PNH, Inc. v. Alfa Laval Flow, Inc. , 130 Ohio St. 3d 278 ( 2011 )

[Cite as PNH, Inc. v. Alfa Laval Flow, Inc., 130 Ohio St.3d 278, 2011-Ohio-4398.]
PNH, INC., ET AL., APPELLANTS, v. ALFA LAVAL FLOW, INC., APPELLEE.
[Cite as PNH, Inc. v. Alfa Laval Flow, Inc.,
130 Ohio St.3d 278, 2011-Ohio-4398.]
Bankruptcy—Federal preemption of state law causes of action for misconduct in
bankruptcy proceedings.
(No. 2010-1430—Submitted May 25, 2011—Decided September 7, 2011.)
APPEAL from the Court of Appeals for Mahoning County,
No. 09 MA 41, 189 Ohio App.3d 704, 2010-Ohio-3280.
____________________
SYLLABUS OF THE COURT
The United States Bankruptcy Code preempts state-law causes of action for
misconduct committed by a litigant during a bankruptcy court proceeding.
____________________
O’DONNELL, J.
{¶ 1} The issue we confront in this appeal is whether the claims of PNH,
Inc., and Ronald Creatore against Alfa Laval Flow, Inc., for abuse of process and
tortious interference with a contract are preempted by the United States
Bankruptcy Code because they seek to recover for misconduct allegedly
committed during a federal bankruptcy court proceeding.
{¶ 2} PNH and Creatore asserted that Alfa Laval misused an involuntary-
bankruptcy case it filed against Girton, Oakes & Burger, Inc., in an effort to
eliminate Creatore as a competitor in the sale of equipment for sanitary processing
of food and beverages. The trial court dismissed these claims, and the appellate
court affirmed, holding that federal law has preempted state-law causes of action
alleging the abuse of bankruptcy proceedings.
{¶ 3} In enacting the Bankruptcy Code, the United States Congress
established a comprehensive scheme intended to promote the uniformity of
SUPREME COURT OF OHIO
bankruptcy law, and it provided for federal remedies to deter the abuse of
bankruptcy court proceedings. To permit an Ohio litigant to assert state-law
claims for misconduct committed during a bankruptcy proceeding as a
supplement to these federal remedies would frustrate the intent of Congress by
establishing standards of conduct for Ohio litigants that vary from proceedings in
other states. For these reasons, we conclude that the Bankruptcy Code preempts
state-law claims that allow the recovery of damages for misconduct committed by
a litigant during a bankruptcy court proceeding. We therefore affirm the
judgment of the Seventh District Court of Appeals.
Facts and Procedural History
{¶ 4} In January 2001, Creatore, William Sayavich, and David Barnitt
formed a holding company called U.S. Sanitary Corporation (“USSC”) for the
purpose of purchasing the stock of Girton, Oakes & Burger, Inc. (“GO&B”). At
that time, GO&B was the exclusive distributor in Ohio, New York, and western
Pennsylvania for Alfa Laval Flow, Inc., which manufactures equipment for
sanitary processing of food and beverages.
{¶ 5} Creatore, Sayavich, and Barnitt entered into a close-corporation
agreement that contained confidentiality and noncompetition provisions, and they
financed the purchase of GO&B through a loan from Provident Bank. On
purchasing GO&B, Creatore became its president, Barnitt its chief financial
officer, and Sayavich its head of sales and marketing. However, Alfa Laval soon
ended the exclusivity of GO&B’s distributorship, and GO&B responded by
starting a private-label line of products that competed with the ones it distributed
for Alfa Laval.
{¶ 6} By 2003, GO&B owed Alfa Laval more than $1 million, and
Provident Bank threatened to foreclose on its loan. Alfa Laval presented Creatore
with a plan to minimize the impact on it in the event of foreclosure, proposing to
acquire GO&B’s intangible assets and to give its distributorship to a competitor.
2
January Term, 2011
Creatore rejected this proposal and instead decided to purchase the Provident
Bank loan through a company he created for that purpose, PNH, Inc.
{¶ 7} In late February and early March, Creatore terminated Barnitt and
Sayavich for accounting errors in financial reports to Provident Bank, and he gave
Alfa Laval notice that both were bound by the confidentiality and noncompetition
provisions of the close-corporation agreement. Nonetheless, Barnitt and Sayavich
allegedly informed Alfa Laval that GO&B had established a competing line of
products and that Creatore had planned to purchase the Provident Bank loan.
{¶ 8} On April 23, 2003, PNH closed on the Provident Bank loan
purchase. That same day, Alfa Laval and two other GO&B creditors filed an
involuntary-bankruptcy petition against GO&B in the United States Bankruptcy
Court for the Northern District of Ohio, and the court appointed an interim trustee
to assume control over GO&B’s management. Creatore then formed a company
called Diversified Process Components, Inc., to start another product line that
competed with Alfa Laval’s products.
