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Covanta Onondaga Ltd. v. Onondaga County Resource Recovery Agency

Citation: 33 ELR 20021
No. No. 02-CV-0497, 281 B.R. 809/(N.D.N.Y., 08/13/2002)

The court abstains from hearing a breach of contract claim between a bankrupt company and a county resource recovery agency. The company and the agency entered into a solid waste disposal agreement, which included a bond requirement that if the bond fell below investment rating, the company had 30 days to provide credit enhancement. The company failed to provide enhancement when its credit rating fell, and the agency notified the company that it was terminating the agreement and was instituting proceedings that would require the company to turn the company's operations over to the agency. The company filed a breach of contract claim against the agency in the Onondaga County Supreme Court, but subsequently filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of New York. The company then moved to remove the breach of contract claim to the Northern District of New York, and the agency filed a motion to remand or abstain and remand the breach of contract claim to the Onondaga Supreme Court. The company then filed a motion seeking transfer of the breach of contract claim to the U.S. Bankruptcy Court for the Southern District of New York to consolidate the breach of contract claim with its bankruptcy proceeding.

The court first holds that the case was properly removed and the Northern District of New York possessed jurisdiction over the proceeding under 28 U.S.C. §1334(b) because the breach of contract claim is a proceeding related to the company's Chapter 11 bankruptcy claim. The potential finding that the contract was breached and recovery of damages could alter the company's debtor rights and liabilities or impact the administration of the bankrupt estate. The court next holds, however, that the case satisfies all six conditions for mandatory abstention in 28 U.S.C. §1334(c)(2). The agency filed a cross-motion for abstention after the company filed a removal action; the removed case involves only the state breach of contract claim; the case is related to a bankruptcy proceeding but did not arise under the Bankruptcy Code; the removed case could not have been brought in federal court absent bankruptcy jurisdiction; the removed case was commenced in state court; and the case can be timely adjudicated in state court. Thus, the court abstained from jurisdiction and remanded the breach of contract claims to the Onondaga Supreme Court.

Counsel for Plaintiff
Carter H. Strickland
MacKenzie, Smith, Lewis, Michell & Hughes
101 S. Salina St., Syracuse NY 13221
(315) 474-7571

Counsel for Defendant
Lee E. Woodard
Martin, Martin & Woodard
One Lincoln Ctr., Syracuse NY 13202
(315) 478-2222