Subranni v. Navajo Times Publ'g Co. (In re Star Grp. Commc'ns, Inc.)

568 B.R. 616

IN RE: STAR GROUP COMMUNICATIONS, INC., Debtor.

Thomas J. Subranni, Plaintiff

v.Navajo Times Publishing Company, Inc., Defendant.

Case No.: 15–25543–ABA

Adv. No.: 15–02497–ABA

United States Bankruptcy Court, D. New Jersey.

Signed April 29, 2016

Jeffrey Kurtzman, Kurtzman Steady LLC, Philadelphia, PA, for Plaintiff.

Kate R. Buck, McCarter & English, LLP, Wilmington, DE, Patrick T. Mason, Mason and Isaacson, PA, Gallup, NM, for Defendant.

MEMORANDUM DECISION

Andrew B. Altenburg, Jr., United States Bankruptcy Judge

Before the court is a Motion to Dismiss Adversary Proceeding by Defendant, Navajo Times Publishing Company, Inc. (hereinafter "Navajo Times"), under Rule 12(b)(1) and (b)(6) asserting tribal sovereign immunity. Chapter 7 Trustee, Thomas J. Subranni, (hereinafter "Trustee") commenced this Adversary Proceeding to avoid and recover preferential transfers pursuant to sections 547 and 550 of the Bankruptcy Code. For the reasons that follow, the court finds that Navajo Times is a subordinate economic entity which enables it to enjoy the benefits of sovereign immunity. Thus, Navajo Times' Motion to Dismiss is granted.

JURISDICTION AND VENUE

This matter before the court is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (B), (E), and (F), and the court has jurisdiction pursuant to 28 U.S.C. § 1334, 28 U.S.C. § 157(a), and the Standing Order of Reference issued by the United States District Court for the District of New Jersey on July 23, 1984, as amended on September 18, 2012, referring all bankruptcy cases to the bankruptcy court.

PROCEDURAL HISTORY

On August 17, 2015 creditors of Star Group Communications Inc. Media & Marketing Group (hereinafter "Debtor") filed an involuntary chapter 7 petition. (Case No. 15–25543–ABA). On September 10, 2015 (nunc pro tunc ) the court entered relief against Debtor. On September 17, 2015, Trustee was appointed interim trustee of Debtor's estate. On December 7, 2015, Trustee filed an Adversary Complaint against Navajo Times, which seeks to avoid and recover preferential transfers pursuant to sections 547¹ and 550² . (Adv. No. 15–02497–ABA; Doc. 1). On January 25, 2016, Navajo Times filed a Motion to Dismiss Adversary Proceeding pursuant to Rule 12(b)(1) and (b)(6) ("Motion") on the grounds that "Navajo Times is an entity of the Navajo Nation, a federally recognized Indian tribe, who has not waived its Sovereign Immunity." (Doc. 4–1, at 4). On February 5, 2016, Trustee filed a Memorandum of Law in Opposition to [Navajo Times'] Motion to Dismiss. (Doc. 8). On February 10, 2016, Navajo Times filed a Reply in Support of Motion to Dismiss. (Doc. 10).

The matter was set down for hearing on February 16, 2016. At that hearing, the court preliminarily ruled that section 106 of the Bankruptcy Code does not abrogate sovereign immunity for Indian tribes and in this case, the Navajo Nation. Nevertheless, at the conclusion of the hearing, the court ordered post-hearing submissions addressing whether Navajo Times is a "subordinate economic entity"³ likewise protecting it from Trustee's suit.

On March 22, 2016, Navajo Times filed a Supplemental Memorandum of Law in Support of Motion to Dismiss. (Doc. 11). On April 8, 2016, Trustee filed a Reply Brief of Plaintiff Thomas J. Subranni, as Chapter 7 Trustee, in Opposition to Memorandum of Law of Defendant Navajo Times Publishing Company, Inc. in Support of Motion to Dismiss Complaint. (Doc. 12). Following the receipt of the parties' post-hearing submissions, the court took this matter under advisement. This matter is now ripe for disposition.

FINDINGS OF FACT

The pertinent undisputed facts to this Motion are as follows:

Navajo Times is a "regional publishing company providing a weekly publication and other media." (Doc. 4–2, Ex. C, Articles of Incorporation). On March 11, 1997, the Navajo Nation Council directed that the Navajo Times Program within the Division of Economic Development be "privatized." (Doc. 4–2, Ex. B, Resolution of the Economic Development Committee (hereinafter the "EDC Resolution"), at 10, ¶ 4). The word "privatize", as used in the Directive, meant to establish as a separate, tribally owned business. (Id. ). On October 21, 2001, the Navajo Times entered into a consulting contract to begin the formal process to establish the Navajo Times as a separate, tribally owned corporation. (Id. ). Upon completion of this process the Navajo Times was ready to begin operations as a "corporation organized under the Navajo Nation Corporation Code." (Id. ). On September 24, 2003, the Economic Development Committee of the Navajo Nation Council approved Resolution EDCS–75–03 recommending the incorporation of the Navajo Times Program within the Division of Economic Development as a "wholly owned corporation of the Navajo Nation, to be governed by the Articles of Incorporation and Bylaws," recommending the transfer of Navajo Times assets and liabilities into the new corporation, and approving the appropriation of $500,000.00 from the Navajo Nation Business and Industrial Development Fund to be contributed to the Navajo Times as an equity investment. (EDC Resolution, at 12, ¶¶ 1.a, 1.b, and 2).

