INDIRECT PURCHASERS PLAINTIFFS et al v. GEO SPECIALTY CHEMICALS, INC.

Filing 14

OPINION. Signed by Judge Jose L. Linares on 1/5/2017. (ld, )

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT Of NEW JERSEY

Civil Action Nos.: 16-8405/16-8463 (JLL)
OPINION

N RE GEO SPECIALTY CHEMICALS, NC.,
etal.,
Debtor/Defendant.

LINARES, District Judge.

These matters come before the Court by way of two separate Motions to Withdraw the
Bankruptcy Reference as it pertains to Debtor/Defendant GEO Specialty Chemicals, Inc. (“GEO”).
The first Motion was filed by the Direct Purchaser Plaintiffs (“DPP”) in the In re Liquid Aluminum
Sulfate Litigation (Civ. No. 1 6-md-2687). The other Motion was filed by the Indirect Purchaser
Plaintiffs (“IPP”) in that same matter. GEO has submitted a joint opposition to both Motions, to
which both groups of Plaintiffs have replied. The subject matter of the Motions are identical and
the arguments are very similar. Therefore, the Court considered both applications jointly herein.
The Court decides this matter without oral argument pursuant to Rule 78 of the federal Rules of
Civil Procedure. for the reasons set forth below, the Court denies both Motions to Withdraw the
Bankruptcy Reference as it pertains to GEO.

I.
A.

BACKGROUND1

The Parties
GEO is a manufacturer of liquid aluminum sulfate (“LAS”) and one of numerous

defendants in the In re Liqttid Alitminum Sulfate Litigation (“MDL”). See In re Liquid Aluminum

Sulfate Litigation (Civ. No. 1 6-md-2687). Both of the Consolidated Amended Complaints in the
MDL allege that GEO conspired with other manufacturers of LAS to allocate customers not
competing for the business of other manufacturers’ historic customers between 1997 and 2011.
DPP are various municipalities and utility companies from around the nation who claim they were
harmed because they paid more for LAS, a product necessary in their industry, due to the collusion.
See MDL ECF No. 220. Similarly, the IPP claim they were indirect purchasers of LAS and were
also harmed by the Defendants’ actions. See MDL ECF No. 242.
B.

Procedural Posture and Pertinent Facts
As noted above, GEO is a company engaged in the production of LAS. In 2004, GEO filed

for Bankruptcy Protection under Chapter 11. See In re GEO Specialty Chemicals, Inc., Bankr. No
04-19148. On December 20, 2004, the Bankruptcy Court entered a Discharge Order confirming
GEO’s plan of reorganization.

Id. at ECF No. 1014.

The effective date of the plan of

reorganization was set for December 31, 2014. Id.
GEO was indicted for its involvement in the scheme, and ultimate pled guilty to a onecount information in violation of 15 U.S.C.
Chemicals, Inc., Cnm. No. 16-290 (JLL).

§

1 on July 16, 2016. See USA v. GEO Speciality

The Court found that “from at least as early as 1997

and continuing until approximately February of 2011, [GEO] and its co-conspirators entered into

This background is derived from the parties’ collective briefs as well as information from both Plaintiffs’
Consolidated Amended Complaints (ECF Nos. 220, 242) in the In re Liquid Aluminum Sulfate Litigation.

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and engaged in a combination and conspiracy to suppress and eliminate competition in the sale
and marketing of liquid aluminum sulfate by agreeing to rig bids and allocate customers for, and
to fix, stabilize and maintain the price of liquid aluminum sulfate sold to municipalities and pulp
and paper companies in the United States.” Id. Meanwhile, various entities began filing civil
actions seeking to recover damages stemming from the alleged antitrust activities. This Court then
established In re Liquid Aluminum Sulfate Litigation MDL in order to better manage the actions.
At the direction of this Court, both DPP and IPP filed Consolidated Amended Complaints where
various Plaintiffs who shared the same nexus of facts were included.
Thereafier, GEO filed a Motion in the Bankruptcy Court to reopen its case for the limited
purpose of enforcing the Discharge Order thereby limiting the damages it may be liable for to any
antitrust actions that occurred afier the effective date of same. GEO has also moved before this
Court to dismiss the Consolidated Amended Complaints based on the fact that the Discharge Order
precludes both DPP and IPP from recovering damages. Finally, DPP and IPP filed the subject
Motions seeking to have this Court withdraw the Bankruptcy reference in order to make a
determination as to whether the Discharge Order bars recovery from GEO.
II.

LEGAL STANDARD

This Court has original, but not exclusive jurisdiction over all bankruptcy proceedings. 28
U.S.C.

