Flores v. Gray Services LLC et al

Filing 22

ORDER denying 2 Defendants' Motion to Withdraw the Reference (Bankruptcy). The Clerk shall terminate this action. Signed by Judge David G Campbell on 8/18/14.(LSP)

1

WO

2
3
4
5
6

IN THE UNITED STATES DISTRICT COURT

7

FOR THE DISTRICT OF ARIZONA

8
9

Constantino Flores,

No. CV-14-01075-PHX-DGC
Plaintiff,

10
11

v.

12

ORDER

Gray Services LLC, et al.,

13

Defendants.

14
15

Defendants have moved to withdraw the reference of this case to the bankruptcy

16

court. Doc. 2. The motion has been fully briefed. Docs. 19, 21. For the reasons stated

17

below the Court will deny the motion.1

18

I.

Background.

19

On May 4, 2012, GDG Partners, LCC filed a voluntary Chapter 7 petition in the

20

U.S. Bankruptcy Court in Arizona. Doc. 2 at 2; Doc. 19 at 1. Plaintiff Flores was named

21

as Trustee. On April 2, 2014 Plaintiff initiated an Adversary Proceeding, claiming

22

(i) fraudulent transfer under A.R.S. § 44-1004, (ii) fraudulent transfer under 11 U.S.C.

23

§ 548(a), (iii) in the alternative, a preference under 11 U.S.C. § 547, (iv) post-petition

24

transfer of estate assets under 11 U.S.C. § 549, (v) conversion of bankruptcy estate assets,

25

and (vi) violation of the automatic stay pursuant to 11 U.S.C. § 362(a)(3). Doc. 2 at 2;

26
1

27
28

The request for oral argument is denied because the issues have been fully
briefed and oral argument will not aid the Court’s decision. See Fed. R. Civ. P. 78(b);
Partridge v. Reich, 141 F.3d 920, 926 (9th Cir. 1998).

1

Doc. 19 at 2. On May 16, 2014, Defendants filed an answer and a motion to dismiss

2

counts four, five and six. In the answer, Defendants asserted their right to a jury trial and

3

did not consent to a jury trial in the bankruptcy court.

4

II.

Legal Standard.
The bankruptcy court “may hear and determine all cases under title 11 and all core

5
6

proceedings arising under title 11, or arising in a case under title 11.”

7

§157(b)(1).

8

proceeding but that is otherwise related to a case under title 11.” Id. at § 157(c)(1).

9

“[T]he district court may withdraw . . . any case or proceeding referred under this section,

10

28 U.S.C.

A bankruptcy court may also hear “a proceeding that is not a core

on its own motion or on timely motion of any party, for cause shown.” Id. at § 157(d).

11

To determine if cause for withdrawal exists, this Court “should consider the

12

efficient use of judicial resources, delay and costs to the parties, uniformity of bankruptcy

13

administration, the prevention of forum shopping, and other related factors.” Sec. Farms

14

v. Int’l Bhd. of Teamsters, 124 F.3d 999, 1008 (9th Cir. 1997). The Court must “evaluate

15

whether the claim is core or non-core, since it is upon this issue that [such] questions of

16

efficiency and uniformity will turn.” In re Orion Pictures Corp., 4 F.3d 1095, 1101 (2d

17

Cir. 1993).

18

III.

Analysis.

19

Defendants move to withdraw the reference to the bankruptcy court because

20

(1) the Bankruptcy Court cannot enter a final judgment on the fraudulent transfer claims;

21

(2) Defendants have demanded a jury trial in the District Court; and (3) there is cause to

22

withdraw the reference. Doc. 2. Defendants’ arguments are addressed in turn.

23

A.

Fraudulent Transfer Claims.

24

Defendants argue that the Court should withdraw the reference because the

25

bankruptcy court does not have jurisdiction to enter final judgments on these claims

26

because they are not core proceedings, but rather may only “submit proposed findings of

27

fact and conclusions of law to the district court.”