{¶ 9} On May 29, 2003, counsel for Alfa Laval filed an adversary
complaint in the bankruptcy court, naming itself and the trustee as plaintiffs and
PNH, Creatore, and other “Creatore shell companies” as defendants. Alfa Laval
alleged that Creatore had diverted corporate assets and opportunities from GO&B
and wrongfully used its confidential design specifications to start a competing
enterprise manufacturing “knock-off products,” and it sought an injunction to
enforce the confidentiality and noncompetition provisions of the USSC close-
corporation agreement against Creatore. The trustee did not sign the adversary
complaint, but later ratified it. Eventually, the trustee and Creatore reached a
settlement in the adversary proceeding, which the bankruptcy court approved over
Alfa Laval’s objections.
{¶ 10} On May 11, 2005, Creatore and PNH brought this action against
Alfa Laval in the Mahoning County Court of Common Pleas, asserting claims for
3
SUPREME COURT OF OHIO
defamation, tortious interference with a contract, and abuse of process. They
alleged that Alfa Laval had improperly used the adversary proceeding to eliminate
Creatore and Diversified Process Components as competitors, an objective not
permitted by bankruptcy law, and that Alfa Laval had wrongfully misappropriated
the name, power, and authority of the trustee in the adversary proceeding.
{¶ 11} On January 7, 2008, the trial court entered summary judgment
against Creatore and PNH on the defamation claim. On February 2, 2009, the
court dismissed the claims of abuse of process and tortious interference with a
contract for lack of jurisdiction, concluding that those causes of action had been
preempted by federal bankruptcy law. The trial court subsequently denied
Creatore and PNH relief from that judgment.
{¶ 12} On appeal, the Seventh District affirmed, holding that state-law
claims for abuse of process and tortious interference with a contract arising during
a bankruptcy proceeding were preempted by the Bankruptcy Code. 189 Ohio
App.3d 704, 2010-Ohio-3280, 940 N.E.2d 577, ¶ 56. The appellate court
reasoned that allowing state-law remedies for violations of federal bankruptcy
procedure would undermine the uniformity of the bankruptcy process and deter
parties from exercising federal rights created by the Bankruptcy Code. Id. at ¶ 46.
Further, the court emphasized that bankruptcy law already provided remedies for
abuse of bankruptcy proceedings, evincing the intent of Congress to preempt
state-law tort claims arising from the misuse of those proceedings. Id. The
appellate court therefore determined that the trial court did not err in dismissing
the claims or in denying relief from that judgment. Id. at ¶ 56, 70.
{¶ 13} On appeal to this court, Creatore and PNH argue that there is a
presumption that Congress has not preempted state-law causes of action, so that
federal law will not preempt state law unless the intent of Congress is clear and
manifest. They contend that Congress has not expressed a clear and manifest
intent to occupy the field of regulation regarding abusive litigation in federal
4
January Term, 2011
bankruptcy proceedings, emphasizing that it granted state courts jurisdiction
concurrent with federal courts over claims, such as theirs, that do not concern
substantive or “core” matters under the Bankruptcy Code and that are only
“related to” bankruptcy cases. Creatore and PNH maintain that because
Fed.R.Bankr.P. 9011 and Section 105(a), Title 11, U.S.Code, import only general
principles of federal civil procedure to bankruptcy proceedings, courts have held
that they do not have preemptive force. Further, they note that Section 303(i)(2),
Title 11, U.S.Code, which authorizes damages for bad-faith filing of an
involuntary-bankruptcy petition, does not apply to their claims. Thus, Creatore
and PNH maintain that because the Bankruptcy Code does not provide a complete
remedy for the injuries they suffered in this case, the court should not presume
that Congress displaced the remedies for that misconduct afforded by state law.
{¶ 14} Alfa Laval responds that the claims brought by Creatore and PNH
are premised on allegations that it violated federal law during the GO&B
bankruptcy proceedings. It relies on decisions from the Sixth and Ninth Circuit
Courts of Appeals and the Supreme Court of Pennsylvania for the proposition that
state-law causes of action for misconduct and improper filings in bankruptcy
court proceedings are preempted by federal law, which therefore provides the
only remedies available for the injuries alleged in this case.
{¶ 15} The question presented here is one of first impression for this court:
whether the United States Bankruptcy Code has preempted state-law claims for
abuse of process and tortious interference with a contract when the alleged
misconduct occurred during a bankruptcy court proceeding.
