Barclay v. Eder et al
Filing
8
ORDER Granting Defendants Remar's and Frager's 2 Motion to Withdraw the Reference. Signed by Judge Gonzalo P. Curiel on 6/20/16. (All non-registered users served via U.S. Mail Service)(dlg)
1
2
3
4
5
6
7
8
UNITED STATES DISTRICT COURT
9
SOUTHERN DISTRICT OF CALIFORNIA
10
11
12
In Re:
Case Nos.:
3:15-cv-02681-GPC-NLS
3:16-cv-00139-GPC-NLS
TAC FINANCIAL, INC.
13
Debtor.
ORDER GRANTING DEFENDANTS
REMAR’S AND FRAGER’S
MOTIONS TO WITHDRAW THE
REFERENCE
14
15
16
17
CHRISTOPHER R. BARCLAY,
TRUSTEE,
3:15-cv-02681-GPC-NLS [ECF No. 2]
Plaintiff,
18
19
v.
20
3:16-cv-00139-GPC-NLS [ECF No. 1]
ROY H. EDER; REMAR
INVESTMENTS, L.P.; MICHAEL
RAYMOND FRAGER; FRASER
SISSON ASSOCIATES; CENTAURUS
FINANCIAL, INC.; RELIASTAR LIFE
INSURANCE COMPANY; and DOES 1
through 20,
21
22
23
24
25
Defendants.
26
27
28
1
3:15-cv-02681-GPC-NLS, 3:16-cv-00139-GPC-NLS
1
Defendants Remar Investments, L.P. (“Remar”) and Michael Frager and FSA
2
Integrated LLC [erroneously sued as Fraser Sisson Associates] (collectively “Frager” or
3
“Frager Defendants”) filed separate motions to withdraw the reference. Defendants Remar
4
and Frager seek to withdraw the reference to the bankruptcy court with respect to an
5
adversary proceeding commenced by Plaintiff Christopher R. Barclay, as Chapter 7 Trustee
6
for TAC Financial, Inc. (the “Trustee”) against Remar and others for claims arising out of
7
the allegedly fraudulent conveyance of a life insurance policy from TAC Financial, Inc.
8
(the “Debtor”) to Defendant Roy H. Eder and subsequent transferees, including Remar.
9
Any party wishing to oppose the motion had until February 19, 2016 with respect to
10
Remar’s motion and February 26, 2016 with respect to Frager’s motion to respond. On
11
February 26, 2016, Trustee filed a statement of non–opposition to both motions. The Court
12
deems Defendants’ motions suitable for disposition without oral argument pursuant to
13
Civil Local Rule 7.1(d)(1). Having reviewed Defendants’ motions and the applicable law,
14
and for the reasons set forth below, the Court GRANTS Defendants’ motions to withdraw
15
the reference.
16
FACTUAL BACKGROUND
17
On or about February 8, 2013, the Debtor submitted an application to ReliaStar Life
18
Insurance Company (“ReliaStar”) for a “key man” life insurance policy in the face amount
19
of $5 million insuring the life of Eder1, designating that the owner of the policy would be
20
Debtor and that the source of funds to pay the policy premiums would be the Debtor. (AP
21
Compl. ¶ 22.)
22
agents/brokers as Michael Frager and Michael Sisson. (Id. ¶ 23) On or about June 6, 2013,
23
ReliaStar issued its Policy No. AD20577953 (“the Policy”) to the Debtor. (Id. ¶ 25.) The
24
Policy listed “TAC Financial Services” the owner of the policy (id. ¶ 27), insured the life
25
of Roy Eder and provided for a death benefit of $5 million (id. ¶ 26).
The application was signed by and listed the Debtor’s insurance
26
27
1
28
Defendant Roy Eder was the Chief Executive Officer of the Debtor until approximately
July 18, 2014. (Id. ¶ 2.)
2
3:15-cv-02681-GPC-NLS, 3:16-cv-00139-GPC-NLS
1
On or about June 14, 2013, the Debtor faxed to ReliaStar an Electronic Funds
2
Transfer (“EFT”) authorization, signed by Steve Hong on behalf of the Debtor, which
3
authorized ReliaStar to debit the Debtor’s bank account to pay the premiums of the
4
Debtor’s Policy. (Id. ¶ 28.) Thereafter the monthly premium payments were made by the
5
Debtor through direct debit of the Debtor’s bank account. (Id.)
