Nisselson v. Marjerry Realty Corp. (In re Port Morris Tile & Marble LP)

645 B.R. 500

IN RE: PORT MORRIS TILE & MARBLE LP, Debtors.

Alan Nisselson, as Trustee of the Estate of Port Morris Tile & Marble LP, Debtor, Plaintiff,

v.Marjerry Realty Corp., Vinjerry Realty Corp., Vincent Realty Corp., Trustees of the Local 7 Tile Industry Welfare Fund, the Local 7 Tile Industry Annuity Fund, and the Tile Layers Local Union 52 Pension Fund, Trustees of the Local 7 Marble Industry Pension Fund, the Local 7 Marble Industry Annuity Fund, the Local 7 Marble Industry Trust Fund, Trustees of the Mosaic and Terrazzo Welfare, Pension, Annuity, and Vacation Funds, and Trustees of the Bricklayers & Trowel Trades International Pension Fund, Defendants.

Case No. 21-12116 (MG)

Adv. Pro. No. 22-01137 (MG)

United States Bankruptcy Court, S.D. New York.

Signed October 6, 2022

WINDELS MARX LANE & MITTENDORF, LLP, Counsel for Plaintiff, Alan Nisselson, as Trustee of the Estate of Port Morris Tile & Marble LP, Debtor, 156 West 56th Street, New York, New York 10019, By: Leslie S. Barr, Esq.

VIRGINIA & AMBINDER LLP, Counsel for Creditors Trs. of the Local 7Tile, Marble, and Terrazzo Benefit Funds, and Trs. of the Int'l Bricklayers & Trowel Trades Int'l Pension Fund, 40 Broad Street, 7th Floor, New York, New York 10004, By: John M. Harras, Esq.

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF'S MOTION FOR A PRELIMINARY INJUNCTION

MARTIN GLENN, CHIEF UNITED STATES BANKRUPTCY JUDGE

Pending before the Court is the motion of Alan Nisselson as Chapter 7 Trustee (the "Trustee") of the bankruptcy estate of Port Morris Tile & Marble LP (the "Debtor"), for a preliminary injunction (the "P.I. Motion," ECF Doc. # 4). Pursuant to Federal Rule of Bankruptcy Procedure 7065, incorporating Federal Rule of Civil Procedure 65, the P.I. Motion seeks to restrain certain defendants from prosecuting an action in federal court¹ (the "Federal Action"), and other defendants from prosecuting an action in state court (the "State Action").²

The Fund Group defendants, who are the plaintiffs in the Federal Action, filed an objection to the P.I. Motion on September 6, 2022, (see "Fund Group P.I. Objection," ECF Doc. # 7), which was also the deadline for objections to the P.I. Motion. The Marjerry Group did not file an objection to the P.I. Motion by the September 6, 2022 deadline.³

This case turns on whether the claims asserted by the Fund Group are property of the Debtor's chapter 7 estate. If so, only the Chapter 7 Trustee may assert the claims that are property of the estate, and the Fund Group can be enjoined from prosecuting those claims in their district court action. To the extent that any of the claims asserted are not property of the estate, but rather belong to the Fund Group, the automatic stay does not apply, and those claims can be asserted by it in the district court.

It is important to recognize at the outset that the Fund Group seeks to recover unpaid contributions on behalf of multiemployer benefit plans to which the Debtor and other unrelated employers in the industry are required to contribute. The substantial unpaid contributions damage the multiemployer plans, not just affecting the Debtor's former employees, but potentially affecting all covered employees of other unrelated employers that must contribute to the plan. In other words, the damage is not limited to creditors of the Debtor.

The Fund Group's Federal Action complaint includes two causes of action—one arising under ERISA and the other based on state law. The Court concludes below that neither of the Fund Group's causes of action are property of the estate, and thus the preliminary injunction is DENIED with respect to the Federal Action.

I. BACKGROUND

A. The Main Case and Present Adversary Proceeding

This adversary proceeding pertains to certain actions in state and federal court related to the Debtor's business. The Debtor filed its voluntary petition for relief under Chapter 7 on December 23, 2021. See In re Port Morris Tile & Marble LP (Case No. 21-12116 (MG)) (ECF Doc. # 1.) The Plaintiff in this adversary proceeding, Alan Nisselson, was appointed as the Chapter 7 trustee and is the representative of the Debtor's bankruptcy estate. ("Complaint," ECF Doc. # 1, ¶ 20.) The bankruptcy case is still pending in this district. (Id. ¶ 2.)

The Trustee brings this action against the Fund Group to enjoin the Federal Action. (Id. ¶ 1.) The Trustee argues that the Federal Action violates the automatic stay and that the Trustee has exclusive authority to investigate and prosecute the claims. (Id. ¶ 1.)