On October 23, 2003, the Navajo Nation Counsel approved Resolution CO–68–03:

Approving the Incorporation of the "Navajo Times Publishing Company, Inc." as a Wholly Owned Corporation of the Navajo Nation; Approving the Articles of Incorporation and Bylaws of Such Corporation; Approving the Transfer to Such Corporation All Assets, Liabilities, Contributed Capital, Current Fiscal Year Revenues and Expenses, and All Prior Fiscal Year Carryovers of Excess Revenues Presently on the Books and Records of the Navajo Nation

(Doc. 4–2, Ex. A, Resolution of the Navajo Nation Counsel (hereinafter the "Navajo Nation Resolution"), at 4). The Navajo Nation Resolution considered the recommendation of the EDC that:

... the reorganization of the Navajo Times Program into a for-profit corporation, to be governed by the Articles of Incorporation and Bylaws, ... and to be named "Navajo Times Publishing Company, Inc." to be wholly owned by, but independent of the political control or influence of the Navajo Nation. It is concluded that the management and staff of the Navajo Times have demonstrated that they can operate a successful business and provide a quality newspaper serving the Navajo Nation and surrounding communities, and that such corporation, if freed from the construction of a governmental program, will flourish, grow and return dividends to the Navajo Nation; and ... The Navajo Nation Council has carefully considered the above recommendations and has determined that the recommendations are sound.

(Id. at 5–6, ¶¶ 8, 9).

On November 20, 2003, the Articles of Incorporation was signed by the Incorporator, Tom Arviso, Jr. (Doc. 4–2, Ex. C, Articles of Incorporation, at 15). Currently, Mr. Arviso is the C.E.O. and Publisher of the Navajo Times. (Doc. 11–1, Affidavit of Tom Arviso, Jr. in Support of Motion to Dismiss (hereinafter "Arviso Affidavit"), at 2, ¶ 1). The Articles of Incorporation provide, in pertinent part, that:

ARTICLE III.—Corporate Purposes.

The Corporation is organized to pursue the following purposes for the benefit of the shareholders, the community and the employees:

A. To own and operate, directly or indirectly through the establishment of subsidiary operations, joint ventures, partnerships or other business arrangements, a publishing company providing news/media in both print and electronic media, as well as other commercial printing and publication services that serve the interests of the community;

B. To create a commerce-friendly environment that provides the most effective means of conducting business with customers, vendors, service providers, financial institutions, regulatory authorities, and other business operations;

C. To conduct activities in all aspects of the media/publishing industry either within or outside of the Navajo Nation;

D. To engage in any lawful business with the powers permitted to a corporation organized pursuant to the Navajo Nation Corporation Code, as amended.

(Doc. 4–2, Ex. C, Articles of Incorporation, at 14).

ARTICLE V. Ownership of Corporation.

...

The Navajo Nation for its benefit and its enrolled members shall own all shares in the Corporation. No individual or legal entity other than the Navajo Nation shall acquire any shares in the Corporation and its interest may not be sold, transferred, pledged, or hypothecated, either voluntarily or involuntarily.

(Doc. 4–2, Ex. C, Articles of Incorporation, at 15).

The Bylaws provide, in pertinent part, that:

Section 1.01. Shareholder Representatives. Pursuant to the Incorporation, the Navajo Nation owns all shares in the Corporation. As the sole shareholder, the Navajo Nation's shares in the Corporation shall be exercised by eleven (11) "shareholder representatives," composed of one member from each of the eleven (11) standing committees of the Navajo Nation Council or their successor committees, in accordance with these By-laws and applicable tribal laws. Each standing committee shall select a shareholder representative. At all meetings of the shareholders, these shareholder representatives shall, in all instances, subordinate their personal interests to those of the Corporation in acting in their capacity as representatives of the sole shareholder and not as members of the Navajo Nation Council.

(Doc. 4–2, Ex. D, Bylaws, at 16).

Section 10.01. Claims Against the Corporation.The Corporation is an instrumentality of the Navajo Nation and is entitled to all of the privileges and immunities of the Navajo Nation, except as provided in this Article . The Corporation and its directors, officers, employees and agents while acting in their official capacities are immune from suit, and the assets and other property of the Corporation are exempt from any levy or execution, provided that, notwithstanding any other provision of law, including but not limited to the Navajo Sovereign Immunity Act, 1

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