Cooperatieve Rabobank U.A., New York Branch v. Crowe LLP

UNITED STATES BANKRUPTCY COURT FOR PUBLICATION

SOUTHERN DISTRICT OF NEW YORK

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In re: Chapter 11

Miami Metals I, Inc., et al.,1 Case No. 18-13359 (SHL)

Debtors. (Jointly Administered)

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Cooperatieve Rabobank U.A., New York

Branch, et al.,

Plaintiffs,

v. Adv. No. 20-01061 (SHL)

Crowe LLP,

Defendant.

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MEMORANDUM OF DECISION

A P P E A R A N C E S:

SCOTT J. FEDER

Attorney for Plaintiffs

4649 Ponce De Leon Boulevard

Coral Gables, Florida 33146

By: Scott J. Feder, Esq.

SOLOMON & CRAMER LLP

Attorney for Plaintiffs

1441 Broadway, Suite 6026

New York, NY 10018

By: Andrew T. Solomon, Esq.

TABET DIVITO & ROTHSTEIN LLC

Attorneys for Defendant

209 South LaSalle Street, 7th Floor

Chicago, Illinois 60604

By: Amanda Catalano, Esq.

1 The Debtors in the Chapter 11 cases titled In re Miami Metals I, Inc., et al., Case No. 18-13359, include:

Miami Metals I, Inc. (f/k/a Republic Metals Refining Corporation); Miami Metals II, Inc. (f/k/a Republic Metals

Corporation (“RMC”)); Miami Metals III LLC (f/k/a Republic Carbon Company, LLC); Miami Metals IV LLC

(f/k/a J & L Republic LLC); Miami Metals V LLC (f/k/a R & R Metals, LLC); Miami Metals VI (f/k/a RMC

Diamonds, LLC); Miami Metals VII (f/k/a RMC2, LLC (“RMC2”)); Miami Metals VIII (f/k/a Republic High Tech

Metals, LLC); Republic Metals Trading (Shanghai) Co., Ltd.; and Republic Trans Mexico Metals, S.R.L.

(collectively, the “Debtors”).

John M. Fitzgerald, Esq.

Mark H. Horwitch, Esq.

Caesar A. Tabet, I, Esq.

Jordan Wilkow, Esq.

THE KAGEN LAW FIRM

Attorneys for Defendant

570 Lexington Avenue

New York, NY 10101

By: Stuart Kagen, Esq.

KAGEN & CASPERSEN

Attorneys for Defendant

757 3rd Ave., 20th Fl.

New York, NY 10017

By: Stuart Kagen, Esq.

COFFEY BURLINGTON, P.L.

Attorneys for Defendant

2604 South Bayshore Drive

Miami, Florida 33133

By: Paul Joseph Schwiep, Esq.

Fernando laTour Tomayo, Esq.

John Everett Thornton, Esq.

SEAN H. LANE

UNITED STATES BANKRUPTCY JUDGE

Before the Court is the motion of the Plaintiffs Cooperatieve Rabobank U.A., New York

Branch; Brown Brothers Harriman & Co.; Bank Hapoalim B.M.; Mitsubishi International

Corporation; ICBC Standard Bank PLC; Techemet Metal Trading, LLC; Woodforest National

Bank; and Hain Investors Master Fund, LTD (collectively, the “Plaintiffs” or “Lenders”) for

abstention under 28 U.S.C. Section 1334(c), and remand under to 28 U.S.C. Sections 1447(c)

and 1452(b). See Plaintiffs’ Memorandum of Law in Support of Abstention and Remand

(“Lenders’ Memorandum”) [ECF No. 1-4]. For the reasons discussed below, the Lenders’

motion is granted.

BACKGROUND

The Debtors Miami Metals I, Inc., et al. filed for Chapter 11 relief in early November

2018 [ECF No. 1, Case No. 18-13359], and their plan of liquidation was confirmed on December

23, 2019 [ECF No. 1668, Case No. 18-13359] (the “Plan”). The Plaintiffs in this case are banks

that served as the pre-petition secured lenders of the Debtors, who were in the business of

refining precious metals. On or about June 24, 2019, the Lenders commenced a state court

action in Florida against Defendant Crowe LLP (the “Defendant”) for allegedly conducting a

“grossly negligent” audit of the Debtors’ 2014 and 2015 financial statements, resulting in the

Lenders issuing loans based on an inflated inventory. See Complaint, ECF No. 1 at 16 of 173

(complaint alleging negligence, gross negligence, and violations of Florida’s Deceptive and

Unfair Trade Practices Act). Lenders allege damages in excess of $57 million. Id. at 33–36 of

173.

