Diligent Enterprise Management, LLC v. AML Global Eclipse, LLC

Background

Diligent sued AML Global Eclipse, LLC; DWC Pine Investments I, Ltd.; and Alan Klapmeier, James Carroll, Steve Serfling, RJ Siegle, and Mike Wyse. The claims were brought in New York state court and concerned agreements involving the sale of loan obligations connected to ONE Aviation Corp. Diligent was the assignee of Citiking International US LLC’s claims.

Diligent alleged that DWC breached the Letter Agreement, the Continuing Obligations Agreement, and the Intercreditor Agreement by selling loan obligations to AML rather than delivering or assigning them to Citiking and by failing to honor Citiking’s right of first refusal. Diligent also asserted tortious-interference and civil-conspiracy claims against AML and DWC, as well as fraudulent-inducement and fraudulent-misrepresentation claims against the individual defendants. The claims related to events in and around ONE Aviation’s Chapter 11 bankruptcy proceedings in the District of Delaware.

The defendants removed the case to the Southern District of New York. Diligent moved to remand, meaning to return the case to state court. The defendants asked the court to transfer the case to the District of Delaware. Certain defendants also sought costs from an earlier lawsuit and sanctions for Diligent’s conduct in the earlier and current cases.

Remand

Judge Caproni held that all of Diligent’s claims were core bankruptcy proceedings. The court concluded that the breach-of-contract claims were sufficiently connected to the bankruptcy. In particular, the Letter Agreement was made after the bankruptcy began and was intended to facilitate a reorganization plan. The court also treated the claims involving the Continuing Obligations Agreement and the Intercreditor Agreement as core because of their connection to the bankruptcy proceedings and because the Intercreditor Agreement dispute had previously been raised in the Bankruptcy Court.

The court likewise held that the tort claims arose in the bankruptcy proceedings. The tortious-interference and civil-conspiracy claims challenged conduct involving the bankruptcy bidding process and the sale order. The fraud claims concerned alleged conduct related to the debtor-in-possession loan, the reorganization, estate assets, and business opportunities connected to the bankruptcy.

The court declined to return the case to state court based on discretionary abstention, which is a decision to refrain from hearing a case despite having jurisdiction. It concluded that the claims were closely intertwined with the bankruptcy and that keeping them in federal court supported efficient administration of the bankruptcy estate. The court therefore DENIED Diligent’s motion to remand.

Transfer

The court applied the bankruptcy transfer statute, 28 U.S.C. § 1412. It held that the District of Delaware was presumed to be the appropriate forum because the underlying bankruptcy case was pending there. The court also ruled that the New York forum-selection clauses did not prevent transfer because the claims were core bankruptcy proceedings and no non-core matters required separate treatment.

The court found that the relevant events largely occurred in Delaware, the bankruptcy proceedings remained ongoing, and the Delaware Bankruptcy Court was more familiar with the factual allegations and bankruptcy history. It concluded that the interests of justice and judicial economy favored transfer. The defendants’ motion to transfer was therefore GRANTED.

Costs and Sanctions

Under Federal Rule of Civil Procedure 41(d), a court may award costs from an earlier action when a plaintiff voluntarily dismisses that action and later files another action based on the same claims against the same defendant. Diligent had dismissed an earlier lawsuit without prejudice and filed a substantially identical lawsuit the same day. The court found that the rule applied and that Diligent’s conduct had been vexatious. The court therefore GRANTED the moving defendants’ motion for costs incurred in the earlier lawsuit.

The defendants also sought sanctions under Rule 11. Although they served the sanctions motion under Rule 11’s 21-day safe-harbor procedure, they did so after the court had already denied Diligent’s request for another dismissal without prejudice. Because the late service deprived Diligent of an opportunity to withdraw or correct the challenged filing, the court DENIED the motion for Rule 11 sanctions.

The court declined to stay the action until Diligent paid the earlier-action costs. It directed the parties to meet and confer about the amount of attorneys’ fees and costs, retained limited jurisdiction to enforce that award, and stated that an unresolved amount could be referred to a magistrate judge for a hearing. The Clerk was directed to transfer the case to the District of Delaware and terminate the identified motions.

Disposition

Diligent’s motion to remand was DENIED. The defendants’ motion to transfer was GRANTED. The moving defendants’ motion for costs under Rule 41(d) was GRANTED, and their motion for Rule 11 sanctions was DENIED. The opinion did not decide whether Diligent would ultimately prevail on its contract or tort claims.