Law and Analysis
Federal Preemption of State Law
{¶ 16} The Supremacy Clause of the United States Constitution declares
that “the Laws of the United States * * * shall be the supreme Law of the Land; *
* * any Thing in the Constitution or Laws of any State to the Contrary
5
SUPREME COURT OF OHIO
notwithstanding.” Clause 2, Article VI, United States Constitution. Since the
decision in McCulloch v. Maryland (1819), 17 U.S. 316, 427, 4 Wheat. 316, 4
L.Ed. 579, the United States Supreme Court has held that state law that conflicts
with federal law is “without effect.” Maryland v. Louisiana (1981), 451 U.S. 725,
746, 101 S.Ct. 2114, 68 L.Ed.2d 576.
{¶ 17} The intent of Congress to override state law may be “explicitly
stated in the statute’s language.” Jones v. Rath Packing Co. (1977), 430 U.S. 519,
525, 97 S.Ct. 1305, 51 L.Ed.2d 604. However, preemption may be implied if state
law actually conflicts with federal law, “if federal law so thoroughly occupies a
legislative field ‘ “as to make reasonable the inference that Congress left no room
for the States to supplement it,” ’ ” or if “ ‘the federal interest is so dominant that
the federal system will be assumed to preclude enforcement of state laws on the
same subject.’ ” Cipollone v. Liggett Group, Inc. (1992), 505 U.S. 504, 516, 112
S.Ct. 2608, 120 L.Ed.2d 407, quoting Rice v. Santa Fe Elevator Corp. (1947), 331
U.S. 218, 230, 67 S.Ct. 1146, 91 L.Ed. 1447; English v. Gen. Elec. Co. (1990),
496 U.S. 72, 79, 110 S.Ct. 2270, 110 L.Ed.2d 65, quoting Rice at 230.
{¶ 18} In determining whether federal law preempts state law, “ ‘[t]he
purpose of Congress is the ultimate touchstone.’ ” Malone v. White Motor Corp.
(1978), 435 U.S. 497, 504, 98 S.Ct. 1185, 55 L.Ed.2d 443, quoting Retail Clerks
v. Schermerhorn (1963), 375 U.S. 96, 103, 84 S.Ct. 219, 11 L.Ed.2d 179.
Nonetheless, preemption analysis relies on “the assumption that the historic police
powers of the States [are] not to be superseded by [federal law] unless that [is] the
clear and manifest purpose of Congress.” Rice at 230. As the Supreme Court
reiterated in Bates v. Dow Agrosciences, L.L.C. (2005), 544 U.S. 431, 449, 125
S.Ct. 1788, 161 L.Ed.2d 687, quoting Medtronic, Inc. v. Lohr (1996), 518 U.S.
470, 485, 116 S.Ct. 2240, 135 L.Ed.2d 700, “ ‘[b]ecause the States are
independent sovereigns in our federal system, [the court has] long presumed that
Congress does not cavalierly pre-empt state-law causes of action.’ ”
6
January Term, 2011
{¶ 19} Thus, unless Congress has manifested its intent to preempt state-
law claims alleging the abuse of a bankruptcy court proceeding, “the Bankruptcy
Code will be construed to adopt, rather than to displace, pre-existing state law.”
BFP v. Resolution Trust Corp. (1994), 511 U.S. 531, 544-545, 114 S.Ct. 1757,
128 L.Ed.2d 556.
The Bankruptcy Clause and the Bankruptcy Code
{¶ 20} In addition to granting to Congress the authority to preempt state
laws, the Constitution empowers Congress “[t]o establish * * * uniform Laws on
the subject of Bankruptcies throughout the United States.” Clause 4, Section 8,
Article I. The Supreme Court has therefore recognized that “the Bankruptcy
Clause itself contains an affirmative limitation or restriction upon Congress’
power: bankruptcy laws must be uniform throughout the United States.” Ry.
Labor Executives’ Assn. v. Gibbons (1982), 455 U.S. 457, 468, 102 S.Ct. 1169, 71
L.Ed.2d 335.
{¶ 21} Because of “the unique, historical, and even constitutional need for
uniformity in the administration of the bankruptcy laws,” Congress enacted the
Bankruptcy Code intending to create a comprehensive, uniform statutory scheme
that is under federal control. MSR Exploration, Ltd. v. Meridian Oil, Inc. (C.A.9,
1996), 74 F.3d 910, 915. For this reason, it vested federal district courts with
original and exclusive jurisdiction over bankruptcy cases, including the
involuntary-bankruptcy and adversary proceedings at issue in this case. Section
303, Title 11, U.S.Code; Section 1334(a), (b), and (e), Title 28, U.S.Code; Cohen
v. Bucci (C.A.7, 1990), 905 F.2d 1111, 1112; Glannon v. Garrett & Assoc., Inc.
(D.Kan.2001), 261 B.R. 259, 264; 1 Resnick & Sommer, Collier on Bankruptcy
(16th Ed.2010) 3-5, ¶ 3.01[1].
