Aqua Shield, Inc. et al v. Brooks et al

Filing 11

ORDER granting (8) Motion to Remand in case 2:13-cv-03008-SJF-WDW; granting (8) Motion to Remand to State Court in case 2:13-cv-03009-SJF-AKT. SO ORDERED that the Korsunskys' motions to remand are granted and the Dissolution Action and the Con firmation Action are both remanded to the New York State Supreme Court of New York, Nassau County. The Clerk of Court is respectfully directed to close this case. A certified copy of order mailed to Nassau County Supreme Court. Ordered by Judge Sandra J. Feuerstein on 10/24/2013. (Florio, Lisa)

D/F
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK

----------------------------------------------------------)(

AQUA SHIELD, INC., IGOR KORSUNSKY,
and YELENA KORSUNSKA YA,
Petitioners,

ORDER
...CV-3008 (SJF)(WDW)

-against-

FILED

•.3

IN CLERK'S OFFICE
U S DISTRICT COURT E 0 N y

ALE)(ANDRA BROOKS, BOB BROOKS,
and AQUA SHIELD, INC., a New York Corporation,

*

Respondents.

----------------------------------------------------------)(

OCI 2 4Z013

*

LONG ISLAND OFFICE

BOB BROOKS and ALE)(ANDRA BROOKS,
Petitioners,

13
·-CV-3009 (SJF)(AKT)

-againstAQUA SHIELD, INC., a New York Corporation,
IGOR KORSUNSKY and YELEN KORSUNSKA YA,
Respondents.

----------------------------------------------------------)(
FEUERSTEIN, J.
On or about November 2008, Igor Korsunsky, Yelena Korsunskaya (the "Korsunskys"),
and Aqua Shield, Inc. ("Aqua Shield") commenced an arbitration against Bob Brooks, Alexandra
Brooks (the "Brooks"), and Aqua Shield claiming breach of fiduciary duty, breach of the
shareholders' agreement, breach of contract of employment, an accounting, and conversion. On
January 29, 2009, the Brooks filed a petition for dissolution of Aqua Shield pursuant to New
York Business Corporation Law§ 1104 in the Supreme Court of New York, Nassau County (the
"Dissolution Action"). On February I, 2013, the arbitrator issued an award (the "Award"). On

I

February 7, 2013, the Korsunskys commenced a proceeding in the Supreme Court of New York,
Nassau County to confirm the Award (the "Confirmation Action").
On February 22, 2013, the Brooks filed notices of removal to the United States District
Court of the Dissolution Action and the Confirmation Action.' Now before the Court are the
Korsunskys' motions to remand the Dissolution Action and the Confirmation Action. For the
reasons set forth below, the Korsunskys' motions to remand are granted and the Dissolution
Action and the Confirmation Action are remanded back to the Supreme Court ofNew York,
Nassau County.
I.

Background
A.

The Parties

Aqua Shield is a corporation duly licensed to transact business in New York State, which
has its principal place of business at 130 Bell Street, West Babylon, New York. (Verified
Petition to Confirm Arbitration Award ["Conf. Pet."], '1[2). Aqua Shield manufactures, sells, and
installs telescopic pool enclosures. (!d.)
Igor Korsunsky and Yelena Kosunskaya, husband and wife, reside in Kings County and
are shareholders, officers, and directors of Aqua Shield. (!d. at '1['1[3-5).
Alexandra Brooks and Bob Brooks, husband and wife, reside in Massapequa, Nassau
County, and are shareholders, offices, and directors of Aqua Shield. (!d. at '1['1[6-8).
The Korsunskys and the Brooks each are fifty percent (50%) equity shareholders in Aqua
Shield. (Levine Declaration in Support of Motion to Remand the Confirmation Action ["Levine
Conf. Dec!."], '1[3).

The Dissolution Action previously pending in Nassau County, entitled Brooks, eta/. v. Aqua Shield, Inc., et
a/., Index No. 1572/2009, has been removed to this Court and assigned case number 13 CV 3009 (SJF)(AKT). The
Confirmation Action previously pending in Nassau County, entitled Aqua Shield, Inc., et a/. v. Brooks, et a/., No.
600295/2013, has been removed to this Court and assigned case number 13 CV 3008 (SJF)(WDW).

2

B.

Procedural History

On November 8, 2008, the Korsunksys filed a demand for arbitration in front of the
American Arbitration Association. (Schwarz Affidavit in Support of Cross Motions in Lieu of
Opposition to Order to Show Cause in Dissolution Action ["Schwarz Aff."], '1!15). On January
29, 2009, the Brooks initiated the Dissolution Action by filing a petition for dissolution of Aqua
Shield pursuant to New York Business Corporation Law§ 1104 in the Supreme Court ofNew
York, Nassau County. (!d. at '1!26). On February!, 2009, the Brooks served the Korsunskys
with an order to show cause with petition for dissolution. (!d. at '1!27).
On February 1, 2013, the arbitrator issued the Award, finding that the Brooks had
breached their fiduciary duties and engaged in self-dealing and conversion. (Conf. Pet., '1!'1!15,
17). The Award directed the Brooks to repay $161,110.78 to Aqua Shield and to pay
$140,258.89 to the Korsunskys. (!d. at '1!'1!18-22). On February 7, 2013, the Korsunskys filed a
petition to confirm the arbitration award in the Supreme Court ofNew York, Nassau County.
(!d. at '1!1).

