THE BANK OF NEW YORK MELLON v. ACR ENERGY PARTNERS, LLC et al
Filing
15
MEMORANDUM OPINION filed. Signed by Chief Judge Jerome B. Simandle on 11/5/2015. (drw)
removed these matters from the Superior Court of New Jersey.
Removal is proper, in the present cases, only if defendants
demonstrate that these replevin and foreclosure actions could
have been filed originally in the federal court.1
Defendants
claim removal was proper because this court would have original
jurisdiction due to “relatedness” to other cases pending in this
court, because the claims arise under bankruptcy jurisdiction
pursuant to 28 U.S.C. § 1334(b), and/or because the cases
“relate to” a bankruptcy proceeding, namely, the Revel
bankruptcy.
These matters now come before the Court by way of motions
of Plaintiff the Bank of New York Mellon (hereinafter, “BNYM”)
to remand The Bank of New York Mellon v. ACR Energy Partners,
LLC, et al., Civil Action No. 15-7644 (JBS/JS) (hereinafter, the
“Replevin Action”) and The Bank of New York Mellon v. ACR Energy
Partners, LLC, et al., Civil Action No. 15-7678 (JBS/JS)
(hereinafter, the “Foreclosure Action”) pursuant to 28 U.S.C. §
1447(c) for lack of subject matter jurisdiction.
[See Docket
Item 5 in 15-7644; Docket Item 2 in 15-7678.]
Because neither of these cases could have been filed within
this Court’s original jurisdiction, BNYM’s motions to remand
will be granted, and these actions will be returned to the
1
See Caterpillar, Inc. v. Williams, 482 U.S. 386, 392 (1987)
(citing 28 U.S.C. § 1441(a)).
2
Superior Court of New Jersey, Atlantic County.
The Court finds
as follows:2
1.
The Complaints in these actions concern a bevy of
financial agreements, several of which have no relevance to the
pending jurisdictional issue,3 and the Court need not recite the
lengthy and complex particulars of each identified agreement.
Rather, the Court will focus on the agreements and the
allegations most relevant to disposition of the pending
jurisdictional issue.
2.
ACR’s $118,600,000 Loan & BNYM’s Security Interest. In
an effort to promote the economy of the State of New Jersey and
to facilitate the construction of a central utility plant
(hereinafter, “CUP”) adjacent to the former Revel Casino and
Hotel, the New Jersey Economic Development Authority
(hereinafter, the “Authority”) loaned ACR $118,600,000 through a
public bond offering to various institutional investors
2
For purposes of the pending motions, the Court accepts as true
the facts set forth in BNYM’s Verified Complaints in the
Replevin and Foreclosure Actions, together with the exhibits
attached to the Verified Complaints, and matters of public
record. See Schmidt v. Skolas, 770 F.3d 241, 249 (3d Cir.
2014). Here, the material portions of each Verified Complaint
are substantively identical, and the Verified Complaints either
attach or explicitly rely upon the same governing documents.
The Court will discuss the allegations of these Verified
Complaints together and will, in the interests of simplicity,
primarily refer to the Verified Complaint in the early-filed
Replevin action, unless otherwise indicated.
3 These agreements specifically include a Trust Indenture, a Loan
Agreement, a Note, a Mortgage, an Assignment and Security
Agreement, and an Intercreditor Agreement.
3
(hereinafter, the “Bondholders”).
in the Replevin Action.)
(See Exs. B & C to the Compl.
The Loan, in turn, required ACR to
make monthly payments on the 15th day of each month.4
(See Ex. B
to the Compl. in the Replevin Action at § 2.01(b).)
3.
In order to secure its obligations, ACR then executed
a Leasehold Mortgage and Security Agreement, which encumbers and
constitutes a first prior lien, mortgage, and fixture filing on
ACR’s leasehold rights on real property adjacent to the former
Revel facility, and substantially all of ACR’s personal
property.5
(See Compl. in the Replevin Action at ¶¶ 14-26; Exs.
