Bell v. Lehr et al

Filing 9

MEMORANDUM and ORDER granting 7 Motion to Withdraw Reference signed by Chief Judge Morrison C. England, Jr on 7/29/15. (Kaminski, H)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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JOHN BELL, CHAPTER 7 TRUSTEE

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Plaintiff,

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No. 2:13-cv-02483-MCE-KJN

v.

MEMORANDUM AND ORDER

PAUL E. LEHR, et al.

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Defendants.

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Defendants PEKK, LLC and Paul E. Lehr as custodian for minor Paul-Kurtis Perri

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Lehr (collectively “Defendants”) move for entry of an order withdrawing reference of this

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action to the United States Bankruptcy Court pursuant to 28 U.S.C. § 157(d). ECF No.

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7. Plaintiff did not file an opposition to Defendants’ Motion. This is the second time a

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defendant in this case has filed a motion to withdraw reference. See ECF No. 1. The

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Court previously determined that a motion to withdraw reference was premature

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because the pretrial proceedings should be handled by the bankruptcy court. See ECF

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No. 6. As the pretrial proceedings have since concluded, the Court finds that withdrawal

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of the reference is timely. For the reasons set forth below, Defendants’ Motion is

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GRANTED.

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BACKGROUND

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On August 18, 2011, Debtor Colleen Perri Lehr (“Debtor”) filed a Voluntary

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Petition for bankruptcy under Chapter 7 of the Title 11 of the United States Code.

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Plaintiff John Bell (“Plaintiff”) was appointed Trustee of Debtor’s estate. On August 16,

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2013, Plaintiff initiated an adversary proceeding in bankruptcy court, Case No. 13-

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02257, against Paul Lehr, Pekk, LLC, Kevin Perri Lehr, Kristopher Perri Lehr, Erica Perri

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Lehr, and Paul E. Lehr as custodian for Paul-Kurtis Perri Lehr. Plaintiff’s Complaint set

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forth causes of action for: (1) Avoidance of Fraudulent Transfers; (2) Avoidance of

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Fraudulent Transfers under California state law; (3) Turnover of Property and

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Accounting; (4) Civil Conspiracy; and (5) Declaratory Relief.
On November 26, 2013, Defendant Paul E. Lehr filed a motion to withdraw

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reference of this proceeding from the bankruptcy court to the district court. ECF No. 1.

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Lehr’s co-defendants joined the motion. Lehr argued that removal was appropriate

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because the defendants in this case are entitled to a jury trial on three of their claims and

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do not consent to having that trial in bankruptcy court. Id. This Court ultimately

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determined that the motion was premature, holding that the pretrial matters should be

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decided by the bankruptcy court because that court was already familiar with the case,

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and because two of Plaintiff’s claims were “quintessential bankruptcy matters.” ECF No.

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6 at 4, 5. Accordingly, the case was remanded back to bankruptcy court on February 7,

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2014. Id. at 8. This Court noted, however, that upon a finding by the bankruptcy court

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that the pretrial proceedings had concluded, one or all of the defendants in this case

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could renew the their motion to withdraw reference. Id. at 6.
On April 23, 2015, the bankruptcy court certified that it had concluded all pretrial

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proceedings. See Ex. E, Stone Decl., ECF No. 7-1 at 85. On May 1, 2015, Defendants

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renewed the pending Motion to Withdraw Reference. ECF No. 7.

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STANDARD

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District courts have original jurisdiction over cases arising under the Bankruptcy

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Code. This Court has exercised its authority under 28 U.S.C. § 157(a) to refer all

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bankruptcy matters in the first instance to the district’s bankruptcy judges. See General

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Orders 182 (1985) and 223 (1987). Nevertheless, pursuant to 28 U.S.C. § 157(d), the

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district court may “withdraw, in whole or in part, any case or proceeding referred

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under . . . [§ 157(a)], on its own motion or on timely motion of any party, for cause

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shown.” “Cause to withdraw a reference exists where a party has a right to a trial by jury

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and does not consent to having that trial in the bankruptcy court.” In re Wolverine,

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Proctor & Schwartz, LLC, 404 B.R. 1, 2-3 (D. Mass. 2009) (internal citation omitted); see

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In re Cinematronics, Inc., 916 F.2d 1444, 1451 (9th Cir. 1990) (agreeing with “several

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courts [that] have concluded that where a jury trial is required and the parties refuse to

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consent to bankruptcy jurisdiction, withdrawal of the case to the district court is

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appropriate”) (internal citations omitted). Cf. In re Dyer, 322 F.3d 1178, 1194 (9th Cir.

