ACR ENERGY PARTNERS, LLC v. POLO NORTH COUNTRY CLUB, INC.
Filing
92
MEMORANDUM OPINION. Signed by Chief Judge Jerome B. Simandle on 11/5/2015. (dmr)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
ACR ENERGY PARTNERS, LLC,
Plaintiff,
v.
HONORABLE JEROME B. SIMANDLE
Civil Action No.
15-2677 (JBS/JS)
15-5324 (JBS/JS)
POLO NORTH COUNTRY CLUB, INC.,
MEMORANDUM OPINION
Defendant.
POLO NORTH COUNTRY CLUB, INC.,
Plaintiff,
v.
ACR ENERGY PARTNERS, LLC,
Defendant.
SIMANDLE, Chief Judge:
In these actions, ACR Energy Partners, LLC (hereinafter,
“ACR”) continues its long-standing battle with Polo North County
Club, Inc. (hereinafter, “Polo North”) concerning the manner in
which (if at all) to electrify the beleaguered and now defunct
Revel Casino (hereinafter, “Revel”), a casino hotel in Atlantic
City, New Jersey that Polo North acquired on April 7, 2015
through a bankruptcy sale.
Following this Court’s resolution of injunctive motion
practice, Polo North now moves to dismiss ACR Energy Partners,
LLC v. Polo North Country Club, Inc., Civil Action No. 15-2677
(JBS/JS) (hereinafter, the “Original Action”) and to remand Polo
North Country Club, Inc. v. ACR Energy Partners, LLC, Civil
Action No. 15-5324 (JBS/JS) (hereinafter, the “Removed Action”),
for lack of subject matter jurisdiction. 1
[See Docket Item 60 in
15-2677; Docket Item 14 in 15-5324.]
The primary issue before the Court concerns whether these
actions present, on their face, a question of federal law, or
one arising under or sufficiently related to federal law.
For
the reasons that follow, the Court finds it may exercise subject
matter jurisdiction over each action.
Polo North’s motions to
dismiss and to remand will therefore be denied.
The Court finds as follows: 2
1.
The Complaints in these actions present a maze of
allegations, spanning from early 2007 to the present.
1
For
By Order dated August 21, 2015, the Court resolved to address
the jurisdictional issue presented in these actions in a single,
consolidated decision. See ACR Energy Partners, LLC v. Polo
North Country Club, Inc., 309 F.R.D. 193, 195 (D.N.J. 2015).
2 For purposes of the pending motions, the Court accepts as true
the facts set forth in ACR’s Amended Complaint in the Original
Action and Polo North’s initial Complaint in the Removed Action,
together with the exhibits attached to the Complaints, documents
explicitly relied upon in the Complaints, and matters of public
record. See Schmidt v. Skolas, 770 F.3d 241, 249 (3d Cir.
2014). Here, the material portions of each Complaint are
substantively identical, and the Complaints either attach or
explicitly rely upon the same documents—particularly, the ESA
and ground lease, explained below. For these reasons, the Court
finds it appropriate to discuss the allegations of these
Complaints together and will, in the interests of simplicity,
primarily refer to the Amended Complaint filed in the Original
Action, unless otherwise indicated.
2
purposes of the pending motion, however, the Court need not
retrace the lengthy factual and procedural history of these
related actions.
Rather, the Court will narrow in on the
allegations most relevant to disposition of the pending
jurisdictional issue. 3
2.
Lease.
Execution of the Energy Sales Agreement and Ground
On April 11, 2011, Revel Entertainment Group, LLC
(hereinafter, “Revel”) and ACR entered into an Energy Sales
Agreement (hereinafter, “ESA”) through which ACR agreed to serve
as the exclusive provider of utility services to the Revel
property. 4
(See Am. Compl. at ¶¶ 9-10.)
In connection with the
ESA, ACR agreed to design, construct, finance, and operate a
central utility plant (hereinafter, “CUP”) adjacent to the Revel
complex, in order to manage and transform electricity received
from Atlantic City Electric, and to provide hot and chilled
water, among other services.
(Id. at ¶¶ 12-15.)
