Kevin O'Halloran, in His Capacity for Island View Crossing Ii, L.P. v. Prudential Sav. Bank (In re Island View Crossing Ii, L.P.)

598 B.R. 552

IN RE ISLAND VIEW CROSSING II, L.P., Debtor

Kevin O'Halloran, in His Capacity as Chapter 11 Trustee for Island View Crossing II, L.P., Plaintiff

v.Prudential Savings Bank, Defendant

Bky. No. 17-14454

Adv. No. 17-202

United States Bankruptcy Court, E.D. Pennsylvania.

Signed March 7, 2019

Michael J. Cordone, Stradley Ronon Stavens and Young, LLP, Steven M. Coren, Katherine L. Perkins, Matthew R. Williams, Kaufman, Coren & Ress, P.C., Philadelphia, PA, for Plaintiff.

Edmond M. George, Michael D. Vagnoni, Obermayer Rebmann Maxwell & Hippel, LLP, Philadelphia, PA, for Defendant.

Aris J. Karalis, Robert W. Seitzer, Karalis PC, Katherine L. Perkins, Kaufman, Coren And Ress, P.C., Philadelphia, PA, for Trustee.

ORDER

ERIC L. FRANK, U.S. BANKRUPTCY JUDGE

AND NOW , for the reasons stated in the accompanying Memorandum, it is hereby ORDERED that:

1. The claims of Renato J. Gualtieri, originally filed in No. 3161, March Term 2016 (C.P. Phila.), and subsequently removed to this court ("the Lender Liability Lawsuit"), are REMANDED to the Court of Common Pleas, Philadelphia County ("the C.P. Court").

2. The counterclaims against Renato J. Gualtieri, filed by Prudential Savings Bank ("Prudential") in the Lender Liability Lawsuit, are REMANDED to the C.P. Court.

3. Prudential's Cross-Claim against Renato J. Gualtieri and Francesco Gualtieri, filed in No. 2716, January Term 2016 ("the Lava Lawsuit"), later consolidated with the Lender Liability Lawsuit prior to the removal to this court, is REMANDED to the C.P. Court.

4. Prudential's Cross-Claim against the Debtor, filed in the Lava Lawsuit is DISMISSED WITHOUT PREJUDICE to Prudential's right to file a proof of claim in this bankruptcy case, but subject to 11 U.S.C. § 502(b).

5. To the extent that the Debtor's Cross-Claim against Prudential, asserted in the Lava Lawsuit, is before this court as result of the removal of the Lender Liability Lawsuit, it is DISMISSED WITHOUT PREJUDICE as duplicative of the claims asserted in the Lender Liability Lawsuit.

6. To the extent that Renato J. Gualtieri's and Francesco Gualtieri's Cross-Claim against Prudential, asserted in the Lava Lawsuit is before this court as result of the removal of the Lender Liability Lawsuit, it is REMANDED to the C.P. Court.

7. The Trustee's request for a stay of this order insofar it remands matters to the C.P. Court is DENIED .

8. The Trustee's request for a determination of the potential collateral estoppel effect on this adversary proceeding of determinations made in the C.P. Court following the remand of the various matters as set forth in this Order is DENIED .

9. The requests of the Trustee, Renato J. Gualtieri, and the Estate of Francesco Gaultieri for the entry of an order enjoining litigation of the various matters being remanded or otherwise pending in the C.P. Court until the conclusion of this adversary proceeding is DENIED WITHOUT PREJUDICE .

MEMORANDUM

I. INTRODUCTION

This adversary proceeding was commenced by the filing of a Notice of Removal by Prudential Savings Bank ("Prudential"). Through the Notice, Prudential removed to this court an action pending in the Court of Common Pleas, Philadelphia County ("the C.P. Court").¹ The removed action consists primarily of "lender liability" claims asserted by Island View Crossing II, L.P., the debtor in this chapter 11 case ("the Debtor"), but also includes certain claims against Prudential asserted by two non-debtors, Renato J. Gualtieri and Francesco Gualtieri and Prudential's counterclaims against those nondebtors.

In this Memorandum, I will refer to the state court action, prior to its removal, as "the Lender Liability Lawsuit" and, after its removal to this court, as "the AP."

Presently before the court in the AP is the court's sua sponte consideration of the scope of its subject matter jurisdiction in this adversary proceeding and the potential remand to the C.P. Court of the claims between the non-debtor parties. See 28 U.S.C. § 1452(b) (authorizing the remand of removed claims).²

The parties were given both notice of the court's jurisdictional concerns by order dated November 13, 2018 and the opportunity to brief and argue the issue. The parties' last memorandum was filed on January 10, 2019.

For the reasons stated below, I will:

1. remand all claims filed by non-debtor parties against other non-debtors;

2. dismiss without prejudice certain removed claims filed by and against the Debtor as duplicative of matters already asserted in this adversary proceeding or as more properly determined through the claims allowance process;

3. deny the request for a stay of the remand order;

4. deny, without prejudice, the requests for a stay of pending state court proceedings.

