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Merely Labeling A Claim “Turnover” Under Bankruptcy Code Section 542 Does Not Always Yield A “Core” Claim

IPC Int’l Corp. v. Milwaukee Golf Shopping Center LLC (In re IPC Int’l Corp.), Adv. No. 14-50333 (MFW), 2014 WL 5544692 (Bankr. D. Del. Nov. 3, 2014)

In this adversary proceeding, Judge Walrath granted a motion to transfer venue, holding that all alleged claims (including a claim for turnover under Bankruptcy Code section 542) were non-core and that the interests of justice and convenience of the parties weighed in favor of transfer.

The IPC proceeding was commenced by the debtor, alleging turnover, breach of contract, and unjust enrichment to recover certain accounts receivable incurred mostly post-petition under a pre-petition services agreement (the “Agreement”) with defendants Milwaukee Golf Shopping Center LLC and Milwaukee Golf Management Corporation (“Management”).  There was no dispute that the debtor’s breach of contract and unjust enrichment claims were non-core.  Rather, the dispute centered on the turnover claim.

Typically, a turnover claim under section 542(b) is core because it is enumerated as such under 28 U.S.C. § 157(b)(2)(e) (“orders to turn over property of the estate”).  However, a turnover claim can be non-core if improperly invoked.  Pursuant to section 542(b), a turnover claim is properly brought if “an entity…owes a debt that is property of the estate and that is matured, payable on demand, or payable on order[.]”  11 U.S.C. § 542(b).  Here, the Court determined that the turnover claim was improperly invoked not only because a bona fide dispute existed as to Management’s liability but also because the debtor asserted a claim for attorneys’ fees, which was an unliquidated, contingent, and thus unmatured claim.

Notwithstanding, the debtor argued that the turnover claim was core because a majority of the services underlying the accounts receivable were rendered post-petition.  The Court rejected this argument.   Although case law exists, and was relied upon by the debtor, to support such a theory, the Court distinguished it, noting that such case law involves post-petition accounts receivable and post-petition contracts.  See, e.g.In re Arnold Print Works, Inc., 815 F.2d 165 (1st Cir. 1987).  Here, the underlying Agreement arose pre-petition and thus, was only “‘tangentially related’ to the bankruptcy cases.”  See Beard v. Braunstein, 914 F.2d 434, 445 (3d Cir. 1990) (holding that a claim based upon pre- and post-petition breaches of a pre-petition contract was non-core).  As a result, the turnover claim was held non-core by the Court.