Defendant removed the case to the United States District Court for the Southern District

of Florida under 28 U.S.C. Sections 1334(b) and 1452(b). In early August 2019, Defendant filed

a motion to transfer the case to the Southern District of New York, ECF No. 1-5, which the

Lenders opposed, ECF No. 1-6. At the same time, the Lenders filed a motion for abstention and

remand of the case back to the Florida state court. See Lenders’ Memorandum [ECF No. 1-4].

In February 2020, the Florida District Court granted Defendant’s motion to transfer the case to

the Southern District of New York but did not rule on the Lenders’ motion for abstention and

remand. See ECF No. 1-11. The New York District Court subsequently referred the case to this

Court. ECF No. 1-19. Thus, the Lenders’ motion for abstention and remand, originally filed in

the Southern District of Florida, ECF No. 1-4, is now before this Court. The parties filed

supplemental pleadings on the motion after the case arrived in this Court. See Crowe LLP’s

Supplemental Memorandum of Law in Opposition to Plaintiffs’ Motion for Abstention and

Remand [ECF No. 23-1] (“Defendant’s Opposition”); Plaintiffs’ Memorandum of Law in

Further Support of Motion for Abstention and Remand [ECF No. 25] (“Lenders’ Memorandum

in Further Support”); Crowe LLP’s Reply to Plaintiffs’ Motion for Abstention and Remand [ECF

No. 26-1] (“Defendant’s Reply”).

In their motion, the Lenders do not contest that removal was proper or that the Court has

subject matter jurisdiction over their claims.2 But they contend that the case should nonetheless

be transferred back to the Florida state court based on mandatory abstention under 28 U.S.C.

Section 1334(c)(2), or, in the alternative, permissive abstention and equitable remand under

Sections 1334(c)(1) and 1452(b). See Lenders’ Memorandum at 1–6; Lenders’ Memorandum in

Further Support at 7–8. The Defendant opposes. See generally Defendant’s Response in

Opposition to Plaintiff’s Memorandum of Law in Support of Abstention and Remand [ECF No.

1-7]; Defendant’s Opposition; Defendant’s Reply.

DISCUSSION

I. Waiver of Right to Seek Mandatory Abstention

As a threshold matter, the Court must determine whether the Lenders have waived their

right to seek mandatory abstention. Defendant contends that the Lenders have waived this right,

arguing that the Chapter 11 confirmation order [ECF No. 1668, Case No. 18-13359] (the

“Confirmation Order”) and the terms of the Plan—terms which the Lenders unanimously

approved and to which they are now bound—confer “exclusive jurisdiction” over the Lenders’

2 The parties agree that the Court’s subject matter jurisdiction is not in question here; however, the Court’s

analysis below is informed by the long-recognized rule that “once confirmation occurs, the bankruptcy court's

jurisdiction shrinks.” Core Litigation Trust v. Apollo Global Management, LLC, et al. (In re AOG Entm't, Inc.), 569

B.R. 563, 574 (Bankr. S.D.N.Y. 2017) (citing Penthouse Media Grp. v. Guccione (In re General Media, Inc.), 335

B.R. 66, 73 (Bankr. S.D.N.Y. 2005)).

claims here. See Defendant’s Opposition at 4–9. The Lenders disagree, contending that the Plan

does not specifically retain jurisdiction over the instant claims and, thus, they did not “knowingly

and voluntarily waive[ ] their right to seek remand.” Lenders’ Memorandum in Further Support

at 4–5.

“There can be no doubt that [the right to seek mandatory abstention] can be waived by

any party.” In re AHT Corp., 265 B.R. 379, 387 n.2 (Bankr. S.D.N.Y. 2001); see also Baker v.

Simpson, 613 F.3d 346, 350 (2d Cir. 2010) (citing United States v. Brown, 352 F.3d 654, 663 (2d

Cir. 2003) and Billing v. Ravin, Greenberg & Zackin, P.A., 22 F.3d 1242, 1245 n.1 (3d Cir.

