Opinion
Civil Action No. 03-MC-246.
May 28, 2004
MEMORANDUM AND ORDER
I. INTRODUCTION
Presently before the Court is the Motion for Withdrawal of Reference filed by Defendants Whitemarsh Township Authority and Whitemarsh Township on December 23, 2003 (Doc. No. 1). For the reasons that follow, it is hereby ORDERED that the Motion is DENIED.
II. FACTUAL AND PROCEDURAL HISTORY
In June 1987, as assignor of Plaintiff, Joshua Hill, Inc., Plaintiff Marc A. Zaid (together "Plaintiffs") agreed to purchase a former township landfill from Whitemarsh Township Authority and Whitemarsh Township (together "Defendants"). After attempting to develop the property without success, Plaintiffs filed a civil action against Defendants in October 1993. In 2000, Judge Louis Bechtle of the United States District Court for the Eastern District of Pennsylvania made an initial pre-trial determination in this civil case that Defendants were not liable to Plaintiffs under the Pennsylvania Hazardous Sites Cleanup Act ("HSCA"). After a non-jury trial on Plaintiff Marc A. Zaid's sole surviving claim under 35 P.S. § 6020.507, defendant appealed in June 2002. The Third Circuit concluded that the release of hazardous wastes at the property required Defendants to pay costs to Plaintiffs. On remand, this Court requested additional position papers regarding the outstanding issues in the civil case and subsequently ordered payment of $14,935.38. Civil Action No. 96-5648, Doc. No. 43; Doc. No. 47. The Court also requested additional documentation in support of a $26,250 claim for responses costs filed by Zaid. Id. Therefore, the only remaining issue is the amount of liability and/or reimbursement required of Defendants for the contamination clean-up and response costs. On September 18, 2003, Joshua Hill filed for bankruptcy and the case was removed to the United States Bankruptcy Court for the Eastern District of Pennsylvania and reassigned as Bankruptcy Court Adversary Proceeding No. 03-01125. Id. at Doc. No. 52. On December 23, 2003, Defendants filed the Motion for Withdrawal of Reference now under consideration.
III. STANDARD OF REVIEW
28 U.S.C. § 157(d) provides:
The district court may withdraw, in whole or in part, any case or proceeding referred under this section, on its own motion or on timely motion of any party, for cause shown. The district court shall, on timely motion of a party, so withdraw a proceeding if the court determines that resolution of the proceeding requires consideration of both title 11 and other laws of the United States regulating organizations or activities affecting interstate commerce.28 U.S.C. § 157(d). There are two types of withdrawal under section 157(d): discretionary withdrawal "for cause shown," and mandatory withdrawal where United States laws other than Title 11 are at issue. Hatzel Buehler, Inc. v. Central Hudson Gas Elec. Corp., 106 B.R. 367, 370 (D. Del. 1989). This case falls into the "discretionary" withdrawal category provided for in the first sentence of § 157(d) for which the movant must show cause why the case should be withdrawn from the bankruptcy court. Id. at 370; Acolyte Electric Corp. v. City of New York, 69 B.R. 155, 165-66 (Bankr. E.D.N.Y. 1986) (the nature of the proceeding and judicial economy are factors that can justify withdrawal for cause); Judge v. Ridley Schweigert (In re Leedy Mortgage Co., Inc.), 62 B.R. 303, 306 (E.D. Pa. 1986) (non-core status of proceeding is one factor in favor of withdrawal). "Fostering the economical use of the debtors' and creditors' resources, and expediting the bankruptcy process" are factors which the court should evaluate when determining whether to withdraw the reference of an adversarial proceeding.Northwestern Institute of Psychiatry, Inc. v. Travelers Indem. Co., 272 B.R. 104, 108 (E.D.Pa. 2001).
IV. DISCUSSION
A. Matter Related To Bankruptcy
In order to establish that this case should be properly withdrawn, Defendants must show adequate cause that the matter is not properly before the Bankruptcy Court. For this matter to be properly before the Bankruptcy Court, it must be related to the bankruptcy and must be a core proceeding. A civil proceeding is "related to" a bankruptcy proceeding when " the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy." Quattrone Accountants, Inc. v. I.R.S., 895 F.2d 921, 926 (3d Cir. 1989) citing Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984) (emphasis in original). "An action is related to bankruptcy if the outcome 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. "[T]he mere fact that there may be common issues of fact between a civil proceeding and a controversy involving the bankruptcy estate does not bring the matter within the scope of section 1471(b). Judicial economy itself does not justify federal jurisdiction." In re Bobroff, 766 F.2d 797, 802 (3d Cir. 1985).
Defendants argue that the outstanding related costs and prospective clean-up costs owed to Zaid will not affect the determination of Joshua Hill, Inc.'s assets. D.'s Mot. at 3. Specifically, those costs incurred by Zaid would impact only his personal assets and any future costs would run with the land rather than impact the value of the corporate assets. Id. at 4. Plaintiff responds that as part of the Debtor's prospective reorganization, a determination that the property, a primary asset of Joshua Hill, Inc.'s estate, is suitable for sale and/or development will follow a complete environmental clean-up. Pl's Opp. at 6. The polluted state of the property renders a determination of its fair market value unattainable. Id. Only once the property is remediated at Defendants' expense, can its value be determined, the property sold, and the proceeds allocated among the creditors by the Bankruptcy Court. Id.
