JLL Consultants, Inc. v. AGFeed USA, LLC et al

Filing 13

MEMORANDUM re 1 motion to withdraw reference. Signed by Judge Leonard P. Stark on 9/26/16. Associated Cases: 1:15-cv-01113-LPS, 1:15-cv-01194-LPS (ntl)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
INRE:
AGFEED USA, LLC, et al.,
Debtors.

Chapter 11
Bankr. Case No. 13-11761-BLS
(Jointly Administered)

JLL CONSULTANTS, INC. not individually but
solely as Trustee of the AgFeed Liquidating Trust,

Adv. Proc. No. 15-50929-BLS

Plaintiff,
Civ. No. 15-1113-LPS
Civ. No. 15-1194-LPS

v.

GOLDMAN KURLAND & MOHIDIN, LLP
and PICKARD AND GREEN, CP As, FOUR
TONG INVESTMENTS, LTD. , a/k/a and/or
d/b/a FOUR TONG INVESTMENT LTD., and
JOHN DOE DEFENDANTS 1 THROUGH 10,
Defendants.

MEMORANDUM
Goldman Kurland & Mohidin, LLP ("Goldman") and Pickard & Green, CPAs
("Pickard"), defendants in the above-captioned adversary proceeding ("Defendants"), move this
Court (the "Motions to Withdraw"), pursuant to 28 U.S.C. § 157(d), to withdraw reference of the
adversary proceeding to the United States Bankruptcy Court for the District of Delaware
("Bankruptcy Court"). 1 (Civ. No. 15-1113, D.I. 1; Civ. No. 15-1194, D.I. 1) For the reasons
stated below, the Court will deny the Motions to Withdraw without prejudice.

I.

BACKGROUND
This matter arises from a complaint filed against Defendants and others in the above-

captioned Chapter 11 cases (Adv. D.I. 1) (the "Complaint"). Debtors AgFeed Industries, Inc. , et

1

The docket of the adversary proceeding, JLL Consultants, Inc. v. Goldman Kurland & Mohidin,
LLP, et al., Adv. Pro. No. 15-50929-BLS (Bankr. D. Del.), is referred to herein as "Adv. D.I.
_." The docket of the Chapter 11 cases, In re AgFeed USA , LLC, et al., Case No. 13-11761BLS (Bankr. D. Del.), is referred to herein as "Bankr. D.I. _."

al. (the "Company"), were born out of a reverse-merger of a China-based hog and feed producer

and a Nevada corporation. (See Adv. D.I. 1 at if 1) The Company manufactured and sold animal
nutrition products, operating solely in China from its inception through the summer of2010. (Id.
at if 2) In September 2010, the Company purchased U.S.-based hog producer M2P2 LLC and
began a transition to a U.S.-centric board of directors. (Id. at if 4)
Goldman is an accounting firm that allegedly provided accounting services to AgFeed
from 2006 to 2013 , including audits of2008 and 2009 financial statements and work in
connection with a special committee investigation from August 2012 to June 2013 . (Id. at if 12)
Pickard is an accounting firm that allegedly reviewed the Company' s financial statements from
2009 to 2010. (Id. at if 13)
The Complaint alleges that, from 2007 through 2010, the Company reported exponential
growth on its financial statements based on materially inaccurate financial reporting. (See id. at

if 6) The Complaint alleges that the Company' s special committee investigation of its internal
accounting and financial reporting issues identified extreme mismanagement of China-based
operations, including the reporting of fictional assets and operations, as well as the keeping of
two sets of books - one true and one to support the inflated revenues and profits reported in the
financial statements. (Id. at iii! 49-53) The Complaint further alleges that, in December 2011 ,
the Company filed a Form 8-K with the SEC admitting that financial statements from 2008
through 2011 were false and unreliable due to "accounting improprieties." (Id. at if 54)
On July 15, 2013 ("Petition Date"), the Company filed for relief under Chapter 11 of
Bankruptcy Code. (Bankr. Case No. 13-11761-BLS, D.I. 1) On July 30, 2013 , Goldman filed a
proof of claim asserting $312,231 in unpaid fees and attaching invoices dated August 2012
through June 2013. (See Civ. No. 15-1194, D.I. 4-1 ) On October 4, 2013 , Pickard filed a proof