1994)). “[W]aiver is the ‘intentional relinquishment or abandonment of a known right,’” United

States v. Olano, 507 U.S. 725, 733 (1993) (quoting Johnson v. Zerbst, 304 U.S. 458, 464

(1938)), and “must be made voluntarily, knowingly and intelligently,’” Murray v. Town of N.

Hempstead, 853 F. Supp. 2d 247, 259 (E.D.N.Y. 2012) (citing Doe v. Marsh, 105 F.3d 106, 111

(2d Cir. 1997)). “[I]n the civil no less than the criminal area, ‘courts indulge every reasonable

presumption against waiver.’” Id. at 259–60 (quoting Fuentes v. Shevin, 407 U.S. 67, 95 n.31

(1972)). Where waiver is not explicit, it may be implied through the conduct of a party;

however, “[t]he conduct said to constitute a waiver must be clear and unequivocal, as waivers are

never to be lightly inferred.” Mooney v. City of New York, 219 F.3d 123, 131 (2d Cir. 2000)

(quoting Tray–Wrap, Inc. v. Six L's Packing Co., 984 F.2d 65, 68 (2d Cir. 1993)). The “[p]arty

asserting waiver ‘bears the weighty burden of establishing that a ‘clear and unmistakable’ waiver

has occurred.’” Id. (quoting NLRB v. New York Tel. Co., 930 F.2d 1009, 1011 (2d Cir. 1991)).

Defendant argues that the language in the Confirmation Order and Plan serves as a

waiver of the Lenders’ right to seek abstention over all cases “related to” the bankruptcy case,

including this adversary proceeding. Defendant’s Opposition at 5. The Confirmation Order and

Plan state that this Court “shall retain exclusive jurisdiction over all matters arising out of, or

related to, the Chapter 11 Cases and th[e] Plan,” including matters set forth in Article 13 of the

Plan, discussed infra. See ECF No. 1668, Case No. 18-13359 at 15–16, 35, and 74 of 124. As

the instant adversary proceeding is related to the bankruptcy case, Defendant argues, the Lenders

have waived their right to mandatory abstention. Id. at 5–7 (relying on In re AHT Corp., 265

B.R. at 387 & n.2). In In re AHT Corp., the Court found a waiver of the right to seek mandatory

abstention based on a clause in the corporate parties’ asset purchase agreement stating “that all

actions and proceedings relating to the interpretation, enforcement or breach of this agreement

shall be litigated in the United States Bankruptcy Court for the Southern District of New York,

White Plains Division.” 265 B.R. at 387 & n.2.

But the In re AHT case is not a good fit here. The choice-of-law clause in that asset

purchase agreement specifically covered cases “relating to the interpretation, enforcement or

breach of [that] agreement.” See In re AHT Corp., 265 B.R. at 387. By contrast, the Defendant

here relies on a generic and broad boiler-plate clause in the Confirmation Order and Plan.3 And

this generic language must be read in context with the other provisions of the Plan. See In re

Conco, Inc., 855 F.3d 703, 711 (6th Cir. 2017) (quoting In re Dow Corning, Corp., 456 F.3d

668, 676 (6th Cir. 2006) (“[i]n interpreting a confirmed plan, courts use contract principles, since

the plan is effectively a new contract between the debtor and its creditors,” and “[s]tate law

governs those interpretations”)); In re Lehman Bros. Inc., 478 B.R. 570, 586 (S.D.N.Y. 2012),

aff'd sub nom. In re Lehman Bros. Holdings Inc., 761 F.3d 303 (2d Cir. 2014), and aff'd sub nom.

3 In their original motion, the Lenders did assert that “it is arguable whether this [adversary proceeding] is

sufficiently ‘related to’” the bankruptcy case. Lenders’ Memorandum at 2 (emphasis added). But they provided no

other argument on this point. In any event, the Lenders later conceded that this case was related to the bankruptcy

because it was removed prior to the confirmation of the Plan. See Lenders’ Memorandum in Further Support at 4

n.5. The Lenders note, however, that despite their “concession on removal,” they have not consented to adjudicate

this case in federal court. Id.

In re Lehman Bros. Holdings Inc., 590 F. App'x 92 (2d Cir. 2015) (under New York law,

contract interpretation requires that agreements be “read as a whole”). The broad language here

refers to Article 13, which lists 23 items over which the Court specifically retains jurisdiction.