C, D, & E to the Compl. in the Replevin Action.)
In order to
further secure these obligations, Defendant Energenic-US, LLC,
the sole owner of ACR, executed a Pledge Agreement, granting the
Authority and BNYM a first priority lien on and security
4
At the same time, the Authority executed a Trust Indenture with
BNYM, in which it assigned, transferred, and pledged all of its
rights, titles, and remedies against ACR to BNYM as Trustee for
the benefit of the Bondholders. (See Ex. A to the Compl. in the
Replevin Action.) Practically speaking, BNYM therefore stands
in the shoes of the Authority and Bondholders for purposes of
prosecuting ACR’s alleged contractual breaches.
5 The Assignment and Security Agreement specifically defines this
personal property to include ACR’s documents, general
intangibles, goods, insurance, intellectual property, investment
related property, letter of credit rights and letters of credit,
money, receivables and receivable records, commercial tort
claims, all other personal property, and any proceeds, products,
accessions, rents, and/or profits of or in respect of any of
these categories. (See Ex. D to the Compl. in the Replevin
Action at §§ 2(a)(1)-(a)(12).)
4
interest in 100% of its interest in ACR.6
(See Compl. in the
Replevin Action at ¶¶ 27-31; Ex. E to the Compl. in the Replevin
Action.)
In other words, ACR effectively pledged all of its
property, regardless of form, to the Authority and BNYM in order
to secure the $118,600,000 in financing.
4.
ACR’s Default.
Beginning in June 2014, ACR stopped
meeting its obligation to make monthly installment payment of
$1,153,000, and to contribute to a reserve account established
to pay down the debt service.
Replevin Action.)
(See Ex. K to the Compl. in the
As a result, BNYM sent ACR various notice of
defaults, and subsequently accelerated the loan and declared the
outstanding principal and interest immediately due and owing.
(See Exs. L, M, & N to the Compl. in the Replevin Action.)
As
of August 1, 2015, the combined principal and accrued interest
has ballooned to no less than $135,431,958.79, and ACR has, at
this point, purportedly defaulted on all of its contractual
obligations.
5.
(See Compl. in the Replevin Action at ¶¶ 57-64.)
State Court Foreclosure Actions.
Following ACR’s
default, BNYM filed companion state court actions, seeking to
foreclose ACR’s interests in its real and personal property, and
to replevy and take possession of those interests.
6
(See
The parties, together with Revel Entertainment Group, LLC, then
separately entered into an Intercreditor Agreement, which
essentially clarified that BNYM’s lien against ACR’s property
took priority over any rights granted to Revel Entertainment
Group, LLC. (See Ex. F to the Compl. in the Replevin Action.)
5
generally Compl. in the Replevin Action; Compl. in the
Foreclosure Action.)
Following initial injunctive motion
practice before the state court,7 ACR removed these actions to
this federal Court, and the pending motions to remand followed.8
7
October 1, 2015, the state court entered an Order to Show Cause
and Temporary Restraining Order (hereinafter, “TRO”) in the
Replevin Action that: (a) directed ACR to show cause why a Writ
of Replevin should not issue directing the Sheriff to seize and
deliver ACR’s pledged personal property interests to BNYM; (b)
restrained ACR and its affiliates from interfering with these
interests; (c) directed ACR to deposit all proceeds relative to
these interests; (d) provided BNYM with the right to an account
of the Collateral and Pledged Interests (including a right to
inspect and appraise the same); and (e) directed ACR to comply
with the obligations of the Stipulated Order entered in ACR
Energy Partners, LLC v. Polo North Country Club, Inc., Civil
Action No. 15-2677 (JBS/JS). Then, on October 9, 2015, October
1, 2015, the state court entered a TRO in the Foreclosure Action
that granted substantially similar relief, and specifically: (a)
directed ACR to show cause why a receiver should not be
appointed to oversee BNYM’s interest in ACR’s real property; (b)
restrained ACR and its affiliates from interfering with, or
otherwise disposing of, the real property; (c) directed ACR to
deposit certain cash proceeds relative to the real property into
an escrow account; (d) granted BNYM the right to inspect ACR’s
books and records relative to the real property; and (e) again
directed ACR to comply with the obligations of the Stipulated
Order entered in ACR Energy Partners, LLC v. Polo North Country
Club, Inc., Civil Action No. 15-2677 (JBS/JS). On the eve of
the state court return date for the TRO, ACR removed these
actions to this federal Court. Following a hearing upon the
TROs, the Court entered an Order extending the state court TROs
until November 13, 2015, in order to maintain the status quo
during the pendency of the present jurisdictional challenge.