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of claim asserting $18, 750 in unpaid fees for accounting services and attaching invoices dated
March 2013 through May 2013. (See Civ. No. 15-1113, D.I. 5-1)
On November 4, 2014, the Bankruptcy Court approved the Company's Chapter 11 plan
ofliquidation. (Bankr. D .I. 15 35) As of the plan 's effective date, all of the company's assets
were transferred to a liquidating trust. JLL Consultants, Inc. was appointed as trustee
("Trustee") and designated to pursue the causes of action belonging to the liquidating trust,
including causes of action against the Defendants. (See id. at Exh. A,§ 6.3) On July 15, 2015 ,
Trustee filed the Complaint, which alleges massive fraud upon the investing public arising out of
AgFeed' s China-based operations. Based on the accounting services Defendants provided, the
Complaint asserts certain state-law causes of action against both Pickard and Goldman, including
professional negligence, malpractice, and breach of contract. (See Adv. D.I. 1 at ilil 117-25, 12936) The Complaint also asserts several causes of action against Goldman which arise under the
Bankruptcy Code, including recovery of fraudulent transfers pursuant to§§ 544 and 548;
recovery of avoidable transfers pursuant to § 550; and disallowance of Goldman' s proof of claim
pursuant to § 502(d) . (See id. at ilil 144-62)
Pickard filed its Motion to Withdraw on November 11, 2015 (Civ. No. 15-1113 , D.I. 1),
and Goldman filed its Motion to Withdraw on December 4, 2015 (Civ. No. 15-1194, D.I. 1). 2
Trustee has filed briefs in opposition to both Motions to Withdraw. (Civ. No. 15-1113, D.I. 5;
Civ. No. 15-1194, D.I. 4) The Court heard oral argument on April 5, 2016. At the time the

2

Pickard filed its Motion to Determine Authority to Enter Final Orders and Judgments Pursuant
to Local Rule 5011-1 on December 23 , 2015 . (Adv. D.I. 26) On December 29, 2015, Pickard
filed an amended version of same. (Adv. D.I. 27) Goldman filed its Motion to Determine
Authority to Enter Final Orders and Judgments Pursuant to Local Rule 5011 -1 on January 15,
2016. (Adv. D.I. 34) As of the date of this Memorandum, the Bankruptcy Court had not yet
ruled on either of those motions.
3

Motions to Withdraw were filed, Trustee had obtained an extension through July 11 , 2016 to
effect service of process on additional defendants, and the deadline for foreign defendants to
answer or otherwise respond to the Complaint had been extended through August 10, 2016. (See
Adv. D.I. 48) The docket reflects no further extension of those deadlines and that no answers
have been filed to date. The docket further reflects that no discovery has been served and no
initial trial conference has been held. (See Adv. D.I. 49)

II.

CONTENTIONS
Both Defendants contend that the Court should exercise its discretion to withdraw the

adversary proceeding for cause pursuant to 28 U. S.C. § 157(d) and Federal Rule of Bankruptcy
Procedure 5011 (a). Pickard argues that the only two causes of action asserted against it in the
Complaint are professional negligence and breach of contract, both arising under state law. (See
Civ. No. 15-1113, D.I. 2 at 1-2) Pickard argues that the proceeding is therefore non-core,
because it does not involve any of the core proceedings listed under 28 U.S.C. § 157(b)(2), does
not invoke a substantive right provided by title 11 , and is not a proceeding that could arise only
in the context of a bankruptcy case. (See id. at 5-8) The Bankruptcy Court is without
constitutional authority to issue a final judgment or order in a non-core proceeding without the
consent of the parties; because Pickard will not consent, cause exists to withdraw the reference.
(See id. at 2, 8)

Pickard further argues that other factors identified by the Third Circuit weigh in favor of
finding that cause exists to withdraw the reference, including that its Motion to Withdraw was
timely filed and that keeping the case in the Bankruptcy Court will waste judicial resources
because this Court must ultimately review the Bankruptcy Court' s proposed findings of fact and
conclusions oflaw de nova. (See id. at 4-5, 8) Finally, Pickard argues that the fact it filed a

