In re Bruce G. Douglas

Filing 10

ORDER signed by Judge Frank C. Damrell, Jr. on 5/3/2011 DENYING 1 Defendant's Motion to Withdraw Reference REMANDING CASE to USBC Eastern District of California #10-33792. Copy of remand order sent to other court. CASE CLOSED (Reader, L)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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In re,

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BRUCE DOUGLAS,
2:11-cv-0348 FCD EFB
Debtor,

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BANKR NO. 10-33792-C-7
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Chapter 7
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______________________________

Adv. No. 10-02778

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DC No. SW-2
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BRUCE DOUGLAS,
Plaintiff,

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ORDER
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vs.
WELLS FARGO BANK, N.A.,
SUCCESSOR BY MERGER TO WELLS
FARGO HOME MORTGAGE, INC.,
Defendant.
______________________________

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This matter is before the court on defendant Wells Fargo
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Bank, N.A.’s (“defendant”) motion to withdraw reference to the
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bankruptcy court pursuant to 28 U.S.C. § 157(d) and Bankruptcy

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Rule 5011(a).

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motion.

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Plaintiff Bruce Douglas (“plaintiff”) opposes the

DENIED.

For the reasons set forth below,1 defendant’s motion is

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BACKGROUND

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On December 2, 2010, plaintiff initiated an adversarial

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proceeding against defendant in the United States Bankruptcy

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Court.

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complaint, plaintiff was laid off from his job in September 2008.

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(Id. ¶ 4.)

(See Compl., filed December 2, 2010.)

As alleged in the

In December 2008, plaintiff contracted with Pro City

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Mortgage (“Pro City”) to assist him with obtaining a loan

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modification with defendant.

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to defendant on plaintiff’s behalf but was told that plaintiff

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did not qualify for a permanent modification.

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2009, plaintiff ceased making his mortgage payments.

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On October 27, 2009, defendant filed its Notice of Default.

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¶ 8.)

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(Id.)

Pro City submitted documents

(Id. ¶ 6.)

In May

(Id. ¶ 7.)
(Id.

On November 20, 2009, plaintiff and defendant entered into a

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trial modification arrangement.

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arrangement, plaintiff was to show that he “could make three

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reduced payments on time while [defendant] reviewed [p]laintiff’s

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mortgage loan.”

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2010 and plaintiff made this payment in person, on December 31,

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2009 at a Wells Fargo Bank Branch.

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defendant contacted plaintiff notifying him that defendant had

(Id.)

(Id. ¶ 10.)

Under this

The first payment was due on January 1,

(Id. ¶ 11.)

A week later,

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Because oral argument will not be of material
assistance, the court orders these matters submitted on the
briefs. E.D. Cal. L.R. 230(g).
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not received the payment.

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from the trial modification.

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(Id.)

Defendant removed plaintiff

(Id.)

On January 28, 2010, plaintiff was advised by a friend that

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defendant had recorded a Notice of Trustee’s Sale and the

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foreclosure sale was set for February 17, 2010.

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January 29, 2010, plaintiff made a second payment which was due

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February 1, 2010.

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2010, defendant continued to request additional documentation

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from plaintiff.

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(Id. ¶ 15.)

(Id. ¶ 16.)

(Id. ¶ 13.)

On

From February 2010 through May

“Plaintiff . . . provided documents

but then never heard back from [defendant].”

(Id.)

On May 25, 2010, defendant notified plaintiff that he would

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need to pay $10,000 for 30-day postponement of the Trustee Sale

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with no assurance of a loan modification.

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same day, plaintiff filed a Chapter 7 bankruptcy petition in the

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United States Bankruptcy Court.

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Chapter 7 bankruptcy case remains open and no property, including

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his residence, has been abandoned back to plaintiff by the

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Chapter 7 Trustee.”

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Mot.”], filed February 7, 2011 at 2.)

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(Id. ¶ 17.)

