ELI GLOBAL, LLC et al v. UNIVERSITY DIRECTORIES, LLC et al
Filing
14
MEMORANDUM OPINION AND ORDER signed by JUDGE THOMAS D. SCHROEDER on 05/15/2015. For the reasons stated herein, the Plaintiff Creditors' Motion to Withdraw Reference to the United States Bankruptcy Court (Doc. 2 ) is GRANTED.(Taylor, Abby)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
ELI GLOBAL, LLC, et al.,
)
)
)
)
)
)
)
)
)
)
Plaintiffs,
v.
UNIVERSITY DIRECTORIES, LLC,
et al.,
Defendants.
1:15cv77
MEMORANDUM OPINION AND ORDER
THOMAS D. SCHROEDER, District Judge.
This
action,
filed
as
an
adversary
proceeding
in
the
bankruptcy court, is before this court on the motion of Plaintiffs
Eli
Global,
LLC,
UDX,
LLC,
Southland
National
Insurance
Corporation, UD Holdings, LCC, SNA Capital, LLC, Around Campus,
LLC,
Greg
Lindberg,
and
Scott
Hall
(collectively,
“Plaintiff
Creditors”) to withdraw reference under 28 U.S.C. § 157(d).
2.)
(Doc.
Defendants University Directories, LLC (“UD”), Print Shop
Management, LLC (“PSM”), Vilcom LLC (“Vilcom”), Vilcom Interactive
Media, LLC (“VIM”), Vilcom Properties, LLC (“VP”), Vilcom Real
Estate Development, LLC (“VRD”), William Miller, (collectively,
the “Defendant Debtors”) oppose the motion.
(Doc. 4.)
For the
reasons set forth below, the motion will be granted.
I.
BACKGROUND
This adversary proceeding arises out of a dispute following
the failed purchase of several companies.
Sometime before August
22, 2014, Eli Global began negotiating the possible acquisition of
UD.
(Doc. 5 ¶ 22.)
represented
by
Shortly thereafter, UD and Eli Global,
Plaintiff
Greg
Lindberg
(CEO
of
Eli
Global),
executed both (1) a “Letter of Agreement” regarding Eli Global’s
purchase of UD and a provision of confidential information from UD
to Eli Global; and (2) a “Term Sheet,” which “indicated that Eli
Global, through a new company, would acquire ownership of 100% of
UD” and provided a closing date of October 1, 2014, along with
other purchasing details.
(Id. ¶¶ 23, 25.)
Following the execution of those documents, a series of events
unfolded
in
quick
succession.
First,
certain
undisclosed
Plaintiff Creditors formed three North Carolina limited liability
companies — UDX, UD Holdings, and Around Campus.
32.)
(Id. ¶¶ 29, 31–
Eli Global then signed a “Confidentiality Agreement” with
Bank of North Carolina to evaluate the possible sale of UD and VRD
debt. 1
(Id. ¶ 33.)
On October 10, 2014, not long after Eli Global
contacted Bank of North Carolina, UDX bought one of UD’s loans
from Bank of North Carolina, and Southland National Insurance
Corporation – listed as one of Eli Global’s “Portfolio Companies”
— bought VRD’s loan from Bank of North Carolina.
(Id. ¶¶ 38–39.)
Less than a week after those debt purchases, on October 15,
2014,
1
Lindberg,
now
VRD is owned by VP.
is unclear.
representing
(Doc. 5 ¶ 17.)
2
UD
Holdings,
proposed
two
VP’s connection to UD, however,
transactions for the purchase of UD and VP, which were rejected.
(Id. ¶¶ 41–42.)
That same day, following those rejections, UDX
gave notice of default and acceleration of indebtedness on UD’s
loans and of the intended disposition of collateral securing UD’s
loans.
(Id. ¶ 43.)
UDX also then purchased VRD’s loan held by
Southland National Insurance Corporation and sent a notice of
default and acceleration of indebtedness on VRD’s loan.
¶ 45.)