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proof of claim for unpaid professional fees in a nominal amount does not alone transform the
adversary proceeding into a core proceeding. (See id. at 5 n.5)
As to the state-law claims against Goldman, Goldman has incorporated by reference the
arguments made by Pickard in support of its Motion to Withdraw, including that, absent consent
of the parties, the Bankruptcy Court is without authority to enter final judgments with respect to
state common law claims, and Goldman does not consent. (See Civ. No. 15-1194, D.I. 2 at 1-2)
Goldman further argues that withdrawal of the reference now will promote judicial economy by
allowing the matter to be resolved in a single forum. (Id. at 3) Goldman' s main argument,
however, is that the Bankruptcy Court is prohibited from conducting a jury trial, so withdrawal
of the reference is the necessary to ensure Goldman' s right to a trial. (Id. at 7) Finally, Goldman
disputes that it has submitted to equitable jurisdiction of the Bankruptcy Court and waived its
right to a jury trial merely by filing a proof of claim. (Id. at 4) Goldman contends the
accounting services underlying the adversary proceeding are separate and distinct from the
investigative services underlying its proof of claim. (See Civ. No. 15-1194, D .I. 7 at 4-5)
Conversely, Trustee argues that both of the Defendants irrevocably submitted to the
equitable jurisdiction of the Bankruptcy Court by filing proofs of claim in the Chapter 11 cases.
(See Civ. No. 15-1113, D.I. 5 at 5-6; Civ. No. 15-1194, D.I. 4 at 5) Trustee argues that the

Bankruptcy Court has statutory and constitutional authority to adjudicate all of the claims set
forth in the Complaint, and to the extent any such claims are non-core or Stern claims (as defined
herein) , that court is full y capable of presiding over pretrial matters until the case is ready for
trial and, when necessary, should be permitted to submit proposed findings of fact and
conclusions oflaw. (See id. at 5-9) Trustee adds that even assuming the Defendants' filing of
proofs of claim does not resolve the issue, Defendants have failed to demonstrate cause to

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withdraw the reference. (See Civ. No. 15-1113, D.I. 5 at 9-11)) With respect to Defendants '
alleged right to a jury trial, Trustee argues that no demand has yet been made by the Defendants,
and the right to jury trial should play no role in this Court' s analysis at such an early stage of the
proceeding. (See id. at 11-13) 3

III.

LEGAL ST AND ARDS
District courts "have original but not exclusive jurisdiction of all civil proceedings

arising under title 11, or arising in or related to cases under title 11." 28 U.S .C. § 1334(b).
Pursuant to the authority granted by 28 U.S.C. § 157(a), this Court refers cases arising under title
11 to the United States Bankruptcy Court for the District of Delaware. See Am. Standing Order
of Reference, Feb. 29, 2012 (CJ. Sleet).
Section 157(d) provides for situations when a district court may withdraw the reference
and when it must withdraw the reference:
The district court may withdraw, in whole or in part, any case or
proceeding referred under this section, on its own motion or on
timely motion of any party, for cause shown. The district court shall,
on timely motion of a party, so withdraw a proceeding if the court
determines that resolution of the proceeding requires consideration
of both title 11 and other laws of the United States regulating
organizations or activities affecting interstate commerce.
28 U.S.C. § 157(d). For permissive withdrawal, " [t]he ' cause shown ' requirement in section
157(d) creates a presumption that Congress intended to have bankruptcy proceedings adjudicated
in bankruptcy court unless rebutted by a contravening policy." Hatzel & Buehler, Inc. v. Cent.
Hudson Gas & Elec. Corp. , 106 B.R. 367, 371 (D. Del. 1989) (internal quotations omitted). To

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Trustee also argued that the Motions to Withdraw were procedurally defective because
Defendants failed to file, in accordance with the Bankruptcy Court' s Local Rule 5011-1 , a
motion for determination of the Bankruptcy Court's authority to enter final orders and
judgments. Each of the Defendants has since complied with Local Rule 5011-1 by filing the
required motion with the Bankruptcy Court.
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overcome that presumption, the moving party has the burden to prove that cause exists to
withdraw the reference. See In re NDEP Corp. , 203 B.R. 905, 907 (D. Del. 1996).
IV.