B. The Fund Group and its Federal Action

The Fund Group defendants are all employer and employee trustees of multiemployer labor-management trust funds. (Id. ¶ 8.) On February 4, 2022, the Fund Group commenced the Federal Action against several alleged affiliates of Debtor. See Trustees of the Local 7 Tile Industry Welfare Fund, et al. v. Samfet Marble, Inc., et al. , No. 1:22-cv-00651-DG-RER (ECF Doc. # 1). The Debtor, protected by the automatic stay when the Federal Action was filed, is not a defendant in the Federal Action. The operative and first amended complaint in the Federal Action was filed on April 25, 2022 and is attached to the Complaint in this action. ("Federal Action Complaint," Ex. B. to the Complaint, ECF Doc. # 1-2.) The Fund Group alleges that the Debtor owes its constituent members more than $3.5 million in unpaid contributions pursuant to certain collective bargaining agreements and provisions of federal law including Sections 502 and 515 of the Employee Retirement Security Act of 1974, ("ERISA"), 29 U.S.C. §§ 1132, 1145, and Section 301 of the Labor Management Relations Act ("LMRA"), 29 U.S.C. § 185. (Complaint ¶ 13; Federal Action Complaint ¶ 105.) The Fund Group brought the Federal Action to recover this debt from defendants Samfet Marble, Inc. c/o S.A.M. Samfet Group, NYC Marble Acquisitions L.P., NYC Marble Acquisitions GP, Inc. (a/k/a NYC Acquisitions GP, Inc., Port Morris Tile & Marble Boston LP (the "Corporate Defendants") and Georges Berberi, and Matthew Auerbach (the "Individual Defendants" and together with the Corporate Defendants, the "Federal Action Defendants"). (Federal Action Complaint ¶¶ 1–2.)

The Complaint contains two causes of action—the first under ERISA and the second under state law. Pursuant to the first cause of action, the Fund Group argues that the Corporate Defendants are liable for the unpaid contributions as "alter egos of, successors of, and a single employer with" the Debtor, (Complaint ¶ 16), under the "other appropriate equitable relief" section of ERISA. (See "Fund Group MTD Opposition," Ex. 2 to Barr Decl., ECF Doc # 4-5 at 12 (quoting 29 U.S.C. § 1132(a)(3).) Under the second cause of action, the Fund Group argues that the Federal Action Defendants’ corporate veil should be pierced under New York state law to hold the Individual Defendants liable for the Corporate Defendants’ ERISA obligations. (Id. ¶ 14; Federal Action Complaint ¶ 111.) The Federal Action does not seek to pierce the corporate veil of the Debtor. Rather, the Federal Action Complaint seeks to pierce the corporate veils of the Corporate Debtors.

The court in the Federal Action held a pre-motion conference on June 16, 2022 and set a briefing schedule for a motion to dismiss. Samfet Marble, Inc., et al. , No. 1:22-cv-00651-DG-RER (ECF Doc. # 18.) On July 7, 2022, the Federal Action Defendants moved to dismiss the Federal Action Complaint, pursuant to Rule 12(b)(1) and (6) of the Federal Rules of Civil Procedure. ("Motion to Dismiss," Ex. 1 to Barr Decl., ECF Doc # 4-4.) Specifically, they argued that the Fund Group lacks standing to bring these claims because the action violates the automatic stay and because the Trustee has the sole and exclusive right to bring these actions. (Id. at 2.) The Fund Group opposed the motion to dismiss, arguing that its claims are outside the Debtor's bankruptcy estate and scope of the Trustee's jurisdiction, and outside the reach of the automatic stay. (See Fund Group MTD Opposition at 2.)

Briefing closed on August 4, 2022, when the Federal Action Defendants filed their reply brief. ("MTD Reply Brief Opposition," Ex. 3 to Barr Decl., ECF Doc # 4-6.) The motion is still pending in the Federal Action, with no hearing set for oral argument. The Federal Action Defendants filed a letter on August 19, 2022, informing the court that the P.I. Motion was filed in this case. See Samfet Marble, Inc., et al. , No. 1:22-cv-00651-DG-RER (ECF Doc. # 30).⁴

In the present action, the Trustee filed the P.I. Motion arguing that the pendency of the Federal Action violates the automatic stay. (Complaint ¶ 33.) The Trustee also argues that the pendency of the Federal Action interferes with the Trustee's exclusive right to pursue actions to determine that some person or entity is the alter ego of the Debtor or to pierce the "corporate veil" of the Debtor. (Id. ¶¶ 36–38.) The Trustee's Motion does not address the "single employer" theory of liability under ERISA.⁵ For these reasons, the Trustee seeks a mandatory injunction directing the Fund Group to dismiss the Federal Action without prejudice. (Id. ¶ 40.)

On September 6, 2022, the Fund Group opposed the P.I. Motion arguing first that the bankruptcy court does not have jurisdiction as these matters are not "core" matters under 28 USC § 157. (Fund Group P.I. Objection ¶ 2.) The Fund Group also argues, as it does in the Federal Action, that the property it seeks is outside the Debtor's estate, which places this property outside the scope of the automatic stay and injunctive relief. (Id. ¶ 1.)

II. LEGAL STANDARD

A. Jurisdiction

The federal district courts have original jurisdiction for "all cases under title 11" and "all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334(a) & (b).

In turn, 28 U.S.C. § 157(a) provides that district courts may refer all cases or proceedings over which they have jurisdiction under 28 U.S.C. § 1334(a) or (b) to the...