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Judge Walrath Denies and Dismisses Requests for Award of Attorneys’ Fees in Remanded Proceeding

By Charlene D. Davis

On March 3, 2016, Judge Mary F. Walrath of the United States Bankruptcy Court for the District of Delaware (the “Court”) issued a memorandum opinion and order denying, in part, and dismissing, in part, a motion for allowance of attorneys’ fees and expenses (the “Fee Motion”) in connection with two adversary proceedings in In re: Solyndra, LLC. et al. Case No.  11-12799 which the Court had dismissed in one case and remanded in the other for lack of “related to” subject matter jurisdiction. The motion for fees and expenses was based on 28 U.S.C. § 1447(c), which permits a court to require payment of just costs and actual expenses incurred as a result of removal, and on Cal. Civ. Code § 1717(a), which permits a court to require enforce contractual fee-shifting provisions to the prevailing party.

Global Kato HG LLC (“Global”) is a landlord that entered into an industrial lease with Maxto Corporation in September 2003. In December 2006, Maxto Corporation assigned the lease to Seagate Technology (US) Holdings, Inc. (“Seagate”) which, in turn, assigned the lease (the “Sublease”) to 360 Degree Solar Holdings, Inc. (the “Debtor”) in January 2007. On September 6, 2011, the Debtor and its affiliate, Solyndra, LLC., filed chapter 11 petition in the Court.

Seagate filed the first adversary proceeding Seagate Technology (US) Holdings, Inc. v. Global Kato HG, LLC. Adv. Pro. No. 15-50268 (the “Seagate Action”) in the Court on April 20, 2015. Global filed the second proceeding Global Kato HG, LLC. v. Seagate Technology (US) Holdings, Inc. Adv. Pro. No. 15-50925 (the “Global Action” and together with the Seagate Action, the “Actions”) in California state court on May 19, 2015 but Seagate removed it and it was subsequently transferred to the Court.

The Seagate Action against Global alleged breach of contract, equitable indemnity, unjust enrichment and declaratory relief. The Global Action against Seagate alleged breaches of the lease. Global moved to dismiss the Seagate Action and to remand the Global Action and on October 16, 2015, the Court dismissed the Seagate Action and remanded the Global Action for lack of “related to” jurisdictions. On October 30, 2015, Global filed the Fee Motion seeking fees and expenses incurred in relation the Actions.

In denying the Fee Motion request for fees and expenses under § 1447(c), the Court relied on the U.S. Supreme Court decision in Martin v. Franklin Capital Corp. 546 U.S. 132, 141, for the proposition that the court may award attorneys’ fees only where the removing party lacked an objectively reasonable basis for seeking removal. Relying on the Third Circuit’s acknowledgment in W.R. Grace & Co. 591 F.3d 164, 173 (3d Cir. 2009) that a clear, contractual right to indemnity might provide “related to” jurisdiction, the Court then found that, despite the remand, Seagate had an objectively reasonable basis for seeking removal based on an indemnity provision in the Sublease with the Debtor. In dismissing the Fee Motion request for fees and expenses under California law, the Court relied on holdings of  federal courts interpreting § 1717 to the effect that courts that dismiss the underlying action for lack of subject matter jurisdiction do not have subject matter jurisdiction to award fees.

A copy of the Court’s opinion is available here.

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