Angello et al v. Killinger et al

Filing 14

ORDER denying motion to remand (4 in 2:11-cv-01336-MJP) filed by Michael M. Angello, Robert J. Angello, by Judge Marsha J. Pechman. (Order filed in 8md1919 and C11-1336MJP)(MD)

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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
AT SEATTLE

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In re Washington Mutual, Inc. Securities,
Derivative & ERISA Litigation

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MICHAEL M. ANGELLO and ROBERT
J. ANGELLO,

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Plaintiffs,

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Individual Case No. C11-1336 MJP
ORDER DENYING MOTION TO
REMAND

v.

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Case No. 2:08-md-1919 MJP

KERRY KILLINGER, JOHN NGO, and
DOES 1-100,

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Defendants.

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This matter comes before the Court on Plaintiffs’ motion to remand this case to the
Superior Court of San Diego, California. (No. C11-1336 MJP, Dkt. No. 4.) Having reviewed
the motion, Defendants’ response (Dkt. No. 11), Plaintiffs’ reply (Dkt. No. 12), and all related
papers, the Court DENIES Plaintiffs’ motion.

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Background
Plaintiffs Michael and Robert Angello pursue claims under California state law against
Kerry Killinger, John Ngo, and Does 1-100 for their alleged mismanagement of Washington
Mutual, Inc. (“WaMu”). (No. C11-1336 MJP, Dkt. No. 1-2 at 3-12 (“Compl.”).) Plaintiffs
allege that Defendant Killinger “planned, implemented, and/or presided over” a change in
ORDER ON PLAINTIFFS’ MOTION FOR REMAND - 1

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WaMu’s “banking philosophy and policies” that lead to the bank’s collapse. (Compl. ¶¶ 8-9.)

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Plaintiffs allege Defendant Ngo took “advantage of the sub prime market in return for bribes”

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and “set in motion the scheme and philosophy that enabled KILLINGER to in effect loot the

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company for his personal benefit.” (Compl. ¶ 13 (emphasis in original).) Plaintiffs pursue

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claims for breach of fiduciary duty, fraudulent misrepresentation, unfair business practices,

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negligence, conspiracy, declaratory relief, and punitive damages.

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Plaintiffs originally filed suit in the Superior Court of San Diego, California on March

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10, 2011. (Id.) Defendants removed the case to the U.S. District Court for the Southern

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District of California on April 7, 2010, and then petitioned to have this case transferred to the

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WaMu multidistrict litigation (“MDL”) proceedings pending in this Court. The Judicial Panel

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on Multidistrict Litigation transferred the matter to this Court and the Court consolidated it

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with MDL proceedings as a state court tag-along. (Dkt. Nos. 9, 10.)

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Plaintiffs seek to remand their case back to the Superior Court of San Diego on the

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theory that the Court lacks jurisdiction, and that it should abstain from asserting jurisdiction

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under 28 U.S.C. § 1334(c) and 28 U.S.C. § 1452(b). (Dkt. No. 4.)

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Analysis
A.

Jurisdiction
Plaintiffs assert that the Court lacks jurisdiction because their claims are not “related

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to” the bankruptcy proceedings involving WaMu. See 28 U.S.C. § 1334(b); (Dkt. No. 4 at 4-

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6.) The Court disagrees.

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Under 28 U.S.C. § 1334(b), the Court has original jurisdiction over all suits “arising in

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or related to cases under title 11.” Section 1334(b) extends jurisdiction to suits that “could

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conceivably have any effect on the estate being administered in bankruptcy.” In re Feitz, 852

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F.2d 455, 457 (9th Cir. 1988) (quotation omitted). Even if the debtor is not named in the suit

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that is “related to” the bankruptcy proceeding, jurisdiction under § 1334(b) may exist. See

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Celotex Corp. v. Edwards, 514 U.S. 300, 307 n.5 (1995) (noting that § 1334(b) applies to

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“suits between third parties which have an effect on the bankruptcy estate”) (quotation

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omitted). Where the party has a right to indemnification from the debtor company, a suit

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against that party is generally “related to” the bankruptcy proceedings. See Carpenters

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Pension Trust v. Ebbers, 299 B.R. 610, 613 (Bankr. C.D. Cal. 2003). This right need not arise

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out of an unconditional contractual agreement. See In re Sizzler Rest. Int’l, Inc., 262 B.R.