On February 21, 2013, the Brooks commenced a chapter 11 bankruptcy proceeding under
title 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of
New York (the "Bankruptcy Proceeding"). (Korsunskys' Motion for Relief from Automatic
Stay ["Mot. to Vacate Stay"], '1!2). The Bankruptcy Proceeding was assigned case number 1370840-DTE.
The next day, on February 22, 2013, the Brooks filed notices of removal to this Court
pursuant to 28 U.S.C. § 1452 in both the Dissolution Action and the Confirmation Action,
asserting that this Court has jurisdiction pursuant to 28 U.S.C. § 1334 because the Dissolution
Action and Confirmation Action are related to the Bankruptcy Proceeding. (Notice of Removal

3

..

of Dissolution Action, '1!'1!3-4; Notice of Removal of Confirmation Action, '1!'1!3-4). Accordingly,
the Confirmation Action was removed to this Court and assigned docket number 13 CV 3008
(SJF)(WDW). The Dissolution Action was removed to this Court and assigned docket number
13 CV 3009 (SJF)(AKT).
On May 10,2013, the Korsunskys filed a motion in the Bankruptcy Proceeding for relief
from the automatic stay afforded by Section 362 of the Bankruptcy Code. (Mot. to Vacate Stay,
'1!'1!12, 13). On June 13, 2013, Judge Eisenberg of the United States Bankruptcy Court, Eastern
District of New York granted the Korsunskys' motion and ordered "that pursuant to II U.S.C. §
362 and Rule 400 I of the Federal Rules of Bankruptcy Procedure, the automatic stay is vacated
with respect to that certain Award of Arbitrator dated February I, 2013." (Order Lifting the
Automatic Stay, Levine Dec!. Ex. A).
The Korsunsksys now move to remand the Dissolution Action and the Confirmation
Action to the Supreme Court of New York, Nassau County pursuant to 28 U.S.C. § 1452(b).2
II.

Discussion
Pursuant to 28 U.S.C. § 1452, "[a] party may remove any claim or cause of action in a

civil action ... to the district court for the district where such civil action is pending, 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). "The jurisdictional basis for bankruptcy removal pursuant to§ 1452(a) is
provided in 28 U.S.C. § 1334(b)." Drexel Burnham Lambert Grp., Inc. v. Vigilant Ins. Co., 130
B.R. 405 (S.D.N.Y. 1991). Section 1334(b) provides that "district courts shall have original but

The Brooks argue that the Korsunskys' motion to remand the Confirmation Action is a nullity because it
"was made in violation of the automatic stay afforded the Brooks by ll U.S.C. 362" "when they filed their
bankruptcy case." (Brooks' Opposition to Motion to Remand the Confirmation Action ["Opp. to Con f. Remand"),
~~ 3-4). However, the automatic stay was vacated by Judge Eisenberg before the Korsunskys filed their motion to
remand the Confirmation Action. Accordingly, the Korsunskys' motion did not violate the automatic stay.

4

not exclusive jurisdiction of all civil proceedings arising under title II, or arising in or related to
cases under title II." 28 U.S.C. § 1334(b). "Thus, a district court's bankruptcy jurisdiction is
limited to cases 'arising under,' 'arising in,' or 'related to' a case filed under the Bankruptcy
Code." Tribul Merchs. Servs., LLC v. Com Vest Grp., No. 12-CV-5063, 2012 WL 5879523, at *8
(E.D.N.Y. Nov. 21, 2012).
Civil proceedings "arising under" or "arising in" title II are referred to as "core"
proceedings, while proceedings "related to" cases under title II are "non-core." Lead I JV, LP v.
N. Fork Bank, 401 B.R. 571, 578-79 (E.D.N.Y. 2009). Core proceedings "are directly related to

a bankruptcy court's central functions," id. at 579, and "have no existence outside of the
bankruptcy case." Schumacher v. White, 429 B.R. 400,405 (E.D.N.Y. 2010) (citation omitted).
In contrast, "non-core proceedings are those that are related to the bankruptcy case but do not
arise under Title II and are typically based on common law." In re EMS Fin. Servs., LLC, 491
B.R. 196, 201 (E.D.N.Y. 2013). The district court has jurisdiction of a non-core proceeding
"relating to" a title II case if the action's "outcome might have any conceivable effect on the
bankrupt estate." Par/amat Cap. Fin. Ltd. v. Bank ofAm. Corp., 649 F.3d 572, 579 (2d Cir.
20 II).
Notably, the Brooks do not contend that the Dissolution Action and the Confirmation
Action are within this Court's "core" jurisdiction pursuant to § 1334(b). Instead, the Brooks
argue that both actions are within the bankruptcy court's core jurisdiction, yet removed the
actions to this Court. (Brooks' Opposition to Motion to Remand the Dissolution Action ["Opp
to Diss. Remand"],

~~

4-5 ("bankruptcy courts are not precluded from adjudicating state-law

claims ... when such claims are at the heart of the administration of the bankruptcy estate")
(emphasis added) (citation and quotation omitted)); Opp. to Conf.