{¶ 22} Nonetheless, there is a split of authority regarding whether the
Bankruptcy Code preempts state-law causes of action that allow the recovery of
damages for a litigant’s abuse of a bankruptcy court proceeding.
7
SUPREME COURT OF OHIO
{¶ 23} Some jurisdictions hold that these types of claims are not
preempted by federal bankruptcy law. The Supreme Court of Texas recently held
in Graber v. Fuqua (Tex.2009), 279 S.W.3d 608, that federal law does not
preempt a state-law cause of action for malicious prosecution when a party seeks
to recover for the wrongful filing of an adversary proceeding in bankruptcy court.
The court recognized that the Bankruptcy Code establishes various remedies and
sanctions to deter the abuse of bankruptcy proceedings. However, it distinguished
between those provisions that Congress “custom-built” exclusively for bankruptcy
proceedings, which manifest the intent of Congress to displace state-law claims,
and those that it borrowed from the existing remedial scheme in federal civil
litigation (such as sanctions under Fed.R.Civ.P. 11), which do not. Because
Congress had not provided any custom-built remedies for the wrongful use of
bankruptcy proceedings but had “merely imported the existing federal scheme,”
the court determined that Congress had not intended to preempt the malicious-
prosecution claims brought in Texas state court. Id. at 615.
{¶ 24} The Supreme Court of Texas also rejected the argument that
permitting such state-law claims would disrupt the uniformity of bankruptcy law,
emphasizing that an action for malicious prosecution does not affect bankruptcy
court proceedings because it “arise[s] only after the underlying case reaches a
final judgment.” Id. at 617. Therefore, the court concluded: “Allowing [this]
claim to proceed in Texas courts neither conflicts with the federal laws that were
expressed, nor does it hinder the advancement of the policies embodied therein.
Because Congress was silent on the matter, we see no reason to discontinue state
law's historic function of providing common law remedies for misconduct in
federal courts.” Id. at 620.
{¶ 25} Other jurisdictions have also decided that the Bankruptcy Code
does not preempt state-law causes of action that provide remedies for misconduct
committed in bankruptcy court proceedings. E.g., U.S. Express Lines, Ltd. v.
8
January Term, 2011
Higgins (C.A.3, 2002), 281 F.3d 383, 393 (“Despite the broad scope of remedies
available in the Code and the general exclusivity of the federal courts in
bankruptcy, we have held that a state claim for malicious abuse of process was
not preempted”); Shead v. Kelley (S.D.Tex.2009), Civ. No. H-08-497, 2009 WL
4730398, *1 (“A state malicious prosecution claim is not preempted by federal
bankruptcy [law] just because the claim arose out of the filing of an adversary
action in a bankruptcy proceeding”); In re Fornaro (Bankr.D.N.J.2009), 402 B.R.
104, 110 (“The Court agrees with a recent Texas Supreme Court case decision,
holding that malicious prosecution suits are not preempted, even though the claim
arose in a bankruptcy action”); R.L. LaRoche, Inc. v. Barnett Bank of S. Florida,
N.A. (Fla.App. 1995), 661 So.2d 855 (claims of abuse of process and malicious
prosecution against a creditor for the bad-faith filing of an involuntary petition are
not preempted by federal bankruptcy law).
{¶ 26} In contrast, courts in other jurisdictions reason that because the
uniformity of bankruptcy law is a constitutional requirement as well as a practical
necessity, Congress has implicitly preempted state-law tort claims that would
allow recovery for misconduct committed in bankruptcy cases. See, e.g., Pertuso
v. Ford Motor Credit Co. (C.A. 6, 2000), 233 F.3d 417, 426; MSR Exploration,
74 F.3d at 915; Glannon v. Garrett & Assoc., Inc. (D.Kan.2001), 261 B.R. 259,
265; Koffman v. Osteoimplant Technology, Inc. (D.Md.1995), 182 B.R. 115, 125;
Lewis v. Chelsea G.C.A. Realty Partnership, L.P. (2004), 86 Conn.App. 596, 605,
862 A.2d 368; Stone Crushed Partnership v. Kassab, Archbold, Jackson &
O’Brien (2006), 589 Pa. 296, 315, 908 A.2d 875.
{¶ 27} As the Sixth Circuit Court of Appeals explained in Pertuso,
“[p]ermitting assertion of a host of state law causes of action to redress wrongs
under the Bankruptcy Code would undermine the uniformity the Code endeavors
to preserve and would ‘stand[ ] as an obstacle to the accomplishment and
9
SUPREME COURT OF OHIO
execution of the full purposes and objectives of Congress.’ ” 233 F.3d at 426,
quoting Hines v. Davidowitz (1941), 312 U.S. 52, 67, 61 S.Ct. 399, 85 L.Ed. 581.
