Neal & Harwell PLC v. Victor et al
MEMORANDUM OPINION AND ORDER DENYING 1 Motion to Withdraw Reference for reasons set out herein. Signed by Judge Virginia Emerson Hopkins on 7/26/2016. (JLC)
2016 Jul-26 PM 03:58
U.S. DISTRICT COURT
N.D. OF ALABAMA
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
) Case No.: 2:15-MC-2198-VEH
CYNTHIA S. VICTOR
MEMORANDUM OPINION AND ORDER
This miscellaneous matter relates to bankruptcy petition no. 13-04083-TOM7, and adversary proceeding no. AP 15-00073-TOM, which are pending in the
United States Bankruptcy Court for the Northern District of Alabama, Southern
Division. (Doc. 1-3). Pending before this court is Defendant Blue Cross and Blue
Shield of Alabama’s (“Blue Cross”), Motion to Withdraw Reference (Doc. 1-3) (the
“Motion”) filed on December 4, 2015. The Motion has been opposed by the
Plaintiff in interpleader, Neal & Harwell, PLC (“Neal & Harwell”) (“Objection to
Motion”, doc. 6). Blue Cross has replied. (“Reply”, doc. 8).1 For the reasons stated
herein, the Motion will be denied.
Neal & Harwell, a law firm located in Birmingham, Alabama, represented
The Trustee has not filed in support of or objection to the Motion.
Cynthia S. Victor (“Mrs. Victor”) and her husband (“Mr. Victor”) in a personal
injury action litigated in Tennessee. That action that arose from an April 18, 2001,
motor vehicle accident that occurred in Tennessee and that caused Mrs. Victor to
sustain personal injuries,2 for which she received medical treatment which was paid
for by Blue Cross under an ERISA group health plan. Blue Cross knew about the
Tennessee lawsuit and asserted a subrogation lien in the amount of $25,129.97
against any recovery from that lawsuit. Neal & Harwell was aware of Blue Cross’s
subrogation claim. In 2005, Neal & Harwell settled the claims of Mrs. Victor and of
Mr. Victor, received the settlement proceeds, and disbursed the Victors’ portion to
them, retaining $25,129.97 as a “Subrogation Reserve” based on Blue Cross’s
subrogation claim. In May of 2005, Neal & Harwell attempted to settle Blue
Cross’s subrogation claim for $10,000. Blue Cross never responded to that offer.
In September of 2013, Mrs. Victor (hereinafter the “Debtor”), through
different counsel, filed in the United States Bankruptcy Court for the Northern
District of Alabama her Voluntary Petition seeking protection under Chapter 7 of
the Bankruptcy Code, 11 U.S.C. § 101, et seq. That action (the “Bankruptcy”) was
assigned case number 13-04083. She received her discharge on December 27, 2013.
On May 29, 2015, Neal & Harwell learned of Debtor’s Bankruptcy and, on
Mr. Victor apparently asserted only a loss of consortium claim.
December 1, 2015, it filed a Complaint for Interpleader Relief within the
Bankruptcy case. The named defendants were Mrs. Victor, Mr. Victor, the Chapter
7 trustee (the “Trustee’) and Blue Cross. The Interpleader Complaint seeks to
interplead the $25,129.97 Subrogation Reserve and to have the Bankruptcy Court
determine to whom that amount should be disbursed: Mrs. Victor, Mr. Victor, the
Trustee, and/or Blue Cross, subject to a deduction for Neal & Harwell for those
litigation fees and expenses incurred by Neal & Harwell in connection with the
Neither Mrs. Victor nor Mr. Victor responded to the Interpleader Complaint.
The Trustee filed a Response and Claim alleging that the Subrogation Reserve is
property of the bankruptcy estate pursuant to 11 U.S.C. § 541(a) and that, as
property of the estate, the Subrogation Reserve is due to be turned over to him
pursuant to 11 U.S.C. § 542. Blue Cross filed an Answer and Counterclaims,
asserting that it is entitled to the Subrogation Reserve “pursuant to ... its contractual
rights of subrogation and reimbursement as well as its equitable lien on, and security
In May of 2005, Neal & Harwell told Blue Cross that it had handled the personal injury
case on a one-third contingency fee basis and stated that, after pro rata deduction of fees, the
Blue Cross subrogation claim is $16,533.31 ($25,129.97 - $8376.66). Neal & Harwell then stated
their belief that a $10,000 payment to satisfy the subrogation claim would be fair. It does not
appear that Neal & Harwell is seeking any portion the Subrogation Reserve as a “pro rata”
payment of fees for the personal injury action which resulted in the settlement.
interest in, the Subrogation Reserve.” (Answer and Counterclaims, doc. 1-7, ¶ 11).