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2003) (“[T]he bankruptcy court is unable to preside over a jury trial absent explicit

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consent from the parties and the district court.”). “Among the proper considerations on

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whether to withdraw the reference, are the efficient use of judicial resources, delay and

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costs to the parties, uniformity of bankruptcy administration, the prevention of forum

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shopping, and other similar issues.” In re SK Foods, L.P., CIV. S-13-1363 LKK, 2013

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WL 5494071, at *2 (E.D. Cal. Oct. 1, 2013) (citing Security Farms v. Int’l Brotherhood of

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Teamsters, 124 F.3d 999, 1008 (9th Cir. 1997).

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ANALYSIS

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Defendants move for withdrawal of the reference of this action under 28 U.S.C.

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§ 157(d) on the grounds that the Defendants are entitled to a jury trial on Plaintiff’s first,

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second, and fourth causes of action for Avoidance of Fraudulent Transfers, Avoidance of
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Fraudulent Transfers under California state law, and Civil Conspiracy. In response to

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the first motion to withdraw reference, Plaintiff contended that Defendants became

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claimants of the bankruptcy estate and waived their right to a jury trial by requesting

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“affirmative relief” in the form of a request for attorneys’ fees and costs and for recovery

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under section 550(e) of the Bankruptcy Code.1 ECF No. 3 at 12. As previously stated,

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Defendants’ request for attorneys’ fees was not a waiver of the right to a jury trial on the

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pertinent claims. See Order, ECF No. 6, at 4 (citing In re British Am. Properties III, Ltd.,

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369 B.R. 322, 330 n.8, 332-33 (Bankr. S.D. Tex. 2007); Container Recycling Alliance v.

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Lassman, 359 B.R. 358, 365 (D. Mass. 2007)).

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Thus, the only remaining issue that must be addressed in this Order is whether

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Plaintiff’s Avoidance of Fraudulent Transfers and Civil Conspiracy claims entitle

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Defendants to a jury trial. The United States Supreme Court has clearly stated that

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fraudulent conveyance claims are “quintessentially suits at common law” that “constitute

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no part of the proceedings in bankruptcy but concern controversies arising out of it.”

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Granfinanciera S. A. v. Nordberg, 492 U.S. 33, 56 (1989); see also In Re Bellingham Ins.

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Agency, Inc., 702 F.3d 553 (9th Cir. 2012) (“fraudulent conveyance claims, because they

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do not fall within the public rights exception, cannot be adjudicated by non-Article III

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judges”). Additionally, neither party disputes that a noncreditor defendant is entitled to a

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jury for a civil conspiracy cause of action. See In re Hassan, 376 B.R. 1, 20-21 (Bankr.

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D. Kan. 2007) (noting that “[m]any years ago, the Supreme Court [in Curriden v.

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Middleton, 232 U.S. 633, 635-36 (1914)] declared that a claim for damages based on an

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alleged conspiracy to defraud was a legal one”).

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As Defendants do not consent to bankruptcy court jurisdiction and timely

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demanded a jury trial on this matter, the Court finds cause to withdraw the bankruptcy

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reference. In re Cinematronics, Inc., 916 F.2d at 1451.

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Plaintiff did not file an opposition to Defendants’ renewed Motion to Withdraw Reference.

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CONCLUSION

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For the foregoing reasons, Defendants’ Motion to Withdraw Reference (ECF No.

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7) is GRANTED. Accordingly, the hearing on this Motion, currently set for August 6,

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2015, is hereby VACATED.

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Plaintiff’s first, second, and fourth causes of action for Avoidance of Fraudulent

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Transfers; Avoidance of Fraudulent Transfers under California state law; and Civil

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Conspiracy will be tried in this Court before a jury. This Court will subsequently issue a

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Pretrial Scheduling Order, which will include a trial date and other pretrial information.

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IT IS SO ORDERED.
Dated: July 29, 2015

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