§ 1334(b). District Courts have the authority to refer any and all cases under Title 11 to

“the bankruptcy judges for the district.” 28 U.S.C.

§ 157(a). The District of New Jersey has had

a standing order to refer all Title 11 proceedings to the Bankruptcy Court. Although district courts
ofien prefer that bankruptcy courts hear all proceedings arising out of an action originating in such
courts, 28 U.S.C.

§ 157(d) permits a district court to “withdraw, in whole or in part, any case or
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proceeding referred under this section, on its own motion or on timely motion of any party, for
cause shown.” Id. Thus, on motion of a party, the party must show “cause” before a District Court
withdraws the reference. In re System Freight, Inc.,1991 U.S. Dist. LEXIS 2674, 1991 WL 33150
(D.N.J. 1991).
Reference withdrawal can be either mandatory or permissive. 28 U.S.C.

§ 157. Mandatory

withdrawal of the reference for is required when resolution of the case or issue would require
“substantial and material consideration of non-bankruptcy law” by the Bankruptcy court. See
Perkins v. Verma, 2011 U.S. Dist. LEXIS 124793 (D.N.J. Oct. 27, 2011); US. v. Wood, 161 B.R.
7, 201 (D.N.J. 1993). “Mandatory withdrawal is to be applied narrowly to ensure bankruptcy cases
are litigated in the bankruptcy courts and to prevent

§ 157(d) from becoming an ‘escape hatch’

from litigating cases under the Bankruptcy Code.” Perkins, supra at *9 (quoting Official Comm.
OfAsbestos Claimants v. G-IHoldings, Inc. (In re G-lHoldings, Inc.), 295 B.R. 211, 221 (D.N.J.
2003 ))(additional citations omitted).
For permissive withdrawal of the reference the Court must first ascertain if the proceeding
is a “core” or “non-core” matter. Orion Pictures Corp.

V.

Showtime Networks, 4 F.3d 1095, 1101

(2d Cir. 1993). The distinction between “core” and “non-core” is the single most important factor
in considering whether permissive withdrawal is warranted since the language of 2$ U.S.C.

§

157(d) “creates a presumption that Congress intended to have bankruptcy proceedings adjudicated
in the Bankruptcy Court.” Kohn

V.

Haymount, LP (In re Int’l Benefits Group, Inc.), 2006 U.S.

Dist. LEXIS 58487, *5 (D.N.J. Aug. 21, 2006); Newark Watershed Conservation & Dev. Corp.

V.

Watkins-Brashear, 2016 U.S. Dist. LEXIS 90280, *5 (D.N.J. July 11, 2016). The determination
as to discharageability of particular debts and obligations to discharges are deemed to be “core”

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matters. See 28 U.S.C.

§ 157(b)(2)(I) and (I). Next, the Court must consider the following

factors when determining whether cause exists for permissive withdrawal: 1) uniformity in
bankruptcy administration; 2) reducing forum shopping and confusion; 3) fostering the economical
se of the debtors’ and creditors’ resources; 4) expediting the bankruptcy process; and 5) the timing
of the request for withdrawal. In re Pruitt, 910 f.2d 1160, 1168 (3d Cir. 1990).
III.

ANALYSIS

Both DPP and IPP move before this Court, on separate applications, seeking withdrawal
of the bankruptcy reference as it pertains to GEO.

The movants advance nearly identical

arguments in support of both mandatory and permissive withdrawal. The Court will address each
basis for withdrawal of the bankruptcy reference separately below.
A. Mandatory Withdrawal

The Court finds that mandatory withdrawal of the bankruptcy reference is not appropriate
here. Both movants argue that resolution of GEO’s Motion to Reopen the Bankruptcy and Enforce
the Discharge Order will require the Bankruptcy Court to determine whether GEO is jointly and
severally liable for the actions of its co-conspirators by applying and interpreting antitrust law.
DPP Mov. Br. at 4; IPP Mov. Br. at 6. However, this assertion is incorrect. Rather, the Bankruptcy
Court has only been asked to review whether the movants’ claims for damages accrued prior to
the effective date of the Plan of Reorganization and therefore barred. This can be accomplished
without a determination as to the merits of DPP & IPP’s claims. “Mere incidental reference to
non-bankruptcy federal law is insufficient

...

to trigger mandatory withdrawal. The consideration

of non-bankruptcy law must be ‘substantial and material’ before Section 157(d) compels
withdrawal.” Federated Dep ‘t Stores v. United States EPA (IN re Federated Dep ‘t Stores, Inc.,

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189 B.R. 142, 144 (S.D. Ohio 1995). Thus, the Court concludes that the Bankruptcy Court can
resolve the application before it without substantial and material consideration of non-bankruptcy
federal law, and the Motions to for mandatory withdrawal of the bankruptcy reference are hereby
denied.
B. Permissive Withdrawal

The Court also finds that permissive withdrawal of the bankruptcy reference is
inappropriate in this case. First, as noted above, pursuant to 28 U.S.C.

