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City of Del Rey Oaks v. Federal/Jer Associates, LLC

United States District Court, Ninth Circuit

June 18, 2013

CITY OF DEL REY OAKS, a public body, corporate and politic; and the REDEVELOPMENT AGENCY OF THE CITY OF DEL REY OAKS, a public body, corporate and politic, Plaintiffs and Cross-Defendants.
v.
FEDERAL/JER ASSOCIATES, LLC, a Delaware limited liability company; FEDERAL DEL REY ASSOCIATES, LLC, a Delaware limited liability company; et. al., Defendants and Cross-Complainants.

ORDER (Re: Docket No. 8)

PAUL S. GREWAL, Magistrate Judge.

On August 12, 2010, Plaintiffs City of Del Rey Oaks (the "City") and Redevelopment Agency of the City of Del Rey Oaks (the "RDA") (collectively, "Plaintiffs") sued Federal/JER Associates, LLC and Federal Del Rey Associates, LLC ("Federal") in state court for breach of contract, and Federal countersued. On March 26, 2013, Federal removed the case to this federal court. Plaintiffs now move to remand. Federal did not file an opposition, but special counsel appeared for oral argument on June 4, 2013. Although the City has consented to magistrate judge jurisdiction, Federal has not yet filed consent. IT IS HEREBY ORDERED that the case be referred to this district's bankruptcy court with the recommendation that the case be transferred to the Bankruptcy Court for the District of Delaware.[1]

I. BACKGROUND[2]

Beginning in 2003, Plaintiffs and Federal entered into an Agreement to Negotiate Exclusively ("ANE") regarding the development of approximately 360 acres at the former Fort Ord in Del Rey Oaks (the "Project"). The ANE was amended in 2004. In 2005, Plaintiffs and Federal entered into an Option Agreement granting Federal an option to acquire the site. In February 2006, the City entered into a Development Agreement and Development Disposition Agreement with Federal. In order for the development of the site to succeed, the parties had to secure an agreement with the Monterey Regional Pollution Control Agency ("MRWPCA") and Marina Coast Water District ("MCWD") for delivery of water to the project site. For reasons that are unclear from the parties' papers, development under the agreements never occurred.

Federal alleges that Plaintiffs failed to act in good faith because they did not assist Federal in obtaining the water delivery agreement from MRWPCA and MCWD. Additionally, Federal believes that Plaintiffs were also negotiation with other parties interested in developing the site, in violation of the ANE, the Option Agreement, the DA, and the DDA. Federal asks for $17 million dollars in damages, or in the alternative for specific performance, rescission, or other equitable remedies.

Plaintiffs allege that Federal breached the ANE by falling behind in making the contracted insurance payments which Plaintiffs then made on behalf of Federal. Further, Plaintiffs allege Federal breached the contract by failing to diligently develop the project and missing specific deadlines for the completion of tasks and obtaining approvals as required by the contracts. Plaintiffs claim they have lost over a million dollars from Federal's breach.

Plaintiffs originally filed this action against Federal on August 12, 2010, in Monterey County Superior Court, alleging breach of contract, breach of the implied covenant of good faith and fair dealing, declaratory relief, and breach of the insurance contract.[3] Federal counterclaimed, alleging breach of the same contract, breach of implied covenant of good faith and fair dealing, violation of governmental mandatory duties, promissory estoppel, and unjust enrichment.[4]

Trial was set for March 25, 2013, but in late February, Federal's attorneys filed to disassociate from the case.[5] The state court then issued an Order to Show Cause as to why Federal's answer should not be stricken and its cross-complaint dismissed, whether Federal's attorneys were properly disassociated, and whether monetary and evidentiary sanctions against Federal were warranted.[6] On March 22, 2013, Belmont Rock Holdings, LLC (formerly known as Federal) filed for Chapter 11 bankruptcy in the United States Bankruptcy Court of Delaware.[7] On the first day of the scheduled trial, Federal specially appeared to inform the court of its bankruptcy action.[8] The next day, on March 26, 2013, Federal removed the case pursuant to 28 U.S.C. §§ 1452 and 1334.[9]

After removal, the case was assigned to the undersigned. On April 16, 2013, Plaintiffs filed the present motion to remand the case back to state court.[10] Federal did not file a response and it is unclear whether it is still represented by counsel in this action.[11]

II. LEGAL STANDARDS

When a debtor files for bankruptcy under title 11, Section 362(a) imposes an automatic stay "to protect the estate from being depleted by creditors' lawsuits and seizures of property and provide the debtor breathing room to reorganize."[12] The stay does not, however, prevent the debtor from prosecuting his own claims, or a defendant from protecting against those claims, even if defendant's successful defense would result in depletion of the debtor's assets.[13]

Pursuant to 28 U.S.C. § 1452, "any claim or cause of action in a civil action" may be removed "to the district court for the district where such civil action is pending, if such district court has jurisdiction of such claim or cause of action under section 1334."[14] Section 1334 provides that the federal district courts have "original and exclusive jurisdiction of all cases under title 11." Further, district courts also have "original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11."[15] Matters that "arise under" title 11 are known as "core proceedings in that they "are those administrative matters that are not based on any right expressly created by Title 11 but, nevertheless, would have no existence outside of the bankruptcy."[16] By contrast, proceedings are "related to" a bankruptcy matter "where the outcome [of the civil proceeding] could conceivably have ...


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