2009 Chapter 11 Recent Developments (Part I)

Court of Cook County, Illinois alleging a number of state-based causes of action. Later, Exide and some domestic subsidiaries - but not the Exide Foreign Entities - declared bankruptcy in Delaware.

The Claims were stayed as to Exide but not the Exide Foreign Entities. The Claims were removed to the Bankruptcy Court in the Northern District of Illinois and transferred to the Delaware bankruptcy court. The PDH Foreign Entities moved (the "Remand Motion") for remand to state court or abstention. The Remand Motion was denied on primarily the following bases: (i) the Contracts provided that Exide was the sole indemnitor of the Exide Foreign Entities and therefore all of the causes of action in the Claims are core; and (ii) when PDH filed proofs of claim in the Exide bankruptcy - both against Exide directly and, in the case of the PDH Foreign Entities, contingent claims based on the indemnification provisions in the Contracts - the Claims (including the portion that was solely between the foreign entities) became core. The district court affirmed and PHD appealed.

Issues:

(1)

"Whether the Bankruptcy Court properly decided that the state law cause of action between nondebtor parties, the PDH Foreign Entities and the Exide Foreign Entities, was a 'core' bankruptcy proceeding under 28 U.S.C. §§ 157(b)(2)(B) and (C) over which exclusive bankruptcy jurisdiction was appropriate."

(2)

Whether, "when the PDH Foreign Entities filed their [four] proofs of claim against the Exide bankruptcy estate, they irrevocably consented to have their claims heard and decided by the bankruptcy court."

Rules:

(1)

Because the Claims are state law claims asserted against non-debtor defendants that arose prepetition and were filed in state court, the Claims do not fall within the list of core proceedings under 28 U.S.C. § 157(b)(2) and do not appear to be proceedings that 'could arise only in the context of a bankruptcy case.' However, the court should analyze the nature of each of the underlying claims to determine whether they are core or non-core.

(2)

Under Pacor, a debtor's indemnification obligation to a third party may give rise to 'related to' jurisdiction over nonbankruptcy controversies with that third party, especially where it has filed a claim against the debtor. Pacor does not stand for the proposition that such third-party claims become core.

Holding: The Bankruptcy Court erred and the order is vacated and remanded for further proceedings.

Reasoning:

(1)

"While the [Bankruptcy] Court correctly determined that an analysis of the indemnification provision in the Coordinating Agreement was necessary to determine whether the PDH Foreign Entities' claims were actually directed against the debtor and therefore core, it erred in concluding that the provision was unambiguous and failing to allow extrinsic evidence to be introduced."

(2)

Because the indemnification claims assert a right to collect against Exide should the Exide Foreign Entities become liable to the PDH Foreign Entities and become unable to satisfy such liability, the claims are essentially contribution or indemnification claims and do not assert state law causes of action against the Debtor. In other words, the "claims asserted in the PDH Foreign Entities' proofs of claim are not the same as the claims against the non-debtor defendants in the state court action... [and thus, the] filing of contingent proofs of claim does not render the dispute between non-debtor plaintiffs and defendants 'core.' [Instead, the proofs of claim] merely demonstrate that the claims against the non-debtor Exide Foreign Entities are 'related to' Exide's bankruptcy case as they 'could conceivably' have an effect on the bankruptcy estate."