Ferlmann v. Prasad et al

Filing 8

ORDER signed by District Judge John A. Mendez on 2/3/16 ORDERING the Court DENIES the 1 motion to withdraw reference. CASE CLOSED (cc: BK Clerk Sacramento) (Becknal, R)

1
2
3
4
5
6
7
8

UNITED STATES DISTRICT COURT

9

EASTERN DISTRICT OF CALIFORNIA

10
11
12

STEPHEN C. FERLMANN, Chapter
7 Trustee of the Estate of
Sushil Prasad and Susea S.
Prasad,

13
Plaintiff,
14
v.

No.

2:15-cv-2229-JAM-EFB

ORDER DENYING DEFENDANT MEYER
WILSON CO., LPA’S MOTION TO
WITHDRAW REFERENCE OF ADVERSAY
PROCEEDING FROM BANKRUPTCY COURT

15
16
17

SUSHIL PRASAD; SUSEA S.
PRASAD; MEYER WILSON CO.,
LPA; TRANSAMERICA FINANCIAL
ADVICORS, INC. aka WORLD
GROUP SECURITIES,INC.,

18
Defendants.
19
Stephen Ferlmann (“Trustee”), bankruptcy trustee for debtors

20
21

Sushil and Susea Prasad (“Debtors”), brought an adversary

22

proceeding against Debtor’s former legal counsel, Meyer Wilson

23

Co. (“Meyer Wilson”), alleging that it hid assets from the

24

bankruptcy estate and committed malpractice.

25

invoking vague references to securities and arbitration law, now

26

moves this court to withdraw the reference from bankruptcy court.

27

///

28

///
1

Meyer Wilson,

1

For the reasons stated below, the Court denies the motion. 1

2
3

I.

4

FACTUAL ALLEGATIONS AND PROCEDURAL BACKGROUND

Debtors filed a voluntary Chapter 13 bankruptcy petition in

5

2009.

See In re Prasad, 09-94269 (E.D. Cal. Bankr.).

A few

6

years later, Debtors retained the law firm Meyer Wilson Company,

7

LPA to represent them in an arbitration against Transamerica

8

Financial Advisors (“Tranamerica”), a company formally known as

9

World Group Securities.

See Second Amended Complaint (“SAC”)

10

¶¶ 7-9, Doc. #44, Ferlmann v. Prasad, 15-9018 (E.D. Cal. Bankr.).

11

In that arbitration, the Debtors alleged that Transamerica had

12

negligently supervised one of its brokers, Vincent Thakur Singh,

13

who had fraudulently taken Debtors’ money as part of a Ponzi

14

scheme.

15

settling the claims against Transamerica for $105,000, $42,000 of

16

which went to Meyer Wilson as attorneys’ fees.

17

See SAC ¶ 9.

The Debtors were ultimately successful in

SAC ¶ 11.

Meanwhile, bankruptcy proceedings continued.

In 2015, the

18

bankruptcy Trustee filed an adversary complaint against Debtors,

19

Meyer Wilson, and Transamerica, alleging that they hid the

20

settlement proceeds from the bankruptcy court, and that the

21

bankruptcy estate is entitled to those proceeds.

22

18.

23

malpractice in “misrepresenting their authority to Transamerica”

24

during the negotiations, wrongfully “arrang[ing] for the

25

disbursement of the settlement proceeds to entities other than

See SAC ¶¶ 13-

Trustee also alleged that Meyer Wilson is liable for legal

26
27
28

1

This motion was determined to be suitable for decision without
oral argument. E.D. Cal. L.R. 230(g). The hearing was
scheduled for December 16, 2015.
2

1

[Trustee], to wit themselves and the Debtors[,]” and “wrongfully

2

prosecut[ing], settl[ing], and misappropriat[ing]” the proceeds.

3

SAC ¶¶ 52-53.

4

Meyer Wilson thereafter filed a motion to withdraw reference

5

of the adversary proceeding from bankruptcy court (Doc. #1).

6

Debtors and Trustee oppose the motion (Docs. ##4, 5).

7

Transamerica filed a partial opposition (Doc. #3).

8
9

II.

OPINION

10

A.

Legal Standard

11

Withdrawal of reference from bankruptcy is governed by 28

12

U.S.C. § 157(d).

13

mandatory and permissive.

14

This section provides two kinds of withdrawal:

A court “shall” withdraw a proceeding “if the court

15

determines that resolution of the proceeding requires

16

consideration of both title 11 and other laws of the United

17

States regulating organizations or activities affecting

18

interstate commerce.”

19

this mandatory withdrawal provision narrowly.

20

Valley Bancorp, Inc., 523 B.R. 210, 214 (C.D. Cal. 2014) (citing

21

In re Vicars Ins. Agency, Inc., 96 F.3d 949, 952 (7th Cir.