[See, e.g., Docket Item 7 in the Replevin Action.]
8 On October 29, 2015 and November 2, 2015, ACR moved to dismiss
the Replevin and Foreclosure actions pursuant to Federal Rule of
Civil Procedure 12(b)(7) for failure to join an indispensable
party. [See Docket Item 11 in 15-7644; Docket Item 6 in 157678.] Because the Court will remand these actions for the
reasons stated below, ACR’s motions to dismiss will be dismissed
6
6.
In seeking to remand these actions for lack of subject
matter jurisdiction, BNYM takes the position that they present
quintessential state court actions—one for replevin and
foreclosure of collateral comprised of personal property, and
the other for foreclosure of ACR’s mortgaged leasehold interest.
(See BNYM’s Br. at 1-2, 9-17.)
In that way, BNYM argues that
these actions amount to little more than a secured creditor
seeking to take back its pledged collateral, and involve
questions routinely reserved for state courts.
10.)
(See id. at 9-
BNYM therefore submits that these actions have no place in
this federal Court, because they neither involve federal law,
nor “arise under” and/or “relate to” the Bankruptcy Code and the
Revel bankruptcy.
7.
(Id. at 9-17.)
ACR, by contrast, takes the position that this Court
may exercise “ancillary” jurisdiction of these actions by virtue
of the Stipulated Order entered in ACR Energy Partners, LLC v.
Polo North Country Club, Inc., Civil Action No. 15-2677 (JBS/JS)
and these actions alleged relation to matters pending before
this Court and other Courts within this District.
Opp’n at 13-19.)
(See ACR’s
In the alternative, ACR argues that
jurisdiction properly lies in this federal Court to the extent
these actions allegedly involve the interpretation of the
as moot, without prejudice to ACR’s right to renew its arguments
before the state court.
7
possessory rights ACR elected to retain under 11 U.S.C. § 365(h)
(hereinafter, “Section 365(h)”) in connection with the Revel
bankruptcy proceeding, and therefore “arise under” and/or
“relate to” the Bankruptcy Code.9
(Id. at 21-21.)
The Court
will address each basis in turn.
8.
It is well settled that “[o]nly state-court actions
that originally could have been filed in federal court” may
properly be removed.
Caterpillar, 482 U.S. at 392 (1987)
(citing 28 U.S.C. § 1441(a)).
Indeed, 28 U.S.C. § 1441(a)
expressly provides 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.
§ 1441(a).
9
In its Notice of Removal, ACR claimed that these actions
satisfied the requirements for diversity jurisdiction under 28
U.S.C. §§ 1441(b), 1332. [See Docket Item 1 in the Replevin
Action at ¶ 12; Docket Item 1 in the Foreclosure Action at ¶
12.] ACR, however, no longer advances that position in
connection with its pending briefing. (See generally ACR’s
Opp’n.) Nevertheless, the Court notes that, because ACR
identifies itself as a citizen of New Jersey, its removal
plainly contravenes the forum-defendant rule, and therefore
defeats any basis for diversity jurisdiction. See 28 U.S.C. §
1441(b)(2) (provides that a “civil action otherwise removable
solely on the basis of the jurisdiction under section 1332(a) of
this title [28 U.S.C. § 1332(a)] may not be removed if any of
the parties in interest properly joined and served as defendants
is a citizen of the State in which such action is brought”).
8
9.
