Free Motion to Remand - District Court of Delaware - Delaware

Case 1:08-cv-00023-GMS-MPT

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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION

EQUIST AR CHEMICALS, L.P.,

§ § § § § § § § §

Plaintiff

v.
RELIANT ENERGY POWER GENERATION, INe. AND RELIANT ENERGY INC.,
Defendants

Civil Action No. 4:07-cv-03378

MOTION FOR REMAND OR MANDATORY ABSTENTION
Plaintiff, Equistar Chemicals, L.P. ("Equistar"), moves forremand for lack offederal subject
matter jurisdiction or for

mandatory abstention and remand pursuant to 28 U.S.e. § 1334(c)(2) and

28 V.S.C. § 1452.

Introduction and Factual Background
Defendants Reliant Energy Power Generation, Inc. ("Reliant Power") and Reliant Energy,

Inc. ("Reliant Energy) removed this case, asserting federal subject matter jurisdiction under 28
U.S.e. § 1452(a). Defendants asserted in their Notice of

Removal that the claims brought in this

case "arise under, or arise in, or are related to, Chapter 11 of the United States Code." Equistar's

state-law contract claims do not arise under, arise in or relate to Chapter 11 of the United States
Code, and this Court lacks federal subject matter jurisdiction. Furthermore, even ifEquistar' s claims

do "relate to" a bankptcy, mandatory abstention applies and requires that the Court abstain from
hearing the claims and that it remand the case to state court.

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A special purpose entity known as Reliant Energy Channelview L.P. (the "Project
Partnership") was created to own and operate a cogeneration facility in Channelview, Texas. The
Project Partnership is owned by a general partner (with a 1 % interest) and a limited partner (with a 99% interest); both the general and the limited partner are owned 100% by Reliant Power, which is

in turn owned by Reliant Energy. (Reliant Power and Reliant Energy are sometimes referred to
collectively

as "Reliant.")
Plaintiff Equistar owns a chemical plant adjacent to the Project Partnership's facility.

Equistar is a party to a series of fully integrated agreements pursuant to which Equistar purchases
steam and power for its plant from the cogeneration facility. Reliant Power is also a party to certain
ofthose agreements. Reliant decided (apparently sometime in 2006) that the cogeneration facility

was no longer one of its strategic assets. Reliant accordingly set out to divest itself ofthe facility by

causing Reliant Power to attempt to sell its ownership interests in the general and limited partner
entities that in turn own the Project Parnership.

As this process was underway, the Project Parnership, together with its general and limited
partners, filed voluntary petitions for relief under Chapter 1 1 of

Title 1 1 of the United States Code,
banptcies are pending before the

11 U.S.C. § 101 etseq. (the

"Bankptcy

Code"). Those

United

States Bankptcy Court for the District of

Delaware and are being

jointly administered under case

number 07-11160 (MFW) (the "Bankptcy").

Equistar became aware that Reliant planned to sell its interest in the entities that own the
Project Partnership in a way that violates contractual duties owed to Equistar by Reliant Power and

Reliant Energy. Equistar fied this lawsuit in Texas state court, asserting causes of action for
declaratory judgment and temporary and permanent injunction. In its petition, Equistar made clear
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that its only claims were against Reliant Power and Reliant Energy and not the bankpt entities.
In spite ofthe specificity and clarity of

Equistar's claims, Reliant now seeks to use the Bankptcy

to avoid its own obligations to Equistar.

ARGUMENT
Chapter 28, section 1334 of the United States Code delineates the scope of

federal subject

matter jurisdiction for "banptcy cases and proceedings." That section enumerates four types of

matters over which a district court may exercise jurisdiction: (1) "cases under title 11"; (2)
"proceedings arising under title 1 1"; (3) proceedings "arsing in" "a case under title 1 1"; or (4)
proceedings "related to" a case under title 1 1. 28 U.S.C. § 1334 (a), (b); see also In re Us. Brass
Corp., 301 F.3d 296,303 (5th Cir. 2002).

The first category, cases "under" title 11, refers "merely to the bankptcy petition itself."
In re Combustion Eng'g, Inc., 391 F.3d 190,225 (3d Cir. 2005). As to the second category, a case
"arises under" title 11 "if it invokes a substantive right provided by title 11." Stoe v. Flaherty, 436
F.3d 209,216 (3d Cir. 2006); see also In re Southmark Corp., 163 F.3d 925, 930 (5th Cir. 1999).

Proceedings "arising in" bankptcy include "administrative matters, orders to turn over property of
the estate, and determinations of the validity, extent or priority of

liens." 1 Coller on Bankruptcy

§ 3.01 (4)(c)(iv) at 3-31. A proceeding can be described as "arising in" banptcy ifit would have
no existence outside of

the banptcy. See Stoe, 436 F.3d at 216; Southmark, 163 F.3d at 930.