22

1996)).

23

be withdrawn if it involves “substantial and material questions”

24

of federal law outside their “routine application[s].”

25

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

26

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

27

523 B.R. at 214 (citation omitted).

28

bears the burden of persuasion.

28 U.S.C. § 157(d).

The Court construes
In re Temecula

This narrow construction requires that a proceeding only

See Sec.

The party seeking withdrawal

FTC v. First Alliance Mortg.
3

1
2

Co., 282 B.R. 894, 902 (C.D. Cal. 2001) (citation omitted).
As to permissive withdrawal, a court “may” withdraw a

3

proceeding, “in whole or in part . . . for cause shown.”

28

4

U.S.C. § 157(d).

5

and must be satisfied by the party seeking withdrawal.”

6

Ridge Properties, Inc. v. Greenback Mortg. Fund, LLC, 2012 WL

7

346465, at *2 (E.D. Cal. Jan. 31, 2012).

8

is in the district court’s discretion.

9

2016 WL 74385, at *2 (C.D. Cal. Jan. 6, 2016).

“The standard for permissive withdrawal is high
Rock

Permissive withdrawal
In re KSL Media, Inc.,
In deciding

10

whether to exercise its discretion, the court considers factors

11

including “(1) the efficient use of judicial resources; (2) delay

12

and costs to parties; (3) uniformity of bankruptcy

13

administration; and (4) prevention of forum shopping as well as

14

whether the issues are ‘core’ or ‘non-core’ within the meaning of

15

[28 U.S.C.] § 157(b)(2), and whether any party has a right to a

16

jury trial.”

17

omitted).

Id. (citations and internal quotation marks

18

B.

Analysis

19

The moving party, Meyer Wilson, contends that withdrawal is

20

mandatory, and in the alternative, that this Court should

21

exercise its discretion to withdraw the adversary proceeding.

22

Mot. at 4-6.

23

indicating that it “does not oppose withdrawal of the

24

reference[,]” but in the case that the Court does withdraw the

25

reference it should do so for the entire adversary proceeding

26

(not just the claims concerning Meyer Wilson).

27

Opp. at 2.

28

arguing that withdrawal is not mandatory, and that the Court

Transamerica filed a “limited opposition”

Transamerica’s

Both Trustee and Debtors have filed oppositions

4

1

should not exercise its discretion to withdraw the reference at

2

this time.

3

Debtors’ Opp. at 2-3; Trustee’s Opp. at 2, 6.
1.

4

Mandatory Withdrawal

Meyer Wilson argues that withdrawal is mandatory because

5

“[i]f reference of the Adversary Proceeding is not withdrawn by

6

the District Court, the bankruptcy court will be required to make

7

significant interpretation of non-Bankruptcy Code statutes.”

8

Mot. at 5:9-11.

9

The Court disagrees.

Meyer Wilson struggles to identify any federal non-

10

bankruptcy issue relevant to this case.

11

concerning whether the settlement proceeds are part of the

12

bankruptcy estate and whether Meyer Wilson committed malpractice

13

in representing the Debtors and misappropriating the proceeds.

14

Whether the proceeds were part of the bankruptcy estate hinges on

15

when the underlying claims accrued.

16

governed by state law and bankruptcy law – not other federal

17

laws.

18

Malpractice too is a state – not federal –question.

19

Yaspan, 2013 WL 3448725, at *4 (C.D. Cal. July 9, 2013).

20

The case involves issues

Claim accrual, in turn, is

In re Goldstein, 526 B.R. 13, 21 (9th Cir. B.A.P. 2015).
Ross v.

Meyer Wilson attempts to avoid these problems by injecting

21

“Federal Securities Law.”

22

Wilson argues,

23
24
25
26

See Mot. at 5; Reply at 2.

Meyer

Although the causes of action alleged against
[Tranamerica] were common law claims for negligence in
failing to supervise Singh, common law fraud and
misrepresentation, breach of fiduciary duty, breach of
contract, and respondent superior, the conduct upon
which these claims were based derived from NASD
[National Association of Securities Dealers] Conduct
Rules and the Securities Exchange Act.”

27
28

Reply at 2:25-28.

Meyer Wilson is unable to be much more
5

1

specific as to the applicability of securities law to facts of

2

this case.

3

required to determine whether Transamerica was negligent in

4

supervising Singh.

5

or show that the issue is particularly complicated, or even that

6

it is relevant to any actual dispute about claim accrual here.

7

Its briefing suggests that federal securities law is

Mot. at 3.

But Meyer Wilson does not explain

The absence of a coherent explanation is telling in itself.

8

Meyer Wilson attempts to bolster its vague theories about federal

9

laws by citing Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79

10

(2002).