Blue Cross further asserts claims for “a construct[ive] trust and equitable lien on the
settlement funds being held in Neal & Harwell’s trust account, plus accrued interest,
and to receive appropriate equitable restitution” (Count One) (Id. at ¶ 23); and
claims of “unjust enrich[ment]” against Neal & Harwell for its having “us[ed] a
portion of Blue Cross’s recovery to pay its own fee.” (Count Two) (Id. at ¶ 30).4
Neal & Harwell has answered Blue Cross’s counterclaims. (Answer to
Counterclaims, doc. 1-11).
II. APPLICABLE LEGAL STANDARDs
District courts possess “original and exclusive jurisdiction of all cases under
title 11.” 28 U.S.C. § 1334(a). However, district courts can provide that cases that
arise under title 11, arise in title 11, or relate to a case under title 11 may be referred
to the bankruptcy court of that district. 28 U.S.C. § 157(a). This court has entered a
general order of reference automatically referring all such cases to the bankruptcy
judges for this district. US v. ILCO, Inc., 48 B.R. 1016, 1020 (N.D.Ala.1985).
However, 28 U.S.C. § 157(d) provides for the withdrawal of the reference
Blue Cross claims subrogation in the amount of $36,371.34, but the Subrogation
Reserve is only $25,129.97.
under certain circumstances.5 Withdrawal may be either mandatory or permissive. A
district court is required to withdraw the reference “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).
III. ISSUES PRESENTED
Although Blue Cross never explicitly states so, it appears that it initially
asserted only that withdrawal was mandatory. (See doc. 1-3 at ¶ 4) (“Because this
case involves substantial and material consideration of federal non-bankruptcy law,
cause exists under 28 U.S.C. § 157(d) to withdraw the reference as to this adversary
proceeding.”). After Neal & Harwell opposed withdrawal, saying that it was not
mandatory and that this court should not exercise its permissive discretion in favor
of withdrawal (Objection, doc. 6), Blue Cross replied that withdrawal is indeed
mandatory but that, if this court disagrees, it should permissively withdraw the
Section 157(d) provides:
The 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).
reference. (Response, doc. 8).
A. Withdrawal Is Not Mandatory
In its Motion, Blue Cross conclusively states that withdrawal is mandatory
because “the resolution of the issues in the Complaint turn on the interpretation and
application of ERISA.” In support, Blue Cross asserts that the following issues must
be determined: (1) the limitations period applicable to Blue Cross’s subrogation
claim; and (2) when that limitations period began. Other than stating that “29 U.S.C.
§ 1132(a)(3) contains no express limitations period,” Blue Cross initially provides
no analysis why ERISA must be “interpreted,” much less that there are open
questions of federal non-bankruptcy law that this court must decide.6
After Neal & Harwell persuasively argue that mandatory withdrawal is not
appropriate “because this action is a garden-variety interpleader an subrogation
action that, at best, only tangentially implicates any right or remedy of [Blue Cross]
contemplated by ERISA”, and that “there is also otherwise no cause for this Court
to exercise its discretion to withdraw the order of reference”, Blue Cross for the first
time presents cases to support its argument that ERISA is even implicated.
Certainly, Blue Cross’s subrogation rights arise out of benefits Blue Cross provided the
Debtor under an ERISA plan. But that does not mean that Blue Cross’s subrogation rights require
an interpretation of ERISA.
However, Blue Cross still wholly fails to show that ERISA must be “interpreted.”