{¶ 28} Further, these jurisdictions generally recognize that not only would
the threat of litigation in state court potentially chill the exercise of federal rights
created by the Bankruptcy Code but also that state law would define the standard
of conduct for litigants in federal bankruptcy court proceedings, establishing
standards that vary from state to state and disrupt the uniformity of bankruptcy
law that Congress had intended to promote. MSR Exploration, 74 F.3d at 915-
916; Glannon, 261 B.R. at 265; Stone Crushed Partnership, 589 Pa. at 315, 908
A.2d 875.
{¶ 29} Courts adopting this view emphasize that Congress enacted a
“complex, detailed, and comprehensive” statutory scheme that provides a number
of remedies designed to preclude the misuse of the bankruptcy process. MSR
Exploration, 74 F.3d at 914. Those remedies include sanctions for frivolous and
harassing filings, Fed.R.Bankr.P. 9011; costs or attorneys fees on the dismissal of
an involuntary petition, Section 303(i)(1), Title 11, U.S.Code; compensatory and
punitive damages for bad-faith filing of involuntary petitions, Section 303(i)(2),
Title 11, U.S.Code; and compensatory and punitive damages for willful violation
of stays, Section 362(k), Title 11, U.S.Code, as well as judicial authority to
prevent an abuse of process, Section 105(a), Title 11, U.S.Code. See generally
Koffman, 182 B.R. at 124-125 (detailing the sanctions and remedies for
misconduct provided by the Bankruptcy Code).
{¶ 30} These courts note that the existence of federal remedies
demonstrates that Congress recognized the need to deter the abuse of bankruptcy
proceedings and therefore did not overlook the need for additional deterrents or
intend for states to supplement the federal remedies it provided. MSR
Exploration, 74 F.3d at 915; Stone Crushed Partnership, 589 Pa. at 314, 908 A.2d
875. And to the extent that the Bankruptcy Code lacks a sufficient remedy for the
10
January Term, 2011
abuse of proceedings alleged in this case, litigants must look to Congress for
redress. As the federal appellate court explained in Gonzales v. Parks (C.A.9,
1987), 830 F.2d 1033, 1036, “it is for Congress and the federal courts, not the
state courts, to decide what incentives and penalties are appropriate for use in
connection with the bankruptcy process and when those incentives or penalties
shall be utilized.”
{¶ 31} We adopt the reasoning of the jurisdictions that hold that the
Bankruptcy Code preempts state-law causes of action for misconduct committed
by litigants in bankruptcy court proceedings. Congress has established a
comprehensive legislative scheme intended to promote the uniformity of
bankruptcy law, which provides for federal remedies to deter the abuse of
bankruptcy proceedings. Permitting additional state-law claims for misconduct
occurring during a bankruptcy proceeding would, in our view, impermissibly
disrupt the uniformity of bankruptcy law by establishing separate remedies for
Ohio litigants in a field of law that Congress intended to occupy exclusively.
{¶ 32} For these reasons, the causes of action for abuse of process and
tortious interference with a contract brought in this case are preempted by federal
law because Creatore and PNH seek recovery for misconduct that they allege Alfa
Laval committed during a bankruptcy court proceeding. Thus, these claims were
properly dismissed by the trial court.
Conclusion
{¶ 33} The United States Bankruptcy Code preempts state-law causes of
action for misconduct committed by a litigant during a bankruptcy court
proceeding. Accordingly, the court of appeals properly determined that the claims
asserted by Creatore and PNH for abuse of process and tortious interference with
a contract allegedly committed during a bankruptcy court proceeding are
precluded by federal law, and its judgment is therefore affirmed.
Judgment affirmed.
11
SUPREME COURT OF OHIO
O’CONNOR, C.J., and PFEIFER, LUNDBERG STRATTON, and MCGEE
BROWN, JJ., concur.
LANZINGER and CUPP, JJ., dissent.
__________________
LANZINGER, J., dissenting.
{¶ 34} I respectfully dissent from the majority’s holding that “state-law
causes of action for misconduct committed by a litigant during a bankruptcy court
proceeding” are preempted by the Bankruptcy Code. I would hold that Alfa Laval
has not borne its burden to show that the state-law claims for abuse of process and
tortious interference with contract have been preempted by federal law.