The
transmission of these utilities, in turn, required significant
infrastructure within the CUP, as well as the installation of “a
network of hot and cold water pipes, pumps, valves, and
electrical equipment such as transformers, switchgears, and
3
ACR filed its Amended Complaint in the Original Action on April
17, 2015 [see Docket Item 13 in the Original Action], and it
removed Polo North’s Complaint in the Removed Action on July 7,
2015. [See Docket Item 1 in the Removed Action.]
4 Revel and ACR executed an initial ESA on February 17, 2011,
followed by the first amended and restated ESA on March 8, 2011.
(See Am. Compl. at ¶ 10.)
3
circuit breakers” within the Revel facility (hereinafter, the
“Energy Distribution System”).
3.
(Id. at ¶ 16.)
Because ACR did not (and does not) own the land
intended for the CUP, ACR separately entered into a ground Lease
with an affiliate of Revel on April 8, 2011.
(Id. at ¶¶ 12-14.)
Although executed independently, the ESA and Lease constitute
co-dependent agreements, because the parties entered in the
Lease solely to enable ACR to perform its obligations under the
ESA.
(Compl. in the Removed Action at ¶ 13.)
To that end, the
Lease states that its term will be coterminous with the ESA, and
provides either party the right to terminate the Lease upon
expiration and/or termination of the ESA.
(Id. at ¶¶ 14-16.)
The ESA, in turn, states that it may terminate in the face of,
among other things, ACR’s failure to perform its contractual
obligations.
4.
(Id. at ¶ 17.)
Revel Bankruptcy, Bankruptcy Court Approval of Polo
North Sale, and the Revel Debtors’ Rejection of the ESA and
Lease.
On June 19, 2014, Revel and its subsidiaries filed
voluntary petitions for relief under chapter 11 of the
Bankruptcy Code, 11 U.S.C. §§ 101, et seq.
(See Amended
Complaint in the Original Action at ¶ 16.)
Following an
extended sale process, on March 20, 2015, Polo North and Revel
executed an Amended and Restated Asset Purchase Agreement for
the sale of substantially all of the Revel assets (including the
4
Revel complex and the CUP parcel).
in the Removed Action at ¶ 19.)
(See id. at ¶ 16; Complaint
The Revel Debtors then moved to
reject the ESA and the Lease, on account of Polo North’s
decision not to assume these agreements as part of the sale.
(Am. Compl. in the Original Action at ¶ 25 (citation omitted);
see also Ex. C to Am. Compl. in the Original Action.)
5.
On April 6, 2015, the Bankruptcy Court approved the
Polo North sale (hereinafter, the “Sale Order”), but rejected
the Revel Debtors’ efforts to strip the assets of ACR’s
interests. 5
(See Ex. C to Am. Compl. in the Original Action.)
Rather, the Sale Order carved out ACR’s special possessory
interests, and specifically provided that,
Notwithstanding anything to the contrary in this Sale
Order or the [Asset Purchase] Agreement, the Sale of
Assets to [Polo North] pursuant to this Sale Order
shall not be free and clear of (i) any existing
tenancies and/or possessory interests of ... ACR ...
pending the [Revel] Debtors’ rejection pursuant to
Section 365 of the Bankruptcy Code of the agreements
containing such tenancies and/or possessory interests
(the “Possessory Agreements”), and (ii) any rights
elected to be retained by each of the nondebtor
counterparties to the [ESA and Lease] pursuant to
Section 365(h) of the Bankruptcy Code after the
[Revel] Debtors’ rejection of the Possessory
Agreements (such tenancies, interests, and rights
referred to in (i) and (ii) collectively, the
“Possessory Interests”).
(Id. (emphasis added).)
Shortly thereafter, the Bankruptcy
Court held a hearing on the Revel Debtors’ motion to reject the
5
Polo North has, since that time, taken possession of the Revel
complex. (Am. Compl. in the Original Action at ¶ 24.)
5
ACR agreements, and subsequently entered an Order granting the
rejection motion “nunc pro tunc to the closing date of the
sale,” April 7, 2015 (hereinafter, the “Rejection Order”).
[See
Docket Item 1663 in Bankruptcy Action No. 14-22654 (MBK).]