(Id.
On October 22, 2014, UDX brought suit in State court
against UD, Vilcom, VIM, VP, VRD, and James Heavner — CEO of UD.
(Id. ¶¶ 27, 45.)
On October 24, 2014, the Defendant Debtors filed a voluntary
petition for relief under Chapter 11 in the Bankruptcy Court of
the Middle District of North Carolina.
(Id. ¶ 3.)
Pursuant to 28
U.S.C. § 157(a) and Local Rule 83.11, the matter was referred to
the bankruptcy court in this district. The Defendant Debtors bring
twelve claims against the Plaintiff Creditors: breach of fiduciary
duty; breach of contract seeking injunctive relief; breach of
contract seeking damages; breach of implied covenants of good faith
and fair dealing; unfair and deceptive trade practices under N.C.
Gen. Stat. § 75-1.1 et seq.; trademark infringement; equitable
subordination; avoidance of a “Gimghoul lien”; two claims of
avoidance of guaranty obligations, “Determination of the extent
and Validity of VIM Security Interest,” and “Alternative Claim for
Avoidance of VIM Security Interest.”
3
(Id. ¶¶ 70–145.)
Plaintiff
Creditors
responded
with
the
current
motion
to
withdraw
the
reference of the adversary proceeding to the bankruptcy court and
to have the case litigated in this court.
(Doc. 2.)
The motion
has been fully briefed and is now ripe for consideration.
II.
ANALYSIS
Plaintiff Creditors raise several arguments for withdrawal of
reference.
One contention is that this court must withdraw its
reference of the proceeding to the bankruptcy court under 28 U.S.C.
§ 157(d) because the adversary proceeding involves consideration
of both Title 11 and other laws of the United States regulating
organizations
or
activities
affecting
interstate
commerce.
Because the court finds that it must withdraw reference under
§ 157(d), the court will not address Plaintiff Creditors’ remaining
arguments. 2
Section 157(d) provides in relevant part:
The district court shall, on timely motion of a party,
so withdraw a proceeding if the court determines that
resolution of the proceeding requires consideration of
both title 11 and other laws of the United States
regulating
organizations
or
activities
affecting
interstate commerce.
2
Plaintiff Creditors’ other arguments for withdrawing reference are:
(1) that the bankruptcy court lacks constitutional authority to consider
the action after Stern v. Marshall, 131 S. Ct. 2594, 180 L. Ed. 2d 475
(2011); (2) that, even if the action is deemed to be a non-core
proceeding, Plaintiff Creditors have not yet filed a proof of claim and
intend to invoke their Seventh Amendment right to a trial by jury, which
only an Article III court can entertain absent consent of the parties;
and (3) that this court should withdraw reference to the bankruptcy court
under 28 U.S.C. § 157(d)’s permissive withdrawal provision.
4
28 U.S.C. § 157(d).
Under § 157(d), the court must therefore
withdraw reference when the resolution of a proceeding in the
bankruptcy court “requires consideration of both title 11 and other
laws of the United States” affecting interstate commerce.
Id.
Plaintiff Creditors contend that withdrawal is mandatory here
because litigation of Defendant Debtors’ trademark infringement
claim will require consideration of both federal trademark law and
bankruptcy law under Title 11.
Creditors
bear
the
burden
triggering withdrawal.
As the moving party, Plaintiff
of
demonstrating
the
requirements
See Vieira v. AGM, II, LLC, 366 B.R. 532,
535 (D.S.C. 2007); In re U.S. Airways Grp., Inc., 296 B.R. 673,
677 (E.D. Va. 2003).
While the Fourth Circuit has yet to interpret the application
of § 157(d)’s “requires consideration of” language, other courts
have
offered
distinct
competing
approaches
interpretations
exist
for
of
the
determining
clause.
when
“Two
mandatory
withdrawal is appropriate: (1) a liberal, statutory approach and
(2) the substantial and material test.”
Holmes v. Grubman, 315 F.