(Id. ¶ 20).

On that

“Plaintiff’s

(Def.’s Mot. to Withdraw Reference [“Def.’s

Based on these events, plaintiff alleges causes of action

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for breach of contract, fraud, breach of covenant of good faith

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and fair dealing, unfair business practices, and declaratory

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relief.

STANDARD

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(Id. ¶¶ 21-66.)

District courts, rather than bankruptcy courts, have

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original jurisdiction over all bankruptcy matters.

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1334(b).

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matters to a bankruptcy court.

28 U.S.C. §

However, district courts may refer all bankruptcy
Id. § 157(a).
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28 U.S.C. § 157(d)

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provides that, in certain circumstances, a referred case may be

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transferred from the bankruptcy court back to the district court

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by withdrawing the reference.

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permissive.

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party seeking withdrawal.

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B.R. 674, 667 (E.D. Va. 2003).

Id. § 157(d).

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Withdrawal can be mandatory or

The burden of persuasion is on the
In re U.S. Airways Group, Inc., 298

ANALYSIS
A.

Mandatory Withdrawal

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Withdrawal of the reference to the bankruptcy court is

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mandatory if “resolution of the proceeding requires consideration

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of both title 11 and other laws of the United States regulating

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organizations or activities affecting interstate commerce.”

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U.S.C. § 157(d).

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addressed mandatory withdrawal, it has followed other circuits,

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stating, in dictum, that mandatory withdrawal hinges “on the

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presence of substantial and material questions of federal law.”

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Sec. Farms v. Int’l Bhd. of Teamsters, Chauffers, Warehousemen &

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Helpers, 124 F.3d 999, 1008 n.4 (9th Cir. 1997); see also In re

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Vicars Ins. Agency, Inc., 96 F.3d 949, 954 (7th Cir. 1996)

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(“Mandatory withdrawal is required only when [non-title 11]

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issues require the interpretation, as opposed to the mere

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application, of the non-title 11 statute, or when the court must

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undertake analysis of significant and open unresolved issues

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regarding the non-title 11 law.”); In re Ionosphere Clubs, Inc.,

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922 F.2d 984, 995 (2d Cir. 1990).

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Circuit have adopted this approach.

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10-01934 SI, 3:10-cv-00204-SI, 3:10-cv-01 149-SI, 3:10-cv-02449-

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SI, 2010 WL 5387609, at *1 (N.D. Cal. Dec. 21, 2010); Siegel v.

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Although the Ninth Circuit has not squarely

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Courts within the Ninth
See, e.g., In re Upp, Nos. C

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Caldera, No. CV 10-00179-RGK, 2010 WL 1136220, at *1 (C.D. Cal.

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Mar. 19, 2010); In re Creekside Vineyards, Inc., No. CIV. 2:09-

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2273 WBS EFB, 2009 WL 3378989, at *4 (E.D. Cal. Oct. 19, 2009).

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Thus, “[u]nder the plain meaning of the statute, the substantial

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and material question of non-bankruptcy federal law must also be

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regarding a federal law “‘regulating organizations or activities

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affecting interstate commerce.’”

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Inc., 2009 WL 3378989 at *4 (citing 28 U.S.C. § 157(d)).

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Defendant contends that the court must withdraw the

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reference under the mandatory language of 28 U.S.C. § 157(d)

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because plaintiff’s state law claims are intertwined with non-

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Code federal law.

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claims involve the application or interpretation of non-title 11

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federal law.

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action which do not necessarily require determination of a

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federal issue.

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F.3d 339, 345 (9th Cir. 1996) (holding that the plaintiff’s

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wrongful discharge claim did not give rise to federal question

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jurisdiction because it could be supported by violations of the

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state constitution, not only violations of a federal statute);

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Lippit v. Raymond James Fin. Servs., Inc., 240 F.3d 1033, 1043

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(9th Cir. 2003) (holding that California unfair competition

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claims did not give rise to federal question jurisdiction because

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such claims are based on unfair or fraudulent conduct generally,

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and not necessarily violations of federal rules and regulations);

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Mulcahey v. Columbia Organic Chems., 29 F.3d 148, 153 (4th Cir.