See ECF No. 1668, Case No. 18-13359 at 77–79 of 124. This list includes, inter alia:

• resolving disputes related to claims against the estate;

• hearing certain causes of action brought by the Debtors;

• resolving litigation related to defined title property claims;

• resolving matters relating to executory contacts to which the Debtors are a

party or may be liable;

• resolving motions or adversary proceedings pending in the Chapter 11 cases

on the Plan’s effective date;

• resolving disputes arising in connection with the Plan or Confirmation Order;

and

• determining any other matters that may arise in connection with or relating to

the Plan or any agreement or the Confirmation Order.

See id. But this list does not include this action, even though this action is specifically identified

and discussed elsewhere in the Plan. The Plan defines the instant action as the “Auditor/Lender

Claim”:

Any rights, claims, or causes of action that Secured Parties have or may have

against . . . Crowe LLP . . . that arise out of or relate in any way to the Secured

Parties relationship or transactions with the Debtors, including, without limitation,

the action captioned Cooperatieve Rabobank U.A., New York Branch v. Crowe

LLP, Case No. 2019-018945-CA-01 pending in the 11th Judicial Circuit Court for

Miami-Dade County, Florida.

The Plan at 49 of 124. The parties agree that this definition covers this action. See Lenders’

Memorandum in Further Support at 5; Defendant’s Opposition at 8. Given these facts, the

absence of this case from the 23 items specifically listed in Article 13 strongly undercuts a claim

of a knowing and voluntary waiver here. See Lenders’ Memorandum in Further Support at 4–5.

Defendant counters that the Lenders are “essentially invoking the doctrine of expressio

unius est exclusio alterius” (the mention of one thing implies the exclusion of the other) and

notes that the list is immediately preceded by the phrase “including but not limited to.”

Defendant’s Reply at 2. Thus, Defendant argues that the Court cannot conclude that the

Auditor/Lender Claim is definitively excluded from this Court’s jurisdiction. Id. But that is far

from clear in the text of the Plan. Moreover, the notion that the Lenders knowingly and

voluntarily waived their rights is at odds with the fact that the Lenders have consistently sought

to enforce their rights to mandatory abstention and remand since their initial filing of this motion

in Florida, even as the bankruptcy case moved forward towards confirmation of the Plan, which

contained the language at issue. See Lenders’ Memorandum at 6 (citing ECF Nos. 1-14, 1-18,

and 17). Thus, the Court concludes that the Defendant has not met its burden of establishing the

high bar of waiver. See Mooney, 219 F.3d at 131.4

II. Mandatory Abstention

Turning to the merits of the Lenders’ motion, they argue that abstention and remand to

the Florida State Court is mandated by 28 U.S.C. Section 1334(c)(2). See Lenders’

Memorandum at 3–4.

A. The Legal Standard

28 U.S.C. Section 1334(c)(2) requires federal courts to abstain from hearing non-core

bankruptcy matters concerning state law issues under certain circumstances. Specifically,

Section 1334(c)(2) provides:

Upon timely motion of a party 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

4 The Lenders also appear to argue that a decision by this Court waiving a right to mandatory abstention in

the Plan would be a “legally impermissible” expansion of the constitutional limits on the Court’s jurisdiction. See

Lenders’ Memorandum at 5–6. Because the Court finds that the Lenders did not waive their right to mandatory

abstention, the Court need not address this argument.

11 or arising in a case under title 11, with respect to which an action could not

have been commenced in a court of the United States absent jurisdiction under

this section, the district court shall abstain from hearing such proceeding if an

action is commenced, and can be timely adjudicated, in a State forum of

appropriate jurisdiction.

28 U.S.C. § 1334(c)(2).

Mandatory abstention requires six conditions to be satisfied: (1) the abstention motion is

timely, (2) the action is based on a state law claim, (3) the action is “related to” a bankruptcy

proceeding but does not “arise under” the Bankruptcy Code, (4) federal bankruptcy jurisdiction

is the sole basis of federal jurisdiction for the action, (5) the action was commenced in state

court, and (6) the action can be timely adjudicated in state court. See In re Residential Capital,

LLC, 519 B.R. 890, 902 (Bankr. S.D.N.Y. 2014); In re Bradlees, Inc., 311 B.R. 29, 34 (Bankr.

S.D.N.Y. 2004). The party opposing abstention bears the burden of showing that mandatory

abstention is not warranted. See In re AOG Entm't, Inc., 569 B.R. at 573.

