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A lawsuit seeking $619.3 million more for 4,360 past and present Avoca-area residents exposed to contamination will not be adjudicated in the Luzerne County Court of Common Pleas as requested by the plaintiff, a recent ruling said.
U.S. Bankruptcy Judge Michael E. Wiles in New York City recently issued a ruling denying both a transfer to Luzerne County and request for his court to abstain from hearing the case.
Area resident Stanley Waleski filed the suit on the group’s behalf in county court in April 2018.
The defendants — Philadelphia law firm Montgomery, McCracken, Walker & Rhoads and two of its attorneys — got the case transferred to federal court in Scranton and then in New York City.
That jurisdiction’s U.S. District Judge Alison J. Nathan issued an order in February moving the suit to federal bankruptcy court, which is why Wiles had to rule on the venue.
Waleski filed a motion asking the bankruptcy court to transfer the action back to Luzerne County Court or abstain.
Case history
The Avoca-area plaintiffs who stand to gain from Waleski’s suit were involved in 2005 litigation filed by the Powell Law Group seeking compensation for health problems they attributed to creosote exposure from the defunct Kerr-McGee Corp. wood treatment plant that operated in the borough for four decades until 1996.
Their claims were ultimately processed through the 2009 bankruptcy of Kerr-McGee and related entities under the umbrella of Tronox Inc. — a case adjudicated in the federal bankruptcy court in New York City.
Powell Law had hired the Montgomery firm for its bankruptcy expertise in 2009.
Waleski’s complaint accuses the Montgomery firm of breach of contract for allegedly failing to take actions seeking top-dollar compensation for the local victims in the bankruptcy case. He came up with the $619.3 million figure asserting the Avoca-area residents were entitled to $949 million but ended up receiving $329.7 million through the bankruptcy, his suit said.
The Montgomery firm has vigorously defended the quality of its work and argued New York City bankruptcy court is the proper venue because the plaintiff is attempting to “re-litigate issues previously ruled upon” in that bankruptcy court, including an opinion written by Judge Wiles, its filings said.
The Philadelphia firm also maintained Waleski failed to state a claim and enjoin Powell Law in the litigation, which would be a “necessary and indispensable party” in such an action.
New ruling
In his 25-page opinion, Wiles said he disagrees with Waleski’s argument that his court “lacks subject matter jurisdiction” over the proceeding.
”The alleged wrongs committed by the defendants involved the performance of bankruptcy-specific tasks and the assertion of bankruptcy-specific objections and rights,” Wiles wrote.
The dispute between the parties “did not exist – and could not have existed – outside of the context of the Tronox bankruptcy cases,” he added.
Wiles also said his court has jurisdiction because the dispute “implicates the integrity of the bankruptcy process” and requires interpretation of some of the bankruptcy court’s prior orders and rulings.
According to the opinion, Waleski’s primary claim is that Avoca plaintiffs should not have had to “‘share’ so much of the available assets” with claimants from Mississippi and should have obtained “better outcomes than those other creditors received.”
Wiles noted it is “fundamental to the bankruptcy process that similarly situated creditors are treated similarly.”
”Whether the defendants could have reasonably pushed for such different outcomes, and whether differential treatment of the claims was even possible, is entirely a function of bankruptcy law,” Wiles wrote.
Mandatory abstention rules “plainly do not apply” in the case, the judge said.
“Here, this court has a strong and overwhelming interest in adjudicating the claims,” Wiles wrote. “It is important to the integrity of the bankruptcy process, and of the orders that this court issued, that Mr. Waleski’s challenges to these outcomes be resolved in this court.”