28

§ 157(c)(1)). Congress enacted the Bankruptcy Amendments and Federal Judgeship Act

-2-

Doc. 2 at 3 (citing 28 U.S.C.

1

of 1984 (“the Amendments”) to cure the constitutional defect of the Bankruptcy Act of

2

1978, which impermissibly shifted certain Article III powers to bankruptcy courts. Sec.

3

Farms v. Int’l Bhd. of Teamsters, 124 F.3d 999, 1008 (9th Cir. 1997) (citing

4

constitutional ruling in N. Pipeline Const. Co. v. Marathon Pipe Line Co., 458 U.S. 50

5

(1982)). In the Amendments, Congress delineated the role of bankruptcy judges with

6

respect to both core and non-core bankruptcy proceedings. 28 U.S.C. § 157. For core

7

proceedings, the bankruptcy court may issue final orders, subject to the district court’s

8

appellate review. Id. § 157(b)(1). For non-core proceedings, the bankruptcy court may

9

issue findings of fact and law, but the district court must issue final orders, and all non-

10

core matters which are appealed are subject to the district court’s de novo review. Id. §

11

157(c)(1).

12

Plaintiff does not dispute Defendants’ claim that the fraudulent transfer claims are

13

not core proceedings. Doc. 19 at 2. Instead, Plaintiff argues that there is no requirement

14

that the reference be withdrawn simply because non-core proceedings exist. Id.

15

The Court agrees with Plaintiff. As a constitutional matter, the bankruptcy court is

16

without jurisdiction to enter final judgment on non-core proceedings, but the Supreme

17

Court in Stern v. Marshall did not hold that bankruptcy courts are barred from hearing

18

such claims and issuing proposed findings of fact upon which the district court can base

19

its final judgment. Stern v. Marshall, 131 S. Ct. 2594, 2620, 180 L. Ed. 2d 475 (2011)

20

(noting that the appealing party “has not argued that the bankruptcy courts are barred

21

from hearing all counterclaims or proposing findings of fact and conclusions of law on

22

those matters, but rather that it must be the district court that finally decide[s] them”)

23

(internal quotes omitted).

24

Executive Benefits Ins. Agency v. Arkison, 134 S. Ct. 2165, 2168 (2014):

The Supreme Court clarified this directive this year in

25
26
27
28

We hold today that when, under Stern’s reasoning, the
Constitution does not permit a bankruptcy court to enter final
judgment on a bankruptcy-related claim, the relevant statute
nevertheless permits a bankruptcy court to issue proposed

-3-

1

findings of fact and conclusions of law to be reviewed de
novo by the district court.

2
3
4

The existence of non-core claims in this case does not divest the bankruptcy court
of its ability to carry out this duty to issue findings of fact and conclusions of law.

5

B.

6

When a party demands a jury trial in a bankruptcy proceeding, a bankruptcy court

7

may conduct a jury trial only “with the express consent of all the parties.” 28 U.S.C.

8

§ 157(e). As the Ninth Circuit has held, however, “a Seventh Amendment jury trial right

9

does not mean the bankruptcy court must instantly give up jurisdiction and that the case

10

must be transferred to the district court. Instead, the bankruptcy court is permitted to

11

retain jurisdiction over the action for pre-trial matters.” In re Healthcentral.com, 504

12

F.3d 775, 787 (9th Cir. 2007) (citing City Fire Equip. Co., Inc. v. Ansul Fire Prot.

13

Wormald U.S., Inc., 125 B.R. 645 at 646-50 (N.D. Ala. 1989); In re Stansbury Poplar

14

Place, Inc., 13 F.3d 122, 128 (4th Cir. 1993)).