11

question of when the Debtors’ arbitration claims accrued.

12

Mot. at 5.

13

Association of Securities Dealers (“NASD”)’s rule that “no

14

dispute shall be eligible for submission to arbitration where six

15

(6) years have elapsed from the occurrence or event giving rise

16

to the dispute.”

17

marks and alterations omitted).

18

arbitrator (rather than a court) is to apply the six-year rule.

19

Id. at 83.

20

will arise in this case.

21

that the answer would involve more than “routine application” of

22

the relevant law.

23

withdrawal is not warranted.

24
25

Howsam, according to Meyer Wilson, created a complicated

It did not.

See

In fact, Howsam considered a National

Howsam, 537 U.S. at 81 (internal quotation
The Court held that the NASD

Meyer Wilson has not shown that the rule in Howsam

2.

Even if it did, there is no indication

The Court therefore holds that mandatory

Permissive Withdrawal

The parties appear to agree that Meyer Wilson is entitled to

26

a jury trial before the district court as to the malpractice

27

claim.

28

that its entitlement to a jury trial “is highly relevant to

Mot. at 6-7; Trustee’s Opp. at 6.

6

Meyer Wilson contends

1

withdrawal of the reference and, by itself, constitutes cause to

2

withdraw the reference.”

3

The Ninth Circuit has held that the right to a jury trial does

4

not warrant transfer of all pre-trial proceedings to the district

5

court.

See In re Healthcentral.com, 504 F.3d 775, 787 (9th Cir.

6

2007).

The procedure by which the bankruptcy court handles

7

pretrial matters and the district court conducts a trial is a

8

well-worn procedure in this district.

9

and takes advantage of the bankruptcy court’s special competency

Mot. at 6:19-20.

The Court disagrees.

It serves judicial economy

10

in bankruptcy law and its familiarity with the underlying facts

11

of the cases already before it.

12

that an action be immediately transferred to district court

13

simply because of a jury trial right would run counter to our

14

bankruptcy system.

15

economy and efficiency by making use of the bankruptcy court's

16

unique knowledge of Title 11 and familiarity with the actions

17

before them.

18

retain jurisdiction over the action until trial is actually

19

ready do we ensure that our bankruptcy system is carried out.”)

20

(citations and emphasis omitted).

21

economy are all the more evident in this case, in which the

22

underlying proceedings have been pending in the bankruptcy court

23

since 2009.

24

with this case, while this Court does not.

25

. . .

. . .

See id. at 787-88 (“[R]equiring

[T]his system promotes judicial

Only by allowing the bankruptcy court to

These savings in judicial

The bankruptcy court therefore has great familiarity

The same efficiency interests cut against Meyer Wilson’s

26

argument about non-core aspects of this case.

27

in this case appear to be core bankruptcy matters, because they

28

“could arise only in the context of a bankruptcy case.”
7

Most of the claims

See

1

Battle Ground Plaza, LLC v. Ray, 624 F.3d 1124, 1131 (9th Cir.

2

2010) (citation omitted).

3

whether the settlement proceeds are assets of the bankruptcy

4

estate.

5

Court follows the procedure set out by 28 U.S.C. § 157, whereby

6

the bankruptcy court first considers the claims using its

7

expertise in bankruptcy law and knowledge facts of the case and

8

then “submit[s] proposed findings of fact and conclusions of law

9

to the district court[.]”

Indeed, the thrust of the case is

To the extent there are other non-core matters, this

28 U.S.C. § 157(c)(1).

The district

10

court reviews the proposed findings and conclusion de novo,

11

considers any timely objections by the parties, and issues a

12

final order.

13

same reasons discussed above, but is also immensely helpful to

14

the district court in rendering its decisions in bankruptcy

15

cases.

16

Id.

This procedure is not only economical for the

As to the other factors – delay and cost to the parties and

17

prevention of forum shopping – the Court finds that additional

18

delay and costs would not result from the bankruptcy court

19

retaining this matter.

20

the proceedings being immediately transferred to the district

21

court, since the Court would need to catch up on over six years

22

of litigation in this case.

23

preferable for the bankruptcy court to continue handling pretrial

24

matters.

25

of fact and law will be significantly narrowed and this Court

26

will be well-equipped to oversee the case at that time.

27

the forum shopping factor is neutral here: there is neither

28

evidence of forum shopping nor allegations of such.

To the contrary, delay would result from

The Court therefore finds it

In the event that this case reaches trial, the issues

8

Finally,

1
2

For these reasons, the Court declines to exercise its
discretionary authority to withdraw the reference.

3
4
5

III.

ORDER

For the reasons set forth above, the Court DENIES the motion

6

to withdraw reference.

7

IT IS SO ORDERED.

8

Dated: February 3, 2016

9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
9