Finley v. Carrington Mortgage Services, LLC
MEMORANDUM OPINION AND ORDER DISMISSING CASE that the motion to withdraw the reference of this case to the Bankruptcy Court is DENIED; Plaintiff's motion for a status conference is DENIED as MOOT; Costs are taxed to plaintiff as more fully set out in order. Signed by Judge C Lynwood Smith, Jr on 12/17/2012. (AHI)
2012 Dec-17 AM 09:06
U.S. DISTRICT COURT
N.D. OF ALABAMA
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ALABAMA
CARLA W. FINLEY,
Civil Action No. MC-12-S-00051-NE
MEMORANDUM OPINION AND ORDER
This case is before the court on a motion by plaintiff, Carla W. Finley, to
withdraw the reference of this action to the Bankruptcy Court.1 Defendant, Carrington
Mortgage Services, LLC, opposes the motion.2
Plaintiff filed for Chapter 13
bankruptcy, see 11 U.S.C. § 1301 et seq., in this district on April 9, 2008.3 Three
months later, on July 29, 2008, plaintiff filed an adversary complaint against
defendant, alleging eleven causes of action against defendant.4 Upon consideration,
Doc. no. 1 (Motion to Withdraw Reference).
Doc. no. 5 (Opposition to Motion to Withdraw Reference).
Doc. no. 1-1 (Adversary Proceeding Complaint) ¶ 19; doc. no. 1-3 (Bankruptcy Proceeding
Docket Sheet), at 1.
Doc. no. 1-1 (Adversary Proceeding Complaint) ¶¶ 40-100; doc. no. 1-4 (Adversary
Proceeding Docket Sheet). Plaintiff’s eleven claims are: (1) violations of the automatic stay
mandated by 11 U.S.C. § 362; (2) contempt for violations of 11 U.S.C. §§ 105, 362, 502, and 506;
(3) improper and unauthorized fees acquired in violation of 11 U.S.C. §§ 362, 502, 506, and
Bankruptcy Rule 2016; (4) common law torts and breaches of contract; (5) misapplication of
mortgage payments in violation of 11 U.S.C. § 524; (6) false, deceptive, or misleading proof of
claims; (7) unjust enrichment; (8) violation of Bankruptcy Rule 3001; (9) breach of deed of
trust/mortgage, and breach of note; (10) objection to creditor’s “Claim #1”; and (11) breach of
the motion to withdraw the reference will be denied.
The Withdraw Procedure and Timeliness
Under 28 U.S.C. § 157, “[e]ach district court may provide that any or all cases
under title 11 and any or all proceedings arising under title 11 or arising in or related
to a case under title 11 shall be referred to the bankruptcy judges for the district.” 28
U.S.C. § 157(a) (alteration supplied). Moreover,
[t]he district court may withdraw, in whole or in part, any case or
proceeding referred under this section, on its own motion or on timely
motion of any party, for cause shown. The district court shall, on timely
motion of a party, so withdraw a proceeding if the court determines that
resolution of the proceeding requires consideration of both title 11 and
other laws of the United States regulating organizations or activities
affecting interstate commerce.
28 U.S.C. § 157(d) (alteration and emphases supplied).
Accordingly, § 157 creates two standards for withdrawal of a reference to the
bankruptcy court: i.e., mandatory withdrawal, “if the court determines that resolution
of the proceeding requires consideration of both title 11 and other laws of the United
States regulating organizations or activities affecting interstate commerce”; and
permissive withdrawal “for cause shown.” See, e.g., Abrahams v. Phill-Con Servs.,
LLC, No. 10-0326, 2010 U.S. Dist. LEXIS 124379 at *4 (S.D. Ala. Nov. 23, 2010)
(discussing mandatory withdrawal); id. at *11 (discussing permissive withdrawal).
confirmation order. See doc. no. 1-1 (Adversary Proceeding Complaint) ¶¶ 40-100.
This court need not address those substantive standards, however, because the motion
can be resolved on procedural grounds. As the statutory text makes clear, “[u]nder
either type of withdrawal, the party [seeking withdrawal] must make a motion in a
timely fashion.” In re TPI International Airways, 222 B.R. 663, 667 (S.D. Ga. 1998)
(alterations supplied); see also In re Securities Group 1980, 98 B.R. 192, 194 (M.D.