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811, 818-19 (Bankr. C.D. Cal. 2001.)
Plaintiffs’ claims against Defendants fall squarely within this Court’s jurisdiction

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under § 1334(b). First, WaMu is currently in bankruptcy proceedings. Second, Plaintiffs’

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allegations against Killinger are likely to affect the bankruptcy estate. Not only is WaMu

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contractually obligated to indemnify Killinger against allegations of fraud, but the bankruptcy

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court has already entered an order permitting WaMu to advance defense costs from WaMu’s

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Director and Officers (“D&O”) insurance policies to Killinger. (See No. 08-md-1919 MJP,

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Dkt. No. 384 at 3.) This satisfies jurisdiction under § 1334(b). See Ebbers, 299 B.R. at 613.

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Plaintiffs argue that because they have made a “small within limits offer to settle, the impact

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on the bankruptcy estate . . . is negligible.” (Dkt. No. 4 at 6.) Plaintiffs ignore that the

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pertinent inquiry is whether Plaintiffs’ claims have a conceivable effect on bankruptcy estate

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at the time of removal, regardless of whether it is a small or big effect. See Spencer v. U.S.

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Dist. Court, 393 F.3d 867, 871 (9th Cir. 2004). The Court DENIES the request to remand, as

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the case falls within the Court’s jurisdiction pursuant to 28 U.S.C. § 1334(b).

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B.

Abstention

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Plaintiffs ask the Court to remand the case in the interest of comity and equity

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pursuant to 28 U.S.C. § 1334(c)(1) and 28 U.S.C. § 1452(b). Plaintiffs’ request is unavailing.

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Where Section 1334(c) is concerned, “[a]bstention can exist only where there is a
parallel proceeding in state court.” Security Farms v. Int’l Bhd. of Teamsters, 124 F.3d 999,

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1009 (9th Cir. 1997). This applies to both mandatory and permissive abstention. Id. at 1010.

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When the underlying state proceedings are removed to federal court, they are no longer

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considered pending in state court. See id. Here, Plaintiffs’ action was removed to federal

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court, and there is no pending state court case. With no pendant state actions, § 1334(c) is

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inapplicable.

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Plaintiffs’ request to remand on the basis of equitable abstention and 28 U.S.C. §

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1452(b) is unavailing. Seven factors are relevant to the Court’s consideration. Bally Total

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Fitness Corp. v. Contra Costa Retail Ctr., 384 B.R. 566, 572 (Bankr. N.D. Cal. 2008). Those

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factors are: (1) “the effect of the action on the administration of the bankruptcy estate”; (2) the

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extent to which issues of state law predominate and the difficulty of applicable state law; (3)

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comity; (4) “the relatedness or remoteness of the action to the bankruptcy case”; (5) the right

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to a jury trial; and (6) “prejudice to the party involuntarily removed from state court.” Id.

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The equities weigh against Plaintiffs’ request for abstention. First, having a case

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outside the MDL seeking contribution from the WaMu estate weighs against abstention.

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Second, while Plaintiffs’ claims are based on state law, they are not unusual or complex. See

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In re Diversified Contract Servs., Inc., 167 B.R. 591, 597 (Bankr. N.D. Cal. 1994). Third,

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Plaintiffs have not shown that comity is better served by remand. Fourth, the case is not

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entirely remote from the bankruptcy case, although it is not particularly related. Fifth,

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Plaintiffs have a right to jury in this Court. Sixth, Plaintiffs have not demonstrated any

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prejudice. The fact that counsel may have to travel to Seattle is not evidence of prejudice. On

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balance, these factors weigh against abstention. See Ankenbrandt v. Richards, 504 U.S. 689,

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705 (1992) (“[F]ederal courts have a virtually unflagging obligation to exercise the

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jurisdiction given them.”). The Court DENIES the request to remand on principles of equity

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and comity.

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Conclusion

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Plaintiffs have not shown why the Court lacks jurisdiction under § 1334(b) or why

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abstention under § 1334(c) or § 1452(b) is proper. The Court DENIES Plaintiffs’ motion to

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remand.
The Clerk is directed to send a copy of this order to Plaintiffs and all counsel of

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record.
DATED this 6th day of October, 2011.

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A

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Marsha J. Pechman
United States District Judge

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ORDER ON PLAINTIFFS’ MOTION FOR REMAND - 5