United States District Court, D. Delaware
IN RE LTC HOLDINGS, INC., et al., Debtors.
AVINASH N. RACHMALE, Defendant. SUPERIOR CONTRACTING GROUP, INC., Plaintiff, Adv. Proc. No. 16-50948 (CSS)
A. Sensing, R. Stephen McNeill, Potter Anderson & Corroon
LLP, Wilmington, DE; Scott A. Frick, The Frick Law Firm,
PLLC, Memphis, TN – Attorneys for Plaintiff
Hiller, Hiller Law, LLC, Wilmington, DE; Ian M. Williamson,
Fatima M. Bolyea, Mantese Honigman, P.C., Troy, MI –
Attorneys for Defendant.
NOREIKA, U.S. DISTRICT JUDGE
before the Court is the motion (D.I. 1)
(“Motion”) of Superior Contracting Group, Inc.
(“Superior”), plaintiff in the above-captioned
adversary proceeding (“Adversary
Proceeding”) currently pending in the United States
Bankruptcy Court for the District of Delaware
(“Bankruptcy Court”), seeking an order
withdrawing reference of the Adversary Proceeding, pursuant
to 28 U.S.C. § 157(d), and transferring venue back to
the United States District Court for the Eastern District of
Michigan (“Eastern District of Michigan”). For
the reasons set forth herein, the Motion is denied without
prejudice to Superior’s right to request withdrawal of
the reference at such time as the proceeding is ready for
following facts are generally not in dispute. Lakeshore
Engineering Services, Inc. (“Lakeshore”) was
founded by defendant Avinash N. Rachmale
(“Rachmale”) to provide construction services to
municipal, commercial, and government clients. Initially,
Rachmale acted as Lakeshore’s President, CEO, director,
and majority shareholder. (Adv. D.I. 15, Exh. 1, ¶ 42).
2009, Superior and Lakeshore entered into a
Mentor/Protégé Agreement for the purpose of
pursuing certain U.S. government contracts. (Adv. D.I. 15,
Exh.4). Superior and Lakeshore entered into a number of joint
venture agreements for projects being constructed by the Army
Corps of Engineers through this arrangement. (Id).
Under the terms of these joint ventures, Superior was to
receive 51% of the ventures’ profits and Lakeshore the
2010, as a result of a merger, Lakeshore became a subsidiary
of Lakeshore Toltest Corporation (“LTC”). In
2011, LTC amended and restated its articles of incorporation.
(Id., Exh. 2) to include certain indemnification
obligations to officers and directors, which Rachmale argues
are applicable in this litigation. Post-merger, Rachmale
continued in his role as President and CEO of LTC and
Lakeshore until at least 2012. (Id., Exh. 1
¶¶ 37-39). Rachmale was removed from his officer
positions in LTC by October 2012. All works on the venture
projects and final payment by the Army Corps of Engineers was
completed by April 29, 2013. (Id., Exh.4). Rachmale
resigned from LTC’s board of directors on April 2,
2014. (Id., Exh. 1).
Superior’s Litigation Against Lakeshore and
August 23, 2013, Superior filed an action against Lakeshore
in the Chancery Court of Tennessee for the Thirteenth
Judicial District at Memphis, Shelby County (“the
Tennessee Chancery”), asserting claims for contractual
breach of the joint venture agreements and seeking accounting
for the joint ventures. (Id., Exh 4). In May 2014,
Lakeshore, LTC, and other entities (collectively, “the
Debtors”) filed voluntary petitions for Chapter 7
relief in the Bankruptcy Court. A suggestion of bankruptcy
and enforcement of the automatic stay was sent to Superior
regarding their case in front of the Tennessee Chancery.
(D.I. 15, Exh. 6). The Tennessee Chancery case saw no further
action after the notice.
August 2014, Superior filed the present federal court
proceeding against Rachmale in the United States District
Court for the Western District of Tennessee (“Western
District of Tennessee”). (Id., Exh. 3).
Superior alleged in its complaint claims of conversion,
fraud, and intentional misrepresentation. In addition,
Superior sought to pierce the corporate veil and hold
Rachmale “liable for all obligations owed by Lakeshore
to Superior” because of acts committed by Rachmale
while controlling Lakeshore. (Id.).
Western District of Tennessee found that the Proceeding
satisfied the requirements for federal diversity
jurisdiction, but in response to Rachmale’s Rule
12(b)(3) motion, determined that venue was more appropriate
in the Eastern District of Michigan. (Id., Exh. 6).
Eastern District of Michigan again reviewed the issue of
venue, but this time with regard to whether the proceeding
should be transferred to this Court, given the Debtors’
bankruptcy filings. The Eastern District of Michigan issued
an opinion granting Rachmale’s second Rule 12(b)(3)
motion to dismiss for improper venue and ordered the
proceeding transferred to this Court. The Eastern District of
Michigan held that the claims in the proceeding
“clearly related to the debtor Lakeshore’s
bankruptcy proceedings before the District of
Delaware.” Superior Contracting Grp., Inc. v.
Rachmale, 2016 WL 1242432, *4 (E.D. Mich. Mar. 30,
2016). The Eastern District of Michigan concluded that
Superior’s complaint alleged “joint
conduct” claims against both Debtor Lakeshore and
Rachmale, as well as a plausible indemnification claim by the
Defendant against Debtor LTC for his role as officer and
director of Debtor Lakeshore. See id. at *3. Because
of the “joint conduct” claims and possible
indemnification, the court granted Rachmale’s motion to
dismiss, in part, on the basis of improper venue and ordered
the case transferred to the District of Delaware. See
id. at *3-*4. This Court referred the proceeding to the
Bankruptcy Court pursuant to the authority granted by 28
U.S.C. § 157(a) and its standing order of reference.
See Am. Standing Order of Reference, Feb. 29, 2012
Bankruptcy Court, Rachmale filed a motion to dismiss (Adv.
D.I. 3, 4) (“First Motion to Dismiss”), which the
Bankruptcy Court denied (Adv. D.I. 11). Thereafter, the
Bankruptcy Court issued a sua sponte order
requesting the parties’ positions on three questions:
(1) the proceeding’s proper subject matter
jurisdiction, (2) the Bankruptcy Court’s option to
permissively abstain from hearing the Proceeding, and (3) the
possible removal of the proceeding to state court. On June
12, 2018, the Bankruptcy Court issued a decision regarding
those issues. SuperiorContracting Grp., Inc. v.
Rachmale (In re LTC Holdings, Inc.), 587 B.R. 25, 35
(Bankr. D. Del. 2018). At the outset of the decision, the
Bankruptcy Court states: “To the extent the Court
maintains jurisdiction over this Proceeding, venue is proper
before the United States Bankruptcy Court for the District of
Delaware under 28 U.S.C. §§ 1408 and 1409.”
LTC Holdings, 587 B.R. at 30. Following a
detailed and thorough analysis, the Bankruptcy Court
determined that the law of the case doctrine counseled
against any reconsideration of the determination, previously
made by the ...