As the removing party, ACR bears the burden of
demonstrating removal jurisdiction, Samuel–Basset v. KIA Motors
Am. Inc., 357 F.3d 392, 396 (3d Cir. 2004), against the backdrop
that removal statutes are to be strictly construed against
removal, with any doubt resolved in favor of remand.10
See,
e.g., Brown v. Jevic, 575 F.3d 322, 326 (3d Cir. 2009); Boyer v.
Snap-on Tools Corp., 913 F.2d 108, 111 (3d Cir. 1990).
10.
Relatedness Jurisdiction.
The Court addresses, at the
outset, ACR’s position that the alleged relation of this action
to other actions pending before this Court, Polo North Country
Club, Inc. v. ACR Energy Partners, LLC, Civil Action No. 15-5324
(JBS/JS), ACR Energy Partners, LLC v. Polo North Country Club,
Inc., Civil Action No. 15-2677 (JBS/JS), and Rosemawr Municipal
Partners Fund LP v. ACR Energy Partners, LLC, Civil Action No.
15-6903 (RBK/AMD), provides an independent basis for subject
matter jurisdiction.
(See ACR’s Opp’n at 13-19.)
Rejecting
this argument, however, requires no complex inquiry, because the
standard for subject matter jurisdiction does not turn upon
alleged factual relation to separate civil actions.
Even more,
these other actions present a distinct constellation of issues,
involving primarily different parties, and each presents, unlike
10
For that reason, 28 U.S.C. § 1447(c) states, in relevant part,
that “[i]f at any time before final judgment it appears that the
district court lacks subject matter jurisdiction, the case shall
be remanded.”
9
here, an independent basis to exercise subject matter
jurisdiction.11
11.
Nor does the Court’s Stipulated Order in ACR Energy
Partners, LLC v. Polo North Country Club, Inc., Civil Action No.
15-2677 (JBS/JS), require retention of the Replevin and
Foreclosure actions, in order to vindicate this Court’s
authority relative to the Stipulated Order.
17-18.)
(See ACR’s Opp’n at
Rather, in the event BNYM successfully forecloses upon
the pledged collateral, it will be bound by the Stipulated Order
to the same extent as ACR.
Indeed, the TROs entered by the
state court acknowledged the Stipulated Order, as they must, and
directed ACR to comply with the obligations of the Stipulated
Order.
For that reason, these actions do not inhibit the
Stipulated Order,12 nor does the existence of the Stipulated
11
In its Notice of Removal, ACR relatedly stated that New
Jersey’s “entire controversy doctrine creates bases for this
Court to assert [federal] jurisdiction over [BNYM’s] causes of
action.” [Docket Item 1 in the Replevin Action at ¶ 17.] New
Jersey’s entire controversy doctrine, however, constitutes an
affirmative defense, not a basis for federal subject matter
jurisdiction. See, e.g., Port Drivers Fed’n 18, Inc. v.
Fortunato, No. 12-5749, 2013 WL 1314630 (D.N.J. Mar. 28, 2013)
(remanding case to state court for lack of jurisdiction, over
defendant’s argument under New Jersey’s entire controversy
doctrine).
12 Moreover, even if having these actions proceed in state court
might have some incidental impact on the Stipulated Order, the
exercise of subject matter jurisdiction would be discretionary,
and the Court declines to exercise its discretion in this
instance. See Kokkonen v. Guardian Life Ins. Co. of Am., 511
U.S. 375, 379 (1994) (describing this discretionary form of
ancillary jurisdiction); Pfizer Inc. v. Uprichard, 422 F.3d 124,
10
Order in another action otherwise permit this Court to exercise
subject matter jurisdiction over these legally and factually
distinct matters.
12.
“Arising Under” Jurisdiction.
28 U.S.C. § 1452(a)
provides that “[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.” 28 U.S.C. § 1452(a).
28 U.S.C. § 1334(b), in turn,
provides that “the district courts shall have original but not
exclusive jurisdiction of all civil proceedings arising under
title 11...” 28 U.S.C. § 1334(b) (emphasis added).
