Cadle Company v. N'Genuity Enterprises Company

Filing 17

ORDER - IT IS ORDERED denying Cadle's Motion to Withdraw the Reference to theBankruptcy Court (Doc. 2). (See document for full details). Signed by Judge James A Teilborg on 7/30/12. (LAD)

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UNITED STATES DISTRICT COURT

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DISTRICT OF ARIZONA
District Court Case No. CV-12-0351PHX-JAT

In re:
N’Genuity Enterprises Co.,

Chapter 11 Proceedings

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Debtor.
Bankruptcy Case No. 2:11-bk-28705-GBN

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The Cadle Company,

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ORDER

Movant,
v.
N’Genuity Enterprises Co.,
Respondent.

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Pending before the Court is The Cadle Company’s (“Cadle”) Motion for

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Withdrawal of Reference for Objection to Proof of Claim of The Cadle Company and to

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Determine Allowance of Claim (Doc. 2).

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I.

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BACKGROUND
Respondent N’Genuity Enterprises Co. (“N’Genuity”) filed a voluntary Chapter 11

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bankruptcy petition with the United States Bankruptcy Court for the District of Arizona

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on October 11, 2011. Cadle filed a Proof of Claim in those proceedings on January 4,

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2012. In the Proof of Claim, Cadle asserts claims against N’Genuity for damages

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allegedly resulting from conspiracy to fraudulently transfer property, unjust enrichment,

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and transferee liability under the Uniform Fraudulent Transfer Act, A.R.S. § 44-1001 et

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seq. N’Genuity filed an objection to Cadle’s Proof of Claim. In a separate case pending

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in this district, Cadle has also asserted claims against multiple other parties, alleging

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various claims including fraudulent transfer and unjust enrichment (the “Bowen Suit”).

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The Claims in both the Bowen suit and the Proof of Claim against N’Genuity all

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center on the actions of Alfred “Bub” Bowen, against whom Cadle obtained a civil

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judgment for over $800,000 in 1993. That judgment remains unsatisfied. Briefly, Cadle

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now alleges that, through various fraudulent asset-shielding schemes, the multiple parties

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in the Bowen suit are acting in concert with Mr. Bowen to help him avoid paying his

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judgment debt. With regard to N’Genuity’s involvement in any such scheme, Cadle

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alleges that Mr. Bowen is a “de facto executive” of N’Genuity, and that he has been able

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to oversee N’Genuity’s involvement in an alleged asset-shielding scheme through his

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management of N’Genuity’s operations. Specifically, Cadle alleges that Mr. Bowen has

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never received any payments directly from N’Genuity in exchange for his managerial

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services, but rather has relied on his ability to access monetary distributions to other

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alleged N’Genuity “insiders,” including his immediate family members. This scheme,

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alleges Cadle, allows Mr. Bowen to avoid holding any assets of significant value, thereby

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providing him a means to evade his creditors. N’Genuity, on the other hand, asserts that

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Cadle “does not actually hold any cognizable claim against the N’Genuity bankruptcy

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estate,” and that “Mr. Bowen was never an officer of employee of N’Genuity; that Cadle

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does not allege any cash or property was ever transferred between N’Genuity and Mr.

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Bowen; and that N’Genuity does not owe Mr. Bowen any money or other obligation

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subject to garnishment.” Doc. 11 at 2. Thus, in N’Genuity’s view, Cadle is simply

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attempting to move its case to what Cadle perceives to be a more favorable forum.

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Cadle now moves this Court to withdraw the reference to the bankruptcy court so

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that Cadle’s claims against N’Genuity may be consolidated in the district court with

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Cadle’s other claims in the Bowen Suit. The Court now rules on the motion.

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II.

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LEGAL STANDARD
Under 28 U.S.C. § 157(a), a “district court may provide that any or all cases under

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title 11 and any or all proceedings arising under title 11 or arising in or related to a case

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under title 11 shall be referred to the bankruptcy judges for the district.” With respect to

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the bankruptcy court’s power to hear and enter judgments in cases, the statute further
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distinguishes between core and non-core proceedings and provides a non-exhaustive list

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of various proceedings deemed to be core. 28 U.S.C. § 157(b)(2). Bankruptcy judges

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may hear core proceedings and “may enter appropriate orders and judgments” in them.

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Id. § 157(b)(1). Conversely, though a bankruptcy judge may also hear a proceeding that is

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not core, in such a proceeding, the bankruptcy judge may only submit proposed findings

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of fact and conclusions of law to the district court. Id. § 157(c)(1). Thus, any final order

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or judgment in a non-core proceeding must be entered by the district judge after a de novo

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review of any matters objected to in the bankruptcy judge’s proposed findings and

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conclusions. Id.