As the parties do not dispute that the first five conditions required for mandatory

abstention are satisfied, see Lenders’ Memorandum at 8–14; Defendant’s Opposition at 9–21, the

Court will focus on the last factor of timely adjudication. The Second Circuit evaluates four

factors when considering timeliness:

(1) the backlog of the state court’s calendar relative to the federal court’s

calendar; (2) the complexity of the issues presented and the respective expertise of

each forum; (3) the status of the title 11 bankruptcy proceeding to which the state

law claims are related; and (4) whether the state court proceeding would prolong

the administration or liquidation of the estate.

Parmalat Capital Finance Ltd. v. Bank of America Corp., 639 F.3d 572, 580 (2d Cir. 2011).

In considering the first two factors, the Second Circuit has noted that timeliness “requires

a comparison of the time in which the respective state and federal forums can reasonably be

expected to adjudicate the matter.” Id. Thus, a court should consider the relative backlogs of the

state and federal court calendars. See id. A state court, however, may still be a timely forum,

even if it will require more time to adjudicate an action than a federal court, as long as the

bankruptcy proceedings will not be hindered by the delay. See Post Investors LLC v. Gribble,

2012 WL 4466619, at *5 (S.D.N.Y. Sept. 27, 2012); Allstate Ins. Co. v. Credit Suisse Securities

(USA) LLC, 2011 WL 4965150, at *7 (S.D.N.Y. Oct. 19, 2011). Where the legal issues in a case

are complex, the forum with more expertise in that area of law may be expected to adjudicate the

matter more quickly than the other forum. See Parmalat, 639 F.3d at 580. While federal courts

naturally have greater expertise in applying federal law, “this advantage dissipates for cases

alleging exclusively state claims.” Allstate Ins. Co. v. Ace Securities Corp., 2011 WL 3628852,

at *10 (S.D.N.Y. Aug. 17, 2011).

With regard to the third factor, the court must consider whether the state law claims need

to be quickly resolved because of an ongoing bankruptcy proceeding. See Parmalat, 639 F.3d at

581. In a Chapter 11 liquidation proceeding, like a Chapter 7 proceeding, timely adjudication

can be weighed relatively lightly because there is no reorganization plan and less administrative

urgency. See Joremi Enters., Inc. v. Hershkowitz (In re New 118th LLC), 396 B.R. 885, 895

(Bankr. S.D.N.Y. 2008) (“in ‘a chapter 11 case with a confirmed liquidating plan, where the

primary concern is the orderly accumulation and distribution of assets, the requirement of timely

adjudication is seldom significant’”); see also Silverman v. The City of New York (In re Leco

Enterprises, Inc.), 144 B.R. 244, 251 (S.D.N.Y. 1992). “If the lawsuit will not prolong the

administration of the bankruptcy case, it supports the position that it can be timely adjudicated in

state court.” In re AOG Entm't, Inc., 569 B.R. at 580.

Finally, in assessing the fourth factor, the court considers whether the state court

proceeding would prolong the administration of the estate. See Parmalat, 639 F.3d at 581. In so

doing, the Second Circuit has considered: “(i) whether the district court is concurrently charged

with administration of the bankruptcy estate; (ii) close connections between the defendants in the

action and the debtor; and (iii) the complexity of the litigation.” BCG Partners, Inc. v. Avison

Young (Canada), Inc., 919 F. Supp. 2d 310, 320 (S.D.N.Y. 2013).

B. Application of the Timeliness Factors

The first factor—the backlog of the state court’s calendar relative to the federal court’s

calendar—does not weigh either in favor of or against abstention and remand.

Defendant argues that this Court is the more efficient forum given the greater backlog in

the Florida State Court. See Defendant’s Opposition at 11–13. In support of this contention,

Defendant cites the 2019 Clearance Report for Florida’s Eleventh Judicial Circuit, which

contains statistics for the five most recent years available. Id. at 11–12 (citing Exhibit 1 [ECF

No. 23-1 at 11-1–11-7]). Defendant asserts that the report demonstrates that the state court has

not been keeping up with its caseload as the clearance rates for professional malpractice cases

have been well below 100% for the previous three years, and the rates for contract cases were

below 100% for four of the previous five years, with the most recent year at just 79.1%. Id. at

12. Defendant compares this information with Federal Judicial Caseload Statistics that show

clearance rates for bankruptcy cases and adversary proceedings in this District at over 100% for

four of the last five years, as well as declines of 14% for pending bankruptcy matters and 40%

for adversary proceedings. Id. at 12–13 (citing Exhibits 2 and 3 [ECF No. 23-1 at 42–50 of 53]

(statistics for years ending March 31, 2015 to March 31, 2019)).