Finally, a matter is "related to" a bankptcy if

the "outcome ofthat proceeding could conceivably

have any effect on the estate being administered in bankptcy." In re Wood, 825 F.2d 90,93 (5th Cir.
1987).

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By way of distrct -court referral, a bankptcy court may "hear and determine" certain matters
that fall within the jurisdictional grant of section 1334. Banptcy courts have full judicial power
over "all cases under title 1 1 and all core proceedings arising under title 1 1, or arising in a case under

title 11." 28 U.S.C. § 157(b)(1). The Fifth Circuit has determined that section 157 "equates core
proceedings with the categories of' arising under' and 'arising in' proceedings" set forth in section
1334. Us. Brass, 301 F.3d at 304. Thus, a banptcy court has full judicial power to hear those

matters that arise under or arse in proceedings under title 1 1. Section 157 also allows bankptcy
courts to hear and determine other matters that are "related to" bankptcy, but are not core matters,
but they may not enter judgment concerning them unless the parties expressly so consent. 28 U. s. e.
§ 157(c).

In addition to granting jurisdiction to district courts in bankptcy cases, section 1334
imposes restrictions on the exercise of that jurisdiction. In subsection c, the statute provides that a
district court must abstain from hearing certain proceedings (so-called "mandatory abstention") and
may abstain from certain other

proceedings (a "discretionary abstention"). 28 U.S.C. § 1334(c)(1),

(2). Mandatory abstention arises "in a proceeding based upon a State law claim or State law cause
of action, related to a case under title 11 but not arising under title 11 or arising in a case under title

11, with respect to which an action could not have been commenced in a court ofthe United States

absent jurisdiction under this section." 28 U.S.e. § 1334(c)(2). Matters that require mandatory

abstention are "related to" matters, which by definition are "peripheral to the concerns of the
bankptcy case and based on extrinsic source oflaw." Southmark, 163 F.3d at 930 n. 8. When a
"related to" matter satisfies the other "statutory criteria" for mandatory abstention - "a state-law

cause of action, no other basis for federal court jurisdiction, and the pendency of state court litigation
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that can timely adjudicate the claim" - the district court is required to abstain from exercising
jurisdiction. Id. at 929 n. 2.1

To determine whether Equistar's claims are sufficiently tied to the Bankptcy to invoke
federal subject matter jurisdiction, and if so, whether they are nevertheless subject to mandatory
abstention, the character of

those claims must be examined. As set forth below, the claims meet

neither test.
A. Equistar's Claims Do not Arise Under or Arise In the Bankruptcy.

Equistar seeks a judgment that Reliant Energy and Reliant Power are precluded from

structuring the sale of their ownership interests in the general partner and the limited parner that
own the Project Partnership in such a way as to interfere with Reliant's contractual duties to Equistar

and Equistar's contractual rights. Those rights include Equistar's right to consent to the sale and

its right to ensure that any buyer of the ownership interests is qualified. Equistar also seeks
temporar and permanent injunctive relief precluding Reliant from breaching its agreements.
Reliant's argument that these claims either "arise under" or "arise in" the Bankptcy can be

readily dispensed with. Neither Reliant Power nor Reliant Energy is a debtor in the Bankruptcy.
When a court examines the bankptcy court's jurisdiction over a case between two non-debtors, it
looks to the "related to" language of

section 1334. See In re Zale Corp., 62 F.3d 746,751 (quoting

from Quattrone Accountants, Inc. v. I.R.S., 895 F.2d 921,926 (3d Cir. 1990)).

lThe Fifth Circuit has rejected the argument, adopted in a small minority of cases, that
mandatory abstention does not apply in removed cases because there is no pending state court litigation after removaL. Southmark, 163 F.3d at 929 (rejecting "out of hand" the argument that statutory abstention does not apply to cases removed to federal court on the basis of bankptcy
jurisdiction. ).
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This result is confirmed by examining the causes of action here in light of the definitions of

"arise under" and "arise in." As noted above, a case that" invokes a substantive right provided by
title 1 I" is said to "arise under" that title. Stoe 436 F.3d at 216.; In re Southmark Corp., 163 F.3d
at 930. None of

the rights Equistar seeks to uphold in its suit is provided by title 11; instead they are

all provided by contract. Similarly, the suit canot be described as "arising in" banptcy because
it quite plainly would have an existence outside of

the Bankptcy. See Stoe, 436 F.3d at 216;

Southmark, 163 F.3d at 930.
B. Equistar's Claims Do not "Relate to" the Bankruptcy.

As noted above, a proceeding is "related to a bankptcy" ifthe outcome "could conceivably
have an effect on the estate being administered." In re Wood, 825 F.2d at 93. But, more specifically,
"an action is related to bankruptcy if the outcome could alter the debtor's rights, liabilities or

freedom of action . . . and . . .in any way impacts upon the handling and administration of the
bankptcy estate." In re Walker, 51 F.3d 562, 569 (5th Cir. 1995). The test is "obviously
conjunctive: For jurisdiction to attach, the anticipated outcome ofthe action must both (1) alter the rights, obligations, and choices of action ofthe debtor, and (2) have an effect on the administration
of

the estate." In re Bass, 171 F.3d 1016, 1022 (5th Cir. 1999).

