Highway Solutions, LLC et al v. McKnight Construction Co., Inc. et al

Filing 12

MEMORANDUM OPINION AND ORDER that 1 Motion to Withdraw the Reference at to Adversary Proceeding Number 08-3013 filed by Defendant Travelers Casualty & Surety Co. of America and 2 Motion to Withdraw the Reference as to Adversary Proceeding Number 08-3013 filed by Defendant McKnight Construction Co., Inc. are DENIED. It is further ORDERED that the Clerk of the Court is DIRECTED to close this file. Signed by Hon. Chief Judge Mark E. Fuller on 6/12/2009. (Attachments: # 1 Civil Appeals Checklist)(cb, )

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: ) ) H IG H W A Y SOLUTIONS, LLC, ) ) D E B T O R /P L A I N T I F F ) ) v. ) C A S E NO. 2:08-mc-03416-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 08-3013 (Doc. # 1) 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 e re n c e as to Adversary Proceeding Number 08-3013 (Doc. # 2) filed on June 16, 2008 b y Defendant McKnight Construction Co., Inc. ("McKnight"). The Court has carefully c o n s id 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. Highway Solutions, LLC ("Debtor") filed its petition for relief under Chapter 11 of th e Bankruptcy Code on September 26, 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 08-3013. In the complaint, Debtor alleges that the

causes 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. Debtor'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 rtio n of § 157(d). Travelers and McKnight also seek to transfer the case, once removed, to the United States District Court for the Middle District of Georgia under the venue p ro v is io n of the Miller Act. Debtor argues that neither mandatory, nor permissive

w ith d ra w a l are appropriate in the circumstances of this case. The district court has original bankruptcy jurisdiction over "all civil proceedings a risin 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 re f e rs 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

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the bankruptcy court of jurisdiction. The statutory section addressing withdrawal states as f o llo w s : T h e district court may withdraw, in whole or in part, any case or p ro c e e d in g referred under this section, on its own motion or on a timely motion of any party, for cause shown. The district court s h 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 s id e ra tio n of both title 11 and other laws of the United States re g u la tin g organizations or activities affecting interstate c o m m e rce . 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 tc y 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 ith d r a w a l is mandatory `only if the court can make an affirmative determination that 3

resolution 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 In te r n . Airways, 222 B.R. 663, 667 (S.D. Ga. 1998) (quoting In re C-TC 9th Ave. P a rtn e r s 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 rtie s 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 la b a m a common law or an Alabama statute, the Court cannot conclude that the application 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 iss iv e withdrawal requires a showing of cause. 28 U.S.C. § 157(d). Determination of

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whether cause exists involves analyzing a number of factors, including whether withdrawal w ill advance uniformity in the administration of bankruptcy law, prevent forum shopping, c o n s e rv e the parties' resources, and facilitate the bankruptcy process. See Dionne v. S im 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 advance uniformity in the b a n k ru p tc y law. However, withdrawal would delay and disturb the bankruptcy process and c re a te additional expense for the parties. Additionally, permitting withdrawal based solely o n the presence of a Milller Act claim issues would encourage forum-shopping. Based on th e s e factors, the Court, in its discretion, finds that the motions are due to be DENIED with re s p e c t to permissive withdrawal. F o r the foregoing reasons, it is hereby ORDERED that the Motion to Withdraw the R e f e re n c e as to Adversary Proceeding Number 08-3013 (Doc. # 1) filed on June 16, 2008 b y Defendant Travelers Casualty & Surety Co. of America ("Travelers") and the Motion to W ith d ra w the Reference as to Adversary Proceeding Number 08-3013 (Doc. # 2) 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 12th day of June, 2009. /s/ Mark E. Fuller CHIEF UNITED STATES DISTRICT JUDGE

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