Supp. 2d 1376, 1379 (M.D. Ga. 2004); see also Schafer v. Nextiraone
Fed., LLC, No. 1:12CV289, 2012 WL 2281828, at *2 (M.D.N.C. June
18, 2012) (observing these two “differing” standards).
A minority
of courts take the “liberal, statutory approach” to § 157(d),
holding
that
mandatory
withdrawal
applies
when
a
Title
11
proceeding simply “presents a non-Title 11 federal question which
5
will
affect
the
outcome
of
the
proceeding.”
Contemporary
Lithographers, Inc. v. Hibbert (In re Contemporary Lithographers,
Inc.), 127 B.R. 122, 127–28 (M.D.N.C. 1991); see also In re U.S.
Airways Grp., 296 B.R. at 678–80.
believe
that
an
unclear
or
This group of courts “does not
complex
federal
statute
is
a
prerequisite to mandatory withdrawal under section 157(d),” and it
rejects any requirement for “significant interpretation” of “vague
and uncertain” federal law.
B.R. at 127.
§
157(d)’s
In re Contemporary Lithographers, 127
The second, majority group of courts holds that
clause
applies
only
when
a
proceeding
requires
“substantial and material” consideration of non-bankruptcy federal
law.
See Murphy v. Cnty. of Chemung, 410 B.R. 145, 148 (W.D.N.Y.
2009) (adopting the substantial and material test); In re Holman,
325 B.R. 569, 572–73 (E.D. Ky. 2005) (same); Holmes, 315 F. Supp.
2d at 1379 (finding the substantial and material test to be
“consistent with Congressional intent”); 1 Howard J. Steinberg,
Bankruptcy Litigation § 1:75 (2d ed. 2014) (“It is well-settled
that to trigger mandatory withdrawal, the ‘consideration’ of nonTitle 11 federal law required for resolution of the proceeding
must be ‘substantial and material’ and not just incidental.”); cf.
Matter of Vicars Ins. Agency, Inc., 96 F.3d 949, 954 (7th Cir.
1996) (“[A]s far as non-title 11 issues are presented, mandatory
withdrawal
is
required
only
when
those
issues
require
the
interpretation, as opposed to mere application, of the non-title
6
11
statute,
or
when
the
court
must
undertake
analysis
of
significant open and unresolved issues regarding the non-title 11
law.
The
legal
questions
involved
need
not
be
of
‘cosmic
proportions,’ but must involve more than mere application of
existing law to new facts.”
Under
either
(internal citation omitted)).
interpretation,
withdrawal in this case.
§
157(d)
requires
mandatory
See United States v. Tourtellot, No. 12-
CV-413 (M.D.N.C. June 13, 2012) (Doc. 15 at 9–10) (finding that,
under either mandatory withdrawal standard, legal issues triggered
§
157(d)).
Defendant
trademark infringement.
filed
a
federal
Debtors’
complaint
raises
(Doc. 5 ¶¶ 93–95.)
application
to
register
a
claim
of
It alleges that UD
“AROUNDCAMPUS”
as
a
trademark and service mark. (Id. ¶ 19.) The application currently
awaits decision before the U.S. Patent and Trademark Office. (Id.)
It further alleges that the mark is already enforceable under the
Lanham Act. (Id.) Defendant Debtors also allege that UD possesses
common
law
marks
appearing
on
its
website,
including
AROUNDCAMPUS GROUP” and the “AC shield logo design.”
“THE
(Id. ¶ 20.)
Those marks are apparently not registered but are also alleged to
be enforceable under the Lanham Act.
(Id.)
Defendant Debtors
claim that Eli Global or other Defendants created “Around Campus,
LLC,” infringing on their trademarks in violation of federal and
State law, and more generally “have made actual and continuous use
of
the
registered
and
unregistered
7
trademarks
throughout
the
United States.”
(Id. ¶¶ 21, 67.)
The complaint seeks injunctive
relief and damages for infringement along with attorneys’ fees and
costs incurred addressing the trademark infringement.