In this case, Equistar seeks relief against the parent entity ofbankpt subsidiaries. Equistar
asks the Court to require the non-bankpt parent to refrain from selling its subsidiaries in such a
way as to violate contractual duties owed by the non-banpt parent to Equistar. The mere fact that
those subsidiaries are in bankptcy does not mean that the enforcement of restrictions on the terms
of

their sale by their current parent to a third party could conceivably "alter the rights, obligations,

and choices of action of the debtor." The rights and obligations of the debtors wil remain the same,
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no matter who owns those entities.

The second prong of the conjunctive test is even more difficult to satisfy on these facts. If
the Court grants the declaratory and injunctive relief requested against Reliant, such relief wil not
"have an effect on the administration of the estate." The only effect of a judgment would be against

Reliant, not its subsidiaries in bankptcy. The bankptcy estate would be administered in the same
way, irrespective of a declaration ofEquistar's rights against Reliant. That is, the bankptcy estate

would retain whatever powers it may have with regard to the debtors and the agreements to which

the debtors are pary.
The Court should decline to extend "related to" jurisdiction to proceedings that wil not affect
the bankptcy

estate. See In re Bass, 171 F.3d at 1023; In re Zale, 62 F.3d at 735. This case should

be remanded to state court for lack of federal subject matter jurisdiction.
c. Even if Equistar's Claims "Relate to" the Bankruptcy, Mandatory Abstention is

Required.
Even if the Court concludes that resolution of Equistar' s claims wil affect the bankptcy
estate, it must abstain from hearing those claims under section 1334(c)(2). Each of

the statutory

requirements of that provision are met on these facts, and abstention is mandatory.
First, this motion for mandatory abstention is timely made, as Equistar filed it within thirty
days of

removaL. See, e.g., Allen v. J.K. Harris & Co., L.L.c., 331 B.R. 634,642 (E.D.Pa. 2005)

(citing cases). Second, the action is "based upon a State law claim or State law cause of action,"
given that the rights Equistar seeks to uphold arise solely under state contract law. Third, the case

has no other possible source of federal subject matter jurisdiction beyond its relationship to a
proceeding in bankptcy. Reliant has not asserted in its removal papers any other source of federal

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subject matter jurisdiction, and as the parties are not diverse and there is no federal question asserted
in Equistar's pleadings, this action could "not have been commenced in a court of

the United States

absent

jurisdiction under" section 1334. See 28 U.S.C. § 1334(c)(2).
Finally, the case neither arises under title 1 1 or arses in a case under title 1 1, as fully set forth

above. Instead, it is at most "related to" a bankptcy - a matter which by definition is "peripheral
to the concerns of

the bankptcy case and based on extrinsic sources oflaw, (and that) require(s)

mandatory abstention." In re Southmark Corp., 163 F.3d at 930 n. 8.
Section 1452 governs removal of

bankptcy-related cases, and it supplies the district court

with the power to remand the claim or cause of action "on any equitable ground." 28 U.S.e. §
1452(b). Mandatory abstention under section 1334(c)(2) provides an equitable ground to justify remand under section 1452(b). See Stoe, 436 F.3d at 214 (citing cases providing that mandatory
abstention provides an equitable ground supporting remand under § 1 452(b)). Accordingly, once this

Court has determined that mandatory abstention applies to this case, Equistar respectfully requests

that the Court exercise its authority under section 1452 and remand the case to state court.

CONCLUSION
Because this removed case does not "arise in," "arise under" or "relate to" a bankptcy, this
Court lacks federal subject matter jurisdiction and should remand the case to state court. Even ifthe

Court determines that this case "relates to" the Bankptcy, it should abstain from hearing the case
under 28 U.S.C. § 1334(c)(2) and remand the case pursuant to 28 U.S.C. § 1452(b).

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1i1Y SUbmitll

Thomas Mtf

State Bar No. 06839250

ATTORNEY-IN-CHARGE FOR EQUIST AR CHEMICALS, LP
OF COUNSEL:

NICKENS KEETON LAWLESS FARRELL & FLACK LLP 600 Travis Street, Suite 7500 Houston, TX 77002 (713) 571-9191
(713) 571-9652 (Fax)

CERTIFICATE OF SERVICE
I hereby certify that on ~ l-~ , 2007, a true and correct copy of the foregoing

instrument was served via electronic filing on the following counsel of record:
Mr. Mike M. Wilson Akin Gump Strauss Hauer & Feld LLP
1111 Louisiana Street, 44th Floor Houston, Texas 77002

~

Thomas M. Farrell

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