A case
“aris[es] under” the Bankruptcy Code within the meaning of §
1334(b), if the Bankruptcy Code creates the cause of action or
provides the substantive right invoked, see Stoe v. Flaherty,
436 F.3d 209, 216-17 (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”), or if the proceeding itself
has essentially “‘no existence outside of the bankruptcy.’”
Id.
(citation omitted).
13.
In an effort to identify a substantive bankruptcy
issue here, ACR submits that its election of possessory rights
131 (3d Cir. 2005); Sandlin v. Corp. Interiors, Inc., 972 F.2d
1212, 1216 (10th Cir. 1992).
11
under section 365(h) forms the fabric of these actions, thereby
inextricably tethering these actions to the Bankruptcy Code.
(ACR’s Opp’n at 20-28.)
Nevertheless, ACR’s argument
fundamentally mischaracterizes the nature of BNYM’s entire state
law based claims, none of which attempt to invoke substantive
rights provided by the Bankruptcy Code, nor otherwise arise out
of bankruptcy proceedings.
Rather, BNYM seeks little more than
to foreclose on collateral, enforce promissory notes, and obtain
judgments of possession and/or the appointment of a receiver.
Section 365(h), however, had no part in the creation of these
asserted entitlements.13
Indeed, ACR’s section 365(h) rights
relative to its leasehold interests arose only recently, while
BNYM’s claimed rights arose as a matter of contract years prior
to the Revel bankruptcy proceeding and in connection with
agreements pertaining to ACR’s financing that have never been
implicated by the Revel bankruptcy proceeding.
14.
In that way, resolution of these claims requires
little more than the interpretation of interdependent private
contracts and the application of state foreclosure principles,
issues of the sort that arise, without question, under state
13
For that reason, the Court rejects ACR’s reliance for
jurisdictional purposes upon IDEA Boardwalk, LLC v. Revel
Entertainment Group, LLC, 532 B.R. 216 (Bankr. D.N.J. 2015), a
case that concerned the very existence of a former Revel
tenant’s section 365(h) rights.
12
law.14
See Volt Info. Scis., Inc. v. Bd. of Trustees of Leland
Stanford Junior Univ., 489 U.S. 468, 474 (1989) (“the
interpretation of private contracts is ordinarily a question of
state law”); Pocopson Indus., Inc. v. Hudson United Bank, No.
05-6173, 2006 WL 2092578, at *8 (E.D. Pa. July 26, 2006) (“State
law customarily governs the field of contracts”) (citation
omitted).
For all of these reasons, the Court concludes that
these actions do not “arise under” the Bankruptcy Code.
See
Susquehanna Commercial Fin., Inc. v. Herdocia, No. 06-5125, 2007
WL 137837, at *3 (E.D. Pa. Jan. 16, 2007) (reject state law
breach of contract claims as a basis for “arising under”
jurisdiction).
15.
“Related To” Jurisdiction.
A civil proceeding
“relate[s] to” a bankruptcy proceeding, if “the outcome of that
proceeding could conceivably have any effect on the estate being
administered in bankruptcy.”
Pacor, 743 F.2d at 994.
As
relevant here, in relation to post-confirmation disputes,
14
The nature of BNYM’s remaining claims, all of which sound in
contract or principles of equity, compel no contrary result.
(See ACR’s Opp’n at 28 (arguing that BNYM’s motions to remand
ignore “the bulk of its causes of action when addressing this
Court’s subject matter jurisdiction).) Indeed, because BNYM’s
various claims nowhere rest upon ACR’s section 365(h) election,
the Court perceives no basis for ACR’s position that these
claims would necessarily require the Court to “fully consider”
section 365(h). Rather, the contours of ACR’s section 365(h)
rights will be resolved in other actions, not this one, and this
matter does not become a federal case simply because BNYM may,
at some point, become bound by the section 365(h) determinations
of this Court (or some other fora).
