Gens-v-Colonial Savings, F.A.

Filing 6

ORDER re 1 , 4 GRANTING DEFENDANTS' MOTION TO WITHDRAW REFERENCE. Signed by Judge Ronald M. Whyte on 3/23/2012. Case Management Conference set for 4/27/2012 10:30 AM in Courtroom 6, 4th Floor, San Jose.(rmwlc1, COURT STAFF) (Filed on 3/23/2012)

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E-FILED on 3/23/2012

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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SAN JOSE DIVISION

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LAURA ANN GENS,

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No. 11-cv-05526 RMW

Plaintiff,
v.

ORDER GRANTING DEFENDANTS'
MOTION TO WITHDRAW REFERENCE

COLONIAL SAVINGS, F.A.; ASSOCIATED
BANK, NATIONAL ASSOCIATION;
MORTGAGE ELECTRONIC
REGISTRATION SYSTEMS, INC.

[Re Docket Nos. 1, 4]

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Defendants.
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Two motions are pending before this court arising out of adversary proceedings filed by

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plaintiff: (1) the motion of defendants to withdraw the reference; and (2) the motion of defendant

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Associated Bank seeking a protective order to stay all discovery until the preliminary matter of

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withdrawal of the reference has been resolved. The court hereby grants the motion to withdraw the

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reference. This renders the motion for a protective order moot. Plaintiff's request for sanctions made

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in her opposition to the motion for a protective order is denied.

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I. BACKGROUND

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Plaintiff filed an adversary proceeding on July 20, 2011 alleging grievances against a

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mortgage lender arising out of a foreclosure proceeding in connection with residential property in

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the State of Wisconsin. Plaintiff claims that in 2007, without notification to or authorization from the
ORDER GRANTING DEFENDANTS' MOTION TO WITHDRAW REFERENCE—No. 11-cv-05526 RMW
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plaintiff, defendant Associated Bank, N.A. ("Associated Bank") stopped making automatic

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withdrawals from her checking account for payment of a note securing property in Lake Geneva,

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Wisconsin. Plaintiff also claims that Associated Bank illegally transferred assignment of the Note to

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defendant Colonial Bank, F.A. ("Colonial Bank").

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Subsequently, Colonial Bank allegedly filed a Lis Pendens action against plaintiff before the

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Circuit Court of Walworth County in the State of Wisconsin. As part of a 2008 settlement in that

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case, plaintiff alleges that she paid $35,872.34 to Colonial Bank, which she believes was not

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properly recorded.

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In March 2009, plaintiff alleges that Colonial Bank, acting through an agent, intentionally

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trespassed on her property and caused considerable damage. The agent purportedly attempted to

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kick in the front doors to the property and removed locks on a side door, among other actions. As a

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result, plaintiff claims, the heating system and doors were disabled, walls and cabinets were

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vandalized, and carpets were stained. She estimates structural damage of over $11,600, as well as

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stolen personal property exceeding $49,200 worth of electronic devices.

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Plaintiff claims to have told defendant Colonial Bank in writing and verbally that the

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residence was not abandoned. Despite this notice, she claims Colonial Bank again authorized an

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agent to trespass on the property and cause further damage in January of 2010.

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On May 21, 2010, plaintiff filed for Chapter 11 bankruptcy in Bankruptcy Court in the
Northern District of California.

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On July 20, 2011, plaintiff initiated an adversary proceeding in bankruptcy court asserting

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multiple causes of action against defendants, including: (1) quiet title; (2) rescission of the subject

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loan; (3) rescission of the 2008 settlement with Colonial Bank; (4) trespass; and (5) conversion. She

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also asserts causes of action under (6) the Racketeer Influenced and Corrupt Organizations Act

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(RICO) regarding the pattern of charging excessive fees and using intimidation to coerce payment

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and (7) Unfair and Deceptive Business Act Practices (UDAP) for adding and concealing outrageous

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charges. Finally, plaintiff alleges that defendants violated (8) the Consumer Credit Reporting

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Agencies Act (CCRAA) and (9) the Fair Debt Collection Practices Act (FDCPA).

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ORDER GRANTING DEFENDANTS' MOTION TO WITHDRAW REFERENCE—No. 11-cv-05526 RMW
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On August 23, 2011, defendants filed a motion for withdrawal of the reference to transfer

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this case from bankruptcy court to the district court. Plaintiff has not filed any opposition to this

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motion. On February 6, 2012, defendant Associated Bank filed a motion for protective order to stay

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all discovery until the preliminary matter of withdrawal of reference is resolved. Plaintiff filed an

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opposition which essentially accuses the defendants of delay and seeks an award of sanctions for

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that delay.

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II. ANALYSIS

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A.

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The district court "shall" withdraw a case when the court determines that "resolution of the

Mandatory Withdrawal

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proceeding requires consideration of both Title 11 and other laws of the United States regulating

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organizations or activities affecting interstate commerce." 28 U.S.C. § 157(d) (emphasis added).

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Accordingly, the Ninth Circuit "mandates withdrawal of cases requiring material consideration of

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non-bankruptcy federal law." Security Farms v. Int'l Brotherhood of Teamsters, Chauffers,

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Whearhousemen & Helpers, 124 F.3d 999, 1008 (9th Cir. 1997) (finding that efficiency was

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enhanced by withdrawal where non-core issues predominate the claim). This court can clearly

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withdraw plaintiff's causes of action ((6)-(9)) arising under non-bankruptcy federal laws (RICO,

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UDAP, CCRAA and FDCPA) from the bankruptcy court's jurisdiction.

