Woody Partners v. Maguire

WOODY PARTNERS et al, Plaintiffs, v. MATTHEW R. MAGUIRE, PATRICK MAGUIRE, BOUSTEAD SECURITIES, LLC,MELVIN PIRCHESKY, ROBERT CAMPBELL, ROBERT LEWIS,and DAVID MINNOTE, Defendants.

Civil Action No. 19-18

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA

June 19, 2019

Judge Marilyn J. Horan

OPINION AND ORDER

On December 5, 2018, Plaintiffs filed a Complaint alleging state law claims in the Court of Common Pleas of Allegheny County, Pennsylvania. (ECF No. 1). On January 8, 2019, Defendant David Minnotte removed the case to the United States District Court for the Western District of Pennsylvania on the basis that the state law claims alleged in the Complaint are related to a pending bankruptcy proceeding involving OneJet, Inc., a non-party to this case. Id. On February 6, 2019, Plaintiffs timely filed a Motion to Remand to State Court, as well as a Motion for Abstention. (ECF No. 32). The parties briefed this matter, (ECF Nos. 38-42, 44), and the Court heard oral argument on the Motions on March 7, 2019.

For the following reasons, both the Motion to Remand and the Motion for Abstention will be denied.

I. Background

According to the Complaint, OneJet is an airline transportation business that began flight operations in April 2015. (ECF No. 1-1, at ¶¶ 12, 14). By August 2017, it offered non-stop flights from Pittsburgh to eight other cities. Id. at ¶ 17. However, OneJet began defaulting on its obligations in June 2018 and ceased operations on September 27, 2018, notifying investors that "[a]ll resources have been exhausted to sustain any further efforts." Id. at ¶¶ 67, 81. On October 17, 2018, creditors of OneJet filed an involuntary petition under Chapter 7 of the Bankruptcy Code against OneJet in the United States Bankruptcy Court for the Western District of Pennsylvania. Id. at ¶ 85. On November 13, 2018, the Bankruptcy Court entered an Order for Relief and appointed a Chapter 7 trustee. Id. at ¶¶ 87-88.

Thereafter, on December 5, 2018, Plaintiffs—fifty-one people who purchased stock and/or notes of OneJet, and nearly all of whom have filed proofs of claim in the pending bankruptcy proceeding—filed the present suit against various individuals who had roles in OneJet's operation. (ECF No. 1-1, at ¶¶ 1-8; ECF No. 39, at 1, 3¹). Specifically, Plaintiffs bring suit against Matthew and Patrick Maguire, who formed OneJet in 2007, and who began soliciting investments in OneJet from the public in October 2014. (ECF No. 1-1, at ¶¶ 11, 33). Matthew Maguire was the CEO of OneJet, and after the filing of the Chapter 7 involuntary petition, the Bankruptcy Court designated him as the principal operating officer of OneJet. Id. at ¶¶ 25, 89. Plaintiffs allege that the Maguires breached their fiduciary duties and violated various provisions of the Pennsylvania Securities Act in relation to their operation of OneJet. Id. at ¶¶ 91-113, 123-29. Plaintiffs also allege a claim of aiding and abetting liability against the Maguires. Id. at¶¶ 130-34. In essence, Plaintiffs' claims center on allegations that the Maguires made many misrepresentations of material fact to Plaintiffs to induce Plaintiffs to invest in OneJet, and that as a result of the Maguires' misconduct related to the operation of OneJet, Plaintiffs' investments in OneJet are now worthless. See id. at ¶¶ 38, 96.

Plaintiffs also bring suit against Boustead Securities, LLC, and its sales agents, Melvin Pirchesky and Robert Campbell. Id. at ¶¶ 4-6. The Maguires hired Boustead Securities, a registered broker-dealer, in March 2017 "to assist them in securing investors and investment capital for OneJet." Id. at ¶¶ 40-41. Plaintiffs allege that Boustead Securities, Pirchesky, and Campbell violated the Pennsylvania Securities Act on similar grounds as the Maguires. Id. at ¶¶ 114-29. Plaintiffs further allege a claim of negligent misrepresentation and a claim of aiding and abetting liability against these three Defendants. Id. at ¶¶ 130-39. Lastly, Plaintiffs bring suit against Robert Lewis, a shareholder of OneJet and a member of OneJet's Board of Directors, as well as David Minnotte, also a shareholder of OneJet. Id. at ¶¶ 7-8. Plaintiffs likewise allege a violation of the Pennsylvania Securities Act and a claim of aiding and abetting liability against Lewis and Minnotte. Id. at ¶¶ 123-34.