Fla. 1988) (“A threshold issue in application of § 157(d) is the timeliness of the
motion to withdraw the reference.”).
Although the statute does not define “timely,” numerous courts have addressed
the purpose and meaning of that term.
“The reason for the timeliness requirement is to prevent parties from
forum shopping, stalling, or otherwise engaging in obstructionist tactics.”
In re Holcomb Health Care Services, LLC, 329 B.R. 622, 645 (Bankr.
M.D. Tenn. 2004); In re Matter of Lissner Corp., 115 B.R. 604, 608-612
(N.D. Ill. 1990); In re Giorgio, 50 B.R. 327, 328-329 (D. R.I. 1985).
In re Childs, 342 B.R. 823, 828 (M.D. Ala. 2006) (emphasis supplied). “[T]he
timeliness of a motion to withdraw must be measured by the stage of the proceedings
in the bankruptcy court. As a bankruptcy proceeding becomes more developed,
complicated, and involved, a court is more likely to find a motion untimely.” United
States v. Kaplan, 146 B.R. 500, 504 (D. Mass. 1992) (internal citations omitted)
(emphasis supplied). While courts differ somewhat as to the exact amount of time
that must elapse before a motion becomes untimely, their views vary only slightly.
See In re Childs, 342 B.R. at 828 (compiling cases).
Plaintiff filed her motion to withdraw the reference to bankruptcy with this
court on January 6, 2012,5 well over three years after initiating adversary proceedings
against defendant in the bankruptcy court.6 As defendant observes,7 the parties
engaged in extensive discovery, adjudicated a motion to dismiss,8 and pursued their
respective motions for summary judgment.9 Moreover, plaintiff filed four motions
for class certification with the bankruptcy court, the last of which came over a year
and a half before she filed her motion to withdraw the reference.10 Tellingly, plaintiff
now attempts to justify her motion to withdraw the reference to that court on the
ground that she is seeking class certification.11
Given the extent of the proceedings before the bankruptcy court,12 plaintiff’s
protracted delay in filing her motion to withdraw reference, and plaintiff’s apparent
effort to shop for a more favorable forum in which to adjudicate her motion for class
Doc. no. 1 (Motion to Withdraw Reference).
See doc. no. 1-4 (Adversary Proceeding Docket Sheet), at 2.
See doc. no. 5 (Opposition to Motion to Withdraw Reference), at 3 ¶ 9.
See doc. no. 1-4 (Adversary Proceeding Docket Sheet), at 6-10.
Id. at 14-19.
See id. at 14 (Adversary Proceeding doc. no. 92, filed June 26, 2009), 18 (Adversary
Proceeding doc. no. 119, filed Sept. 29, 2009), 19 (Adversary Proceeding doc. no. 124, filed Nov.
30, 2009), 26-27 (Adversary Proceeding doc. no. 168, filed Apr. 9, 2010).
Doc. no. 1 (Motion to Withdraw Reference) ¶¶ 2-3.
As of January 6, 2012, the record in the bankruptcy proceeding contained 158 documents,
and the record in the adversary proceeding contained 198 documents. See doc. no. 1-3 (Bankruptcy
Proceeding Docket Sheet); doc. no 1-4 (Adversary Proceeding Docket Sheet).
certification, the court concludes that her motion to withdraw the reference to
bankruptcy is not timely. See In re Price, 2007 WL 2332536, at *3 (finding motion
untimely when movant “engaged in nine months of pre-trial litigation in the
bankruptcy court, including filing two answers with jury demands, a cross-claim, a
counterclaim, two summary-judgment motions, and a dismissal motion, all before
filing a motion to withdraw”); Laine v. Gross, 128 B.R. 588, 589 (D. Me. 1991) (six
month delay untimely); Burger King Corp. v. B-K of Kansas, Inc., 64 B.R. 728, 730
(D. Kan. 1986) (ten months as the “outer limit” of timeliness); cf. In re The VWE
Group, Inc., 359 B.R. 441, 446-47 (S.D.N.Y. 2007) (four month delay not untimely
when no indication of forum shopping).
