In re Empire Land LLC et al
Filing
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ORDER DENYING DEFENDANTS MOTION TO WITHDRAW THE REFERENCE 36 by Judge Dean D. Pregerson. (MD JS-6, Case Terminated). (lc). Modified on 10/7/2016 (lc).
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UNITED STATES DISTRICT COURT
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CENTRAL DISTRICT OF CALIFORNIA
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IN RE EMPIRE LAND, LLC
[Debtors]
RICHARD K. DIAMOND, Chapter
7 Trustee,
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Plaintiff,
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v.
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EMPIRE PARTNERS, INC., a
California corporation,
JAMES PREVITI, LARRY R. DAY,
NEIL MILLER, PAUL ROMAN,
O'MELVEY & MYERS, LLP, a
limited liability
partnership, PETER HEALY,
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Defendants.
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Case No. CV 12-00193 DDP
[Bankruptcy Case No.:
6:08-14592-MJ / Adversary No.
6:10-ap-01319-CB]
ORDER DENYING DEFENDANTS’ MOTION
TO WITHDRAW THE REFERENCE
[Dkt. 36]
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Presently before the court is Defendants Empire Partners,
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Inc., James P. Previti, Larry R. Day, and Neil Miller
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(collectively, “Defendants”)’ Motion to Withdraw the Reference of
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an adversary proceeding to the bankruptcy court.
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the submissions of the parties, the court denies the motion.
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Having considered
Bankruptcy proceedings fall into three categories: those that
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arise under Title 11, those that arise in a Title 11 case, and
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those that are merely “related to” a Title 11 proceeding.
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Marhsall, 564 U.S. 462, 473 (2011).
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two categories are known as “core” proceedings, while cases that
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are only related to a Title 11 proceeding are “non-core.”
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Executive Benefits Ins. Agency v. Arkison, 134 S.Ct. 2165, 2170
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(2014); 28 U.S.C. § 157(b).
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bankruptcy proceedings, whether core or non-core, to the Bankruptcy
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Court.
Stern v.
Cases falling under the former
District courts may refer any
28 U.S.C. § 157(a); Stern, 564 U.S. at 474.
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Generally, a bankruptcy judge may hear and enter final
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judgments in core proceedings, but in a non-core proceeding, may
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only submit proposed findings and conclusions of law to the
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district court, which then enters final judgment.
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at 474-75; 28 U.S.C. § 157(c)(1).
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“with the consent of all the parties to the proceeding, . . . hear
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and determine and . . . enter appropriate orders and judgments . .
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. .”
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The Stern court held that although certain particular claims may be
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labeled by Congress as “core” bankruptcy proceedings under 28
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U.S.C. § 157(b), the Constitution nevertheless does not permit a
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bankruptcy judge to adjudicate those claims.
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at 503.
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core “Stern claims” as she would a non-core claim.
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Benefits, 1324 S.Ct. at 2172-73.
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Stern, 564 U.S.
A bankruptcy judge may, however,
28 U.S.C. § 157(c)(2); Executive Benefits, 134 S.Ct. at 2172.
Id.; Stern, 564 U.S.
Instead, the bankruptcy judge must treat these ostensibly
Executive
In Wellness Int’l Network, Ltd. v. Sharif, 135 S.Ct. 1932
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(2015), the Supreme Court addressed the question whether parties
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can consent to a bankruptcy judge’s adjudication of a Stern claim
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in the same manner as parties can consent to adjudication of a
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traditional non-core claim.
Wellness, 135 S.Ct. at 1939.
The
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Court answered the question in the affirmative, holding that
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“allowing bankruptcy litigants to waive the right to Article III
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adjudication of Stern claims does not usurp the constitutional
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prerogatives of Article III courts.”
Id. at 1944-45.
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More importantly, for purposes of the instant motion, the
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Wellness court went on to clarify that neither the Constitution nor
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28 U.S.C. § 157 mandates that a party expressly consent to
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bankruptcy court adjudication.
Wellness, 135 S.Ct. at 1947.
“The
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implied consent standard . . . supplies the appropriate rule for
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adjudications by bankruptcy courts under § 157.”
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“[T]he key inquiry is whether the litigant or counsel was made
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aware of the need for consent and the right to refuse it, and still
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voluntarily appeared to try the case before the non-Article III
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adjudicator.”