In
light of the Rejection Order, ACR filed a notice in the Original
action (and in the Revel bankruptcy) of its election to retain
its possessory rights under the ESA and ground lease pursuant to
section 365(h) of the Bankruptcy Code, 11 U.S.C. § 365(h)
(hereinafter, “section 365(h)”).
[See Docket Item 42 in the
Original Action.]
6.
Termination of ACR’s Utility Services and Polo North’s
Demand for Possession of the CUP Parcel.
With no agreement for
utility services in place following the sale, ACR terminated all
energy services to the Revel facility “as of 12 noon on April 9,
2015.”
(Ex. D to Am. Compl.; see also Am. Compl. in the
Original Action at ¶ 31; Compl. in the Removed Action at ¶ 21.)
Polo North, in turn, advised ACR of its positions: (1) that the
Lease had been terminated on account of (a) Polo North’s
decision not to assume the ESA or Lease and (b) ACR’s cessation
of energy services to the facility; and (2) that ACR had
abandoned all equipment at the CUP parcel (along with other ACR
equipment located within the Revel complex).
(Ex. E to Am.
Compl. in the Original Action; see also Compl. in the Removed
Action at ¶¶ 22-23.)
Polo North therefore demanded that ACR
6
vacate the CUP parcel.
(See Compl. in the Removed Action at ¶
23; see also Am. Compl. in the Original Action at ¶¶ 32-35.)
7.
Litigation in this District.
In light of Polo North’s
demand, and following information that Polo North intended to
interfere with “the ACR Energy Distribution System,” ACR filed
initial and Amended Complaints in this District, asserting
claims, in relevant part, for trespass to chattels, conversion,
and for declaratory judgments that the Lease and possessory
interests of ACR remain effective (and that ACR need not vacate
the CUP parcel). 6
36-70.)
(See Am. Compl. in the Original Action at ¶¶
Polo North, in turn, filed its Complaint in the Removed
Action, seeking possession of the CUP parcel (over ACR’s
occupancy) and judgments declaring the Lease terminated and the
Energy Distribution System abandoned.
Action at ¶¶ 33-46.)
(Compl. in the Removed
The pending motions followed.
6
[See Docket
As a result, ACR moved for a temporary restraining order on
April 15, 2015, on the basis that Polo North’s expressed
intention “to imminently and improperly use the energy equipment
owned by ACR Energy and located with the Revel Casino” risked
irreparable damage to ACR’s property, and would likely lead to
“serious human injury or death.” [See Docket Item 5.]
Following a number of in-person hearings and conference, the
Court entered a Temporary Restraining Order, barring Polo North,
and its agents, employees, contractors, and all acting in
concert with it, “from connecting any standby generators or
otherwise energizing its system by or through the ACR System”
[Docket Item 15 in the Original Action at ¶ 1], and subsequently
entered a Consent Order that required ACR to provide certain
minimum electrical services to the Revel facility at an agreedupon rate. [See Docket Item 66 in the Original Action.]
7
Item 60 in the Original Action; Docket Item 14 in the Removed
Action.]
8.
In seeking to dismiss and/or remand these actions for
lack of subject matter jurisdiction, Polo North takes the
position that they present “quintessential state law” questions
involving contract interpretation and tenancies.
Br. in the Removed Action at 4, 17-29.)
(Polo North’s
As a result, Polo North
submits that these actions neither involve federal law, nor
“arise under” and/or “relate to” the Bankruptcy Code and the
Revel bankruptcy.
(Id. at 4.)
ACR and the Bank of New York
Mellon (hereinafter, “BNYM”) 7 argue, by contrast, that these
actions squarely concern ACR’s substantive rights under 11
U.S.C. § 365(h), and therefore plainly find their proper place
in federal Court.
(See ACR’s Opp’n in the Removed Action at 23-
32; BNYM’s Opp’n in the Removed Action at 12-26.)
9.
Resolution of the pending motions turns upon
consideration of three distinct bases for subject matter
jurisdiction: (1) original jurisdiction under 28 U.S.C. § 1331;
(2) ancillary “arising under” jurisdiction under 28 U.S.C. §
7
On August 19, 2015, the Court granted BNYM’s application to
intervene as a matter of right. See ACR Energy Partners, LLC v.