6
On December 27, 2013, ReliaStar sent a notice to the Debtor that the EFT payment
7
for the payment of the monthly premium had been returned by the Debtor’s bank as unpaid
8
due to insufficient funds. (Id. ¶ 29.) By a letter dated February 13, 2014, ReliaStar
9
informed the Debtor that the Policy had lapsed effective February 13, 2014. (Id.) On or
10
about March 24, 2014, the Debtor submitted to ReliaStar an application to reinstate the
11
Debtor’s Policy, which was signed by the Debtor through Eder as the Debtor’s CEO and
12
Michael Frager as the Debtor’s agent. (Id. ¶ 31.) By a letter dated April 3, 2014, ReliaStar
13
informed the Debtor the application to reinstate had been approved and that a premium
14
payment was due June 14, 2014. (Id. ¶ 32.)
15
On or about June 9, 2014, Eder was diagnosed with brain cancer. (Id. ¶ 33.) On or
16
about June 9, 2014, the Debtor made a premium payment to ReliaStar. (Id. ¶ 34.) On June
17
24, 2014, the Debtor submitted to ReliaStar a new EFT authorization to debit the Debtor’s
18
bank account to pay the premiums, which was signed by Steve Hong on behalf of the
19
Debtor. (Id. ¶ 35.) Thereafter, the monthly premiums were made by the Debtor through
20
direct debit of the Debtor’s bank account. (Id.)
21
On July 1, 2014, Michael Frager sent a fax to ReliaStar instructing ReliaStar to
22
change the beneficiaries under the Debtor’s Policy according to an attached Beneficiary
23
Designation Form, which was signed by Eder on behalf of Debtor and changed the
24
beneficiaries of the policy from the Debtor to members of Eder’s family. (Id. ¶¶ 37–38.)
25
On or about July 8, 2014, the Division of Neurosurgery at Scripps Clinic Torrey
26
Pines issued a letter stating that Eder has been diagnosed with cancer for which prognosis
27
is terminal. (Id. ¶ 40.) On July 11, 2014, Frager faxed to ReliaStar a Transfer of Ownership
28
form dated June 27, 2014, which provided for the transfer of ownership of the Debtor’s
3
3:15-cv-02681-GPC-NLS, 3:16-cv-00139-GPC-NLS
1
Policy from the Debtor to Eder. (Id. ¶ 41.) The Transfer of Ownership form was signed
2
on behalf of the Debtor, as the current owner, by Eder as Chairman and CEO and by Eder
3
on behalf of himself as the new owner. (Id.) In a letter dated July 15, 2014, ReliaStar
4
confirmed that the ownership of the policy had been changed from the Debtor to Eder,
5
effective June 27, 2014. (Id. ¶ 42.) The Debtor continued to pay the premiums on the
6
Policy after the transfer of ownership. (Id. ¶ 43.)
7
On October 2, 2014, ReliaStar made a distribution under the Policy to Eder in the
8
amount of $250,000.00. (Id. ¶ 44.) On or about December 11, 2014, Eder sold the Policy
9
to Remar for a purchase price of $1,950,000.00. (Id. ¶ 45.) By a letter from ReliaStar to
10
Remar dated December 15, 2014, ReliaStar confirmed the change in ownership of the
11
Policy from Eder to Remar, effective December 10, 2014. (Id. ¶ 46.)
12
PROCEDURAL HISTORY
13
The Debtor filed a voluntary bankruptcy petition on January 15, 2015. (Id. ¶ 15.)