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see also In re Bellingham Ins. Agency, Inc., 702 F.3d. 553, 567
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(9th Cir. 2012) (discussing party’s implied consent to permit a
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bankruptcy judge “to decide finally”).
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Id. at 1948.
Id. (internal quotation and citation omitted).
Id.;
Here, the parties do not dispute that the only remaining
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issues in the adversary proceeding are non-core.
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dispute, however, whether Defendants have impliedly consented to
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bankruptcy court jurisdiction over this matter.
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court observed, determinations whether a party in fact consented to
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bankruptcy court jurisdiction may “require a deeply factbound
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analysis of the procedural history” of a particular case.
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Wellness, 135 S.Ct. at 1949.
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The parties do
As the Wellness
The procedural history of this case is long and complex.
The
underlying adversary proceeding is one of three related adversary
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proceedings in bankruptcy court, and involves claims for breach of
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fiduciary duty related to several allegedly fraudulent transfers
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also at issue in the other two adversary proceedings.
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argue that they have consistently stated in their filings that they
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do not consent to the entry of final orders or judgments by the
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bankruptcy judge, and have requested a jury trial.
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17.)
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the expense, delay, and inconvenience of de novo proceedings
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[before a district court], or for any other reasons.”
Defendants
(Motion at 16-
Parties do, however “sometimes change such positions to avoid
In re AWRT
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Liquidation Inc., 547 B.R. 831, 840 (Bankr. C.D. Cal. 2016).
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Although Plaintiff does not ask that this Court make a finding that
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Defendants impliedly consented to bankruptcy court jurisdiction,
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Plaintiff argues that consent may be inferred from Defendants’
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filing of numerous motions before the Bankruptcy Court, including a
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motion to dismiss and a dispositive motion for summary judgment,
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which were both denied, as well as a motion to exclude an expert
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witness, a discovery motion, and a motion barring Plaintiff from
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seeking damages.
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(Opposition at 15.)
A showing of “sandbagging,” i.e. belatedly raising an
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objection to jurisdiction only if and when a matter is not decided
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in a party’s favor, is sufficient to show implied consent, but is
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not necessary.
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2013).
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object and purposeful participation in the bankruptcy court
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proceeding does constitute consent to bankruptcy court
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jurisdiction.
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B.R. 393, 409-410 (B.A.P. Ninth Cir. 2012).
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more complicated.
In re Pringle, 495 B.R. 447, 458 (B.A.P. Ninth Cir.
In such straightforward cases, a party’s knowing failure to
Id.; see also In re. Washington Coast I, L.L.C., 485
This case, however, is
Although Defendants do appear to have sought to
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withdraw the reference after the Bankruptcy Court ruled against
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them on certain matters, Defendants also repeatedly and expressly
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indicated their lack of consent to bankruptcy court jurisdiction.
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At the same time, Defendants knowingly continued to participate in
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the bankruptcy court proceedings.
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this case and its connection to other, related adversary
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proceedings, the Bankruptcy Court is in the best position to
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conduct the “deeply factbound analysis of the procedural history”
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and determine evaluate whether Defendants’ litigation conduct
Given the complex history of
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constitutes consent to bankruptcy court jurisdiction.
Wellness,
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135 S.Ct. at 1949; see also Pringle, 495 B.R. at 461 (“[O]nce a
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party is alerted . . . to the potential risks of failing to raise
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the issue of the tribunal’s authority, there is a rebuttable
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presumption that such failure to act was intentional, and that
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further purposeful proceeding in the forum indicates consent.”); In
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re Daniels-Head $ Assocs., 819 F.2d 914, 919 (9th Cir. 1987)
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(“[C]onsent may be implied . . . from any act indicating a
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willingness to have the bankruptcy court determine a claim.”),
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citing In re Baldwin-United Corp., 48 B.R. 49, 54 (Bankr. S.D. Ohio
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1985).
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adjudication can . . . invite litigation hijinks.
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confronted with the thorny issue of implied consent to enter final
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judgment are finely attuned to the concerns of litigation
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misconduct . . . .
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here, a party seeks affirmative relief from the bankruptcy court
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believing it might win and then cries foul . . . when it loses.”