Polo North Country Club, Inc., 309 F.R.D. 191, 192 (D.N.J.
2015).
8
1334(b); and (3) ancillary “related to” jurisdiction under 28
U.S.C. § 1334(b). 8
10.
The Court will address each in turn. 9
28 U.S.C. § 1331 vests in federal district courts
“original jurisdiction” over “all civil actions arising under
the Constitution, laws, or treaties of the United States.”
A
case “aris[es] under” federal law within the meaning of § 1331,
if “‘a well-pleaded complaint establishes that federal law
create the cause of action or that the plaintiff’s right to
relief necessarily depends on the resolution of a substantial
question of federal law.’”
Empire Healthchoice Assurance, Inc.
8
The Court notes, at the outset, that these actions present
distinct procedural circumstances, given the fact that the
Original Action began in this federal Court, while the Removed
Action began in state court. As a result, the Removal Action
implicates a body of removal statutes with no application to the
Original Action. See, e.g., 28 U.S.C. § 1441(a) (providing that
“any civil action brought in a State court of which the district
courts of the United States have original jurisdiction, may be
removed by the defendant or the defendants, to the district
court of the United States for the district and division
embracing” the pending action”), 28 U.S.C. § 1452(a) (“[a] party
may remove any claim or cause of action in a civil action . . .
if such district court has jurisdiction of such claim or cause
of action under section 1334 of this title”). Nevertheless, the
difference has no impact on the disposition of the pending
motions, because the removal statutes merely require
consideration of 28 U.S.C. §§ 1331 and 1334, the jurisdictional
statutes that the Court would have reviewed and applied in any
event.
9 Federal Rule of Civil Procedure 12(b)(1) and 28 U.S.C. §
1447(c) collectively authorize Polo North to challenge these
actions for want of subject matter jurisdiction. In either
instance, ACR (as the original filer and as the removing party)
bears the burden of demonstrating subject matter jurisdiction.
See Samuel–Basset v. KIA Motors Am. Inc., 357 F.3d 392, 396 (3d
Cir. 2004); Gould Elecs. Inc. v. United States, 220 F.3d 169,
178 (3d Cir. 2000).
9
v. McVeigh, 547 U.S. 677, 690 (2006) (quoting Franchise Tax Bd.
of Cal. v. Constr. Laborers Vacation Trust for S. Cal., 463 U.S.
1, 27-28 (1983)).
As a result, in determining whether the
action rests upon a substantial federal question, district
courts look to the face of a complaint in accordance with the
“well-pleaded complaint” rule.
Caterpillar Inc. v. Williams,
482 U.S. 386, 392 (1987); Beneficial Nat’l Bank v. Anderson, 539
U.S. 1, 6 (2003); Rivet v. Regions Bank of La., 522 U.S. 470,
475 (1998).
In that way, a plaintiff may avoid federal
jurisdiction through exclusive and genuine reliance upon state
law.
See Krashna v. Oliver Realty, Inc., 895 F.2d 111, 113 (3d
Cir. 1990); State Farm Indem. v. Fornaro, 227 F. Supp. 2d 229,
237 (D.N.J. 2002).
By the same token, however, a plaintiff may
not avoid federal jurisdiction by artfully disguising a
substantial federal issue as a state cause of action.
Rivet v.
Regions Bank of La., 522 U.S. 470, 475 (1998) (quoting Federated
Dep’t Stores, Inc. v. Moitie, 452 U.S. 394, 397 n.2 (1981)).
11.
In arguing that ACR attempted “to manufacture a
federal question where none exists,” Polo North submits that
these actions do not implicate ACR’s rights under 11 U.S.C. §
365(h), nor the possessory interests ACR preserved during the
Revel bankruptcy proceeding.
(Polo North’s Br. in the Original
Action at 3-6; Polo North’s Br. in the Removed Action at 17-21.)
Polo North’s arguments, however, fundamentally ignore the nature
10
of its own claims and those of ACR, the majority of which
directly arise from section 365(h).
A brief inspection of the
backdrop of these actions and their statutory context proves
illustrative.
