United States District Court, N.D. Alabama, Southern Division
THOMAS E. REYNOLDS, as Trustee, Plaintiff,
BEHRMAN CAPITAL IV L.P., et al., Defendants.
MEMORANDUM OPINION AND ORDER
ANNEMARIE CARNEY AXON UNITED STATES DISTRICT JUDGE.
matter comes before the court on Plaintiff's motion to
remand this case under 28 U.S.C. § 1447 or, in the
alternative, to abstain or refer the case to the bankruptcy
court. (Doc. 26). For the reasons set out below, the court
GRANTS IN PART and DENIES IN
PART the motion.
court concludes that, under 28 U.S.C. § 1334(b), it has
original jurisdiction over every claim in the complaint
because each claim either arises under the Bankruptcy Code,
or arises in or relates to a case under the Bankruptcy Code.
Having determined that the court has original jurisdiction
over the case, the court next sua sponte
SEVERS Counts One through Seven, Counts
Eight through Ten, and Counts Eleven through Thirteen,
because they are misjoined.
court finds that neither mandatory nor permissive abstention
preclude it from considering Counts One through Seven or
Eleven through Thirteen, but mandatory abstention requires it
to abstain from considering Counts Eight through Ten. As a
result, the court DENIES the motion to
remand Counts One through Seven and Eleven through Thirteen,
but GRANTS the motion to remand Counts Eight
the court considers whether to refer Counts One through Seven
and Eleven through Thirteen to the bankruptcy court. Because
consideration of those counts may involve a determination of
non-bankruptcy federal law, the court DENIES
the request to refer those counts to the bankruptcy court.
March 2018, Plaintiff Thomas Reynolds, as Chapter 7 trustee
of the estates of Atherotech Inc. and Atherotech Holdings,
filed this lawsuit in the Circuit Court of Jefferson County,
Alabama, naming thirty-two defendants. (See Doc. 1-1
at 9-40). For ease of reference, the court divides the
defendants into three groups: the “Investors, ”
“Behrman Management, ” and “Mintz
Holdings was the sole shareholder of Atherotech Inc.
(Id. at 16). In turn, the Investors are all
companies or board members of companies that were
shareholders of Atherotech Holdings: Behrman Capital IV, LP;
Behrman Brothers IV, LLC; MidCap Financial Investment, LP;
AXA Primary Fund America IV, LP; AXA Private Capital I, LP;
Core Americas/Global Holdings, LP; CS Strategic Partners IV
Investments, LP; Global Fund Partners II, LP; MetLife
Insurance Company of Connecticut; Partners Group Direct
Investments 2006, LP; Partners Group Global Opportunities
Subholding Limited; PE Holding USD Gmbh; Portfolio Advisors
Secondary Fund, LP; Stepstone Private Equity Partners III
Cayman Holdings, LP; StepStone Private Equity Partners III
LP; the Governor an Company of the Bank of Ireland; Varma
Mutual Pension Insurance Company; ASF III Bluenote Limited;
the Douglas E. Behrman Trust; the Kimberly E. Behrman Trust;
Amanda Zeitlin; Greg Behrman; Gregory Chiate; Gary Dieber;
Mark Grimes; Simon Longergan; William Matthes; Michael
Rapport; Padyut Shah; and Jeffrey Wu. (Id. at
remaining sets of defendants are made up of a single
defendant each. Behrman Management is Behrman Brothers
Management Corporation, which provided financial and
operational advice to Atherotech Inc. (Doc. 1-1 at 19). And
Mintz Levin is Mintz, Levin, Cohn, Ferris, Govsky, and Popeo,
PC., a law firm that represented Atherotech Inc.
(Id. at 27).
complaint alleges that Atherotech Inc. operated a laboratory
that conducted testing on blood cholesterol levels.
(Id. at 20). Atherotech Inc. would pay physicians
who ordered such testing a processing and handling fee, also
known as a P&H fee. (Id.). Beginning in 2011,
Behrman Management advised Atherotech Inc. to grow by
increasing direct sales to physicians, a plan that Berhman
Management knew would require Atherotech Inc. to pay P&H
fees. (Id. at 21).
Medicare rules and regulations prohibit the payment of
P&H fees, Atherotech Inc. would nevertheless submit
claims that included the payment of those fees to Medicare
and other federal healthcare programs. (Id. at
20-21). Mintz Levin advised Atherotech Inc. to report its
competitors' payments of P&H fees to the Department
of Justice and, although Mintz Levin “knew or should
have known that Atherotech's practice of paying P&H
fees put Atherotech at risk of violating the False Claims
Act, ” it failed to advise Atherotech Inc. to stop
making those payments. (Id. at 27-29).
2012, the Department of Justice began to investigate
Atherotech Inc.'s payments of P&H fees for violation
of the federal False Claims Act, 31 U.S.C. §§
3729-3730, and the federal Anti-Kickback Statute, 42 U.S.C.