{¶ 35} The majority concludes, as did the court of appeals, that by
implication, Congress intended that the Bankruptcy Code would completely
preempt state-law tort claims that seek a remedy for violations of bankruptcy
procedure. But the United States Supreme Court has held that “because the States
are independent sovereigns in our federal system, we have long presumed that
Congress does not cavalierly pre-empt state-law causes of action.” Medtronic,
Inc. v. Lohr (1996), 518 U.S. 470, 485, 116 S.Ct. 2240, 135 L.Ed.2d 700; see also
Bates v. Dow Agrosciences, L.L.C. (2005), 544 U.S. 431, 449, 125 S.Ct. 1788,
161 L.Ed.2d 687.
{¶ 36} Indeed, in a recent United States Supreme Court opinion, the court
articulated a restrictive view of the authority of bankruptcy courts to enter certain
final orders and explained that there are times when they must abstain in state
matters. “[T]he framework Congress adopted in the 1984 Act already
contemplates that certain state law matters in bankruptcy cases will be resolved by
judges other than those of the bankruptcy courts. Section 1334(c)(2), for
example, requires that bankruptcy courts abstain from hearing specified non-core,
state law claims that ‘can be timely adjudicated[] in a State forum of appropriate
jurisdiction.’ Section 1334(c)(1) similarly provides that bankruptcy courts may
12
January Term, 2011
abstain from hearing any proceeding, including core matters, ‘in the interest of
comity with State courts or respect for State law.’ ” Stern v. Marshall (2011), 564
U.S. ___, ___, 131 S.Ct. 2594, 2619–2620, 180 L.Ed.2d 475.
{¶ 37} Ohio recognizes both tortious interference with a contract and
abuse of process as torts, and in my view, in a case in which neither party is the
bankruptcy debtor and in which resolution of the litigation will not affect the
bankruptcy estate, the state-court claims are not preempted by the federal
bankruptcy law.
Preemption Standard
{¶ 38} As the majority explains, the key to the preemption inquiry is the
intent of Congress. Medtronic, 518 U.S. at 485, 116 S.Ct. 2240, 135 L.Ed.2d 700(the purpose of Congress is the ultimate touchstone in every preemption case).
But there is also a well-established presumption against imputing to Congress an
intention to preempt an area that traditionally has been left to state regulation. See
Jones v. Rath Packing Co. (1977), 430 U.S. 519, 525, 97 S.Ct. 1305, 51 L.Ed.2d
604.
{¶ 39} Both torts that are claimed here cover areas that have been a matter
of state regulation.
The Tortious-Interference Claim
{¶ 40} We first recognized the tort of tortious interference with a contract
in Kenty v. Transamerica Premium Ins. Co. (1995), 72 Ohio St.3d 415, 650
N.E.2d 863. “The elements of the tort of tortious interference with contract are
(1) the existence of a contract, (2) the wrongdoer’s knowledge of the contract, (3)
the wrongdoer’s intentional procurement of the contract’s breach, (4) lack of
justification, and (5) resulting damages.” Fred Siegel Co., L.P.A. v. Arter &
Hadden (1999), 85 Ohio St.3d 171, 707 N.E.2d 853, paragraph one of the
syllabus. We also noted that the establishment of the fourth element of the tort,
13
SUPREME COURT OF OHIO
i.e., lack of justification, requires proof that the defendant’s interference with
another’s contract was improper. Id. at 176.
{¶ 41} In this case, the elements of the state-law claim of tortious
interference with a contract arose before the filing and therefore encompass more
than just a cause of action over improper bankruptcy.
The Abuse-of-Process Claim
{¶ 42} In Ohio, the elements of the tort of abuse of process are “(1) that a
legal proceeding has been set in motion in proper form and with probable cause;
(2) that the proceeding has been perverted to attempt to accomplish an ulterior
purpose for which it was not designed; and (3) that direct damage has resulted
from the wrongful use of process.” Yaklevich v. Kemp, Schaeffer & Rowe Co.,
L.P.A. (1994), 68 Ohio St.3d 294, 626 N.E.2d 115, paragraph one of syllabus.
{¶ 43} “In an abuse of process case, ‘[t]he improper purpose usually takes
the form of coercion to obtain a collateral advantage, not properly involved in the
proceeding itself, such as the surrender of property or the payment of money, by
the use of the process as a threat or a club.’ Prosser & Keeton on Torts (5
Ed.1984) 898, Section 121. Simply, abuse of process occurs where someone
attempts to achieve through use of the court that which the court is itself
powerless to order.” Robb v. Chagrin Lagoons Yacht Club, Inc. (1996), 75 Ohio
St.3d 264, 271, 662 N.E.2d 9.
{¶ 44} Moreover, the “legal proceeding” need not be within a state-court
action. See Tilberry v. McIntyre (1999), 135 Ohio App.3d 229, 733 N.E.2d 636(abuse of process alleged in seeking sanctions in federal court); White v.
Goodman (Jan. 4, 2001), 3d Dist. No. 9-2000-63, 2001 WL 9848 (abuse of
process alleged in seeking reopening of bankruptcy case). Here, the cause of
action is brought after the fact for allegedly improper actions taken by a
nondebtor against another nondebtor.
14
January Term, 2011
Bankruptcy Court Jurisdiction
{¶ 45} I believe that Congress’s intent was not to totally preempt state-law
claims of the type asserted in this case. The design of the Bankruptcy
Amendments and Federal Judgeship Act of 1984, Pub. L. No. 98-353, 98 Stat.