II. PROCEDURAL HISTORY

To understand the jurisdictional issues presented, it is necessary to review the somewhat complicated procedural history that preceded the removal of the Lender Liability Lawsuit to the bankruptcy court.

The underlying litigation arises out of the pre-bankruptcy breakdown in the lender-borrower relationship between Prudential and the Debtor, an entity involved in real estate development. The parties' respective positions are conventional: Prudential asserts that the Debtor breached its repayment obligation as well as other duties under the loan documents, while the Debtor asserts that Prudential breached the implied duty of good faith or other contractual obligations, giving rise to "lender liability" claims.

For present purposes, it is sufficient to observe that the parties' dispute resulted in two (2) separate lawsuits in the C.P. Court that preceded the Debtor's bankruptcy filing.

The Lava Lawsuit

The first of the two (2) relevant lawsuits was commenced by a different lender, Lava Funding, LLC ("Lava"), against the Debtor, the Debtor's principal Renato J. Gualtieri ("Renato"), Renato's father, Francesco Gualtieri ("Francesco"), and Prudential.³ I will refer to this action as "the Lava Lawsuit."

The Lava Lawsuit seeks collection of a loan that Lava made to the Debtor. The loan was guaranteed by Renato and Francesco. Lava named Prudential as one of the defendants based on the theory that Lava made its loan to the Debtor in reliance on Prudential's promise to refinance the loan. Lava alleged that Prudential breached that promise.

In the Lava Lawsuit, the Debtor, Renato, and Francesco filed a cross-claim against Prudential, also asserting that Prudential reneged on its agreement to refinance the Lava loan. In response, Prudential filed a cross-claim against the Debtor, Renato, and Francesco. I will refer to the cross-claim of Renato and Francesco against Prudential and Prudential's cross-claim against Renato and Francesco collectively as "the Non-Debtor Cross-claims."

In June 2016, Lava filed a praecipe to discontinue the Lava Lawsuit.

By an order entered in April 2017 (apparently sua sponte ), the C.P. Court "re-opened" the Lava Lawsuit, but only as to Prudential's cross-claim (with no mention of the cross-claim that the Debtor, Renato, and Francesco filed against Prudential). Then, in June 2017, the C.P. Court entered an order consolidating the Lava Lawsuit (consisting at that point, presumably, only of Prudential's cross-claim against the Debtor, Renato, and Francesco) with a second lawsuit, the Lender Liability Lawsuit (that was later removed to this court).

The Lender Liability Lawsuit

The Debtor and Renato commenced the Lender Liability Lawsuit against Prudential in March 2016. In this lawsuit, in response to the lender liability claims asserted by the plaintiffs, Prudential filed nine (9) counterclaims,⁴ some against both the Debtor and Renato and some against Renato only.

On July 18, 2017, eighteen (18) days after the commencement of the Debtor's bankruptcy case, Prudential removed the Lender Liability Lawsuit (which had been consolidated with what remained of the Lava Lawsuit) to this court, initiating the present AP.

After the removal, the AP was dormant for some time. Initially, the Debtor and Prudential focused their efforts on litigating their competing motions in the main bankruptcy case: the Debtor's Motion for Post-Petition Financing and Prudential's Motion to Convert Case or Appoint a Trustee. That litigation resulted in the denial of the Debtor's request for debtor-in-possession financing and the grant of Prudential's motion for appointment of a chapter 11 trustee by order dated December 18, 2017.

Pursuant to the December 18, 2017 order, and after an election, on January 30, 2018, the U.S. Trustee appointed Kevin O'Halloran ("the Trustee") as the chapter 11 trustee in this case. After the appointment of the Trustee, all parties tacitly agreed that they would defer litigation in the adversary proceeding while the Trustee and interested parties focused on other, more pressing matters of case administration. Also, the special counsel retained by the Trustee to handle the AP needed time to review the already lengthy record.

On November 13, 2018, I entered an order requesting that the parties in the AP submit their respective suggestions for a pretrial management order. The order also alerted the parties to the jurisdictional issue presently before the court.⁵

III. BANKRUPTCY SUBJECT MATTER JURISDICTION

The main principles governing the scope of bankruptcy court subject matter jurisdiction are well established.

[B]ankruptcy subject matter jurisdiction is conferred by 28 U.S.C. § 1334(a) and (b) potentially extends to four (4) types of title 11 matters:

(1) cases under title 11;

(2) proceedings arising under title 11;

(3) proceedings arising in a case under title 11; and

(4) proceedings related to a case under title 11.

In re Universal Mktg., Inc., 541 B.R. 259, 305 (Bankr. E.D. Pa. 2015) (citing In re Combustion Eng'g, Inc., 391 F.3d 190, 225-26 (3d Cir. 2004) ).

Assuming that subject matter jurisdiction exists, all bankruptcy matters, other than the bankruptcy case itself, may be classified into two (2) categories:

(1) core proceedings arising under title 11; and

(2) non-core

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