§ 1320a-7b. (Id. at 21, 28). In 2013, while the
Department of Justice investigation was ongoing, Atherotech
Inc.-already insolvent in light of contingent liabilities for
violations of the False Claims Act-executed a dividend
recapitalization under which it paid Atherotech Holdings'
shareholders millions of dollars. (Id. at 23-24,
26). But until June 2014, Berhman Management continued to
advise Atherotech Inc. to continue paying physicians P&H
fees. (Id. at 22). By July 2014, Atherotech could no
longer pay P&H fees and its revenues decreased
significantly. (Id. at 29).
March 2016, Atherotech Inc. and Atherotech Holdings filed for
bankruptcy. (Id. at 16-17). Among other creditors,
Mintz Levin filed a claim against Atherotech Inc.
(Id. at 29). The bankruptcy court appointed Mr.
Reynolds as the Chapter 7 trustee for Atherotech Inc. and
Atherotech Holdings. (Id. at 16).
Reynolds filed this lawsuit, asserting the following sets of
claims. The first set (Counts One through Seven) asserts
against various combinations of the Investors claims of
intentionally fraudulent transfer, constructively fraudulent
transfer, and recovery of fraudulent transfer, citing the
Bankruptcy Code and Alabama law. (Doc. 1-1 at 30-34).
Specifically, Counts One, Two, and Three allege intentionally
fraudulent transfer and constructively fraudulent transfer
under 11 U.S.C. § 544 and Alabama law. (Id. at
30-32). Counts Four, Five, Six, and Seven seek recovery of
fraudulent transfer under 11 U.S.C. § 550(a)(1) and
(a)(2). (Id. at 32-34). This first set of claims
relates to Atherotech Inc's payment of the dividend to
its investors. (Id.).
second set (Counts Eight though Ten) asserts against Behrman
Management state law claims of negligence, breach of
contract, and breach of fiduciary duty. (Id. at
34-37). Those claims all relate to Behrman Management's
advice about the amount of debt and equity that Atherotech
Inc. should maintain, the advisability of paying out the
dividend in 2013, and the business strategy of paying P&H
fees to physicians. (Id.).
final set (Counts Eleven through Thirteen) asserts against
Mintz Levin state law claims of unjust enrichment and
negligence, and an objection to Mintz Levin's bankruptcy
claim. (Id. at 37-39). Those claims all relate to
Mintz Levin's failure to advise Atherotech Inc. to stop
paying P&H fees. (Id.).
removed the case to this court under 28 U.S.C. §
1441(a), contending that the court has federal question
jurisdiction because, although each cause of action alleged
is one of state law, to prevail on each claim Mr. Reynolds
will have to prove that Atherotech Inc. violated the
Anti-Kickback Statute or the False Claims Act. (Doc. 1 at
3-4). See Grable & Sons Metal Prods., Inc. v. Darue
Eng'g & Mfg., 545 U.S. 308, 312 (2005)
(“[I]n certain cases federal-question jurisdiction will
lie over state-law claims that implicate significant federal
issues.”). They also argue that the court has federal
question jurisdiction because Counts One through Seven arise
under the Bankruptcy Code. (Doc. 1 at 10). Finally, they
assert that removal is proper under 28 U.S.C. § 1452(a)
because the court has jurisdiction under 28 U.S.C. §
1334(b), which provides “original but not exclusive
jurisdiction of all civil proceedings arising under title 11,
or arising in or related to cases under title 11.”
(Doc. 1 at 11). Title 11, of course, is the Bankruptcy Code.
law permits defendants to remove “any civil action
brought in a State court of which the district courts of the
United States have original jurisdiction.” 28 U.S.C.
§ 1441(a). Of relevance to this case, federal courts
have original jurisdiction if (1) the action “aris[es]
under the Constitution, laws, or treaties of the United
States, ” 28 U.S.C. § 1331; (2) the case
“aris[es] under title 11, or aris[es] in or relate[s]
to cases under title 11, ” 28 U.S.C. § 1334(b); or
(3) the amount in controversy exceeds $75, 000 and the
parties are completely diverse, 28 U.S.C. § 1332(a).
court notes that Defendants do not-and cannot-assert that the
court has diversity jurisdiction, because at least some of
the defendants share their Delaware citizenship with Mr.
Reynolds. (See Doc. 1-1 at 10-15). Instead,
they contend that the court has federal question jurisdiction
under § 1331 because the state law claims are all based
on purported violations of federal law. (Doc. 1 at 3- 10). In
the alternative, Defendants assert that the court has federal
question jurisdiction over Counts One through Seven under
§ 1334(b). (Id. at 10-12).
Reynolds moves to remand the case to the Jefferson County
Circuit Court. (Doc. 26). He contends that the court lacks
subject matter jurisdiction because his claims do not involve
an “actually disputed and substantial” question
of federal law, as he can prevail even without proving a
violation of any federal statute. (Id. at 6-12). And
he argues that, although 28 U.S.C. § 1334(b) confers
original jurisdiction on the court, § 1334(c)(2)
requires the court to abstain from hearing the case.
(Id. at ...