DISCUSSION
A. Equitable Jurisdiction of the Bankruptcy Court
In order to determine whether a party has waived its right to a jury trial by invoking the

jurisdiction of the Bankruptcy Court, a "[ c)ourt must analyze whether the resolution of the
adversary proceeding is part of the claims resolution process." NDEP, 203 B.R. at 912; see also
Billing v. Ravin, Greenberg & Zackin, P.A. , 22 F.3d 1242, 1252 n.14 (3d Cir. 1994) (explaining

that waiver requires submitting to claims allowance process).
Trustee argues as an initial matter that Defendants have already consented to the
equitable jurisdiction of the Bankruptcy Court by each filing a proof of claim in the Chapter 11
cases, and Defendants cannot avoid the Bankruptcy Court's jurisdiction by seeking permissive
withdrawal of the reference. (See Civ. No. 15-1113, D.I. 5 at 2, 5-6; Civ. No. 15-1194, D.I. 4 at
5) Trustee argues that withdrawal of the reference is only appropriate when a defendant is
entitled to a jury trial and when that defendant did not previously submit a claim against the
estate. (See Civ. No. 15-1113, D.I. 5 at 6) Trustee cites EXDS, Inc. v. RK Elec. , Inc., 301 B.R.
436, 439 (Bankr. D. Del. 2003), which states that "equity jurisdiction - where there is no right to
a jury trial - [is] triggered by the filing of a claim in the chapter case." See also Goldstein v. KSwiss, Inc., 2002 WL 550035, at *1 (Bankr. D. Del. Apr. 9, 2002). Trustee argues that the proofs

of claim filed by the Defendants for unpaid fees for accounting services arise out of the same
engagement and same set of facts alleged in the adversary proceeding, thus triggering the claims
resolution process. (See Civ. No. 15-1113 , D.I. 5 at 13)

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Goldman' s proof of claim asserts $312,231 of unpaid fees for services rendered between
August 2012 and June 2013. (See Civ. No. 15-1194, D.I. 4-1) Goldman argues that the
malpractice claims asserted by Trustee in the Complaint relate solely to the audit work Goldman
was retained to perform in 2008 and 2009, and not the work Goldman performed in connection
with the special committee investigation in 2012 and 2013 . (See Civ. No. 15-1194, D.I. 7 at 5)
Goldman argues that the proof of claim is thus separate and distinct from the state-law causes of
action asserted in the Complaint, and, accordingly, the proof of claim does not override
Goldman' s right to have state-law causes of action decided by a jury.
Similarly, Pickard' s proof of claim asserts $18 ,750 in unpaid fees for services rendered
between March 2013 and May 2013 . Pickard's claim was later satisfied in full by payment on
October 3, 2014. (See Civ. No. 15-1113 , D.I. 5-1 ) Pickard argues that the fact it filed this proof
of claim for a nominal amount of unpaid professional fees does not alone transform the
adversary proceeding into a core proceeding. (See Civ. No. 15-1113, D.I. 2 at 5 n.5) Pickard
cites In re Complete Management, Inc., v. A rthur Andersen, LLP, 2002 WL 31163878, *3
(S.D.N.Y. Sept. 27, 2002), where the district court noted that although filing a proof of claim has
been said to subject a claimant to the equitable jurisdiction of the bankruptcy court, no case has
suggested that equitable jurisdiction extends to an action that is "70 times greater than the proof
of claim." See id. Similarly, the Complaint alleges losses to investors of millions of dollars and
seeks judgment in the form of actual damages in an amount to be proven at trial, as well
exemplary damages. (See Adv. D.I. 1 at 52) Although Trustee does not set a dollar amount on
the recovery it seeks, Pickard' s nominal amount of unpaid fees is likely a small fraction of it.
"Courts should not be eager to embrace an implied waiver of constitutional rights where
there is an affirmative and timely assertion of those rights ." NDEP, 203 B.R. at 912-13 . The

8

Court agrees that the mere filing of a proof of claim is not necessarily dispositive of the issue of
whether a defendant has waived its right to a jury trial and thereby submitted to the equitable
jurisdiction of the Bankruptcy Court. As the Third Circuit stated in Billing, the fact that a proof
of claim is filed "does not complete the analysis. A court must also ask whether resolution of the
particular dispute at issue is necessarily part of the process of the disallowance and allowance of
claims." See Billing, 22 F .3d 1251 at n.14 . However, the Court need not "complete the
analysis" in the context of these Motions to Withdraw. Even assuming that Defendants have not
submitted to the equitable jurisdiction of the Bankruptcy Court by filing their proofs of claim,
Defendants have not established cause to warrant permissive withdrawal of the reference at this
time.