Bankruptcy Jurisdiction after Stern v. Marshall, 131 S. Ct. 2594 (2011)
Plaintiff’s motion also includes an underdeveloped, one-paragraph argument
that the bankruptcy court lacks the constitutional authority to adjudicate the class
Additionally, based on recent decisions of the U.S. Supreme
Court, it does not appear that the bankruptcy court has
constitutional authority to issue a final order on class certification.
See Stern v. Marshall, ___ U.S. ___, 131 S. Ct. 2594 (2011);
Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989).13
Plaintiff marginally amplifies that “argument” in her reply brief, which was filed
without seeking leave from this court to do so.
Doc. no. 1 (Motion to Withdraw) ¶ 5 (citation formats altered for conformity).
First, she represents that, in the bankruptcy court’s view, the bankruptcy court
“lacked the constitutional authority to enter any orders as to class certification.”14
Plaintiff did not attach or cite any opinion, order, or other evidence of the bankruptcy
court’s alleged ruling.
Next, plaintiff concludes that Stern forbids the bankruptcy court from
adjudicating the class certification issue.
. . . Indeed, the Supreme Court recognizes that while bankruptcy
court may have statutory authority to adjudicate a case, it may not
have the constitutional basis to do so. Stern, 131 S. Ct. at 2608
(“Although we conclude that § 157(b)(2)(C) permits the
Bankruptcy Court to enter final judgment on Vickie's
counterclaim, Article III of the Constitution does not.”)
. . . Stern is clear that while a bankruptcy court might have the
statutory authority to adjudicate a case or claim, it nonetheless
may be unable to do so on constitutional grounds.
Such is the case at bar. While the bankruptcy court has the
statutory basis to adjudicate Ms. Finley’s claims because they are
core proceedings, the bankruptcy court is of the opinion that it
does not have the constitutional authority to certify any class of
debtors, even though the requirements of Rule 23 have been
Plaintiff does not cite or discuss any post-Stern decisions interpreting that case, nor
undertake a detailed analysis of Stern’s application to the issue at hand. Defendant
Doc. no. 6 (Plaintiff’s Reply Brief) ¶ 2; see also id. ¶¶ 6-7.
Id. ¶¶ 6, 8-9 (emphases in original).
responds, in part, that Stern “did not concern a putative class,” but instead
stands simply for the proposition that the Bankruptcy Court is not
constitutionally authorized to render a final judgment on state law
counterclaims in a bankruptcy case after a trial on the merits. Stern
certainly does not support an argument that a Motion to Withdraw
Reference is due to be granted when class claims merely exist.
Furthermore, . . . bankruptcy claims — not state law based claims —
clearly predominate this action.16
Unfortunately, Stern has become the refuge for “strategic-minded defendants
who have sought to use [it] to prolong and/or obfuscate litigation.” In re Kimball Hill,
Inc., 480 B.R. 894, 898 (Bankr. N.D. Ill. 2012) (alteration supplied). It has developed
into “the mantra of every litigant who, for strategic or tactical reasons, would rather
litigate somewhere other than the bankruptcy court.” In re Ambac Financial Group,
Inc., 457 B.R. 499, 308 (Bankr. S.D.N.Y. 2011).
In Stern, the Supreme Court held only that bankruptcy courts do not have
constitutional authority under Article III to issue a final judgment on an unrelated state
law counterclaim brought by a bankrupt against a creditor. Stern, 131 S. Ct. at 260001, 2608. Stern emphasized that its holding was a “narrow” one that “does not change
all that much.” Id. at 2620; see also id. (referring to the “one isolated respect” in
which Congress exceeded Article III). Subsequent courts have taken that guidance
to heart. See, e.g., In re Lee, No. 2:12-CV-10-FTM-29, 2012 WL 4512931, at *10
(M.D. Fla. Sept. 30, 2012); In re Neves, No. 11-24505-CIV, 2012 WL 1831717, at *216
Doc. no. 5 (Defendant’s Response Brief) ¶ 11 (emphasis in original).
