Safety Guide of Alabama , LLC v. McKnight Construction Company et al

Filing 16

MEMORANDUM OPINION AND ORDER directing that the 2 Motion to Withdraw the Reference as to Adversary Proceeding Number 08-3012 filed on 6/16/2008 by Dft Travelers Casualty & Surety Co. of America and the 1 Motion to Withdraw the Reference as to Adv ersary Proceeding Number 08-3012 filed on 6/16/2008 by Dft McKnight Construction Co., Inc. are DENIED; DIRECTING the Clerk to close this file. Signed by Hon. Chief Judge Mark E. Fuller on 11/24/2009. (Attachments: # 1 Civil Appeals Checklist)(wcl, )

IN THE UNITED STATES DISTRICT COURT F O R THE MIDDLE DISTRICT OF ALABAMA N O R T H E R N DIVISION IN RE: ) ) S A F E T Y GUIDE OF ALABAMA, LLC, ) ) D E B T O R /P L A IN T IF F ) ) v. ) C A S E NO. 2:08-mc-03415-MEF ) M c K N IG H T CONSTRUCTION CO., INC. ) (W O -D o Not Publish) a n d TRAVELERS CASUALTY & SURETY) C O . OF AMERICA, ) ) D EFEN D A N TS. ) M E M O R A N D U M OPINION AND ORDER T h is cause is before the Court on two motions: Motion to Withdraw the Reference as to Adversary Proceeding Number 08-3012 (Doc. # 2) filed on June 16, 2008 by Defendant T ra v e le rs Casualty & Surety Co. of America ("Travelers") and the Motion to Withdraw the R e f ere n c e as to Adversary Proceeding Number 08-3012 (Doc. # 1) filed on June 16, 2008 b y Defendant McKnight Construction Co., Inc. ("McKnight"). The Court has carefully c o n sid e re d the arguments submitted in support of and in opposition to the motions and finds th a t they are due to be DENIED. Safety Guide of Alabama, LLC ("Debtor") filed its petition for relief under Chapter 1 1 of the Bankruptcy Code on July 12, 2007. Debtor has continued to operate its business a s a debtor-in-possession. On April 16, 2008, Debtor filed a complaint that forms the basis o f the adversary proceeding number 08-3012. In the complaint, Debtor alleges that the

c a u s e s of action against Travelers and McKnight are core proceedings under 28 U.S.C. § 1 5 7 (b )(2 ). Debtor's complaint set forth a variety of claims against Travelers and McKnight. D e b to r's complaint sets forth two counts against Travelers: a claim under 40 U.S.C. § 3131 e t seq. ("the Miller Act") and a claim under state law for bad faith failure to pay on a surety b o n d . Debtor's complaint sets forth seven counts against McKnight, including one claim p u rs u a n t to 31 U.S.C. § 3905 and one claim pursuant to the Miller Act. Noting the presence of claims against them under federal law, Travelers and M c K n ig h t contend that mandatory withdrawal of the proceeding against them is required by 2 8 U.S.C. § 157(d). In the alternative, they seek permissive withdrawal under another p o rtion of § 157(d). Debtor argues that neither mandatory, nor permissive withdrawal are a p p ro p ria te in the circumstances of this case. The district court has original bankruptcy jurisdiction over "all civil proceedings arisin g under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334(a). D is tric t courts may refer these bankruptcy cases to specialized bankruptcy courts. 28 U.S.C. § 157(a). The Middle District of Alabama has adopted a General Order of Reference that r e f e r s all cases arising under or related to Title 11 to the bankruptcy courts in the Middle D is tric t. General Order of Reference, April 25, 1985. If a party believes its case should be h e a rd in district court, it may petition the district court to withdraw the reference and relieve th e bankruptcy court of jurisdiction. The statutory section addressing withdrawal states as f o l lo w s :