B. Cause For Permissive Withdrawal
As noted by the Third Circuit, "cause" to withdraw the reference "will be present in only
a narrow set of circumstances." In re Pruitt, 910 F.2d 1160, 1171 (3 d Cir. 1990) (internal
quotation marks and citations omitted). Although the statute does not define "cause shown," the
Third Circuit has set forth five factors that should be considered in determining whether cause
exists to withdraw the reference: (1) uniformity in bankruptcy administration, (2) reducing forum
shopping and confusion, (3) fostering the economical use of the debtors ' and creditors '
resources, (4) expediting the bankruptcy process, and (5) the timing of the request for
withdrawal. See Pruitt, 910 F.2d at 1168 (discussing non-exhaustive list of factors). An
additional factor is whether the right to a jury trial has been asserted. See NDEP, 203 B.R. at
908. Before considering these factors , however, the Court "should first evaluate whether the
claims are core or non-core, since it is upon this issue that questions of efficiency and uniformity
will turn." See In re Orion Pictures Corp. , 4 F.3d 1095, 1101 (2d Cir. 1993).

9

Pickard contends, and at oral argument Trustee conceded, that the claims against Pickard
for professional negligence, malpractice, and breach of contract are non-core proceedings. The
Court agrees that these state common law claims are non-core and, absent consent of the parties,
the Bankruptcy Court is without authority to enter a final judgment or order with respect to those
claims. See Stern v. Marshall, 131 S. Ct. 2594, 2596 (2011) (holding bankruptcy court lacked
constitutional authority to "resolve and enter final judgment on a state common law claim").
These same state common law claims are asserted against Goldman -- in addition to claims
arising under§§ 544, 548, and 502(d) of the Bankruptcy Code. Thus, the claims asserted against
Goldman include both core and non-core proceedings.
Defendants argue that consideration of whether the claims are core or non-core is a
threshold consideration and weighs in favor of permissive withdrawal, as the Bankruptcy Court
cannot enter final orders or judgments as to the non-core claims. (See Civ. No. 15-1113, D.I. 2 at
2; Civ. No. 15-1194, D.I. 2 at 1) Trustee argues that to the extent the claims are non-core or
Stern claims, 4 the remedy is simply to allow the Bankruptcy Court to hear the matter and issue
proposed findings of fact and conclusions oflaw, pursuant to 28 U.S.C. § 157(c)(l). (See Civ.
No. 15-1113, D.I. 5 at 8) Trustee argues that allowing the Bankruptcy Court to retain
jurisdiction over pretrial matters in this case is the proper course, in light of the fact that the
Bankruptcy Court has presided over the case for three years and is familiar with the parties and
events that precipitated the Debtors' Chapter 11 filing. (See Civ. No. 15-1113, D.I. 5 at 10)

4

Section 157(b)(1) authorizes bankruptcy courts to enter final judgments in "core proceedings
arising under title 11 , or arising in a case under title 11." 28 U.S.C. § 157(b)(l). Proceedings
that fit under the ambit of 28 U.S.C. § 157(b)(2)'s list of core proceedings, but may not be
adjudicated as a constitutional matter by a bankruptcy court, are often referred to as "Stern
claims." When a bankruptcy court is presented with a Stern claim, the proper course is to issue
proposed findings of fact and conclusions oflaw. See Executive Benefits Ins. Agency v. Arkison,
134 S. Ct. 2165, 2170 (2014).
10

The Court agrees with Trustee that the mere fact the Complaint asserts non-core claims
does not mandate withdrawal. "Proceedings should not be withdrawn for the sole reason that
they are non-core." Hatzel, 106 B.R. at 371. In non-core proceedings, the bankruptcy court is
given the power to submit proposed findings of fact and conclusions oflaw to the district court.

