United States District Court, N.D. Illinois, Eastern Division
September 22, 2004.
JONATHAN H. PISER, individually; and R. SCOTT ALSTERDA, as Trustee for the Bankruptcy Estate of NEWWORLDAIR HOLDINGS, INC., a Delaware corporation, Plaintiffs,
LUNN PARTNERS, LLC, a Delaware limited liability company; INDIGO D-2 INVESTORS, LLC, a Delaware limited liability company; INDIGO D-2 INVESTORS, INC., a Delaware corporation; and ROBERT J. LUNN, individually, Defendants.
The opinion of the court was delivered by: JOHN W. DARRAH, District Judge
MEMORANDUM OPINION AND ORDER
Plaintiffs, Jonathan H. Piser and R. Scott Alsterda, as Trustee
(the "Trustee") for the Bankruptcy Estate of New WorldAir
Holdings, Inc. ("New WorldAir"), filed a seven-count Second
Amended Complaint against Defendants, Lunn Partners, LLC ("Lunn
Partners"); Indigo D-2 Investors, LLC ("Indigo LLC"); Indigo D-2
Investors, Inc. ("Indigo Inc."); and Robert J. Lunn. Presently
before the Court are two motions: (1) Robert J. Lunn's Motion to
Dismiss Counts IV, V, VI, and VII of Plaintiffs' Verified Second
Amended Complaint; and (2) the remaining Defendants' Motion to
Dismiss Counts VI and VII of Plaintiffs' Verified Second Amended
Lunn seeks to dismiss Count IV of Plaintiffs' Second Amended
Complaint for failure to state a claim; in response, Plaintiffs
have voluntarily dismissed this cause of action. Defendants also seek to dismiss Counts V, VI, and VII. These counts are all
state law claims originally brought by Piser, a New WorldAir
stockholder, as derivative claims on behalf of NewWorldAir and
arise out of Lunn's efforts to direct the assets of NewWorldAir
and its stockholders to Lunn and entities under Lunn's control.
Counts V, VI, and VII are now asserted by the Trustee.
The facts, for the purposes of this motion, are as follows. On
August 19, 2003, NewWorldAir, which owned and operated a
commercial-scheduled charter airline service, filed a bankruptcy
petition. Later that same day, Piser filed his Complaint against
Defendants and brought a number of claims, including the
derivative claims at issue in these motions, against Defendants.
Thereafter, amended complaints were filed in this action, and the
Trustee replaced Piser as Plaintiff in connection with Counts V,
VI, and VII. NewWorldAir's bankruptcy matter is currently
Defendants argue that Counts V, VI, and VII should be dismissed
because once NewWorldAir filed for bankruptcy, the bankruptcy
court, and not the district court, obtained jurisdiction over the
derivative claims at issue in this motion. Specifically,
Defendants contend that Piser had no standing to bring his
derivative claims because NewWorldAir filed for bankruptcy before
Piser filed his claims. Defendants further argue that because the
derivative claims are related to the bankruptcy matter,
jurisdiction over these claims lies in the bankruptcy court. In response, the Trustee contends Federal Rule of Bankruptcy
Procedure 6009 allows him to prosecute pending claims on behalf
of NewWorldAir in any forum. See Cable v. Ivy Tech State
College, 200 F.3d 467, 472 (7th Cir. 1999).
"It has long been held that rights of action against officers,
directors and shareholders of a corporation for breaches of
fiduciary duties, which can be enforced by either the corporation
directly or the shareholders derivatively before bankruptcy,
become property of the estate which the trustee alone has the
right to pursue after the filing of a bankruptcy petition." Koch
Ref. v. Farmers Union Cent. Exch., Inc., 831 F.2d 1339, 1343
(citations omitted). Here, NewWorldAir filed for bankruptcy
before Piser filed his Complaint asserting the derivative claims;
therefore, those claims were not pending before the bankruptcy
court. Accordingly, only the Trustee has the right to pursue
Moreover, Counts V, VI, and VII are related to NewWorldAir's
bankruptcy case. Under 28 U.S.C. § 1334(b), "the district courts
shall have original but not exclusive jurisdiction of all civil
proceedings arising under title 11, or arising in or related to
cases under title 11." "A `related' claim is a claim involving
the debtor or a third party that is based on non-bankruptcy law,
typically a state law claim, which will impact the estate of the
debtor or the allocation of property among creditors." Bear
Stearns Sec. Corp. v. Cho, No. 02 C 4419, 2002 WL 31101658, at
*2 (N.D. Ill. Sept. 17, 2002) (Cho).
In this case, Defendants argue that "[t]here can be no dispute
that, should the Trustee recover on his [derivative] claims, that
recovery would become property of NewWorldAir's bankruptcy estate and allocated among New WorldAir's creditors."
(Lunn's Mem. of Law in Support of Mot. to Dismiss, at 5). The
Trustee presents no argument to the contrary. Therefore, Counts
V, VI, and VII are related to NewWorldAir's bankruptcy matter.
The Trustee also argues that jurisdiction over Counts V, VI,
and VII is proper in the district court based on supplemental
jurisdiction, pursuant to 28 U.S.C. § 1367. However, instead of
exercising supplemental jurisdiction, a district court should
defer jurisdiction of claims "related to cases under title 11" to
bankruptcy courts under 28 U.S.C. § 157. See Nat'l Tax Credit
Partners v. Havlik, 20 F.3d 705, 709 (7th Cir. 1994).
Dismissal of these claims, though, is not warranted. Instead,
claims related to a bankruptcy proceeding under § 1334(b) are
automatically referred to the bankruptcy court for this district.
28 U.S.C. § 157(a); Internal Operating Procedure 15(a) for the
Northern District of Illinois; Cho, 2002 WL 31101658, at *2;
Citibank v. Park-Kenilworth, 109 B.R. 321, 325 (N.D. Ill.
1989). Accordingly, Counts V, VI, and VII are referred to the
For the foregoing reasons, Defendants' Motion to Dismiss is
granted. Counts V, VI, and VII are referred to the bankruptcy
court. Count IV is voluntarily dismissed.
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