14
On August 11, 2015, the Trustee filed this adversary proceeding pursuant to Federal Rule
15
of Bankruptcy Procedure 7069 against Eder, Remar and others to recover the Debtor’s Key
16
Man Life Insurance Policy or the value of the Debtor’s Policy from Remar as a fraudulent
17
transfer under 11 U.S.C. §§ 548, 550, and the value of all transfers by Eder to subsequent
18
transferees of the $1.9 million received by Eder from Remar for the Policy and the
19
$250,000 advance received by Eder from ReliaStar under 11 U.S.C. § 550. (See In re TAC
20
Financial, Inc., Adv. No. 15–AP–90145–CL7 (“AP”).) Defendants Remar, Frager and
21
others filed Answers and timely demands for jury trials.2 Neither consent to having the
22
23
24
25
26
27
28
2
Remar seeks judicial notice of excerpts of answers filed in the adversary proceeding by
Defendants Remar (Ex. 1), Eder (Ex. 2), Centaurus Financial, Inc. (Ex 3), Michael Frager
(Ex. 4) and FSA Integrated LLC (Ex. 5). (RJN, ECF No. 1–3.) Under Federal Rule of
Evidence 201(b), a district court may take notice of facts not subject to reasonable dispute
that are capable of accurate and ready determination by resort to sources whose accuracy
cannot reasonably be questioned. Fed. R. Evid. 201(b); see also Lee v. City of Los Angeles,
250 F.3d 668, 689 (9th Cir. 2001) (noting that the court may take judicial notice of
undisputed matters of public record), overruled on other grounds by Galbraith v. County
4
3:15-cv-02681-GPC-NLS, 3:16-cv-00139-GPC-NLS
1
bankruptcy court conduct the jury trial.
2
On December 1, 2015, Remar filed a motion to withdraw the reference on the basis
3
that Remar is entitled to have this matter decided by an Article III judge and does not
4
consent to have the matter decided by a bankruptcy judge and on the additional ground that
5
other defendants (if not Remar itself) are entitled to and have preserved their right to trial
6
by a jury. (Remar Mot., Case No. 15–cv–2681, ECF No. 1.) On January 20, 2016, Frager
7
also filed a motion to withdraw the reference on similar grounds. (Frager Mot., Case No.
8
16–cv–0139, ECF No. 1.) On February 26, 2016, the Trustee filed a non–opposition to
9
withdrawal of the reference with respect to its claims against both Remar and Frager.
10
LEGAL STANDARD
11
Under the Bankruptcy Amendments and Federal Judgeship Act of 1984, district
12
courts have original jurisdiction in bankruptcy cases and may refer to bankruptcy judges
13
two statutory categories of proceedings: “core” proceedings and “non–core” proceedings.
14
See generally 28 U.S.C. § 157. “In general, a ‘core proceeding’ in bankruptcy is one that
15
‘invokes a substantive right provided by title 11 or . . . a proceeding that, by its nature,
16
could arise only in the context of a bankruptcy case.’” In re Gruntz, 202 F.3d 1074, 1081
17
(9th Cir. 2000) (citing In re Wood, 825 F.2d 90, 97 (5th Cir. 1987).
18
proceedings’ are those not integral to the restructuring of debtor–creditor relations and not
“‘Non–core
19
20
21
22
23
24
25
26
27
28
of Santa Clara, 307 F.3d 1119, 1125-26 (9th Cir. 2002). A court may take judicial notice
of its own files and of documents filed in other courts. Reyn’s Pasta Bella, LLC v. Visa
USA, Inc., 442 F.3d 741, 746 n.6 (9th Cir. 2006) (taking judicial notice of documents
related to a settlement in another case that bore on whether the plaintiff was still able to
assert its claims in the pending case); Burbank–Glendale–Pasadena Airport Auth. v. City
of Burbank, 136 F.3d 1360, 1364 (9th Cir. 1998) (taking judicial notice of court filings in
a state court case where the same plaintiff asserted similar and related claims); Hott v. City
of San Jose, 92 F. Supp. 2d 996, 998 (N.D. Cal. 2000) (taking judicial notice of relevant
memoranda and orders filed in state court cases). The Trustee does not object to Remar’s
request. The Court finds that these documents are part of public record and thus their
accuracy cannot reasonably be questioned. Accordingly, the Court hereby takes judicial
notice of Exhibits 1–5. (RJN, Exs. 1–5, ECF No. 1–3.)