§ 157(b)(2)(I) and (J) the

determination as to discharageability of particular debts and obligations to discharges are deemed
to be “core” matters. GEO’s Motion to Reopen and Enforce the Discharge Order falls squarely
within that definition. Hence, GEO’s Motion before the Bankruptcy Court is a core matter, which
presumptively should be decided by the Bankruptcy Court.
The remaining five factors regarding when permissive withdrawal is applicable also weigh
in favor of denial. First, both efficiency and uniformity in bankruptcy administration is achieved
when the Bankruptcy Court determines the outcome of core issues. See Orion Pictures Corp., 4
F. 3d at 1101. Allowing the Bankruptcy Court to determine the scope and applicability of its own
orders achieves this goal. Thus, the first factor weighs in favor of having the Bankruptcy Court
decide GEO’s Motion to Reopen without intervention from this Court.
This same logic applies to the forum shopping factor. DPP and IPP argue that GEO’s
Motion before the Bankruptcy Court and its Motion to Dismiss before this Court exhibits GEO’s
attempt to find a more favorable forum. Yet, that is not the case. GEO is merely seeking to have
the Bankruptcy Court that issued the Discharge Order interpret and apply it, and asking the District
Court to dismiss any claims which are deemed barred pursuant to the Discharge Order. Thus,

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while it is more efficient and uniform to have the Bankruptcy Court handle GEO’s Motion, GEO’s
filing of two separate and distinct motions is certainly is not an attempt at forum shopping.

The next factor to be considered is the efficient use of the parties’ resources. DPP avers
that it would be inefficient to let the Bankruptcy Court determine its own Discharge Order since
any decision by the Bankruptcy Court is likely to be appealed and the appeal would be heard by
this Court. DPP Mov. Br. at 8. This is the same argument that was raised, and rejected, in the US
Airways case. In re US. Airways Grp., 296 B.R. 673, 683 n. 22 (E.D. Va. 2003)(citing 2$ U.S.C.

§ 158(a)). There, the Court held that the possibility that the parties may be required to litigate the
matter twice, once before the Bankruptcy Court and once before the District Court on appeal, does
not necessarily mean it is a more efficient use of the parties’ resources to simply have the District
Court decide a core proceeding every time, as this would frustrate the purpose of the reference to
the Bankruptcy Court. Id. The same logic applies here as this is a core proceeding better suited
for the Bankruptcy Court to decide. Accordingly, this argument is not persuasive and weighs in
favor of denying the Motions.
Similarly, the “expedition of the bankruptcy process” factor also weighs in favor of denial.
‘While IPP does not address this factor, DPP concedes that “GEO’s motion to enforce the Discharge
Order will not affect the administration of the estate.” DPP Mov. Br. at 8. Rather, it argues that
“having the Bankruptcy Court decide GEO’s motion would prolong the final resolution of the
issue, because any appeal of the outcome of the motion to enforce would be heard by the District
Court.” Id. The Court disagrees with this argument since this factor is aimed at expediting the
administration of a debtor’s bankruptcy estate and not any appeal that may flow therefrom.
Moreover, application of DPP’s logic would essentially result in permissive withdrawal of the

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reference in every bankruptcy case “since all dispositive matters resolved by the bankruptcy court
may be appealed to the district court.” US. Ain’vays, 296 B.R. at 683 (citing 28 U.S.C.

§ 158 (a)).

Thus, the Court finds that this factor also weighs in favor of denying the Motions to Withdraw the
Bankruptcy Reference. finally, Plaintiffs assert that their application was timely and GEO does
not dispute same.
In conclusion, permissive withdrawal is not appropriate in this matter. The issue to be
decided by the Bankruptcy Court is the interpretation and application of its own Discharge Order.
Such a determination is a core proceeding which is best left for the Bankruptcy Court’s
determination. Additionally, four out of the five factors to be considered by this Court weigh in
favor of denying the Motions to Withdraw. Accordingly, both Motions for PenTlissive Withdrawal
are denied.
CONCLUSION
for the aforementioned reasons, DPP’s Motion to Withdraw the Bankruptcy Reference and
IPP’s Motion to Withdraw the Bankruptcy Reference are hereby denied.

DATED: January O17

JOS

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LINARES
ED STATES DISTRICT JUDGE
.