5

Remand,~~

31-39 (same)). In

any event, the Dissolution Action and the Confirmation Action are not core proceedings. Both
actions were initiated in Supreme Court of New York prior to the Brooks' commencement of the
Bankruptcy Proceeding and thus have "existence outside the bankruptcy case." Schumacher,
429 B.R. at 405; see also Bevilacqua v. Bevilacqua, 208 B.R. II, 15 (E.D.N.Y. 1997) ("Private
rights claims that are commenced in state court prior to the filing of the bankruptcy petition are
generally non-core.") (alteration in original).
At most, the Dissolution Action and Confirmation Action are non-core proceedings that
are "related to" the Bankruptcy Proceeding. Through adjudication of the Dissolution Action,
"(Aqua Shield] will be valued, its assets sold and (the Korsunskys and the Brooks] will be
assigned a share after adjustment credits," and "the Brooks' share will be transferred to the
Trustee for, inter alia, payment to creditors." (Levine Declaration in Support of Motion to
Remand the Dissolution Action,

~

11 ). The proof of claim filed by the Korsunskys in the

Bankruptcy Proceeding relies on the Award, which is the subject of the Confirmation Action.
(Opp. to Conf. Remand,

~~

34-36). Therefore, the Dissolution Action and the Confirmation

Action "could conceivably have an effect on [the Brooks'] bankruptcy estate since a judgment
could augment or diminish the estate." Bevilacqua, 208 B.R. at 16.
After a case is removed to federal court under § 1452, the non-moving party may move to
have the case remanded to state court "on any equitable ground." 28 U.S.C. § 1452(b). An
"equitable ground" under§ 1452(b) is one that is "fair and reasonable." In re Cathedral of the
Incarnation in the Diocese of Long Island, 99 F.3d 66, 69 (2d Cir. 1996). "Because non-core
claims do not implicate the essence of federal bankruptcy power, district courts consider such
classification of a claim in deciding whether to grant an equitable remand." Shilobeth v.
Yerushalmi, 412 B.R. 113, 117 (S.D.N.Y. 2009); see also Drexel, 130 B.R. at 409 ("Congress

6

has made it plain that, in respect to noncore proceedings ... the federal courts should not rush to
usurp the traditional precincts of the state court.") (citation and quotation marks omitted).
When determining whether "equity demands that a case removed under§ 1452(a) be
remanded to state court," district courts consider: "(!)the effect of 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 the right to a
jury trial; and (7) prejudice to the involuntarily removed defendants." Schumacher, 429 B.R. at
405 (citing Drexel, 130 B.R. at 407).
Consideration of the equitable factors warrants remand of the Dissolution Action and the
Confirmation Action to state court. This Court's jurisdiction of the Dissolution Action and the
Confirmation Action is based solely on an attenuated relationship to the Bankruptcy Proceeding,
which was not filed until the day before the Brooks sought removal of the two actions in a thinly
veiled attempt to thwart the Award. Adjudication of these non-core proceedings, which involve
exclusively state law claims, will not affect the efficient administration of the Brooks'
bankruptcy estate. See Drexel, 130 B.R. at 407-098 ("While this action is sufficiently related to
[the bankruptcy case] for jurisdictional purposes under§ 1334(b), it is not sufficiently related to
warrant retention of federal jurisdiction over the state law claims it presents."). Furthermore,
"(i]t is well-settled that comity considerations dictate that federal courts should be hesitant to
exercise jurisdiction when state issues substantially predominate." In re 9281 Shore Rd Owners

Corp., 214 B.R. 676,696 (E.D.N.Y. 1997). In attempting to avoid this established principle, the
Brooks argue that the "bankruptcy court applying applicable state law will achieve comity with
the state courts." (Opp. to Diss.

Remand,~

33; Opp. to Conf.

7

Remand,~

51) (emphasis added).

....

"'

"'

Once again, the Brooks imply that the Dissolution Action and the Confirmation Action were
removed to the bankruptcy court, which they were not. The Brooks concede there is no right to
a jury trial in the Dissolution Action or the Confirmation Action. (Opp. to Diss. Remand,, 38;
Opp. to Conf. Remand,, 54). Lastly, the Brooks have not identified any prejudice that would
result if the Dissolution Action and the Confirmation Action are remanded to state court.
Accordingly, consideration of the equitable factors warrant that the Dissolution Action and the
Confirmation Action be remanded to state court.
III.

Conclusion
For the reasons states above, the Korsunskys' motions to remand are granted and the

Dissolution Action and the Confirmation Action are both remanded to the New York State
Supreme Court of New York, Nassau County. The Clerk of Court is respectfully directed to
close this case.

SO ORDERED.

s/ Sandra J. Feuerstein
Sandra 1. F euerstem
United States District Judge
Dated: October 24, 2013
Central Islip, New York

8