5
3:15-cv-02681-GPC-NLS, 3:16-cv-00139-GPC-NLS
1
involving a cause of action arising under title 11.” Id. See also 28 U.S.C. § 157(b)(2)
2
(providing non-exhaustive list of matters that constitute “core proceedings”). In core
3
proceedings, a bankruptcy judge “may hear and determine . . . and enter appropriate orders
4
and judgments,” subject to the district court’s traditional appellate review. § 157(b)(1). In
5
non–core proceedings—those that are “not . . . core” but are “otherwise related to a case
6
under title 11,” § 157(c)(1)—final judgment must be entered by the district court after de
7
novo review of the bankruptcy judge’s proposed findings of fact and conclusions of law,
8
ibid., except that the bankruptcy judge may enter final judgment if the parties consent,
9
§ 157(c)(2).
10
The power to withdraw reference of a case from bankruptcy court is granted to a
11
district court by 28 U.S.C. § 157(d), which provides that the district court “may withdraw,
12
in whole or in part, any case or proceeding referred, on its own motion or on timely motion
13
of any party, for cause shown.” The Ninth Circuit has stated that the court should consider
14
“the efficient use of judicial resources, delay and costs to the parties, uniformity of
15
bankruptcy administration, the prevention of forum shopping, and other related factors.”
16
Sec. Farms v. Int’l Bhd. of Teamsters, 124 F.3d 999, 1008 (9th Cir. 1997) (citing In re
17
Orion Pictures Corp., 4 F.3d 1095, 1101 (2d Cir. 1993)). The Second Circuit stated in In
18
re Orion Pictures Corp.:
19
23
A district court considering whether to withdraw the reference should
first evaluate whether the claim is core or non–core, since it is upon this
issue that questions of efficiency and uniformity will turn . . . once a
district court makes the core/non–core determination, it should weigh
questions of efficient use of judicial resources, delay and costs to the
parties, uniformity of bankruptcy administration, the prevention of
forum shopping, and other related factors.
24
4 F.3d 1095, 1101 (2d Cir.1993). One such related factor is whether a party has a right to
25
jury trial, because the bankruptcy court is not entitled to conduct a jury trial on non–core
26
matters without the consent of the parties. See In re Cinematronics, Inc., 916 F.2d 1444,
27
1451 (9th Cir. 1990).
28
//
20
21
22
6
3:15-cv-02681-GPC-NLS, 3:16-cv-00139-GPC-NLS
1
DISCUSSION
2
Defendants Remar and Frager—as well as the other defendants in the adversary
3
proceeding—have requested a jury trial and have not agreed to have a jury trial conducted
4
by the bankruptcy court. The Ninth Circuit has determined that bankruptcy courts cannot
5
preside over jury trials in non–core matters without the consent of all parties. In re
6
Cinematronics, 916 F.2d at 1451. Further, under 28 U.S.C. § 157(c)(1), a bankruptcy judge
7
hearing a non–core proceeding must submit proposed findings of fact and conclusions of
8
law to the district court, and the district court is required to review de novo those matters
9
to which a party timely and specifically objects.
Thus, any non–core claims must
10
ultimately come before the district court. “Denying withdrawal in the pre–trial stages of a
11
non–core proceeding only to accept it on a later date for the purpose of hearing the jury
12
trial or reviewing the bankruptcy court’s findings would unnecessarily consume judicial
13
resources.” Gens v. Colonial Sav., F.A., No. 11-CV-05526 RMW, 2012 WL 993713, at
14
*2 (N.D. Cal. Mar. 23, 2012). Withdrawal therefore turns on whether the Trustee’s claims
15
are core or non–core bankruptcy proceedings. Id.