333, recognizes the interests of the states in setting forth the jurisdictional
considerations in bankruptcy cases.1 First, it established that the federal district
court has jurisdiction over all cases under Title 11 and in “all civil proceedings
1. {¶ a} Section 1334, Title 28, U.S.Code, provides in full:
{¶ b} “(a) Except as provided in subsection (b) of this section, the district courts shall have
original and exclusive jurisdiction of all cases under title 11.
{¶ c} “(b) Except as provided in subsection (e)(2), and notwithstanding any Act of Congress that
confers exclusive jurisdiction on a court or courts other than the district courts, the district courts
shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or
arising in or related to cases under title 11.
{¶ d} “(c)(1) Except with respect to a case under chapter 15 of title 11, nothing in this section
prevents a district court in the interest of justice, or in the interest of comity with State courts or
respect for State law, from abstaining from hearing a particular proceeding arising under title 11 or
arising in or related to a case under title 11.
{¶ e} “(2) Upon timely motion of a party in a proceeding based upon a State law claim or State
law cause of action, related to a case under title 11 but not arising under title 11 or arising in a case
under title 11, with respect to which an action could not have been commenced in a court of the
United States absent jurisdiction under this section, the district court shall abstain from hearing
such proceeding if an action is commenced, and can be timely adjudicated, in a State forum of
appropriate jurisdiction.
{¶ f} “(d) Any decision to abstain or not to abstain made under subsection (c) (other than a
decision not to abstain in a proceeding described in subsection (c)(2)) is not reviewable by appeal
or otherwise by the court of appeals under section 158(d), 1291, or 1292 of this title or by the
Supreme Court of the United States under section 1254 of this title. Subsection (c) and this
subsection shall not be construed to limit the applicability of the stay provided for by section 362
of title 11, United States Code, as such section applies to an action affecting the property of the
estate in bankruptcy.
{¶ g} “(e) The district court in which a case under title 11 is commenced or is pending shall have
exclusive jurisdiction—
{¶ h} “(1) of all the property, wherever located, of the debtor as of the commencement of such
case, and of property of the estate; and
{¶ i} “(2) over all claims or causes of action that involve construction of section 327 of title 11,
United States Code, or rules relating to disclosure requirements under section 327.”
15
SUPREME COURT OF OHIO
arising under title 11, or arising in or related to cases under title 11.” Section
1334(a) and (b), Title 28, U.S.Code. The district court, in turn, may refer “any or
all cases under title 11 and any or all proceedings arising under title 11 or arising
in or related to a case under title 11” to the bankruptcy court. Section 157(a),
Title 28, U.S.Code. Under Section 1334(b), state courts retain jurisdiction over
certain state-law causes of action. While district courts have “original and
exclusive jurisdiction of all cases under title 11” (emphasis added), Section
1334(a), “the district courts shall have original but not exclusive jurisdiction of all
civil proceedings arising under title 11, or arising in or related to cases under title
11” (emphasis added), Section 1334(b). Furthermore, Congress instructed that
bankruptcy courts should abstain from hearing certain state-law claims that are
“related to” a case under Title 11 and can be timely adjudicated in state court.
Section 1334(c)(2), Title 28, U.S. Code.
{¶ 46} Claims that arise under Title 11 or arise in or are related to a case
under Title 11 are not necessarily preempted, for Congress has indicated that state
courts retain concurrent jurisdiction in these matters. Generally, proceedings
arising under Title 11 and proceedings arising in a case under Title 11 are referred
to as "core" proceedings, whereas proceedings "related to" a case under Title 11
are referred to as "noncore" proceedings. See In re Resorts Internatl., Inc. (C.A.3,
2004), 372 F.3d 154, 162, citing 1 Collier on Bankruptcy (15th Ed.Rev.2003) 3-
35, ¶ 3.02[2].
{¶ 47} A claim “arises in” a case under the Bankruptcy Code only if the
claim would have “no existence outside of the bankruptcy.” In re Riverside
Nursing Home (S.D.N.Y.1992), 144 B.R. 951, 955; see also In re Seven Fields
Dev. Corp. (C.A.3, 2007), 505 F.3d 237, 260, quoting Stoe v. Flaherty (C.A.3,
2006), 436 F.3d 209, 218 (explaining that “ ‘claims that “arise in” a bankruptcy
case are claims that by their nature, not their particular factual circumstance,
could only arise in the context of a bankruptcy case’ ”).
16
January Term, 2011
{¶ 48} In this case, to be sure, the bankruptcy matter served as the vehicle
for these tort actions to arrive in state court. However, claims such as this brought
by a nondebtor against a nondebtor are not claims that by their nature could arise
only in the context of a bankruptcy case. To the contrary, they are often brought
and adjudicated in state court. On the other hand, a bankruptcy court has “related
to” jurisdiction over an adversary proceeding if the proceeding “might have any
‘conceivable effect’ on the bankruptcy estate.” In re Cuyahoga Equip. Corp.
