United States District Court, District of Columbia
A. HOWELL, CHIEF JUDGE.
plaintiff, Capitol Hill Group, the landlord of a hospital
building located at 700 Constitution Avenue, NE, Washington,
D.C., commenced this suit in Superior Court for the District
of Columbia against the tenants of this building, the
defendants, DCA Capitol Hill LTAC, LLC and DCA Capitol Hill
SNF, LLC, alleging breach of the rental contract due to the
defendants' withholding of more than $1, 000, 000 in
rent. Compl., ECF No. 1-1, Adv. Proc. 15-10027 (Bankr. D.C.).
The defendants removed the suit to the United States
Bankruptcy Court for the District of Columbia, pursuant to 28
U.S.C. § 1452(a), on grounds that federal bankruptcy
jurisdiction exists, under 28 U.S.C. § 1334(b), because
this case “arises in and/or is related to” a
separate bankruptcy proceeding involving the prior lessee of
the building. Defs.' Notice of Removal (“Defs.'
Removal Notice”) ¶ 1, ECF No. 1, Adv. Proc.
15-10027 (Bankr. D.C.). The plaintiff promptly filed a motion
to withdraw the reference from the Bankruptcy Court, ECF No.
1, which motion was referred to the Bankruptcy Court for a
report and recommendation, Mem. & Order, ECF No. 5.
Pending before the Court are the Bankruptcy Court's
Report and Recommendation (“R&R”), ECF No. 6,
recommending grant of the plaintiff's motion for
withdrawal of the reference to Bankruptcy Court for lack of
federal bankruptcy jurisdiction, the defendants'
objections thereto, Defs.' Obj. Bankr. Ct.'s R&R
(“Defs.' Obj.”), ECF No. 7, and the
plaintiff's motion for remand of the case to Superior
Court, Pl.'s Mot. Remand, ECF No. 8. For the reasons
explained more fully below, this Court lacks subject matter
jurisdiction over this case and, consequently, the
plaintiff's motions to withdraw the reference and to
remand are granted.
factual background of this case is extensively reviewed by
the Bankruptcy Court, see R&R at 4-16, and,
consequently, will only be briefly summarized, followed by
review of the relevant procedural history.
Hospital, the previous lessee of the hospital building at
issue in this case, declared bankruptcy and, in the course of
its bankruptcy proceedings, assigned the lease in 2014 to the
defendants. R&R at 5. As part of this confluence of
events, two separate agreements among different parties were
executed and an order of the Bankruptcy Court was issued that
now form the basis of the defendants' assertion of
federal bankruptcy jurisdiction.
first agreement, titled “Specialty Hospital of America,
LLC Landlord Sale Support Agreement Term Sheet, ” was
entered on May 28, 2014, by the plaintiff and the
defendants' parent company, which is not a party to this
action. R&R at 5; Pl.'s Resp. Defs.' Obj.
(“Pl.'s Resp.”), Ex. A (“Sale Support
Agreement” or “SSA”), ECF No. 9-2. This
Sale Support Agreement established the framework for
finalizing the terms of the new lease to replace the extant
lease between the plaintiff and the debtor, Specialty
Hospital. R&R at 5-7. By its terms, this agreement was
not “exhaustive as to the final terms, ” such
that if any SSA terms conflicted with a subsequent agreement
between the parties, “the latter shall govern.”
SSA at 1; see also id. ¶ 16 (noting that
“New Lease and the SSA will be subject to the
negotiation, execution and delivery of definitive forms of
agreement . . . embodying the terms set forth herein
reasonably satisfactory to Buyer and Landlord.”).
Significantly for the defendants' justification for the
withholding of rent, the SSA provided, as a condition for the
defendants' parent company entering the new lease, that
the plaintiff would “fully fund the costs and
expenditures required to complete the new HVAC [Heating,
Ventilation, and Air Conditioning] system and boiler
room” and construction on a “multi-rec room
project and entry ramp project.” Id. ¶
18. In the defendants' view, the plaintiff “failed
to comply with these conditions and fraudulently represented
that it complied with these conditions.” R&R at 7.
second agreement, titled “Asset Purchase Agreement,
” was executed on June 20, 2014, by Specialty Hospital
and the defendants' parent company providing for the sale
of substantially all of the debtor's assets to the
latter. R&R at 8 n.3; Pl.'s Resp., Ex. C
(“Asset Purchase Agreement”), ECF No. 9-4.
Although the plaintiff was not a party, this agreement
nonetheless referenced obligations of the plaintiff stating
that the plaintiff “shall be in full compliance with
the terms of the Sale Support Agreement, ” Asset
Purchase Agreement § 8.1(1), and that the new lease
would be “effective as of the Closing” of the
sale, id. § 8.1(m).