By contrast, the Lenders argue that Florida’s backlog is smaller. See Lenders’

Memorandum at 9. Citing the same source as Defendant, the Lenders note that Florida’s

clearance rate for the last quarter of 2019 was over 100% both overall and for civil cases, id.,

while the clearance rate for adversary proceedings in this District fell to 65% in the year ending

on December 31, 2019, id. (citing http://www.uscourts.gov/file/27842/download (federal

statistics for the years ending on December 31 of 2018 and 2019, as opposed to March 31, 2015

to 2019 as cited by Defendant)). Essentially, the two sides disagree as to whether the Court

should consider the most recent statistics of 2019 or the statistical trends of the five years

culminating in 2019. Defendant correctly points out that Florida’s Clearance Rate Report

advises that “[c]learance rates statistically tend to be more volatile when measured over shorter

time periods[,] [t]hey should be compared over a period of five or more years to identify trends,”

and that the quarterly data cited by the Lenders for 2019 were not necessarily final as they “were

extracted from a dynamic data base and may be amended by the Clerk of Court.” ECF No. 23-1

at 11-1. As for the statistics in this District, Defendant contends that 2019 was a statistical

anomaly and is outweighed by the clearance rates of the preceding four years combined with the

reduction in this Court’s docket over that same time period. See Defendant’s Opposition at 13.

In response, the Lenders argue that, if remanded, this case would be tried in Florida’s

Complex Business Litigation Division, which has special rules designed to “avoid technical

delay, encourage civility, permit just and prompt determination of all proceedings, and promote

the efficient administration of justice.” Lenders’ Memorandum in Further Support at 10. The

Lenders concede that this division does not publish separate backlog statistics but reasonably ask

the Court “to infer that cases move faster in this specialized unit.” Id.

The Court notes that the COVID-19 pandemic may very well render the statistics cited

here to be woefully outdated. But based on what is currently before the Court, the evidence here

on this factor does not favor either party. In any event, the backlog in the respective courts is not

by itself determinative of the outcome here since the inquiry of whether a case can be timely

adjudicated in state court “cannot ‘turn exclusively on whether an action could be adjudicated

most quickly in state court.’” Parmalat Capital Fin. Ltd. v. Bank of Am. Corp., 671 F.3d 261,

267 (2d Cir. 2012) (quoting Parmalat, 639 F.3d at 580).

The second factor—the complexity of the issues presented and the respective expertise of

each forum—weighs in favor of abstention and remand. Defendant argues that this Court has the

most expertise in the relevant areas of law, as well as a greater familiarity with the record. See

Defendant’s Opposition at 14. Defendant relies on the fact that the Lenders’ negligence claims

are governed by New York law and that the facts of the instant case are the same as those in the

underlying bankruptcy case. See Defendant’s Opposition at 14. In discussing this second factor,

the Second Circuit has noted that, “[w]here the legal issues in a case are especially complex, the

forum with the most expertise in the relevant areas of law may well be expected to adjudicate the

matter in a more timely fashion relative to the other forum.” Parmalat, 639 F.3d at 580–81.

Neither party appears to contend that the issues presented in this case are “especially complex.”

See Lenders’ Memorandum in Further Support at 10; Defendant’s Opposition at 14–15.

Moreover, the Lenders assert that the Defendant ignores the threshold choice-of-law inquiry—

governed by Florida law—and the Florida Court is best positioned to determine which state’s

law applies under its own choice of law rules. See Lenders’ Memorandum in Further Support at

11. Indeed, this case came from Florida so “[a]t a minimum, the [Florida] court is the transferor

court, and [Florida] law will determine whether [Florida] or New York law governs the tort

claims.” See In re AOG Entm't, Inc., 569 B.R. at 582 (citing Van Dusen v. Barrack, 376 U.S.