Jury Trial Demand

15

The potential for this proceeding to require a jury trial, necessitating future

16

withdrawal, is a factor for the Court to consider when evaluating the efficient use of

17

judicial resources. Sec. Farms v. Int'l Bhd. of Teamsters, Chauffers, Warehousemen &

18

Helpers, 124 F.3d 999, 1009 (9th Cir. 1997). In doing so, the Court may consider that

19

judicial efficiency is best served by allowing necessary pretrial issues, some of which

20

may obviate the need for a jury trial altogether, to proceed in bankruptcy court. Orion, 4

21

F.3d 1095, 1101-02 (2d. Cir. 1993). The fact that a jury trial has been demanded is not

22

alone sufficient to require withdrawal of the reference.

23

C.

24

Finally, Defendants argue that the Court should withdraw the reference for cause

25

pursuant to 28 U.S.C. § 157(d). Doc. 2 at 5. “In determining whether cause exists, a

26

district court should consider the efficient use of judicial resources, delay and costs to the

27

parties, uniformity of bankruptcy administration, the prevention of forum shopping, and

28

other related factors.” Sec. Farms, 124 F.3d at1008 (citing In re Orion Pictures Corp., 4

Cause to Withdraw.

-4-

1

F.3d 1095, 1101 (2d Cir. 1993)).

2

Defendants argue that judicial efficiency will be promoted and delay and costs to

3

the parties reduced by withdrawal of the reference because non-core proceedings in the

4

bankruptcy court will be subject to de novo review, and will have to be re-litigated in the

5

district court. Doc. 2 at 5-6. They also argue that because fraudulent transfer claims

6

predominate in this case, withdrawal will not interfere with the uniform application of

7

bankruptcy administration and there are no forum shopping concerns the Court should

8

consider. Id.

9

The Court does not agree. Whether a claim is core or non-core is the “issue [upon

10

which] questions of efficiency and uniformity will turn.” In re Orion Pictures Corp., 4

11

F.3d at 1101. Four of the six claims at issue are core bankruptcy claims over which the

12

bankruptcy court has power to enter final judgments subject to appellate review.

13

Defendants argue that the non-core issues predominate because those claims allege three

14

separate and distinct pre-petition transfers, while the core claims “are all dependent on

15

one act of non-debtor parties entering into a settlement agreement.” Doc. 21 at 5. Be that

16

as it may, there is no dispute that core issues that can be resolved by the bankruptcy court

17

exist in this proceeding. This clearly distinguishes this situation from Sec. Farms v. Int'l

18

Bhd. of Teamsters, where there were no core bankruptcy issues and the claims were state-

19

law claims “in federal court only because of their potential impact on the administration

20

of [the] estate.” 124 F.3d at 1008-09. There, non-core claims clearly predominated.

21

Because the uniformity of bankruptcy administration is promoted by the

22

bankruptcy court’s resolution of the four core bankruptcy claims in this case, and

23

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

24

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

25

and issues,” this weighs against withdrawing the reference. In re Orion Pictures Corp., 4

26

F.3d at 1101.

27
28

Further, Defendants’ assertion that non-core claims will have to be entirely relitigated by the district court overstates this Court’s job.

-5-

“[T]he words ‘de novo

1

determination’ is not intended to require the judge to actually conduct a new hearing on

2

contested issue.” U. S. v. Raddatz, 447 U.S. 667, 675 (1980) (citing H.R.Rep., at 3, U.S.

3

Code Cong. & Admin. News 1976, p. 6163) (emphasis in original). And resolution of

4

pre-trial issues by the bankruptcy court may help streamline the record and any issues for

5

review that may eventually be required by this Court.

6

In sum, there is not cause for immediate withdrawal of the reference to bankruptcy

7

court. Considerations of the efficient use of judicial resources, delay and costs to the

8

parties, and the uniformity of bankruptcy administration weigh in favor of the bankruptcy

9

court resolving the core claims and pre-trial issues for the non-core claims.

10
11
12

IT IS ORDERED that Defendants’ motion to withdraw the reference to the
bankruptcy court (Doc. 2) is denied. The Clerk shall terminate this action.
Dated this 18th day of August, 2014.

13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

-6-