Bankruptcy Court approved the Asset Purchase Agreement in a
Sale Order, entered on June 30, 2014, thereby authorizing the
debtor to sell its assets to the defendants' parent
company. R&R at 9-10; Pl.'s Resp., Ex. D (“Sale
Order”), ECF No. 9-5. The Sale Order provides that
“upon certain payments being made to [the plaintiff] by
the closing of the sale, the new lease was to be deemed
assumed by Specialty Hospital and assigned to [the
defendants' parent company] . . . with all preexisting
obligations under the lease as of the closing date to be
treated as cured.” R&R at 10-11; Sale Order ¶
32. The Sale Order further expressly states that the
Bankruptcy Court retains “exclusive jurisdiction”
to enforce and resolve disputes related to the Asset Purchase
Agreement. Sale Order ¶ 53.
six months after entry of the Sale Order approving the sale
of the debtor's assets, the plaintiff and defendants
executed, on December 16, 2014, the new lease, titled
“Amended and Restated Lease Agreement.” Pl.'s
Resp., Ex. B (“2014 Lease”), ECF No. 9-3.
Particularly relevant here, the 2014 Lease contains an
express integration clause providing that the lease
“contains and embodies the entire agreement of the
parties hereto with respect to the subject matter hereof, and
supersedes all prior agreements, negotiations, and
discussions between the parties hereto.” Id.
§ 24.10. Further emphasizing the controlling force of
the 2014 Lease, this provision makes clear that “[a]ny
representation, inducement or agreement that is not contained
in this Lease shall not be of any force or effect.”
Id. Other provisions in the 2014 Lease referenced
the plaintiff's obligations to complete construction of
the new ramp and auditorium, and acknowledged installation of
a new HVAC system, with detailed procedures and timing for
resolution of any matters “in connection with such
installation.” Id. § 8.4.
days after execution of the 2014 Lease, Specialty Hospital
and the defendants' parent company closed on the sale of
debtor's assets and the 2014 Lease “was
contemporaneously assumed and assigned and went into
effect.” R&R at 14. As the Bankruptcy Court notes,
if the defendants' parent company was not satisfied with
the plaintiff's compliance with the terms of the Sale
Support Agreement, the defendants' parent company was
entitled not to complete the purchase under the Asset
Purchase Agreement, § 8.1(1), but, instead, that company
“proceeded to make the purchase, and apparently looked
to § 8.4 of the [2014 Lease] as satisfactorily
protecting the defendants with respect to issues regarding
the HVAC system and the construction of a new auditorium and
a new entry ramp.” R&R at 15; id. at 9
(noting that defendants' parent company “could have
backed out of completing the purchase if [plaintiff] failed
to meet its obligations under the Sale Support
Agreement”) (emphasis in original).
to the defendants, after the closing they discovered that,
contrary to the requirements of the Sale Support Agreement
and representations in the 2014 Lease, the plaintiff had not
installed a new and fully-functioning HVAC system. R&R at
14-15. In September 2015, more than one year after the
Bankruptcy Court's issuance of the Sale Order and nine
months after the 2014 Lease went into effect, the defendants
began withholding rent because of the plaintiff's alleged
failure to install a fully-functioning HVAC system. Pl.'s
Mem. Supp. Mot. Remand (“Pl.'s Mem.”) at 4,
ECF No. 8-1. To date, according to the plaintiff, the
defendants have withheld more than $1, 200, 000 in rent.
October 23, 2015, the plaintiff filed suit in Superior Court
alleging that the defendants had breached the 2014 Lease by
failing to pay rent due and seeking rent accrued as well as
penalties, interest, costs, expenses, and attorneys'
fees. Compl. ¶¶ 129-39; Pl.'s Mem. at 4. The
plaintiff also seeks a declaratory judgment clarifying that,
under the 2014 Lease, the landlord's responsibility is
limited to “construction of a ramp, awning and
auditorium as defined in the Lease” and no additional
HVAC upgrades and installation are required. Compl.
¶¶ 140-51, Relief Requested.
defendants timely removed the case directly to United States
Bankruptcy Court for the District of Columbia alleging
bankruptcy jurisdiction, under 28 U.S.C. § 1334(b), due
to this landlord-tenant matter arising in and being related
to the original bankruptcy proceeding involving Specialty
Hospital. Defs.' Removal Notice at 1-2; Defs.' Resp.
Pl.'s Mot. Remand (“Defs.' Resp.”) at 4,
ECF No. 11; Pl.'s Resp. at 8. The defendants' Answer
asserted four affirmative defenses based on the 2014 Lease,
Defs.' Answer and Counter Claims (“Defs.'
Ans.”) ¶¶ 153-54, 162-63, ECF No. 18, Adv.
Proc. 15-10027 (Bankr. D.C.), and four counterclaims for
alleged violations of the Sale Order, fraudulent
misrepresentation, and breach of contract by the plaintiff,
id. ¶¶ 209-36.
plaintiff responded to the defendants' removal of this
action to Bankruptcy Court by moving to withdraw the
reference to the Bankruptcy Court, Pl.'s Mot. Withdraw
Reference, ECF No. 1, which motion was referred to the
Bankruptcy Court for a report and ...