Morgan v. Worldview Entertainment Holdings Inc.

Background

Hoyt David Morgan sued Worldview Entertainment entities and individuals in New York State Supreme Court in 2014. Morgan alleged that the defendants breached an agreement under which he would serve as an executive vice president and chief financial officer, receive an executive-producer credit for the film Birdman, and receive other benefits. Morgan also made equity investments in films.

In 2016, Worldview entities and Molly Conners brought third-party claims against Christopher Woodrow, who had been Worldview Inc.’s chief executive officer, and against Goetz Fitzpatrick LLP and Aaron Boyajian. The claims against the lawyers involved alleged malpractice and breach of fiduciary duty. The claims against Woodrow involved alleged negligence and breach of fiduciary duty based on his role in causing Worldview entities to enter into an agreement involving Worldview Entertainment Partners VII, LLC.

The first-party claims were discontinued with prejudice in December 2016, but the third-party claims remained. The New York State Supreme Court dismissed those third-party claims in 2017. In March 2019, the Appellate Division reinstated the negligence and breach-of-fiduciary-duty claims against the lawyers and reinstated Partners VII’s breach-of-fiduciary-duty claim against Woodrow.

Removal and Motions

On March 14, 2019, Woodrow filed a Chapter 7 bankruptcy case in the United States Bankruptcy Court for the Central District of California. The state-court proceedings against him were automatically stayed. The plaintiffs then filed a bankruptcy-court proceeding seeking a ruling that Woodrow’s debts were not dischargeable, restating allegations from this action.

Woodrow removed the state-court action to the Southern District of New York under 28 U.S.C. §§ 1334 and 1452(a). The first-party defendants and third-party plaintiffs moved to remand, meaning to return the case to state court. Woodrow opposed remand and cross-moved to transfer the entire action to the California bankruptcy court.

Court’s Analysis

The court followed the reasoning of its opinion in a related case, identified by docket number 19-cv-6519. It concluded that the bankruptcy automatic stay did not prevent Woodrow from removing the action or prevent the federal court from deciding the pending motions.

The court held that it lacked subject-matter jurisdiction—the legal authority to hear—over the non-debtor claims against Goetz Fitzpatrick LLP and Boyajian. It held that it did have jurisdiction over the still-active breach-of-fiduciary-duty claim against Woodrow.

The court nevertheless held that the claim against Woodrow was subject to mandatory abstention, permissive abstention, and equitable remand. In other words, the court concluded that bankruptcy-related abstention rules and fairness considerations required that claim, along with the rest of the action, to be handled in state court. The court also explained that diversity jurisdiction did not provide an alternative basis for removal and that the removal occurred roughly five years after the state action began.

Disposition

The motions to remand were granted. The entire case was remanded to the New York State Supreme Court, New York County. Woodrow’s cross-motion to transfer venue was denied as moot. The Clerk was directed to close the federal case and all pending motions.