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Further, a district court may withdraw any case referred to a bankruptcy court, “on

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its own motion or on timely motion of any party, for cause shown.” 28 U.S.C. § 157(d).

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Whether cause exists depends on the following factors: (1) the efficient use of judicial

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resources; (2) delay and costs to the parties; (3) uniformity of bankruptcy administration;

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(4) the prevention of forum shopping; and (5) other related factors. In re Canter, 299 F.3d

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1150, 1154 (9th Cir. 2002). The Ninth Circuit has stated that “[a] district court

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considering whether to withdraw the reference should first evaluate whether the claim is

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core or non-core, since it is upon this issue that questions of efficiency and uniformity will

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turn.” In re Orion Pictures Corp., 4 F.3d 1095, 1101 (9th Cir. 1993). This is because

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“hearing core matters in a district court could be an inefficient allocation of judicial

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resources given that the bankruptcy court generally will be more familiar with the facts

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and issues.” Id. Thus, only after making the core/non-core determination should a district

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court weigh the factors above and make a final determination on whether to withdraw the

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reference to the bankruptcy court. Id. Finally, the party seeking withdrawal bears the

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burden of establishing that withdrawal is appropriate. In re Homeland Stores, Inc., 204

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B.R. 427, 430 (D. Del. 1997).

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III.

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ANALYSIS
Here, Cadle has failed to show that cause exists to withdraw the reference to the

bankruptcy court. First, N’Genuity argues that the disputed claims are core proceedings
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because they involve the “allowance or disallowance of claims against the estate,” which

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is one of the enumerated categories of core proceedings under § 157(b)(2)(B).

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Specifically, N’Genuity argues that “the Bankruptcy Court has core jurisdiction over all

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claims asserted in the Cadle [Proof of Claim] and [N’Genuity’s] Objection because these

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proceedings: (1) involve the debtor; (2) involve an objection to a proof of claim and the

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allowance or disallowance of such claim; and (3) are directly related to and will impact

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the administration of the estate. Doc. 11 at 7. Cadle does not dispute N’Genuity’s

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assertion that the disputed claims are core proceedings. Nor does Cadle even address the

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issue of whether the proceedings are core or non-core.

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The Court agrees with N’Genuity that the proceedings may be deemed core

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because they involve the allowance or disallowance of claims against N’Genuity’s

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bankruptcy estate. Indeed, all of Cadle’s claims appear in its proof of claim filed in the

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bankruptcy court. The Ninth Circuit has held that such a filing “is the prototypical

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situation involving the ‘allowance or disallowance of claims against the estate.’” In re

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G.I. Indus., 204 F.3d 1276, 1279-80 (9th Cir. 2000). Further, there is “no question that [a]

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bankruptcy court [has] jurisdiction over the proof of claim itself because it is a core

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matter.” Id. at 1280.

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Nevertheless, Cadle asserts that withdrawal of the reference is proper because its

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claims against N’Genuity are closely related to Cadle’s claims in the Bowen suit. Thus,

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Cadle argues, “it would be a waste of judicial resources, and increase the burden and costs

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of all parties, to conduct discovery separately, and to try the cases separately (in addition

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to risking inconsistent decisions).” Doc. 2 at 9. N’Genuity, on the other hand, argues that

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consolidation of Cadle’s claims against N’Genuity is inappropriate because those claims,

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which N’Genuity alleges to be “far-fetched and legally insufficient,” are “starkly

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different” from Cadle’s claims against other parties. Doc. 11 at 2-3.

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The Court finds that Cadle has failed to demonstrate that withdrawing the reference

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to the bankruptcy court and consolidating Cadle’s claims against N’Genuity with Cadle’s

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other claims will achieve any efficiency, uniformity, or any other benefits. First, because
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this case involves core proceedings, the interests of efficiency and uniformity strongly

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counsel against withdrawal of the reference. See Orion Pictures, 4 F.3d at 1101. Indeed,

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the bankruptcy court is likely far more familiar with N’Genuity’s structure and operations,

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matters which are key to determining the validity and proper resolution of Cadle’s claims,

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than is this Court. Furthermore, withdrawal of the reference would likely only add further

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delay to and increase the costs of this litigation. Finally, denial of Cadle’s motion to

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withdraw the reference also prevents the possibility of inappropriate forum shopping. The

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Court therefore concludes that cause does not exist for withdrawing the reference to the

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bankruptcy court. Cadle’s motion is denied.

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IV.

CONCLUSION

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Accordingly,

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IT IS ORDERED denying Cadle’s Motion to Withdraw the Reference to the

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Bankruptcy Court (Doc. 2).
Dated this 30th day of July, 2012.

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