United States District Court, D. Massachusetts
DEXTER MAIN and FRANCESCO D'AMELIO, individually and on behalf of those similarly situated, Plaintiffs,
SCS SERVICES LLC and ROUND HILL INVESTMENTS LLC, Defendant.
MEMORANDUM AND ORDER
ALLISON D. BURROUGHS U.S. DISTRICT JUDGE.
April 3, 2018, certain creditors of New England Confectionery
Company (“NECCO”) filed an involuntary bankruptcy
petition. In re New England Confectionary Company,
Inc., No. 18-bk-11217 (Bankr. D. Mass. Apr. 3, 2018),
ECF No. 1, (the “Bankruptcy Case”); [ECF No. 1
¶ 8]. Round Hill Investments LLC (“Round
Hill”) then purchased substantially all of NECCO's
assets from the bankruptcy estate on May 31, 2018, including
a facility in Revere, Massachusetts (“Revere
Facility”), and formed Sweethearts Candy Co. (now SCS
Services LLC, “Sweethearts”) to manage the
purchased NECCO assets. [ECF No. 1 ¶ 10-17]. Pursuant to
a transition services agreement entered into between Round
Hill and NECCO, NECCO agreed to continue to employ its
workers at the Revere Facility through November 30, 2018 and
to handle personnel matters as it had in the past. [ECF No. 1
¶ 17; ECF No. 5-1 at 54]. Plaintiffs claim that on July
24, 2018, Defendants announced that they were ceasing
production at the Revere Facility and then terminated the
workers without providing the required advanced notice. [ECF
No. 1 ¶¶ 21-27].
on July 27, 2018, Plaintiffs filed this action against
Sweethearts and Round Hill (together
“Defendants”) alleging a failure to notify the
employees that they were about to shut down the operations of
the facility purchased from NECCO as required by the Worker
Adjustment and Retraining Notification Act (the “WARN
Act”), 29 U.S.C. § 2101 et seq. On August
13, 2018, Defendants asked to have the case referred to the
Bankruptcy Court, asserting that “it arises out of and
relates to the facts and circumstances of the pending”
Bankruptcy Case. [ECF No. 5 at 1].
aver that the case should be referred to the Bankruptcy Court
for a variety of reasons, including that it would not exist
but for the NECCO bankruptcy and because the dispute is
inextricably intertwined with the Defendants' acquisition
of NECCO's assets from the bankruptcy estate pursuant to
an agreement approved by the Bankruptcy Court. [ECF No. 5 at
1-2]. Defendants also claim that because debtor NECCO agreed
to employ its workers through November 2018, NECCO is liable
under an indemnification provision of the Bankruptcy
Court's Sale Order for any liability Defendants have
under the WARN Act. See [ECF No. 5-1 at 44, 54].
Finally, according to Defendants, the facts and circumstances
surrounding the shutdown of the facility and the disclosures
made by NECCO in connection with the sale are the subject of
a pending lawsuit in the Bankruptcy Court, and Defendants
want to join NECCO as a defendant but can only do so in the
Bankruptcy Case because of the automatic stay associated with
the bankruptcy. [ECF No. 5 at 3]; Murphy v. Round Hill
Investments, LLC (In re New England Confectionery Co.,
Inc.), Adv. Pro. 18-01091-MSH (Bankr. D. Mass.).
respond that this action is not related to the Bankruptcy
Case and further, that the Bankruptcy Court lacks
jurisdiction both because the conduct at issue occurred after
the assets were purchased from the bankruptcy estate and
because NECCO is not a party to the Bankruptcy Case. [ECF No.
BANKRUPTCY COURT JURISDICTION
jurisdiction of the district court is based upon 28 U.S.C.
§ 1334, which provides jurisdiction over: “all
cases under title 11” as well as “civil
proceedings arising under title 11, or arising in or related
to cases under title 11.” “In turn, 28 U.S.C.
§ 157 permits the district courts to refer to bankruptcy
courts all ‘proceedings arising under title 11 or
arising in or related to cases under title 11.' This
broad jurisdictional grant allows the bankruptcy courts to
‘deal efficiently and expeditiously with all matters
connected with the bankruptcy estate.'” Gupta
v. Quincy Med. Ctr., 858 F.3d 657, 662 (1st Cir. 2017).
Consistent with the authority granted by 28 U.S.C. §
157, Local Rule 201, provides that any case “arising
under Title 11 or arising in or related to a case under Title
11 shall be referred to the judges of the Bankruptcy Court
for the District of Massachusetts.” Thus, a case may be
referred to the bankruptcy court if it (1) “arises
under” title 11, (2) “arises in” a title 11
case, or (3) is “relate[s] to” a title 11 case.
‘arising under' language of § 1334(b) is
analogous to the ‘arising under' language in 28
U.S.C. § 1331.” In re Middlesex Power Equip.
& Marine, Inc., 292 F.3d 61, 68 (1st Cir. 2002).