(Id. ¶ 95.)
The resolution of Defendant Debtors’ trademark infringement
claim
will
require
significant
consideration
federal law, satisfying § 157(d). 3
of
non-Title
11
If left with the bankruptcy
court, the complaint’s trademark infringement claim will require
that court to determine the validity and scope of alleged marks
under the Lanham Act.
(Doc. 13 at 4.)
Resolution of this claim
will thus require significant consideration, interpretation, and
application of the Lanham Act.
See In re Petition of Wuthrich,
337 B.R. 262, 268 (Bankr. S.D.N.Y. 2006) (observing, in dicta,
that a Lanham Act claim and dispute over trademark’s abandonment
“would likely be subject to mandatory withdraw of the reference”
under § 157(d)); In re McCrory Corp., 160 B.R. 502, 505 (S.D.N.Y.
1993) (holding that § 157(d) required withdrawing reference where
bankruptcy court faced Lanham Act claim, partly involving the issue
3
Defendant Debtors’ complaint presents several Title 11 issues (see Doc.
5 ¶¶ 96–143), but neither party argues that § 157(d) also holds a
“substantial and material” requirement as applied to consideration of
Title 11 questions.
The vast majority of decisions conclude that
§ 157(d) contains no such requirement regarding Title 11 issues. See,
e.g., In re Contemporary Lithographers, 127 B.R. at 127–28 (finding that
an approach requiring consideration of a material Title 11 question would
frustrate withdrawal in cases in which non-bankruptcy federal law must
be considered but bankruptcy law plays little or no role); Franklin Sav.
Assoc. v. Office of Thrift Supervision, 150 B.R. 976, 980–81 (D. Kan.
1993) (noting “the majority of the courts . . . believes the substantial
and material consideration of a title 11 issue is not a prerequisite to
mandatory withdrawal”).
8
of
“secondary
meaning,”
because
“[i]nterpreting
Lanham
Act
provisions to a given set of facts is, generally, neither simple
nor straightforward”); Burger King Corp. v. B-K of Kansas, Inc.,
64
B.R.
728,
731
(D.
Kan.
1986)
(holding
that
trademark
infringement claim based on unauthorized use of mark entailed
material and substantial consideration of non-Title 11 law); see
also Rosetta Stone Ltd. v. Google, Inc., 676 F.3d 144, 152–53 (4th
Cir. 2012) (laying out a multi-part test to establish trademark
infringement claim under the Lanham Act and articulating “at least
nine factors” relevant to one part of that test); cf. In re Singer
Co., N.V., No. 01 CIV. 0165, 2002 WL 243779, at *3 (S.D.N.Y. Feb.
20, 2002) (holding that “whether an accused product infringes a
patent requires significant and material consideration of patent
law” and thus withdrawal of reference was mandatory).
Defendant Debtors cite Doctors Assoc., Inc. v. Desai, No.
CIV.A.10-575, 2010 WL 3326726 (D.N.J. Aug. 23, 2010), for the
proposition that resolution of the claim in this case will not
require substantial and material consideration of non-Title 11
federal law, but that case is distinguishable.
(Doc. 4 at 7.)
In
Desai, the court noted that “the claimed trademark infractions
appear[ed] to be contingent upon the validity of [an] arbitration
award,” giving no indication that resolution of the trademark
claims would require any application of the Lanham Act.
9
2010 WL
3326726, at *5. This case is therefore unpersuasive in the present
context.
Thus, because Defendant Debtors’ trademark infringement claim
requires substantial and material consideration of non-Title 11
federal law, § 157(d) requires that this court withdraw reference
of the proceeding from the bankruptcy court.
III. CONCLUSION
For the reasons stated,
IT IS THEREFORE ORDERED that Plaintiff Creditors’ Motion to
Withdraw Reference to the United States Bankruptcy Court (Doc. 2)
is GRANTED.
/s/
Thomas D. Schroeder
United States District Judge
May 15, 2015
10
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