Opinion ID: 3035192
Heading Depth: 2
Heading Rank: 4

Heading: “Intertwined” Claims and In re RBGSC Inv. Corp

Text: Although appellees rely heavily on their sole indemnitor theory, they aver there is yet another ground on which to base a finding of core jurisdiction. They say, “assuming arguendo that the PDH Foreign Entities had independent claims against the Non-Debtor Affiliates . . . the Bankruptcy Court still has ‘core’ matter jurisdiction over the removed State Court Actions” because of the close-knit indemnitor and subsidiary relationships between the parties. Appellee’s Br. 27 n.30 (citing In re RBGSC Inv. Corp., 253 B.R. at 379). Urging us to adopt the approach of the district court in In re RBGSC Inv. Corp., they claim that a state court action involving debtors and non-debtors becomes core if the core and non-core claims are “‘so intertwined’ that merely to ‘disentangle’ them would be ‘co-extensive with a resolution of the merits of the disputes.’” Id. The Exide Entities 15 (...continued) Here, the Coordinating Agreement specifies that the parties will file any suits arising out of the sales agreements to a state or federal court in Cook County, Illinois. If the claims at issue are non-core, this forum selection clause should be enforced. 56 made a similar argument to the Bankruptcy Court, which it seemed to credit.16 16 The Bankruptcy Court also attached a great deal of significance to the relative amounts in dispute between PDH USA’s claims and the PDH Foreign Entities’ claims. It stated, “the magnitude of the dispute is about $20 million, 16 million of which is acknowledged to be sought against Exide alone. Doesn’t that make the dispute as between non-debtor entities the tail of the dog?” App. 54. The court suggested that “judicial economy and efficiency” were appropriate factors to consider with regard to the “core” determination. App. 53. This was not correct. Pacor, 743 F.2d at 994 (observing that “[j]udicial economy itself does not justify federal jurisdiction”). The test for finding jurisdiction is not a mathematical one that relies on weighing the value of total claims against non-debtors against total claims against the debtor. The size of the claims, relative to the total bankruptcy estate, may be a consideration in evaluating “related to” jurisdiction. See, e.g., Phar-Mor, Inc. v. Coopers & Lybrand, 22 F.3d 1228, 1235 n.10 (3d Cir. 1994) (“It is essentially undisputed that removal pursuant to § 1452 was appropriate because the Phar-Mor/Coopers lawsuit will have a direct and substantial impact on the size of Phar-Mor’s asset pool available for distribution to creditors and therefore is ‘related to’ the bankruptcy case pending in Ohio.”). However, here, the size of the claims is relatively insignificant. In Exide’s bankruptcy case, the over-6,100 proofs of claims filed in liquidated amounts totaled approximately $4.4 billion (another approximately 1,100 (continued...) 57 Lest the Bankruptcy Court be persuaded by Exide’s intertwinement argument on remand, we now consider and reject it. In In re RBGSC Inv. Corp., the only case Exide cites for the rule that intertwined claims become core, plaintiffs asserted a variety of state court claims, including injunction, specific performance, defamation, and breach of various agreements, arising out of a series of complex business arrangements, against the debtor RBGSC and non-debtor defendants jointly. After RBGSC removed the state court action to bankruptcy court and filed a motion for relief from orders the state court had entered prior to removal, its co-defendants filed similar motions; in response, the plaintiffs moved for abstention and remand. 253 B.R. at 372-73. The bankruptcy court denied the plaintiffs’ motion on the ground that their claims against the non-debtor defendants were “core” and essentially claims against the debtor. Id. at 373. The district court on appeal held that: Where the links between and among the various parties, including the state court plaintiffs and the 16 (...continued) proofs of claim were filed as unliquidated); the contingent proofs of claim filed by the PDH Foreign Entities are – at approximately $9.9 million – the proverbial drop in the bucket. 58 debtor and non-debtor defendants, are so intertwined by virtue of the many agreements defining these relationships, we cannot see how Appellants’ state court claims could be viewed, in the wake of the bankruptcy, as anything other than a claim on the estate. Id. at 379. Because plaintiffs had asserted state court claims against RBGSC and the non-debtor defendants jointly, the court concluded that “identifying claims from the state court complaint that are not tied to RBGSC would in itself present a daunting legal task” and, therefore, the claims against the nondebtors were core proceedings whose determination “would be co-extensive with a resolution of the merits of the disputes.” Id. at 380. As an initial matter, it strikes us that In re RBGSC Inv. Corp. is distingushable from the present case. Here, instead of asserting claims directly against the debtor, jointly with other defendants, each of the PDH Foreign Entities made discrete claims against each of the non-debtors and did not assert those claims against debtor or assert joint liability. Indeed, it is simple to separate the PDH Foreign Entities’ claims against the Exide Foreign Entities from the claims against the debtor, and from one another, because they are stated separately. Each referenced separate agreements and was filed against either one or two of the Exide Foreign Entities. 59 Nonetheless, insofar as In re RBGSC Inv. Corp. holds that non-core claims against non-debtors are rendered core because of close business relationships between the debtor and non-debtors or “intertwinement” with a claim against a debtor, it is legally unsound and must be overruled. We reiterate that courts must engage in a claim-by-claim analysis to determine whether a proceeding is core. Halper, 164 F.3d at 836-37. Each state court claim removed to bankruptcy court must be considered individually; non-core claims do not become core simply by virtue of being pursued in the same litigation as core claims. Accordingly, the intertwinement theory cannot be sustained. We note that the In re RBGSC Inv. Corp. decision has not received subsequent support among district courts in this circuit or others. See, e.g., Mirant Corp. v. Southern Co., 337 B.R. 107, 119 (N.D. Tex. 2006) (disagreeing with the bankruptcy court that “non-core claims were so intertwined with the other claims in the complaint” that core bankruptcy jurisdiction lay); Davis, 282 B.R. at 193 (rejecting defendant’s argument that the state court cause of action “is a core proceeding merely because it is ‘intertwined with’ its indemnity claim”); In re Winstar Commc’n, Inc., 284 B.R. 40, 50 (Bankr. D. Del. 2002) (evaluating claims arising out of a contract between plaintiff and three sellers, two chapter 11 debtors and wholly-owned subsidiary non-debtor, and holding that “the mere fact that there may be common issues of fact between a civil proceeding and 60 a controversy involving the bankruptcy estate does not bring the matter within the scope of” section 1334(b)). Accepting the rule that Exide urges would turn virtually every claim contained in an action in which the debtor is one of the defendants and which is later removed to bankruptcy court into a core proceeding. The PDH Foreign Entities cannot be required to have their rights against Exide’s non-debtor subsidiaries be determined by the Bankruptcy Court solely because Exide invoked its protection. Adoption of the “intertwinement theory” would cause debtors to bring[] every wholly owned subsidiary into every Bankruptcy case regardless of the circumstances and without the safeguards afforded by schedules, statements of financial affairs, notices to creditors, or meetings of creditors . . . [and] could result in debtors and others abusing the system by withholding from Bankruptcy or bringing into Bankruptcy subsidiaries in a revolving door fashion. In re Winstar Commc’n, 284 B.R. at 51. Moreover, permitting core bankruptcy jurisdiction to stretch so far would present serious constitutional questions. Mirant Corp., 337 B.R. at 119 (observing that “[t]he principles announced in Marathon would be violated if such an intertwinement theory were to be given effect”). 61 Thus, we now conclude that the “intertwinement” theory espoused by In re RBGSC Inv. Corp has no place in our “core” jurisprudence.