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Kansas Asphalt, Inc. v. BRE DDR Merriam Town Center, LLC

United States District Court, District of Kansas

February 13, 2014

KANSAS ASPHALT, INC., Plaintiff,
v.
BRE DDR MERRIAM TOWN CENTER, LLC, DDR MDT SHOPPERS WORLD, LLC, WELLS FARGO BANK, N.A. and CITIBANK, N.A., Defendants. BRE DDR MERRIAM TOWN CENTER, LLC, and DDR MDT SHOPPERS WORLD, LLC, Third-Party Plaintiffs,
v.
CONTROL BUILDING SERVICES, INC., CONTROL EQUITY GROUP, INC., EDWARD TUREN and NEAL TUREN, Third-Party Defendants.

MEMORANDUM AND ORDER

Kathryn H. Vratil United States District Judge

This case comes before the Court on Plaintiff Kansas Asphalt, Inc.’s Motion To Remand, Or, In The Alternative, Plaintiff’s Motion To Sever Plaintiff’s Claims And Remand To District Court Of Johnson County, Kansas (Doc. #5) and Third-Party Plaintiffs BRE DDR Merriam Town Center, LLC and DDR MDT Shoppers World, LLC Motion To Remand And/Or Abstain (Doc. #7) both filed July 11, 2013. Also before the Court are Defendants Control Building Services, Inc. and Control Equity Group, Inc.’s Motion To Transfer [To The United States District Court For The District Of New Jersey] (Doc. #13) filed August 1, 2013 and Third-Party Defendant Neal Turen’s Motion To Dismiss For Lack Of Jurisdiction And Service Of Process (Doc. #26) filed September 20, 2013. For reasons set forth below, the Court finds that the case should be remanded to the District Court of Johnson County, Kansas.

Background

On April 9, 2013, Kansas Asphalt filed suit in state court against BRE DDR Merriam Town Center, LLC (“BRE”) and DDR MDT Shoppers World, LLC (“MDT”) (collectively, “DDR”). Kansas Asphalt alleged breach of contract and related state law claims and sought to enforce a mechanic’s lien arising from defendants’ alleged failure to pay for labor, services and materials which Kansas Asphalt had provided under contract.

On May 31, 2013, defendants filed an answer and third-party complaint against Control Building Services, Inc. (“CBS”), Control Equity Group, Inc. (“CEG”), Edward Turen and Neal Turen. CEG is a Delaware corporation with its principal place of business in Secaucus, New Jersey. CEG is the corporate parent of several affiliated companies, including CBS and Oxford Building Services, Inc. (“Oxford”). Oxford is not a party to this action.

The third-party complaint alleges as follows:

Edward Turen, a New Jersey resident, is chairman, CEO and principal shareholder of CEG and CBS, and CEO and a principal shareholder of Oxford. Neal Turen, a New Jersey resident, is Executive Vice President of CEG and CBS, and CEO and a principal shareholder of Oxford.

DDR alleges that it entered into an agreement with Oxford to coordinate contracting, oversight and payment of vendors to perform facility maintenance work at DDR properties. Under the agreement, vendors who performed services at DDR properties provided invoices to Oxford, which then invoiced DDR. DDR alleges that at some point, CEG and its affiliates, at the direction of the Turens, took out a revolving credit facility, using as collateral bank accounts. One such account was one in which DDR placed funds for Oxford to pay vendors. Pursuant to the revolving credit account, the lender took a security interest in all of the borrowing entities’ assets. Under this arrangement, Oxford’s operating accounts were maintained as zero-balance accounts, which CEG swept on a daily basis to service the revolving credit facility. Thus, without DDR’s knowledge, CEG and its affiliates used monies paid to Oxford to service their own debt obligations instead of paying DDR services providers, including plaintiff. CEG and its affiliates eventually lost their borrowing base and could no longer service their debt. Oxford stopped paying invoices for work provided at DDR properties. At the Turens’ direction, however, Oxford continued to issue DDR invoices to obtain funds from DDR, knowing that the funds would not be used to pay DDR vendors but would be swept by CEG to service debt. As a result, approximately $11.1 million of Oxford invoices went unpaid, and vendors such as Kansas Asphalt sought recourse from DDR.

On February 26, 2013, Oxford filed a Chapter 11 bankruptcy petition in the United States Bankruptcy Court for the District of New Jersey.

As noted, on April 9, 2013, Kansas Asphalt filed suit against the DDR entities in Kansas state court. DDR then filed third-party state law claims – for breach of the guaranty agreement against CBS; for civil conspiracy and tortious interference[1] against CEG, CBS, Edward Turen and Neal Turen; and for conversion and fraud against CEG, Edward Turen and Neal Turen.

On July 5, 2013, CBS and CEG filed a Notice Of Removal.[2] Under 28 U.S.C. §§ 1334, 1441 and 1452, they assert that the case may be removed because it is related to the Chapter 11 bankruptcy proceeding of Oxford which is currently pending in the Bankruptcy Court in New Jersey, Case No. 13-13821-MS.

Legal Standards

Section 1452, under which third-party defendants CBS and CEG removed this action from state court, permits removal of any claim or cause of action to the federal district court if such court has jurisdiction over the suit pursuant to Section 1334. See 28 U.S.C. § 1452(a). Section 1334(a) gives district courts jurisdiction over “all cases under title 11 [of the Bankruptcy Code], ” and “all civil proceedings arising under title 11, or arising in or related to cases under title 11.” Id. § 1334(a), (b).

Kansas Asphalt asks the Court to remand, arguing that bankruptcy removal statutes do not apply because this action is not sufficiently related to a federal bankruptcy proceeding, and that this Court therefore lacks subject matter jurisdiction under Section 1334(a) and (b) and Section 1452(a). Plaintiff also seeks remand under the mandatory abstention doctrine, see Section 1334(c)(2), because the original complaint did not qualify for diversity or federal question jurisdiction. Finally, Kansas Asphalt also seeks remand under the ...


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