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Hanover Ins. Co. v. Cape Fear Paving, LLC

United States District Court, E.D. North Carolina, Southern Division

May 7, 2015

THE HANOVER INSURANCE COMPANY, Plaintiff,
v.
CAPE FEAR PAVING, LLC, et al., Defendants

Decided May 5, 2015

For The Hanover Insurance Company, Plaintiff: Melissa J. Hughes, LEAD ATTORNEY, Robert W. Miller, Jeffrey S. Price, Manier & Herod, P.C., Nashville, TN.

For Cape Fear Paving, LLC, Defendant: Kyle J. Nutt, LEAD ATTORNEY, Shipman and Wright, LLP, Wilmington, NC.

For Mast Development, LLC, Defendant: George B. Mast, LEAD ATTORNEY, Mast, Mast, Johnson, Wells & Trimyer, P.A., Smithfield, NC; Lily Blair Rivers Van Patten, Mast Law Firm, Smithfield, NC.

For Teresa Graham, Defendant, Counter Claimant: Joseph Z. Frost, LEAD ATTORNEY, Stubbs & Perdue, P.A., Raleigh, NC; Matthew W. Buckmiller, LEAD ATTORNEY, Shipman and Wright, LLP, Wilmington, NC; Trawick H. Stubbs, Jr., LEAD ATTORNEY, Stubbs & Perdue, PA, New Bern, NC.

For The Hanover Insurance Company, Counter Defendant: Jeffrey S. Price, Manier & Herod, P.C., Nashville, TN.

ORDER

TERRENCE W. BOYLE, UNITED STATED DISTRICT JUDGE.

This matter is before the Court on defendant Theresa Graham's motion for a referral to the United States Bankruptcy Court for the Eastern District of North Carolina. [DE 24], Plaintiff has responded and the matter is ripe for ruling. For the following reasons, defendant's motion is DENIED.

BACKGROUND

On November 24, 2014, plaintiff Hanover Insurance Company (Hanover) filed a complaint for indemnity and equitable relief asserting claims against Cape Fear Paving, LLC (Cape Fear Paving), Mast Development, LLC (Mast) and Ms. Theresa Graham (Graham). The complaint is based upon two indemnity agreements in favor of Hanover dated August 26, 2005, and August 9, 2011. The 2005 indemnity agreement was executed by Cape Fear Paving, Mast, Graham, James Keith Stark (Stark), B& K Coastal, LLC (B& K), Riverfront Company, LLC (Riverfront), and Malmo Asphalt Plant, LLC (Malmo Asphalt). The 2011 indemnity agreement was executed by Cape Fear Paving, Stark, B& K, Malmo Asphalt, and Riverfront. On November 9, 2011, and August 20, 2013, respectively, B& K and Stark filed separate petitions seeking relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of North Carolina. Hanover has filed proofs of claim in both bankruptcy cases. Each proof of claim is based upon the 2005 indemnity agreement, the 2011 indemnity agreement, and Hanover's common law right of indemnification, and each asserts a claim in the amount of approximately $1.5 million with a liquidated amount of approximately $100,000.00.

Mast filed a proof of claim in the B& K bankruptcy case based upon two notes under which approximately $2 million is allegedly due and owing. This proof of claim did not mention either the 2005 or 2011 indemnity agreement or any contribution action against B& K and Stark. Graham filed a proof of claim in the Stark bankruptcy case based upon her complaint against Stark in the New Hanover County District Court. This claim is filed in an unknown amount, and does not mention the 2005 or 2011 indemnity agreement or any contribution action against B& K and Stark. Graham subsequently filed the instant motion seeking a referral to Bankruptcy Court.

DISCUSSION

This Court has original jurisdiction over bankruptcy matters and those proceedings related to them. 28 U.S.C. § § 1334(a), (b). Pursuant to 28 U.S.C. § 151, a bankruptcy court may exercise the district court's subject matter jurisdiction over bankruptcy proceedings and cases referred by the district court. The subject matter jurisdiction of bankruptcy courts is bifurcated into core and non-core proceedings. Core proceedings either arise under the Bankruptcy Code or arise in a case under the Bankruptcy Code. 28 U.S.C. § 157(b)(1). Non-core proceedings are proceedings that are otherwise related to the bankruptcy case. § 157(b)(2)(C). A bankruptcy court may issue a final judgment on a core proceeding, which is subject to appellate review by a district court, but a bankruptcy court may only issue proposed findings of fact and conclusions of law in a non-core proceeding, which are subject to de novo review by the district court. Executive Benefits Ins. Agency v. Arkinson, 134 S.Ct. 2165, 2171-72, 189 L.Ed.2d 83 (2014).

A proceeding is a core proceeding " if it invokes a substantive right provided by title 11 or if it is a proceeding, that by its nature, could arise only in the context of a bankruptcy case." Wood v. Wood (In re Wood), 825 F.2d 90, 97 (5th Cir. 1987). A proceeding arising under the bankruptcy code " involve[s] a cause of action created or determined by a statutory provision of title 11," while proceedings arising in a bankruptcy are those that " would have no existence outside of bankruptcy." Id. at 96-97. This is an indemnity complaint that is in federal court only on the basis of diversity of citizenship. None of the counts in the complaint nor the defenses alleged in the answers are created by the Bankruptcy Code. This indemnity case could have been brought in state court as a stand-alone claim absent the diversity of citizenship between the parties. Because this ...


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