(C.A.2, 1992), 980 F.2d 110, 114.
{¶ 49} The cases cited by the majority are generally those in which a
debtor has filed a state-law tort claim as a result of the alleged improper
bankruptcy filing—a core proceeding. MSR Exploration, Ltd. v. Meridian Oil,
Inc. (C.A.9, 1996), 74 F.3d 910 (debtor sued creditor in state court for malicious
prosecution due to bankruptcy). But that is not the case here.
Appellants’ claims are noncore and are unrelated to the bankruptcy estate
{¶ 50} This is not a debtor’s action that asserts improper filing of an
involuntary-bankruptcy petition. The debtor, Girton, Oakes & Burger, Inc., is not
a party to the state litigation. There is no dispute that all litigants—appellants,
Ronald Creatore and PNH, Inc., and appellee, Alfa Laval Flow, Inc., were
nondebtors.
{¶ 51} It is undisputed that the three individuals, Creatore, David Barnitt,
and William Sayavich, who formed a holding company to buy GO&B stock, had
a noncompetition confidentiality agreement among themselves. Allegedly,
Barnitt and Sayavich, disgruntled over their termination by Creatore, contacted
Alfa Laval and at its behest and in violation of the contract’s confidentiality
provisions, of which Alfa Laval allegedly was aware, disclosed confidential
information to it.
{¶ 52} Appellants based their tortious-interference claim on Alfa Laval's
alleged prepetition solicitation of confidential information and claimed that
17
SUPREME COURT OF OHIO
they were damaged when Alfa Laval attempted to use this information to
prevent them from competing by bringing them into the bankruptcy through the
adversarial complaint. As the order of the bankruptcy judge noted, “Debtor
Girton, Oakes &Burger (‘Debtor’) is not a party to the State Court Case, and the
State Court Case does not affect any property of the estate.” The claims do not
involve the debtor and do not implicate the estate.
Uniformity of Bankruptcy Law
{¶ 53} The majority holds that the state-law causes of action in this case
are preempted due to the concern that allowing separate state-law remedies
would impermissibly disrupt the uniformity of bankruptcy laws. But this case
involves only nondebtors; therefore, the danger to the uniformity of the
bankruptcy law is minimal. Also, the actions that gave rise to the claim of
tortious interference with a contract occurred before the involuntary-
bankruptcy petition was filed. Therefore, it is doubtful that the resolution of
this claim will involve interpretation of bankruptcy law.
{¶ 54} Even if some interpretation of bankruptcy law is involved, that
does not mean that uniformity of the bankruptcy law will be disrupted. As the
Texas Supreme Court recently stated, “[t]he uniformity argument for
preemption is not triggered by the mere fact that a claim requires state courts
to interpret federal bankruptcy law.” Graber v. Fuqua (2009), 279 S.W.3d
608, 619. Although the Constitution grants Congress the authority to enact
bankruptcy laws that are uniform throughout the United States, Clause 4,
Section 8, Article I, the United States Supreme Court has recognized that the
uniformity requirement should not be treated as a straitjacket. Ry. Labor
Executives' Assn. v. Gibbons (1982), 455 U.S. 457, 469, 102 S.Ct. 1169, 71
L.Ed.2d 335. Rather, “[a] bankruptcy law may be uniform and yet ‘may
recognize the laws of the State in certain particulars, although such recognition
may lead to different results in different States.’ ” Id., quoting Stellwagen v.
18
January Term, 2011
Clum (1918), 245 U.S. 605, 613, 38 S.Ct. 215, 62 L.Ed. 507. Because
Congress has not chosen to enact laws that entirely eliminate the different
state-law claims that could provide remedies for misconduct in bankruptcy
proceedings between nondebtors, the state-law claims in this matter should not
be considered preempted.
Conclusion
{¶ 55} In ruling that there is preemption by implication in this case, the
majority fails to give weight to the Bankruptcy Code’s language regarding the
concurrent jurisdiction of state courts. In my view, rather than cede power to
federal courts by saying that these state-law tort claims are completely preempted,
we should allow these cases to stand on their own in state court.
{¶ 56} Because I do not believe that our sovereign state law should be
broadly relinquished to the federal courts solely upon an implication of
preemption, I respectfully dissent.
CUPP, J., concurs in the foregoing opinion.
__________________
Witschey, Witschey & Firestine Co., L.P.A., Jeffrey T. Witschey, Alex J.
Ragon, and Betsy L. B. Hartschuh, for appellants.
Hanna, Campbell & Powell, L.L.P., James M. Lyons Jr., Robert L.
Tucker, and Frank G. Mazgaj, for appellee.
______________________
19