612, 638–39 (1964)). Moreover, Florida law will determine the disposition of the Lenders’

cause of action under Florida’s Deceptive and Unfair Trade Practices Act. Although the issues

presented here do not appear to be especially complex, the Florida Court “may have greater

familiarity with the law governing” under the applicable Florida statute and “is undoubtedly

more familiar than this Court with [its own choice-of-law] rules.” See id. at 583. It is true that

the Plan and Intercreditor Agreement that serve as the background for this lawsuit are governed

by New York law.5 But Defendant “ha[s] not identified any ambiguity or explained why th[ese]

document[s] will have to be interpreted to resolve any . . . disputes” as to the accounting issues at

the core of this case. See id.

Defendant argues that this Court has the benefit of a greater familiarity with the record of

the bankruptcy case, where the Plaintiffs were the secured lenders of the Debtors and actively

participated in the case. See Defendant’s Opposition at 15. Defendant notes that the alleged

overvaluation of the Debtors’ inventory was purportedly the cause of both the bankruptcy and

the injuries here. Id. at 15–16. Defendant also cites to the Intercreditor Agreement. Id. But

Defendant fails to explain how the Court’s knowledge of the bankruptcy would inform this case.

Defendant does not point to—nor is the Court aware of—any litigation in the bankruptcy relating

to the overvaluation of the inventory—or any other issue—that would meaningfully assist the

Court in overseeing this dispute. Ultimately, the Court agrees with the Lenders’ contention that

the Court’s familiarity with the record extends only to debtor-creditor issues and not to the

Lenders’ claims against Defendant here. See Lenders’ Memorandum in Further Support at 12

(citing New York Commercial Bank v. Pullo, 2013 WL 494050, at *5 (Bankr. S.D.N.Y. Feb. 7,

5 The Lenders’ negligence claims here stem from the “Intercreditor Agreement.” Under this agreement, the

Lenders agreed to a common framework for providing ongoing loans to the Debtors. See ECF No. 1 at 27 of 173.

The complaint alleges that Defendant owed a duty of care to the Lenders because Defendant knew that the Debtors

would be providing statements audited by Defendant to the Lenders who would in turn provide credit or similar

lending arrangements to the Debtors under the Intercreditor Agreement. See ECF No. 1 at 30–32 of 173;

Defendant’s Opposition at 7–8. Defendant allegedly breached this duty by, among other things, negligently

inflating the Debtor’s inventory upon which the loans were based. Id. The complaint further alleges that this

overvaluation of the Debtor’s inventory led to a default under the agreement with the creditors and, ultimately, to the

Debtors’ bankruptcy. ECF No. 1 at 32–33 of 173; Defendant’s Opposition at 8. The Lenders also produced the

Intercreditor Agreement in the bankruptcy case. See Defendant’s Opposition at 7–8; ECF No. 761, Case No. 18-

13359 at 2–3.

2013) (Defendants “have not argued that the [ ] Bankruptcy Court has presided over any issue

connected with the Guarantee Agreements, will preside over any such issue, or has any

familiarity with those agreements, which are at the heart of the State Court Action.”)).

Moreover, the Lenders have already requested a jury trial, see Complaint [ECF No. 1 at

36 of 173], and have “not consent[ed] to entry of final orders or judgment by any bankruptcy

judge,” see Lenders’ Memorandum in Further Support at 13 (quoting ECF No. 1-8 (Lenders’

reply memorandum in support of its motion for abstention and remand filed in the Florida

District Court)). Thus, retaining the case would require a bifurcated proceeding, unlike

proceeding in state court.

Defendant lastly relies on the possibility of future litigation tied to the bankruptcy case.

More specifically, Defendant anticipates filing a contribution claim against the Debtors if this

adversary proceeding survives a motion to dismiss; Defendant argues that litigating this

anticipated claim here and the instant matter in Florida would be inefficient and duplicative. See

Defendant’s Opposition at 19. But such litigation is uncertain. No such contribution claim has

been filed, and it appears contingent on other events. Such a speculative claim against the

Debtors does not counsel against abstention. Cf. CAMOFI Master LDC v. U.S. Coal Corp., 527

B.R. 138, 144 (Bankr. S.D.N.Y. 2015) (denying permissive abstention because, among other

things, a jury trial had not yet been demanded and “the likelihood and effect of a jury demand

[wa]s speculative at th[at] point in the case”).6

6 The Lenders argue that any possible future contribution claim by Defendant would be barred by the Plan’s

Injunction and Bar Order and, in any event, would be untimely as it was not filed prior to the bar date. See Lenders’

Memorandum in Further Support at 13 & n.13. Of course, Defendant disagrees, arguing that such a claim would not

be barred or untimely. See Defendant’s Reply at 5 (citing SPV Osus Ltd. v. UBS AG, 882 F.3d 333, 340–41 (2d Cir.