Defendant Minnotte removed the case to the United States District Court for the Western District of Pennsylvania, under 28 U.S.C. § 1334(b), on the basis that Plaintiffs' claims are related to the pending bankruptcy proceeding involving OneJet. (ECF No. 1). The remaining Defendants subsequently joined in the Notice of Removal, "adopt[ing] the factual and legal recitations proffered by Defendant Minnotte." (ECF Nos. 3, 15, 20). Plaintiffs thereafter moved to remand this matter to state court, or in the alternative, moved for the Court to abstain from hearing this matter in accordance with 28 U.S.C. § 1334(c). Thus, the primary issue is whether Plaintiffs' claims, which are based solely in state law, are related to the bankruptcy proceedingregarding OneJet, a non-party in the present matter, such that this Court has subject matter jurisdiction over Plaintiffs' claims. If the Court finds that it has jurisdiction, the second issue is whether the Court should nonetheless abstain from exercising its jurisdiction, and instead remand the matter to state court.

II. Discussion

A. Motion to Remand

The party asserting that a federal court has subject matter jurisdiction over a particular matter bears the burden of proving that such jurisdiction in fact exists. Nuveen Mun. Trust v. Withumsmith Brown, P.C., 692 F.3d 283, 293 (3d Cir. 2012). In the case of removal of an action from state court to federal court, that party, of course, is the defendant. See 28 U.S.C. § 1441. One basis on which a defendant may remove an action to federal court is found in 28 U.S.C. § 1334(b), which states that "the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under [the Bankruptcy Code], or arising in or related to cases under [the Bankruptcy Code]." 28 U.S.C. § 1334(b) (emphasis added). A civil proceeding is "related to" a bankruptcy case if the "the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy." Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984). The civil proceeding at issue does not necessarily need to be against the debtor or the debtor's property. Id. Rather, the proper inquiry is whether the outcome of the civil proceeding "could alter the debtor's rights, liabilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankrupt estate." Id. "Related to" jurisdiction is not limitless, however; where another, separate action, such as one for contribution or indemnification, would need to be filed in orderfor the current action to affect the bankruptcy proceeding, bankruptcy courts have no jurisdiction. Nuveen Mun. Trust, 692 F.3d at 294, 298 n.8.

The Third Circuit's opinion in Nuveen Mun. Trust v. Withumsmith Brown, P.C. is on point. There, the plaintiff entered into a loan transaction with a medical center. Id. at 287. As a part of that transaction, the medical center provided the plaintiff with an audit report from the medical center's accounting firm and an opinion letter from the medical center's counsel. Id. Shortly after the plaintiff extended the loan to the medical center, the medical center filed a Chapter 11 bankruptcy petition. Id. The plaintiff brought claims of fraud, negligent misrepresentation, and malpractice against the accounting firm and counsel of the medical center, alleging that the audit report and the opinion letter concealed the medical center's financial condition, and that had the plaintiff known about the medical center's financial condition, it would not have entered into the loan transaction. Id. The defendant accounting firm and defendant law firm removed the case to federal court, arguing that the district court had jurisdiction because the plaintiff's claims were "related to" to the medical center's bankruptcy proceeding. Id.

The Third Circuit held that "related to" jurisdiction existed because, in short, "a creditor cannot collect more, in total, than the amount it is owed." Id. at 295, 298. The court explained that even if the plaintiff prevailed in the action against the defendants, it would not be permitted to recover more in total from the defendants and medical center-debtor than would make it whole as to its losses on the loan transaction. Id. at 298. Accordingly, if the plaintiff prevailed against the defendants, the plaintiff's recovery as a creditor in the bankruptcy proceeding would be reduced by the amount recovered from the defendants. Id. That reduction would decrease the medical center-debtor's liabilities, and in turn, benefit other creditors who would receive agreater share in the disbursement of the medical center-debtor's assets—thus affecting the administration of the bankrupt estate. Id.

Here, the facts are quite similar to those in Nuveen. Plaintiffs purchased stock and/or notes of OneJet, and nearly all Plaintiffs have filed proofs of claim as creditors in the pending bankruptcy proceeding. (ECF No. 1-1, at ¶ 1; ECF No. 39, at 1, 3). Plaintiffs also seek recovery of their investments from the individual Defendants in this case, on the basis of breach of fiduciary duties, various violations of the Pennsylvania Securities Act, negligent misrepresentation, and aiding and abetting liability. (ECF No. 1-1). Although Plaintiffs are allowed to pursue their claims in both proceedings, they cannot receive double recovery—that is, they cannot recover more, in total, from Defendants and OneJet than the amount that would make them whole as to their losses from their investments. Should Plaintiffs prevail against Defendants, the amount Plaintiffs could...