Virginia Lawyers Weekly VA Lawyers Weekly
A claim that two of the debtor’s officers fraudulently induced a contract was “related to” the bankruptcy litigation because the officers might be able to claim indemnification from the debtor, thereby altering its liabilities. Because a majority of the relevant factors warranted transferring the case to New York bankruptcy court, however, the motion to transfer was granted.
Background
Anthony and Domenick Cipollone filed a three-count complaint in Richmond County Circuit Court alleging: (1) fraudulent inducement to contract against Benito Fernandez and Howard Kleinhendler; (2) tortious interference with contract against Allan Applestein and Diatomite Corporation of America and (3) conspiracy, under either the Virginia Code or common law, against all defendants.
Kleinhendler removed the case Jan. 6, 2020, and now seeks to have it heard by the New York bankruptcy court. The Cipollones ask that this court remand the case back to the Richmond County Circuit Court. The court held a hearing on both motions on March 17, 2020.
Jurisdiction
As a threshold matter, this court must determine whether it has jurisdiction to consider the motion to transfer or if it must, as a matter of law, remand the removed action. The court finds that the removed action is “related to” the bankruptcy case within the meaning of 28 U.S.C. § 1334(b). The Cipollones allege that “related to” jurisdiction does not exist because Virginia True, the debtor in the bankruptcy case, is not a party to the removed action. The court disagrees.
This court has “related to” jurisdiction over the removed action because resolution of the removed action may impact the administration of Virginia True’s bankruptcy estate. In its bylaws, Virginia True agreed to indemnify its officers, directors, employees or agents for certain actions. Kleinhendler and Fernandez were officers of Virginia True. If the Cipollones are successful on the merits of the removed action, Kleinhendler and Fernandez may seek indemnification from Virginia True.
Because resolution of the removed action may trigger Virginia True’s obligations under the indemnification provisions of its bylaws and, thereby, alter Virginia True’s liabilities, the removed action is “related to” the bankruptcy case. Alternatively, “related to” jurisdiction exists because the damages sought to be recovered by the Cipollones in the removed action overlap with the claims asserted by the Cipollones against Virginia True as set forth in the proofs of claim they filed in the bankruptcy case.
Merits
Having concluded that the court has jurisdiction to consider the motions, the court must next determine whether it should consider the motion to transfer before the motion for remand. “[A] split of authority exists concerning whether a remand request must first be adjudicated before a sought-after transfer.” The court finds that, if transfer is appropriate, the New York bankruptcy court would be better positioned to adjudicate the motion to remand. As such, the court will resolve the motion to transfer first.
The court should transfer this removed action to the New York bankruptcy court if such transfer is “in the interest of justice or for the convenience of the parties.” In determining whether a transfer would be in the interest of justice, courts generally examine seven factors. Only two factors weigh against the motion to transfer. Two other factors are neutral while the remaining three factors weigh heavily in favor of transferring the removed action
As such, the court finds that transfer would promote the interest of justice and, thus, that portion of the motion to transfer should be granted. Alternatively, the court finds that transferring the removed action is warranted for the convenience of the parties.
Motion to transfer granted.
Cipollone v. Applestein, No. 20-03002, March 30, 2020. EDVA Bankr. at Richmond (Huennekens). VLW No. 020-4-004. 13 pp.