2018)). In any event, the SPV Osus case relied upon by Defendant appears to be distinguishable. The issue there

was whether the bankruptcy court had “related to” jurisdiction due to the defendants’ “putative contribution claim”

against the debtor, which the Second Circuit found it did and thus declined to remand the case to state court. SPV

Osus, 882 F.3d at 339–41. The Court in SPV Osus was not presented with the question of whether mandatory or

The third factor—the status of the title 11 bankruptcy proceeding to which the state law

claims are related—clearly weighs in favor of abstention. This bankruptcy case is now a

liquidation proceeding and thus “there is no administrative urgency or plan of reorganization to

facilitate.” In re New 118th LLC, 396 B.R. at 894. Indeed, “[i]n deciding whether a matter may

be timely adjudicated, perhaps the single most important factor is the nature of the underlying

chapter [11] proceeding,” and where the related bankruptcy involves a liquidation plan, “timely

adjudication can be weighed relatively lightly.” Id. (quoting World Solar Corp. v. Steinbaum (In

re World Solar Corp.), 81 B.R. 603, 612 (Bankr. S.D.Cal. 1988)). This is true even though the

state law claim and any related contribution claim will be part of any liquidation. See id. at 895

(“in ‘a chapter 11 case with a confirmed liquidating plan, where the primary concern is the

orderly accumulation and distribution of assets, the requirement of timely adjudication is seldom

significant’”). And while Defendant argues that the state court has yet to take action in this case,

this Court would also be starting from scratch on the merits.

The fourth factor—whether the state court proceeding would prolong the administration

or liquidation of the estate—similarly weighs in favor of abstention. Defendant argues that

abstention would significantly prolong the liquidation of the estate given the Plan’s distribution

of damages to creditors, Defendant’s anticipated contribution claims against the Debtor here, and

the growing backlog of cases in the Eleventh Judicial Circuit in Florida. See Defendant’s

Opposition at 21–22. But once again, the Lenders correctly note that this factor is not significant

to a post-confirmation Chapter 11 liquidation plan. See Lenders’ Memorandum in Further

Support at 14 (citing Parmalat, 671 F.3d at 268–69). Moreover, if the Lenders prevail in state

court, “the litigation proceeds will be distributed in accordance with the Plan without any further

permissive abstention applied. Here, as discussed supra, the parties do not dispute that this action is “related to” the

bankruptcy proceeding.

involvement by the Court,” and “the bankruptcy case[ ] [can] be fully administered despite the

pendency of this action in the [Florida] State Court.” See In re AOG Entm't, Inc., 569 B.R. at

585.

Given this assessment of the timeliness factors and the lack of dispute as to the other five

conditions for mandatory abstention, the Court finds that abstention is mandated by 28 U.S.C.

Section 1334(c)(2). Given that abstention is mandatory, the Court does not need to address the

doctrines of permissive abstention or equitable remand here.7

CONCLUSION

For the foregoing reasons, the Court concludes that abstention is mandatory under 28

U.S.C. Section 1334(c)(2), and the Lenders’ motion is granted. The Lenders are directed to

settle an order on five days’ notice. The proposed order must be submitted by filing a notice of

the proposed order on the Case Management/Electronic Case Filing docket, with a copy of the

proposed order attached as an exhibit to the notice. A copy of the notice and proposed order

shall also be served upon counsel to the Defendant.

Dated: March 24, 2021

New York, New York

/s/ Sean H. Lane

UNITED STATES BANKRUPTCY JUDGE

7 Given the overlap of the factors in the tests for mandatory abstention, permissive abstention, and equitable

remand—and based the Court’s analysis above—the facts here also likely support relief to the Lenders under these

alternative theories. See In re WorldCom, Inc. Sec. Litig., 293 B.R. 308, 332 (S.D.N.Y. 2003) (listing the factors

considered in determining whether to abstain from hearing a state court proceeding under Section 1334(c)(1)); Rahl

v. Bande, 316 B.R. 127, 135 (S.D.N.Y. 2004) (noting that the factors considered in deciding whether to equitably

remand pursuant to Section 1452(b) are substantially similar to those considered when deciding whether to abstain

pursuant to Section 1334(c)(1)).