See 28 U.S.C. § 157(c)(l ). Moreover, " [t]he ' cause shown' requirement in section 157(d)
creates a presumption that Congress intended to have bankruptcy proceedings adjudicated in
bankruptcy court unless rebutted by a contravening policy." Schubert v. Lucent Techs. , Inc.,
2004 U.S. Dist. LEXIS 25169, at *6 (D. Del. Nov. 16, 2004) (internal citation and quotation
marks omitted).
The Court now turns to the "for cause" factors set forth by the Third Circuit in Pruitt.
With respect to the first factor, promoting uniformity in bankruptcy administration, Trustee
argues that keeping the proceeding in the Bankruptcy Court will prevent inconsistent factual
findings on background issues common to this litigation and the other related litigation brought
by Trustee. Trustee has initiated several adversary proceedings, asserting causes of action
against various officers, directors, professionals, and advisors, which are currently pending
before the Bankruptcy Court and will necessarily involve overlapping facts and witnesses. 5
While Trustee does not specify what facts and issues may overlap as between these claims and
those in other adversary proceedings, the Court can infer that some overlap will occur, and thus it

5

The docket of the Chapter 11 cases reflects that there are at least three other adversary
proceedings pending before the Bankruptcy Court which arise from the same alleged facts and
circumstances, each of which remains in the early stages oflitigation: (1) Adv. Pro. No. 1550210-BLS (Bankr. D.I. 1704) (adversary proceeding against former director and audit
committee chairman); (2) Adv. Pro. No. 15-50927-BLS (Bankr. D.I. 1745) (adversary
proceeding against former outside general counsel); and (3) Adv. Pro. No. 15-50928-BLS
(Bankr. D.I. 1746) (adversary proceeding against former officers and directors).
11

is more efficient for the Bankruptcy Court to preside over the initial stages of these proceedings
and pretrial matters. This factor weighs against permissive withdrawal.
With respect to the second factor, reducing forum shopping and confusion, Trustee
argues that keeping the proceeding in the Bankruptcy Court will diminish the risk of forum
shopping. (See Civ. No. 15-1113, D.I 5 at 11) Trustee argues that Defendants' filing of these
pre-answer motions is indicative of their "desire to shop for a different forum," and
"withdrawing the reference should not be used as an 'escape hatch' for matters properly before
the Bankruptcy Court." (Id. (quoting In re Smith Corona Corp., 205 B.R. 712, 714 (D. Del.
1996)) The Court is not persuaded that Defendants' motions are a product of forum shopping.
Defendants did not initiate the adversary proceeding or choose to have the matter heard in the
Bankruptcy Court. This factor favors withdrawal.
With respect to the third factor, fostering the economical use of the Debtors' 'and
creditors ' resources, Trustee argues that the Bankruptcy Court has extensive familiarity with
parties, issues, and events that precipitated the Chapter 11 filing and that form the basis for these
causes of action. (See Civ. No. 15-1113, D.I. 5 at 14) Trustee also argues that requiring it to
litigate in multiple fora will waste the remaining assets available for distribution to creditors.
(See id.) The Court agrees that the Bankruptcy Court's familiarity with the underlying facts and
issues is an important consideration. Duplicating those efforts at an early stage of the case may
result in unnecessary expenses for the parties, particularly given that dispositive motions and
settlement may resolve the proceeding in advance of trial. See In re Circle of Yoakum, Tex. ,
2006 WL 2347710, at *2 (D. Del. June 23, 2006) (finding that judicial economy favored
Bankruptcy Court resolving pretrial proceedings because of its familiarity with facts of case); see
also In re EXDS, Inc., 2006 WL 2346419, at *2 (D. Del. July 20, 2006) ("[T]he Bankruptcy