The Court finds that any expenses, either outstanding or prospective incurred in the cleanup of this asset of the Debtor's estate by Marc A. Zaid, assignor to Joshua Hill, Inc., are adequately related to the bankruptcy under § 157(b)(2). InPacor, the Third Circuit affirmed the district court in holding that a personal injury suit between the parties was not adequately related to the bankruptcy of a third party because the outcome of the personal injury action would not bind the debtor nor determine the rights or liabilities of that debtor. Pacor, 743 F.2d at 995. In contrast, the relative positions of the parties in this clean-up cost action bear directly on the rights and liabilities of Joshua Hill, Inc., its assignor, Mark Zaid, and Whitemarsh Township. The outcome could certainly have an effect on the estate being administered in bankruptcy.
B. Core Proceeding
In addition to being related to the bankruptcy, in order for matter to be properly before the Bankruptcy Court, it must be a "core proceeding." To support its Motion for Withdrawal, Defendant argues that a pre-petition adversary proceeding brought under state law does not constitute a core proceeding. D.'s Mot. at 4 citing Beard v. Braunstein, 914 F.2d 434, 443 (3d Cir. 1990) ("It is clear that to the extent that the claim is for pre-petition contract damages, it is non-core"). In Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982), the Supreme Court held that federal bankruptcy judges lacked the constitutional power to adjudicate an ordinary state law contract controversy because they "do not enjoy the protections constitutionally afforded to Art. III judges." In re Arnold Print Works, Inc., 815 F.2d 165 (1st Cir. 1987) citing Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 60 (1982). Specifically, "state law contract claims which do not fall within the specific categories of core proceedings listed in 28 U.S.C. § 157(b)(2)(B)-(N) are non-core, even if they arguably fall within the two "catch-all" provisions of § 157(b)(2)(A) ("matters concerning the administration of the estate") or § 157(b)(2)(O) ("other proceedings affecting the liquidation of the assets of the estate")." Beard, 914 F.2d at 444 citing In re Castlerock Properties, Inc., 781 F.2d 159 (9th Cir. 1986). However, Plaintiffs argue that the proceeding is core because it (1) invokes the claims allowance process under § 157(b)(2)(B), (2) invokes the process to determine the validity of liens under § 157(b)(2)(K), and (3) asserts claims against Whitemarsh Township, a claimant against the estate under § 157(b)(2)(E). Pl's Opp. at 7. As a result, the Plaintiff argues that the state law contract claims do fall within the specific categories of §§ 157(b)(2)(B)-(N). Id.
Though Defendant analogizes this case to the "garden variety contract" claim in Beard, unlike the contract damages action in that case, the clean-up costs at issue directly impact the bankruptcy estate. Beard, 914 F.2d at 444 citing Matter of Wood, 825 F.2d 90 (5th Cir. 1987). In the Third Circuit, a proceeding is considered to be core under § 157 "if it invokes a substantive right provided by Title 11 or if it is a proceeding that, by its nature, could arise only in the context of a bankruptcy case."Torkelsen v. Maggio (In re Guild and Gallery Plus, Inc.), 72 F.3d 1171, 1178 (3d Cir. 1996) quoting In re Marcus Hook Dev. Park, Inc., 943 F.2d 261, 267 (3d Cir. 1991); Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984); In re Donington, Karcher, Salmond, Ronan Rainone, P.A., 194 B.R. 750, 757 (D.N.J. 1996). To be a core proceeding, "an action must have as its foundation the creation, recognition, or adjudication of rights which would not exist independent of a bankruptcy environment although of necessity there may be peripheral state law involvement." Hatzel Buehler, Inc. v. Orange Rockland Utils., Inc., 107 B.R. 34, 39 (D. Del. 1989) (quoting Acolyte Elec. Corp. v. City of New York, 69 B.R. 155, 173 (Bankr. E.D.N.Y. 1986)). This matter is more closely analogous to the In re Arnold Print Works, Inc., 815 F.2d 165 (1st Cir. 1987), where the contract pertained to the sale of assets of the estate "and was thus itself an integral part of the bankruptcy." In re Arnold Print Works, Inc., 815 F.2d at 167 citing 130 CONG. REC. E1109 (daily ed. March 20, 1984); but see Matter of United States Brass Corp., 110 F.3d 1261, 1268 (7th Cir. 1997) ("Core proceedings are actions by or against the debtor that arise under the Bankruptcy Code in the strong sense that the Code itself is the source of the claimant's right or remedy, rather than just the procedural vehicle for the assertion of a right conferred by some other body of law, normally state law."). In addition, while the initial costs in this matter were owed pre-petition, the ongoing costs involved in the clean-up are postpetition costs.Beard, 914 F.2d at 445. The result then, is a combination of both pre- and postpetition debts owed by a claimant against the Debtor's estate to an assignor of that estate for costs incurred in the remediation and valuation of an asset to the Debtor's estate. Due to the complex intertwined relationship among these claims, the integral nature of the proceeding, and the direct impact on the bankruptcy estate, this Court concludes that it is a core proceeding properly before the Bankruptcy Court.
V. CONCLUSION
For all these reasons, the Motion for Withdrawal of Reference filed by Defendants on December 23, 2003 (Doc. No. 1) is DENIED. An appropriate order follows.