Critically, following the Bankruptcy Order’s
Rejection Order, ACR provided notice of its
election to retain possession of, and all rights in
and appurtenant to the real property that may be the
subject of the [ESA and Lease], and to assert all of
its rights under the [ESA and Lease] pursuant to
section 365(h) of the Bankruptcy Code, including,
without limitation, all rights of possession of the
demised premises under the Lease and all rights of
access, licenses and easements under and through the
streets and into and within the property purchased by
Polo North, provided for and contemplated under the
ACR Rejected Contracts, other Project Documents, as
defined therein, and under applicable law, and
including all rights of ownership, access, inspection
and repair maintenance of the Seller’s System, as
defined in the Project Documents, located in, on,
adjacent to or appurtenant to Polo North’s property.
[Docket Item 42 in the Original Action at ¶ 8 (emphasis added).]
12.
The language of section 365(h), in turn, makes plain
that, if a debtor rejects an unexpired lease, as here, the
lessee may elect to retain its rights in or appurtenant to the
real property, including “any right of use, possession, quiet
enjoyment, subletting, assignment, or hypothecation,” for the
remainder of the lease term and for any renewal or extension of
such rights to the extent enforceable under applicable
nonbankruptcy law.
11 U.S.C. § 365(h)(1)(A)(ii); see also In re
Tayfur, 599 F. App’x 44, 50 (3d Cir. 2015) (explaining that a
11
section 365(h) election allows a tenant to retain its possessory
rights over the leased property for at least until the end of
the primary lease term); In re Overseas Shipholding Grp., Inc.,
No. 12-20000, 2015 WL 3475727, at *3 (Bankr. D. Del. June 1,
2015) (same).
Thus, ACR would continue to have possessory
rights over the CUP parcel at least until the end of the primary
lease term, which expires “contemporaneously with the
expiration” of the ESA’s 20-year term.
(See Schedule 9 to the
ESA at § 2.2; see also ESA at § 2.01(a).)
13.
Despite this election and the Sale Order’s retention
of ACR’s possessory rights, Polo North has nonetheless sought to
terminate ACR’s leasehold estate.
As a result, in the Original
Action, ACR seeks a declaration that the CUP parcel remains
subject to the Lease and ACR’s possessory interests under
section 365(h), despite Polo North’s insistence that ACR vacate.
(See Am. Compl. in the Original Action at ¶¶ 52-70.)
In the
removed action, by contrast, Polo North seeks a declaration of
its entitlement to possession of the CUP parcel, on account of
ACR’s “termination of Energy Services to the [Revel] Complex.”
(See Compl. in the Removed Action at ¶¶ 33-46.)
The nuanced
interrelationship between the ESA, the Lease, and ACR’s section
365(h) rights therefore requires far more than the simple
application of state law contract and/or landlord-tenant
principles.
Indeed, the fundamental questions that must be
12
confronted in each action concern whether ACR had an ongoing
duty to supply power to the Revel facility, even after the Revel
debtors’ rejection; and whether this duty, if any, can be used
to trump ACR’s section 365(h) rights.
Although these inquiries
seem initially simple, the facts of these actions make this
inquiry significantly more complex, given the fact that Polo
North took the Revel facility subject to ACR’s possessory
interests under section 365(h), but claims that an alleged
breach of the ESA, an agreement to which Polo North is not a
party, provides the basis for it to extinguish ACR’s possessory
interest.
14.
Polo North’s attempt to effect an end-run around ACR’s
section 365(h) election (by, in essence, stripping ACR of its
leasehold interest on account of an alleged breach of the ESA)
therefore requires a robust analysis of the meaning and effect
of ACR’s election.
Broadly stated, this Court (or the
Bankruptcy Court) must address the effect of a meaningful
section 365(h) election in the context of a sale under 11 U.S.C.
§ 363, where the purchasing party took assets subject to
interests, but not individual agreements.
In that way, these
actions require the resolution of a substantial question under
section 365(h) (and related provisions of the Bankruptcy Code),
13
and plainly arise under federal law. 10
For all of these reasons,
the Court finds the exercise of original jurisdiction over these
actions under 28 U.S.C. § 1331 appropriate. 11
15.
In the alternative, the Court finds the exercise of
jurisdiction appropriate, to the extent these actions arise
under the Bankruptcy Code in connection with the now-closed
Revel bankruptcy proceedings.