13
“related-to” jurisdiction will exist only if the claim
“affect[s] an integral aspect of the bankruptcy process,”
meaning that a “close nexus” exists between “the bankruptcy
plan” and the proposed proceeding.
Binder v. Price Waterhouse &
Co., 372 F.3d 154, 167 (3d Cir. 2004).
In other words, the
action must affect the “interpretation, implementation,
consummation, execution, or administration of the confirmed
plan.”
In re Resorts Int’l, 372 F.3d 154, 167 (3d Cir. 2004).
16.
In support of exercising “related to” jurisdiction
here, ACR submits that BNYM’s claims directly impact property of
the Revel Debtor’s estate and/or are otherwise modified by
Bankruptcy Court decisions related to disputes over the Revel
Debtor’s estate.
(See ACR’s Opp’n at 29-31.)
The Court rejects
this proposition because the Bankruptcy Court deemed the Revel
Bankruptcy “fully administered and closed” on August 10, 2015,
well before the state court Complaints in these actions, and
neither BNYM nor ACR hold property that ever belonged to the
Revel estate.
Even more critically, because these actions do
not turn, even tangentially, upon ACR’s section 365(h) rights,
they will not require any interpretation of Bankruptcy Court
decisions, nor any consummation or administration of the
confirmed Revel plan.
As a result, the Court perceives no
meaningful nexus between these actions and the closed Revel
proceedings, and concludes that these actions do not “relate to”
14
the Bankruptcy Code.
See Faltas-Fouad v. St. Mary’s Hosp.,
Passaic, N.J., Nos. 14-5228 & 14-6021, 2015 WL 260907, at *3
(D.N.J. Jan. 20, 2015) (posting no basis for post-confirmation
“related to” jurisdiction); Prudential Ins. Co. of Am. v. UBS
Real Estate Sec., No. 13-2953, 2014 WL 202762, at *4-*5 (D.N.J.
Jan. 16, 2014) (finding the mere potential of relation to a
bankruptcy proceeding insufficient, and remanding the case to
state court).
17.
The impropriety of removal of the Foreclosure and
Replevin actions against the ACR defendants stands in contrast
to the Court’s finding in another case in which the Court found
ACR’s removal proper, see Polo North Country Club, Inc. v. ACR
Energy Partners, LLC, Civil Action No. 15-5324 (JBS/JS) (D.N.J.
Nov. 5, 2015).
In the latter case, the dispute between ACR and
the purchaser of the Revel property through the Bankruptcy
Court’s sale turns upon determination of ACR’s possessory
interests under 11 U.S.C. § 365(h); thus, this Court (or the
Bankruptcy Court) must address the effect of ACR’s section
365(h) election in the context of the bankruptcy sale under 11
U.S.C. § 363.
Id., slip op. at 12-16.
Such a dispute lies
within the jurisdiction of this Court because it arises under
federal law (28 U.S.C. § 1331) and because it arises under the
Bankruptcy Code (28 U.S.C. § 1334(b)), where ACR’s section
365(h) rights are at issue solely by virtue of the Revel
15
bankruptcy proceedings.
Id. at 15 (citing United States Trustee
v. Gryphon at the Stone Mansion, Inc., 166 F.3d 552, 556 (3d
Cir. 1999) and IDEA Boardwalk, LLC v. Revel Entertainment Group,
LLC, 532 B.R. 216, 223 (Bankr. D.N.J. 2015)).
In the present
Foreclosure and Replevin actions, on the other hand, the rights
at issue arose under the parties’ various private contractual
and financial documents which can hardly be described as having
arisen from the Bankruptcy Code or the Bankruptcy Court’s orders
in the Revel proceedings.
18.
For all of these reasons, BNYM’s motions to remand
will be granted, and these actions will be remanded to the
Superior Court of New Jersey, Atlantic County, for lack of
subject matter jurisdiction.
19.
An accompanying Order will be entered.
November 5, 2015
Date
s/ Jerome B. Simandle
JEROME B. SIMANDLE
Chief U.S. District Judge
16
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