3 (S.D. Fla. May 17, 2012); Sundale, Ltd. v. Florida Associates Capital Enterprises,
LLC, No. 11-20635-CIV, 2012 WL 488110, at *5 (S.D. Fla. Feb. 14, 2012) aff'd sub
nom. In re Sundale, Ltd., No. 12-11450, 2012 WL 5974125 (11th Cir. Nov. 29, 2012);
In re Miles, 481 B.R. 832, 835 (Bankr. N.D. Ga. 2012); In re Kimball, 480 B.R. at
Stern placed great importance upon the fact that the state law counterclaim had
no relation to bankruptcy law, or other types of federal law. “The question is whether
the action at issue stems from the bankruptcy itself[.]” Id. at 2618. The Stern
counterclaim was “in no way derived from or dependent upon bankruptcy law; it is
a state tort action that exists without regard to any bankruptcy proceeding.” Id. In
short, the case involved “a state law action independent of the federal bankruptcy
law.” Id. at 2611. As defendant observes, such is not the case here, at least insofar
as the court can ascertain from the scant record before it. Upon review of handful of
documents — including the initial complaint — provided by plaintiff in conjunction
with her motion, it is clear that bankruptcy law predominates in this case: i.e., the state
law claims do not exist without regard to any bankruptcy proceeding. And to the
extent that plaintiff intends to argue that “under Stern, a bankruptcy court only has
jurisdiction to enter final judgment on federal bankruptcy law claims[,] and no[t] state
law claims . . . the Supreme Court made no such distinction.” In re Sundale, Ltd., No.
12-11450, 2012 WL 5974125, at *4 (11th Cir. Nov. 29, 2012) (per curiam).
Moreover, a motion to withdraw the reference to bankruptcy is not the proper
procedure at this juncture, even assuming the bankruptcy court lacks constitutional
authority to issue a final judgment. “Nothing in the Stern decision, or any other
decision, has limited the ability of bankruptcy courts to issue reports and
recommendations in all matters that have been properly referred to the bankruptcy
court.” In re Palm Beach Finance Partners, L.P., No. 12-80269-CIV, 2012 WL
2504009, at *2 (S.D. Fla. June 28, 2012). The decision of the Southern District of
Florida in the Palm Beach case offered a thorough analysis of the relationship between
Stern and motions to withdraw the reference to bankruptcy.
The Court finds the decision of the Southern District of New York in In
re Extended Stay, Inc., 466 B.R. 188 (2011), to be persuasive here. That
In holding that Stern does not mandate withdrawal of these
five actions, I do not reach the issue of how Stern applies to
each of the 125 claims at issue. The bankruptcy court is
capable of making that determination initially, subject to de
novo review by this Court. In the event that the bankruptcy
court does not have constitutional authority to enter a final
judgment on certain claims, it may submit proposed
findings of fact and conclusions of law to this Court.
Withdrawing the reference simply due to the uncertainty
caused by Stern is a drastic remedy that would hamper
judicial efficiency on the basis of a narrow defect in the
current statutory regime identified by Stern. Neither the
Supreme Court nor most of the courts to consider Stern
have given it the expansive effect advocated by plaintiffs.
Accordingly, Stern does not provide a basis independent of
section 157(d) for mandatory withdrawal in these five
Id. at 203. This Court agrees with the sound reasoning of the Southern
District of New York. The Bankruptcy court can, and should, initially
determine whether it has the constitutional authority to render a final
judgment on a particular issue. The Court will review the specific legal
question of constitutional authority de novo, and if the Court determines
that the bankruptcy court erred in rendering a final judgment, it will
simply treat the Court's “decision” as a report and recommendation.
In re Palm Beach, 2012 WL 2504009, at *3 (emphases supplied). This court sees no
reason to depart from that practice.
For all of the reasons discussed above, the motion to withdraw the reference of
this case to the Bankruptcy Court is DENIED. Plaintiff’s motion for a status
conference17 is DENIED as MOOT. Costs are taxed to plaintiff. The clerk is directed
to close this file.
DONE and ORDERED this 17th day of December, 2012.
United States District Judge
Doc. no. 3 (Motion for Status Conference).
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