28 U.S.C. § 1334(b) provides, in
particular, that “the district courts shall have original but
10
Even more, the circumstances of these actions closely resemble
the circumstances deemed sufficient for jurisdictional purposes
by the Bankruptcy Court in Revel. In IDEA Boardwalk, LLC v.
Revel Entertainment Group, LLC, 532 B.R. 216 (Bankr. D.N.J.
2015), IDEA Boardwalk, LLC, a former tenant in the Revel
facility, elected to retain its section 365(h) rights, as here,
and then sought clarification of those rights following the
Rejection and Sale Orders and certain actions by Polo North.
Id. at 220-222. In addressing a jurisdictional challenge highly
similar to the one presented here, the Bankruptcy Court found
that the action squarely rested upon federal law, to the extent
it involved substantive section 365(h) rights that would not
have existed in the absence of the Revel bankruptcy. Id. at
223-25. Although the Complaints in these actions do not
explicitly seek clarification of ACR’s section 365(h) rights,
they implicitly do so, by demanding that ACR either be deemed
entitled to possession based upon its section 365(h) election or
dispossessed over its section 365(h) election. For that reason,
this Court will follow the Bankruptcy Court’s decision in IDEA
Boardwalk, LLC, in finding the exercise of jurisdiction
appropriate in disposing of such issues.
11 The Court finds Polo North’s reliance upon Dollar Tree Stores,
Inc. v. Bayless Inv. & Trading Co., No. 10-50206, 2010 WL
3322448 (Bankr. D. Del. Aug. 20, 2010) unconvincing.
Critically, in Dollar Tree Stores, Inc., the Court only found
jurisdiction lacking, because the asserted complaint sought to
alter a term in a lease, an issue “not unique to bankruptcy
cases.” Id. at *2. These actions, by contrast, concern the
very existence of ACR’s continued possessory rights under
section 365(h), and not simply an effort to alter a term
relative to those possessory rights.
14
not exclusive jurisdiction of all civil proceedings arising
under title 11...” 28 U.S.C. § 1334(b) (emphasis added).
In
simple terms, “arising under” jurisdiction requires, like
original federal question jurisdiction, that the disputed issues
involve a substantive right created under the Bankruptcy Code.
See Stoe v. Flaherty, 436 F.3d 209, 216 (3d Cir. 2006) (citation
omitted) (noting that “[b]ankruptcy ‘arising under’ jurisdiction
is analogous to the narrower statutory ‘arising under’ federal
question jurisdiction of 28 U.S.C. § 1331”).
Thus, this Court
may exercise “arising under” jurisdiction for the same reasons
that it may exercise original federal jurisdiction, namely, the
fact that these actions require an interpretation of the meaning
and effect of ACR’s section 365(h) rights.
Indeed, ACR’s
section 365(h) rights are at issue in these actions solely by
virtue of the Revel bankruptcy proceedings.
See United States
Trustee v. Gryphon at the Stone Mansion, Inc., 166 F.3d 552, 556
(3d Cir. 1999) (reasoning that a proceeding “arises under” the
Bankruptcy Code, if it has essentially “no existence outside of
the bankruptcy”); see also IDEA Boardwalk, LLC, 532 B.R. at 223.
Even more, these actions plainly require the interpretation of
the Rejection and Sales Order, both of which the Bankruptcy
Court entered pursuant to the applicable portions of the
Bankruptcy Code.
As a result, these actions also qualify for
15
“aris[ing] under” jurisdiction within the meaning of 28 U.S.C. §
1334(b).
16.
For all of these reasons, Polo North’s motions to
dismiss to the Original Action and to remand the Removed Action
will be denied.
12
An accompanying Order will be entered.
November 5, 2015
Date
s/ Jerome B. Simandle
JEROME B. SIMANDLE
Chief U.S. District Judge
12
Having found that the Court may exercise original and arising
under jurisdiction, the Court need not reach ACR’s alternative
arguments on related to and/or diversity jurisdiction under 28
U.S.C. §§ 1332, 1334(b), nor its position on New Jersey’s Entire
Controversy Doctrine.
16
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?