“[P]roceedings ‘aris[e] under title 11' when
the Bankruptcy Code itself creates the cause of
action.” Gupta, 858 F.3d at 662. Claims
“arising in” bankruptcy are claims that “by
their nature, not their particular factual circumstance,
could only arise in the context of a bankruptcy case, ”
and include administrative matters and orders to turn over
property of the estate. Id. at 662-63 (quoting
Stoe v. Flaherty, 436 F.3d 209, 218 (3d Cir. 2006)).
contrast, ‘related to' proceedings are those which
‘potentially have some effect on the bankruptcy estate,
such as altering debtor's rights, liabilities, options,
or freedom of action, or otherwise have an impact upon the
handling and administration of the bankrupt
estate.'” Gupta, 858 F.3d at 663.
“The usual articulation of the test for determining
whether a civil proceeding is related to bankruptcy is
whether 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 (3rd Cir. 1984) (emphasis removed), adopted in
part by Celotex Corp. v. Edwards, 514 U.S. 300, 308
(1995), overruled in part by Things Remembered, Inc. v.
Petrarca, 516 U.S. 124 (1995). “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
the case does not arise in or under title 11 because a WARN
Act violation can arise outside of a bankruptcy.
Gupta, 858 F.3d 657. The Plaintiffs have therefore
focused on the “related to” jurisdiction
established by Pacor in opposing the Defendants'
request. In Pacor, despite the broad “any
effect on the estate” language, the Third Circuit
concluded that the claim against Pacor, an asbestos
distributor, was not related to the bankruptcy of the
original manufacturer of the asbestos where “Pacor
[was] not a contractual guarantor of [debtor], nor [had]
[debtor] agreed to indemnify Pacor, and thus a judgment in
the . . . action could not give rise to any automatic
liability on the part of the estate.” 743 F.2d at 995.
The Third Circuit since has cautioned against a broad reading
of the “related to” test noting that “[t]he
test articulated in Pacor for whether a lawsuit
could ‘conceivably' have an effect on the
bankruptcy proceeding inquires whether the allegedly related
lawsuit would affect the bankruptcy proceeding without the
intervention of yet another lawsuit.” In re
Fed.-Mogul Global, Inc., 300 F.3d 368, 382 (3rd Cir.
as the Defendants note, the Bankruptcy Court in this district
has previously concluded that “there is ‘related
to' jurisdiction over proceedings where neither the
debtor nor the estate is a named defendant if the defendant
has indemnification rights against the debtor or the
estate.” In re Gold, 247 B.R. 574, 578 (Bankr.
D. Mass. 2000) (citing Philippe v. Shape, Inc., 103
B.R. 355 (D.Me.1989); Dogpatch Props., Inc. v. Dogpatch
U.S.A., Inc. (In re Dogpatch U.S.A., Inc.), 810 F.2d 782
(8th Cir.1987); A.H. Robins Co., Inc. v. Piccinin (In re
A.H. Robins Co., Inc.), 788 F.2d 994 (4th Cir. 1986)).
contend that the statement in In re Gold was dicta
and is contradicted by more recent case law from outside the
First Circuit that is less permissive of “related
to” jurisdiction based upon indemnification claims.
Principally, Plaintiffs point to In re LTC Holdings,
Inc., which concluded that no “related to”
jurisdiction exists where (1) the action against the party
seeking indemnification does not automatically result in the
debtor's liability for indemnification, and (2) a
subsequent lawsuit against the debtor is required prior to a
determination of indemnification. 587 B.R. 25 at 37 (Bankr.
D. Del. 2018) (quoting Bank of New York, Mellon Trust
Co., NA v. Becker (In re Lower Bucks Hosp.), 488 B.R.
303, 314 (E.D. Pa. 2013)). The court in In re LTC
Holdings, Inc. ultimately found “related to”
jurisdiction because the indemnification clause at issue
obligated the debtor to indemnity the defendant, a former
executive, to the maximum extent permitted under law and was
therefore essentially automatic. Id. at 31.
reliance on Pacor and its progeny, which focus on
the effect of pre-bankruptcy indemnification clauses,
overlooks the broader nature of the jurisdictional inquiry.
See In re Boston Reg'l Med. Ctr., Inc., 410 F.3d
100, 107 (1st Cir. 2005) (“The language of the
jurisdictional statute, 28 U.S.C. § 1334, is protean,
and what is ‘related to' a proceeding under title
11 in one context may be unrelated in another.”). There
are circumstances present in the instant case which
distinguish this case from those discussed above such that
the case may have an effect on the estate being administered
in bankruptcy and therefore fall within the Pacor
framework, despite the fact that the indemnification clause
may not automatically make NECCO liable to Plaintiffs. First,
the indemnification clause at issue is actually part of the
Bankruptcy Court's Sale Order; second, the facts and
circumstances surrounding the shut-down are already the
subject of a proceeding before the Bankruptcy Court; and
third, Plaintiffs were purportedly employed by debtor NECCO
at the time of the alleged WARN Act violation. As such, this
case appears to have a sufficiently close nexus to the