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True Traditions, LC v. Wu, 552 B.R. 826, 837 (N.D. Cal. 2015).
As one court has observed, “the right to seek Article III
Courts
This concern is particularly acute where, as
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Defendants’ motion to withdraw the reference is therefore denied,
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without prejudice, absent findings of fact from the Bankruptcy
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Court regarding Defendants’ implied consent.
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Even if Defendants have not consented to bankruptcy court
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adjudication, withdrawal of the reference is not necessarily
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warranted at this juncture.
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the reference is discretionary.
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standard for withdrawal is high and must be satisfied by the party
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seeking withdrawal.”
Defendants concede that withdrawal of
See 28 U.S.C. § 157(d).
“The
Rock Ridge Properties, Inc. v. Greenback
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Mortgage Fund, LLC., No. CIV. S-11-2547 KJM CKD, 2012 WL 346465 at
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*2 (E.D. Cal. Jan. 31, 2012).
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efficiency, costs to the parties, uniformity of bankruptcy
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administration, and the prevention of forum shopping.
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v. Int’l Bhd. Of Teamsters, Chauffers, Warehousemen, & Helpers, 124
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F.3d 999, 1008 (9th Cir. 1997).
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whether the claims at issue are core or non-core and whether the
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claims are triable by a jury.
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302 B.R. 308, 310 (C.D. Cal. 2003).
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Relevant factors include judicial
Sec. Farms
Other courts have also looked to
See In re Daewoo Motor Am., Inc.,
The court assumes, for the sake of argument, that Defendants
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have not waived their right to trial by jury.
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does not suggest that Defendant Miller, at the very least, has
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waived any such right.
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as does the non-core nature of the proceedings.
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Indeed, Plaintiff
That factor weighs in favor of withdrawal,
Id.
Those factors, however, are insufficient to tip the balance in
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favor of immediate withdrawal.
First, and as Defendants
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acknowledge, “a Seventh Amendment jury trial right does not mean
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the bankruptcy court must instantly give up jurisdiction and that
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the case must be transferred to the district court.
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Instead, the
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bankruptcy court is permitted to retain jurisdiction over the
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action for pre-trial matters.”
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775, 787 (9th Cir. 2007) (internal citation omitted).
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bankruptcy court were to rule on a dispositive motion, it would not
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affect a party’s Seventh Amendment right to a jury trial, as these
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motions merely address whether trial is necessary at all.”
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(emphasis omitted).
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In re Healthcentral.com, 504 F.3d
“[E]ven if a
Id.
Second, immediate withdrawal would not help conserve judicial
resources.
“Indeed, many courts prefer to delay withdrawal until
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the case is ready for trial to preserve judicial economy and
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efficiency.”
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74385 at *3 (C.D. Cal. Jan. 6, 2016).
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explained, the bankruptcy court system “promotes judicial economy
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and efficiency by making use of the bankruptcy court’s unique
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knowledge of Title 11 and familiarity with the actions before them.
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Accordingly, . . . to require an action’s immediate transfer to
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district court simply because there is a jury trial right . . .
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would effectively subvert this system.
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bankruptcy court to retain jurisdiction over the action until trial
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is actually ready do we ensure that our bankruptcy system is
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carried out.”
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citations and emphases omitted).
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In re: KSL Media, Inc., No. CV 15-08748 AB, 2016 WL
As the Ninth Circuit
Only by allowing the
Healthcentral.com, 504 F.3d at 787-88 (internal
Lastly, the possibility of forum shopping weighs against
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immediate withdrawal of the reference.
As alluded to above,
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Defendants have actively litigated this matter before the
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Bankruptcy Court, including by filing a potentially dispositive
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motion to dismiss and motion for summary judgment before that
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court.
Although this Court defers, for the time being, to the
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Bankruptcy Court on the question whether that litigation activity
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constituted consent to jurisdiction, this Court is not persuaded
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that Defendants’ efforts to proceed in this Court are not related
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to the Bankruptcy Court’s denial of Defendants’ motions.
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For these reasons, Defendants’ Motion to Withdraw the
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Reference is DENIED, without prejudice, until such time as this
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matter is ready for trial.
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IT IS SO ORDERED.
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Dated: October 7, 2016
DEAN D. PREGERSON
United States District Judge
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