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1994) (holding that a negligence action alleging violations of

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local, state and federal environmental laws did not confer

In re Creekside Vineyards,

(Def.’s Mot. at 6.)

However, none of these

Rather, plaintiff alleges only state law causes of

See Rains v. Criterion Sys., Inc., California, 80

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federal question jurisdiction).

As such, the court concludes

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that mandatory withdrawal is inappropriate in this case.

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B.

Permissive Withdrawal

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Where withdrawal of the reference is not required, a

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“district court may withdraw . . . any case or proceeding

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referred [to the bankruptcy court] . . . for cause shown.”

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U.S.C. § 157(d).

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district court should consider the efficient use of judicial

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resources, delay and costs to the parties, uniformity of

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“In determining whether cause exists, a

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bankruptcy administration, the prevention of forum shopping, and

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other related factors.”

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re Orion Pictures Corp., 4 F.3d 1095, 1101 (2d Cir. 1993)).

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Before considering these factors, the court “should first

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evaluate whether claim is core or non-core, since it is upon that

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issue that questions of efficiency and uniformity will turn.”

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re Orion Pictures Corp., 4 F.3d at 1101.

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Sec. Farms, 124 F.3d at 1008 (citing In

In

Under 28 U.S.C. § 157(b)(3), “[t]he bankruptcy judge shall

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determine on the judge’s own motion or on timely motion of a

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party, whether a proceeding is a core proceeding under this

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subsection or is a proceeding that is otherwise related to a case

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under title 11.”

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to express a preference for the bankruptcy judge to initially

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determine whether a claim is properly characterized as core or

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non-core. See, e.g., In re Coupon Clearing Serv., Inc., 113 F.3d

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1091, 1097 (9th Cir. 1997); In re Int’l Nutronics, Inc. 28 F.3d

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965, 969 (9th Cir. 1994).

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support this interpretation.

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WL 3378989 *6-7; Willms v. Sanderson Cmtys. Inc., No. 07-2366,

The Ninth Circuit has interpreted § 157(b)(3)

Several decisions from this district
See In re Creekside Vineyards, 2009

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2009 WL 728464, at *1 (E.D. Cal. Mar. 19, 2009).2

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bankruptcy court has not made a determination on whether the

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proceeding is a core or non-core proceeding, remand to that court

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is appropriate.

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When the

Willms, 2009 WL 7208464, at *1.

At this time, the bankruptcy court has yet to determine

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whether this adversarial proceeding is core or non-core.

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Accordingly, the court declines to exercise its discretion to

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permissively withdraw the reference until the bankruptcy court

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has had an opportunity to make an initial determination of

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whether the action is core or non-core.

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CONCLUSION

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For the forgoing reasons, defendant’s motion to withdraw

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reference is DENIED without prejudice, and this case is hereby

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remanded to the Bankruptcy Court.

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IT IS SO ORDERED.
DATED: May 3, 2011

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FRANK C. DAMRELL, JR.
UNITED STATES DISTRICT JUDGE

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Although some courts in the Third Circuit have
construed § 157(b)(3) to require the bankruptcy judge to make the
initial determination of whether a proceeding is core or noncore, some district courts in the Ninth Circuit have explained
that the language simply describes the scope of a bankruptcy
court’s authority under section 157. Compare Tomason Auto Group,
LLC v. China Am. Co-op. Auto., Inc., No. 08-3365, 2009 WL 512195,
at *5 n.6 (D.N.J. Feb. 27, 2009), with In re Don’s Making Money
Llp, No. 07-319, 2007 WL 1302748, at * 4 (D. Ariz. May 1, 2007).
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