third-party complaint in that the resolution of
the third party claim would not impact the bankruptcy estate.
Judicial efficiency would not be served if, after a ruling
against Chemence, the same factual issues would need to be
relitigated under the third-party complaint.

Plaintiff makes no

response to this aspect of Chemence’s motion.3
In opposing the motion, Plaintiff urges the Court to
essentially ignore the unjust enrichment claim and focus instead
on the remaining three counts: for declaratory relief,

3

Plaintiff also makes no response to Chemence’s argument that
its motion was not motivated by forum shopping.
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constructive trust, and turnover.

The Court concludes, however,

that these counts are more in the nature of remedies, not causes
of action.

See Lyon v. Campbell, 33 F. App'x 659, 663 (4th Cir.

2002) (“A constructive trust is an equitable remedy, not a cause
of action in and of itself.”).

These other “claims” also each

depend on a finding of liability under the unjust enrichment
claim.

For example, two of the declarations sought in the

Complaint are: 1) “that the Payment conferred a $187,500.00
benefit on [Chemence],” and 2) “that it is inequitable for
[Chemence] to retain the Payment.”

A.P. ECF No. 1 at 5.

These

are the same elements, however, that a jury would need to find
to establish unjust enrichment.

The third and last requested

declaration – “that the Payment is property of the within
bankruptcy estate” – is simply the outcome of the first two
declarations.
Similarly, the constructive trust and turnover remedies are
dependent on a finding of unjust enrichment.

The only ground

given in support of Plaintiff’s constructive trust count is the
assertion that “[Chemence] has been unjustly enriched by the
Payment,” id. ¶ 30, and that assertion is based upon the same
elements – that Chemence knew it received funds under
circumstances that made it inequitable for those funds to be
retained.

Id. ¶¶ 31, 32.

As for the turnover remedy, Plaintiff

represents that it comes into play “‘[i]f it has been
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established that certain assets are a part of the bankruptcy
estate.’”

ECF No. 2 at 4 (emphasis added) (quoting Walker v.

Weese, 286 B.R. 294, 299 (D. Md. 2002)).

Unjust enrichment,

however, is the only ground set forth in the Complaint for
establishing that the Payment is the property of the estate.
In opposing Chemence’s motion, Plaintiff relies almost
exclusively on two cases: Weese and In Re Felice, 480 B.R. 401
(Bankr. D. Mass. 2012).

Both are inapposite.

Weese was an

adversary action brought by the Chapter 11 trustee to challenge
the debtors’ prepetition attempt to transfer assets to an
offshore trust.

The trustee maintained that the trust was a

self-settled trust which, as a matter of law, is void as against
creditors.

In denying the motion for withdrawal of reference,

this Court noted that the issue of whether the trust was selfsettled and void under the applicable law “could be resolved
with little need for a finder of fact.”

286 B.R. at 298.

The

Court further cautioned that the trial in the bankruptcy court
would be limited to the validity of the trust under the
applicable law and the trustee would not be permitted “to
circumvent [the debtor’s] jury trial rights by pleading one set
of claims and implicitly trying another set of claims at trial.”
Id. at 300 n.6.
Similarly, the bankruptcy court in Felice addressed whether
it had the authority to determine the legal issue of whether the
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debtor’s interest in a family trust was property of the
bankruptcy estate.

The bankruptcy judge concluded that he

could, but only after observing that his determination “affects
only the debtor’s property interests, and does not augment the
estate [with an asset belonging to a third party].”
418.

480 B.R. at

As to the debtor’s right to due process, the bankruptcy

judge noted that he voluntarily submitted to the authority of
the bankruptcy court when he filed his bankruptcy petition.

Id.

Here, the adversary action reaches after the property of a nonconsenting third party.
For these reasons, the Court will grant the motion for
withdrawal of reference and this case will proceed in this
Court.

Chemence shall be further granted 20 days from this date

to file a third party complaint.

Once that third party

complaint is responded to, the Court will issue an appropriate
scheduling order.
A separate order granting the motion to withdraw reference
will issue.

___________/s/_________________
William M. Nickerson
Senior United States District Judge

DATED: July 1, 2015

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