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Court has the necessary resources to preside over the initial stages of these proceedings in an
efficient and effective manner"). Here, it will be more economical for the parties if the
Bankruptcy Court oversees the litigation. This factor weighs against permissive withdrawal at
this time.
With respect to the fourth factor, expediting the bankruptcy process, Defendants argue
that because the Bankruptcy Court cannot enter a final order or judgment on non-core claims, the
District Court will eventually have to review proposed findings of fact and conclusions oflaw de

nova, so it would be more efficient to withdraw the reference. Trustee argues that divesting the
Bankruptcy Court of jurisdiction will delay the proceedings because this Court lacks familiarity
with the bankruptcy proceedings and must undertake substantial efforts to understand the parties'
positions. (See id. at 14) The Court agrees that needing to become familiar with the record at
this early stage, and the delay attendant to those efforts, is unnecessary at this time and may
affect the administration of the cases. This factor weighs against permissive withdrawal at this
time.
With respect to the fifth factor, timing of the request for withdrawal, Congress has
mandated that a party seeking to withdraw a proceeding from a bankruptcy court to a district
court can do so only upon the filing ofa "timely" motion. 28 U.S.C. § 157(d). Section 157,
however, does not define what the court should consider timely. See id. ; see also In re Allegheny

Health Educ. and Research Foundation, 2006 WL 3843572, *2 (W.D. Pa. Dec. 19, 2006). "A
§ 157(d) motion is timely if it is filed at the first reasonable opportunity after the movant has
notice of the grounds for removal, taking into consideration the circumstances of the
proceeding." In re Schlein , 188 B.R. 13, 14 (E.D. Pa. 1995). Timeliness is "measured by the
stage of the proceedings in the Bankruptcy Court." In re U S. A. Floral Products, Inc. , 2005 WL

13

3657096, at *1 (D. Del. July 1, 2005) (internal quotation marks omitted). "The purpose of the
timeliness provision is to prevent unnecessary delay and stalling tactics." Schlein, 188 B.R. at
15.
This case is in its infancy. At the time the motions were filed, the deadline for Trustee to
effect service of process had not even passed. (See Adv. D.I. 48 (extending deadline through
July 11 , 2016)) Thus, the Court finds that Defendants ' Motions to Withdraw, filed at the very
outset of this litigation, were timely made, and this factor does not weigh against permissive
withdrawal.
In addition to the Pruitt factors, the Court also considers whether the right to a jury trial

has been asserted. Defendants contend that withdrawal of the reference is mandated by their
right to a jury trial, which the Bankruptcy Court cannot conduct. Although assertion of a right to
jury trial coupled with refusal to consent to such trial before the bankruptcy court is not "itself
sufficient cause for discretionary withdrawal," it is one of the factors the Court considers. See
Official Comm. of Unsecured Creditors v. Fed. Indus. Prods., 2007 WL 211179 at *2 (D. Del.

Jan. 26, 2007).
Here, neither of the Defendants has filed an answer or asserted the right to a jury trial,
and the fact that Defendants may assert their right to a jury trial does not necessarily mandate
withdrawal of the reference at this time. See In re Enron Corp. , 295 B.R. 21, 27 (S.D.N.Y.
2003) (observing well-settled law that district court is not compelled to withdraw reference
simply because party is entitled to a jury trial). Even for non-core claims for which a jury trial is
requested, the Bankruptcy Court is capable of functioning in a role similar to that of a magistrate
judge by handling pretrial issues. See SNMP Research Int 'l v. Nortel Networks, Inc., 539 B.R.
704, 710 (D. Del. Sept. 9, 2015). Where, as here, there are several adversary proceedings

14

involving overlapping facts and issues, the assistance of the Bankruptcy Court will be even more
critical to handling dispositive motions, discovery issues, and other pretrial matters in a
consistent and efficient manner.
The Court concludes that consideration of all of the appropriate factors favors denying
Defendants' Motions to Withdraw at this time. Permitting the Bankruptcy Court to oversee
pretrial matters in this proceeding, and withdrawing it only when it is ripe for a jury trial,
promotes judicial economy and a timely resolution of this case. Should the matter indeed
proceed to trial, the Court recognizes that this resolution will have drawbacks. The Bankruptcy
Court will not be able to enter a final judgment as to the non-core claims and must issue
proposed findings of fact and conclusions oflaw. See 28 U.S.C. § 157(c). As the Court has
previously observed, however, the complex :framework of bankruptcy jurisdiction and the
accompanying constitutional limitations may make such a result unavoidable. See SNMP
Research , 539 B.R. at 712.

V.

CONCLUSION

For the reasons explained above, the Court will deny the Motions to Withdraw without
prejudice. A separate Order will be entered.

September 26, 2016
Wilmington, Delaware

HON. LEONARD P. STARK
UNITED STATES DISTRICT JUDGE

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