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T h e district court may withdraw, in whole or in part, any case or p ro c e ed in g referred under this section, on its own motion or on a timely motion of any party, for cause shown. The district court sh a ll, on timely motion of a party, so withdraw a proceeding if th e court determines that resolution of the proceeding requires c o n sid e ra tio n of both title 11 and other laws of the United States re g u latin g organizations or activities affecting interstate c o m m e rc e . 2 8 U.S.C. § 157(d). The decision to grant or deny a motion to withdraw a reference belongs s o le ly to the district court judge. Fed. R. Bankr. P. 5011. By granting district court judges th e discretion to refer Title 11 cases to the bankruptcy courts and the authority to withdraw th e reference once made, Congress ensures that "the judicial power of the United States will b e ultimately exercised by an Article III Court." In re Parklane/Atlanta Joint Venture, 927 F .2 d 532, 538 (11th Cir. 1991). A s previously stated, withdrawal may be mandatory or permissive. According to § 1 5 7 (d ), withdrawal is mandatory if the case requires resolution of both Title 11 and nonb a n k ru p tcy code federal law. A few courts have interpreted § 157(d) quite literally and held th a t withdrawal is mandatory any time a non-bankruptcy code federal law claim is pled, irre s p e c tiv e of the claim's substantiality. See, e.g., In re Keifer, 276 B.R. 196 (E.D. Mich. 2 0 0 2 ). The majority of courts to have reached the issue have, however, selected a different in te rp re ta tio n . Thus, most courts, including this one, have construed § 157(d) to mean "that w it h d r a w a l is mandatory `only if the court can make an affirmative determination that re so lu tio n of the claims will require substantial and material consideration of those non-Code s ta tu te s' which have more than a de minimis impact on interstate commerce." In re TPI 3

In te rn . Airways, 222 B.R. 663, 667 (S.D. Ga. 1998) (quoting In re C-TC 9th Ave. P a rtn e rs h ip , 177 B.R. 760, 762-64 (N.D.N.Y. 1995)). Accord, In re Price, 2:06mc3317M H T , 2007 WL 2332536, *2 (M.D. Ala. 2007); In re Childs, 342 B.R. 823, 826-27 (M.D. A la . 2006). Courts employing the "substantial and material" test have expressed concern that p a rties could undermine Congress' intent to give district courts the discretion to refer Title 1 1 cases to bankruptcy courts by alleging insubstantial claims involving non-bankruptcy code f e d e ra l law. In re American Body Armor & Equipment, Inc., 155 B.R. 588, 591 (M.D. Fla. 1 9 9 3 ); United States v. ILCO, Inc., 48 B.R. 1016, 1021 (N.D. Ala. 1985). Given the unique circumstances of this case where a few, but certainly not most of the c la im s in the adversary proceeding arise under federal law, but the other claims arise under A lab a m a common law or an Alabama statute, the Court cannot conclude that the applicable o f the "substantial and material" test warrants mandatory withdrawal. Thus, to the extent that th e motions are predicated on mandatory withdrawal they are due to be DENIED. E v e n if mandatory withdrawal is not required, it may be appropriate for the judge to e m p lo y permissive withdrawal. Whether to grant a motion for permissive withdrawal is w ith in the discretion of the district court. See, e.g., Vreugdenhil v. Hoekstra, 773 F.2d 213, 2 1 5 (8th Cir. 1985); In re White Motor Corp., 42 B.R. 693, 699 (N.D. Ohio 1984). P e rm is s iv e withdrawal requires a showing of cause. 28 U.S.C. § 157(d). Determination of w h e th e r cause exists involves analyzing a number of factors, including whether withdrawal w ill advance uniformity in the administration of bankruptcy law, prevent forum shopping,

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co n serv e the parties' resources, and facilitate the bankruptcy process.

See Dionne v.

S i m m o n s (In re Simmons), 200 F.3d 738, 741-42 (11th Cir. 2000). In this case, there is no re a s o n to think that declining to withdraw the matter will affect uniformity in bankruptcy. H o w e v e r, withdrawal would delay and disturb the bankruptcy process and create additional e x p e n se for the parties. Additionally, permitting withdrawal based solely on the presence of a Milller Act claim issues would encourage forum-shopping. Based on these factors, the C o u rt, in its discretion, finds that the motions are due to be DENIED with respect to p e rm iss iv e withdrawal. F o r the foregoing reasons, it is hereby ORDERED that the Motion to Withdraw the R e f ere n c e as to Adversary Proceeding Number 08-3012 (Doc. # 2) filed on June 16, 2008 b y Defendant Travelers Casualty & Surety Co. of America ("Travelers") and the Motion to W it h d r a w the Reference as to Adversary Proceeding Number 08-3012 (Doc. # 1) filed on J u n e 16, 2008 by Defendant McKnight Construction Co., Inc. ("McKnight") are DENIED. It is further ORDERED that the Clerk of the Court is DIRECTED to close this file. DONE this the 24th day of November, 2009. /s/ Mark E. Fuller CHIEF UNITED STATES DISTRICT JUDGE

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