16
The Court finds that the Trustee’s adversary proceeding against Frager is a non–core
17
proceeding. The Trustee’s claims against Frager are premised on state law claims based
18
on breach of fiduciary duty. State law claims have been found to be “non-core” where an
19
adversary proceeding alleges state law claims with only a potential impact on the
20
bankruptcy case and where those claims could have been brought in state court regardless
21
of the bankruptcy proceeding. Equipoint Fin. Network, Inc. v. Network Appraisal Servs.,
22
Inc., No. 09-CV-01252HCAB, 2009 WL 2135873, at *3 (S.D. Cal. July 15, 2009) (citing
23
In re Eastport Assoc., 935 F.2d 1071, 1076–77 (9th Cir. 1991) (holding suit for declaratory
24
judgment could just as easily have been brought in state court, regardless of whether
25
Eastport was in bankruptcy, and therefore was not a core proceeding). District courts have
26
denied withdrawal of reference where state law claims are necessary to resolve the
27
allowance of the defendants’ claims in bankruptcy. See In re Estate Financial, Inc., 2011
28
U.S. Dist. LEXIS 102850 (C.D. Cal. Sept. 9, 2011) (finding that counterclaims relating to
7
3:15-cv-02681-GPC-NLS, 3:16-cv-00139-GPC-NLS
1
defendant’s legal services which allegedly led to the ultimate bankruptcy of the plaintiff
2
were so closely related that resolution of the state law counterclaims are necessary to
3
resolve the allowance of the claim itself). However, this is not such a case and clearly not
4
a dispute “which could arise only in the context of a bankruptcy case.” In re Gruntz, 202
5
F.3d at 1081.
6
The Trustee’s adversary action against Remar seeks to avoid a fraudulent transfer
7
under 11 U.S.C. §§ 548 and 550. Statutorily, this is a core proceedings under 28 U.S.C.
8
§ 157(b)(2)(H). However, in the Ninth Circuit fraudulent conveyance claims are Stern
9
claims—“that is, proceedings that are defined as ‘core’ under § 157(b) but may not, as a
10
constitutional matter, be adjudicated as such . . . .” Executive Benefits Ins. Agency v.
11
Arkison, 134 S. Ct. 2165, 2172, 189 L. Ed. 2d 83 (2014). The Supreme Court in Arkinson
12
held that the bankruptcy court must treat Stern claims as if they are non–core and proceed
13
under § 157(c)(1). Thus, the Trustee’s fraudulent conveyance claims against Remar must
14
be finally adjudicated by the district court absent the consent of all parties.
15
Granfinanciera S.A. v. Nordberg, 492 U.S. 33, 56 (1989) (fraudulent conveyance claims
16
are “quintessentially suits at common law” that “constitute no part of the proceedings in
17
bankruptcy but concern controversies arising out of it”); see also In Re Bellingham Ins.
18
Agency, Inc., 702 F.3d 553 (9th Cir. 2012) (“fraudulent conveyance claims, because they
19
do not fall within the public rights exception, cannot be adjudicated by non–Article III
20
judges”).
See
21
As noted above, because the Trustee’s claims against Remar and Frager
22
predominantly non–core or must be treated as non–core, the bankruptcy court may not
23
enter final judgment without consent of the parties. Additionally, absent their express
24
consent, the bankruptcy cannot conduct a jury trial in the matter. Remar and Frager, as
25
well as other defendants in the adversary proceeding, have filed timely jury demands, do
26
not consent to a jury trial before the bankruptcy court, and do not consent to the entry of
27
final judgment by the bankruptcy judge.
28
adjudication of the Trustee’s claims against Remar and Frager in district court where they
Interests in judicial economy support the
8
3:15-cv-02681-GPC-NLS, 3:16-cv-00139-GPC-NLS
1
would ultimately be tried or from which final judgment would ultimately be rendered. As
2
the bankruptcy courts may only make recommendations to the district courts in non–core
3
proceedings, unnecessary costs can be avoided by a single proceeding in the district court.
4
28 U.S.C. § 157(c)(1); see In re Orion Pictures, 4 F.3d at 1101. The Court, for cause
5
shown, GRANTS Defendant Remar’s and Frager’s unopposed motions to withdraw the
6
reference.
7
CONCLUSION
8
For the reasons set forth above, the Court GRANTS Defendants’ motions to
9
withdraw the reference with respect to the Trustee’s adversary proceeding against Remar
10
11
12
and Frager Defendants.
IT IS SO ORDERED.
Dated: June 20, 2016
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
9
3:15-cv-02681-GPC-NLS, 3:16-cv-00139-GPC-NLS
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?