Federal Deposit Insurance Corporation v. Imperial Capital Bancorp, Inc.

Filing 14

ORDER Denying Motion To Stay (Re Doc. 7 ). Signed by Judge Larry Alan Burns on 11/17/2011. (mdc)(jrd)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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Federal Deposit Insurance Corporation,

CASE NO. 11-CV-2065-LAB-WMC

Plaintiff,

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ORDER DENYING MOTION TO
STAY

vs.
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Imperial Capital Bancorp, Inc. and the
Official Committee of Unsecured
Creditors of Imperial Capital,
Defendants.

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The FDIC initiated this action on September 6, 2011 to withdraw from the bankruptcy

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court the reference of two matters: (1) ICB’s objection to a proof of claim filed by the FDIC

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in ICB’s underlying bankruptcy proceeding; and (2) a motion by the Committee of Unsecured

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Creditors for permission to investigate and bring claims against ICB’s former directors and

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officers on behalf of the bankruptcy estate.

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The motion to withdraw the reference was previously filed with the bankruptcy court

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on August 12, 2011. At the same time, the FDIC moved to stay the bankruptcy court’s

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consideration of the two matters pending resolution of the withdrawal motion.

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bankruptcy court denied the FDIC’s stay motion on September 20, 2011. It also issued

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tentative substantive rulings on the matters at issue; those rulings were favorable to ICB and

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the Committee of Unsecured Creditors. The bankruptcy court confirmed its tentative rulings

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in a minute order issued on September 22, 2011, and it issued more formal rulings on the
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The

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stay denial and the Committee of Unsecured Creditors’ motion on October 6, 2011.

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On October 5, 2011, after the bankruptcy court had denied the FDIC’s request for

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a stay and issued substantive rulings on the matters, the FDIC moved to stay the bankruptcy

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court’s rulings. It is this motion that is now before the Court. To avoid a lengthy submission

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period, the Court calendared the motion for a hearing on Monday, November 21. Having

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reviewed the pleadings and considered the arguments of the parties, the Court is confident

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that it can rule on the motion without oral argument. The motion is DENIED.

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The FDIC’s stay motion rests on Federal Rule of Bankruptcy Procedure 5011(c),

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which provides that a court — either the bankruptcy court or the district court — may stay

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bankruptcy proceedings pending a motion to withdraw their reference to the bankruptcy

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court. The parties agree on the standard for granting a stay. The FDIC must show that: (1)

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it is likely to prevail on the merits of the withdrawal motion; (2) it is likely to suffer irreparable

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harm if the motion is denied; (3) the debtor and the Committee of Unsecured Creditors will

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not be harmed by a stay; and (4) the public interest will be served by granting a stay.

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It is the first prong of this analysis — the likelihood of success on the merits — that

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is fatal to the FDIC’s stay motion. The Court is familiar with the standards for withdrawal,

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having previously ruled on the earlier withdrawal motion filed by the FDIC. See 10-CV-1991,

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Dkt. No. 22. Permissive withdrawal requires a district court to consider “the efficient use of

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judicial resources, delay and costs to the parties, uniformity of bankruptcy administration, the

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prevention of forum shopping, and other related factors.” Sec. Farms v. Int’l Bhd. of

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

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withdrawal, on the other hand, is appropriate when the matter before the bankruptcy court

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presents “substantial and material questions of federal law.” Id. at 1008 n.4. See also

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Hawaiian Airlines, Inc. v. Mesa Air Group, 355 B.R. 214, 222 (D. Hawaii 2006); Holmes v.

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Grubman, 315 F.Supp.2d 1376, 1379 (M.D. Ga. 2004) (holding that “withdrawal is only

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mandatory when complicated, interpretive issues are involved, especially with matters of first

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impression or where there is a conflict between bankruptcy and other laws”). It is really

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mandatory withdrawal that is at issue here; the Court would rarely be inclined to grant a stay
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on the ground that it is likely to invoke permissive withdrawal to remove a matter from the

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bankruptcy court.

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The FDIC has not shown that the Court is likely to grant its motion to withdraw the

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reference of the debtor’s claim objection. A resolution of the claim objection may well require

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some consideration of the Banking Code, but it’s simply not clear that this consideration will

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rise to such a level that the objection must be withdrawn. The FDIC argues in its withdrawal

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motion that the claim objection is subject to the exclusive jurisdiction of this Court pursuant

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to 12 U.S.C. § 1821(d)(13)(D), but that provision, on its face, applies to actions against the

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assets of a bank for which the FDIC is a receiver, not claim objections filed by the debtor in

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an underlying bankruptcy.

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Likewise, the premise of the FDIC’s motion to withdraw the Committee’s request for

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permission to investigate and bring claims against ICB’s former directors and officers is that

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those claims belong to the FDIC. (See Dkt. No. 1 at 2–3.) But, as the Committee argues,

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that’s more of an argument that goes to the merits of the Committee’s request than it is an

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argument for mandatory withdrawal. If the claims do belong to the FDIC, then of course that

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triggers FIRREA’s jurisdictional provisions, but the preliminary question of who the claims

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belong to is not one that necessarily involves “substantial and material questions of federal

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law” such that this Court must answer it. Indeed, the Committee makes a plausible argument

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that state law (here, the law of Delaware) determines whether the claims against the

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directors and officers belong to the FDIC or the debtor’s estate.

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The Court also notes that the bankruptcy court, intimately familiar with the facts and

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very competent in the relevant law, gave thorough consideration to the FDIC’s stay motion

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and denied it. That denial does not lose any of its force simply because the court noted that

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the FDIC could seek a stay from the district court. (Dkt. No. 7-2 at Ex. C.) The Court does

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not intend by this Order to actually rule on the FDIC’s withdrawal motion, or to suggest how

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it might ultimately rule. It only recognizes the potential merits of ICB’s and the Committee’s

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arguments against withdrawal insofar as it finds that the FDIC has not shown it is likely to

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prevail on the merits of the withdrawal motion, and that a stay of the bankruptcy court’s
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rulings is therefore warranted. The Court will make every effort to rule on the pending

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withdrawal motion in a timely manner.

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IT IS SO ORDERED.
DATED: November 17, 2011

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HONORABLE LARRY ALAN BURNS
United States District Judge

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