This court is aware that some courts, citing the plain language of the Section
157(d), have determined that withdrawal is mandatory if resolution of the dispute
requires any consideration of a non-title 11 federal law (see, e.g., In re Kiefer, 276
B.R. 196, 199 (E.D.Mich.2002). However, the majority of courts to consider the
issue have found that “withdrawal is mandatory only if the court can make an
affirmative determination that resolution of the claims will require substantial and
material consideration of those non-Code statutes which have more than a de
minimis impact on interstate commerce.” In re Price, No. 2:06-mc-3317–MHT,
2007 WL 2332536, at *2 (M.D.Ala. Aug. 13, 2007) (quoting In re TPI Intern.
Airways, 222 B.R. 663, 667 (S.D.Ga.1998) (internal quotations omitted); see also
Truss v. LVNV Funding, LLC, 532 B.R. 373 (N.D. Ala. 2015) (collecting cases);
Thompson v. LVNV Funding, LLC, 534 B.R. 816 (N.D.Ala. 2015); Abrahams v.
Phil–Con Services, LLC, No. 10–0326–WS–N, 2010 WL 4875581 (S.D.Ala. Nov.
23, 2010). The majority approach holds that, for withdrawal to be warranted, the
issue must “require more than the mere application of well-settled or ‘hornbook’
non-bankruptcy law; significant interpretation of the non-Code statute must be
required.” Abrahams, 2010 WL 4875581, at *2 (quoting Matter of Vicars Ins.
Agency, Inc., 96 F.3d 949, 953 (7th Cir.1996)). This court will, along with the other
district courts in this circuit, follow the majority approach. Withdrawal of the
reference is not mandatory.
B. Permissive Withdrawal Is Not Appropriate
This court agrees with the parties that permissive withdrawal of the reference
is for “cause shown.” Further, Eleventh Circuit case law makes clear that, although
“‘[c]ause’ is not defined, ... this is not an ‘empty requirement.’” Envtl. Litig. Grp.,
P.C. v. Crawford (In re Price), Nos. 05-04807-TOM-13, 07-00017, 2007 Bankr.
LEXIS 1366 at * 26 (U.S. Bankr. N.D. Ala. Apr. 16, 2007) (quoting In re
Parklane/Atlanta Venture, 927 F.2d 532, 536 (11th Cir. 1991)). The parties also
agree that the factors for this court to consider in determining whether to withdraw
the reference for cause shown are: (1) advancing uniformity in the administration of
bankruptcy law; (2) prevention of forum shopping; (3) conservation of the parties’
resources; and (4) facilitation of the bankruptcy process. Blue Cross cites the
following additional factors: (1) whether the claim is core or non-core; (2) efficient
use of judicial resources; (3) whether a jury was demanded, and (4) prevention of
The court has considered all of these factors and finds that withdrawal is
inappropriate. Blue Cross argues that two of these seven factors favor withdrawal:
(1) conservation of the parties’ resources; and (2) facilitation of the bankruptcy
process. As to the conservation issue, Blue Cross’s argument is couched in terms
and phrases such as “if” and “would likely”. This is entirely too speculative to
persuade the court that the parties’ resources would be conserved by withdrawal of
the reference. As to facilitation of the bankruptcy process, Blue Cross merely argues
that the losing party can appeal an adverse decision of the bankruptcy court to the
district court. If this argument were persuasive, then this district might as well
withdraw its General Order of Reference.
The court notes that the pending Motion was filed after two hearings before
the bankruptcy judge and immediately after the bankruptcy judge stated that she
would probably abstain from this case and that the parties should litigate in state
court. This court respectfully disagrees that abstention is appropriate. The Trustee
has claimed the interpleaded funds. If those funds are ultimately paid to the Trustee,
then those additional funds should be administered under bankruptcy law to pay
Debtor’s remaining creditors in her bankruptcy proceeding. A state court would
have neither the expertise nor the jurisdiction to accomplish that. Because the
bankruptcy court is uniquely qualified and able to determine and administer this
action, this court finds that abstention is not appropriate.7
In making this observation, this court expresses no opinion as to the merits of the various
claims and counterclaims.
Additionally, the timing of the Motion indicates to this court that the purpose
of the Motion is to forum shop. Thus, the goal of preventing forum-shopping cuts
strongly against withdrawing the reference.
No party argues that this is not a “core” claim. Nor has a jury been
demanded. Thus, both of these factors cut against withdrawing the reference.
For the reasons set out above, the court finds that withdrawal of the reference
is not mandatory. The court further finds that permissive withdrawal of the reference
is not appropriate. Accordingly, the Motion is DENIED.
DONE and ORDERED this the 26th day of July, 2016.
VIRGINIA EMERSON HOPKINS
United States District Judge
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