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B.

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Under 28 U.S.C. § 157(d), "the district court may withdraw, in whole or in part, any case or

Permissive Withdrawal

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proceeding . . . on timely motion of any party, for cause shown" (emphasis added). Because the

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federal claims are subject to mandatory withdrawal, the question is whether to withdraw the

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reference as to the first five causes of action: (1) quiet title; (2) rescission of the subject loan; (3)

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rescission of the 2008 settlement with Colonial Bank; (4) trespass; and (5) conversion. In making the

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"cause" determination, a district court should consider "the efficient use of judicial resources, the

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

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shopping, and other related factors." Security Farms, 124 F.3d at 1008. Defendants argue that

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withdrawal of the reference would prevent this adversary proceeding from extending into additional

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proceedings in both bankruptcy and district court.
ORDER GRANTING DEFENDANTS' MOTION TO WITHDRAW REFERENCE—No. 11-cv-05526 RMW
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Plaintiff has requested a jury trial, to which defendants have not consented. The Ninth Circuit

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has determined that bankruptcy courts cannot hear jury trials in non-core matters without the consent

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of all parties. In re Cinematronics, 916 F.2d 1444, 1451 (9th Cir. 1990). And under 28 U.S.C.

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§ 157(c)(1), a bankruptcy judge hearing a non-core proceeding must submit proposed findings of

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fact and conclusions of law to the district court, and the district court is required to review de novo

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those matters to which a party timely and specifically objects. Thus, any non-core claims must

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ultimately come before this court. Denying withdrawal in the pre-trial stages of a non-core

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proceeding only to accept it on a later date for the purpose of hearing the jury trial or reviewing the

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bankruptcy court's findings would unnecessarily consume judicial resources.

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Withdrawal therefore turns on whether plaintiff's claims are core or non-core. None of

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plaintiff's causes of action are included in the non-exhaustive list of examples of "core" proceedings

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over which the bankruptcy court has jurisdiction pursuant to 28 U.S.C.S. § 157(b). A "core

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proceeding" is one that "invokes a substantive right provided by Title 11" or is "a proceeding that,

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by its nature, could arise only in the context of a bankruptcy case." In re Gruntz, 202 F.3d 1074,

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1081 (9th Cir. 2000). These five causes of action arise out of contract, property and tort law - all of

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which could arise in the context of a state law proceeding.

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District courts have denied withdrawal of reference where state law claims are necessary to

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resolve the allowance of the defendants' claims in bankruptcy. See In re Estate Financial, Inc., 2011

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U.S. Dist. LEXIS 102850 (C.D. Cal. Sept. 9, 2011) (finding that counterclaims relating to

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defendant's legal services which allegedly led to the ultimate bankruptcy of the plaintiff were so

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closely related that resolution of the state law counterclaims are necessary to resolve the allowance

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of the claim itself). Arguably, the second and third causes of action, rescission of the loan and

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rescission of the 2008 settlement with Colonial Bank could affect the validity of liens and fall into a

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"core" category. 28 U.S.C. § 157(b)(2)(k). However, neither side addresses this possibility.

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Furthermore, state law claims have been found to be "non-core" where an adversary proceeding

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alleges state law claims with only a potential impact on the bankruptcy case and where those claims

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could have been brought in state court regardless of the bankruptcy proceeding. See Equipoint

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Financial Network v. Network Appraisal Services, 2009 U.S. Dist. LEXIS 63005 (S.D. Cal. July 15,
ORDER GRANTING DEFENDANTS' MOTION TO WITHDRAW REFERENCE—No. 11-cv-05526 RMW
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2009). Accordingly, because plaintiff's first five causes of action could have been brought in state

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court, they are not "core" proceedings to the bankruptcy case.

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In sum, because plaintiff's claims are non-core proceedings that must ultimately be resolved

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by this court, the court finds it appropriate to withdraw the reference now. In addition, even if some

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of plaintiff's claims were deemed to be core, the court finds it appropriate to withdraw the entire

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action to avoid duplicative proceedings in both courts concerning the same underlying allegations.

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C. Request for Stay of Proceedings

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Since the motion to withdraw the reference has been granted, the motion for a protective

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order is moot.

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D. Request for Sanctions

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Plaintiff's request for sanctions is denied. Although there has been delay, there does not

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appear to be any reason to sanction defendant Associated Bank for not setting the motion to

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withdraw for a hearing. B.L.R. 5011-1(c) provides that no hearing is to be held on a withdrawal

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motion unless the assigned district judge orders otherwise.

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III. ORDER

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For the reasons stated above, the court grants defendant Associated Bank's Motion to

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Withdraw Reference. The motion for a protective order is moot. The request for sanctions is denied.

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A case management conference is set for 10:30 a.m. on April 27, 2012. The parties are to comply

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with the Civil Local Rules in connection with that conference. However, outstanding discovery

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directed to defendant Associated Bank shall be deemed served as of March 23, 2012.

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DATED:

March 23, 2012
RONALD M. WHYTE
United States District Judge

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ORDER GRANTING DEFENDANTS' MOTION TO WITHDRAW REFERENCE—No. 11-cv-05526 RMW
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