Piccone et al v. North Country Capital, LLC

Filing 19

MEMORANDUM ORDER DENYING 1 MOTION to Withdraw Reference filed by David Evans, James Marshall Piccone, GRANTING 8 MOTION Motion to Determine Non-Core Proceeding filed by David Evans, James Marshall Piccone, (CASE CLOSED). Signed by Judge Colm F. Connolly on 9/20/2022. (nmf)

Case 1:21-cv-01131-CFC Document 19 Filed 09/20/22 Page 1 of 14 PageID #: 216

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
In re Elk Petroleum, Inc., et al.,

Chapter 11
Case No. 19-11157 (LSS)
(Jointly Administered)

Debtors.

North Carolina Capital, LLC, in its capacity
as Trustee of and for the Aneth Trust and the :
EPI Liquidating Trust,
Adv. No. 21-50474 (LSS)
Plaintiff,
V.

Civ. No. 21-1131 (CFC)
Bradley William Longo, et al.,
Defendants.
MEMORANDUM ORDER
At Wilmington this Twentieth day of September 2022:
Before the Court is the motion filed by two defendants, James Marshall
Piccone and David Evans ("Defendants") to withdraw pursuant to 28 U.S.C § 157(d)
the reference of the above-captioned adversary proceeding (D.I. 1, 14) ("Motion to
Withdraw"). Defendant Bradley William Lingo has joined the motion. (D.I. 3, 11).
Also before the Court is Defendants' unopposed motion to determine non-core
proceedings (D .I. 8, 13) ("Motion for Determination"), which Lingo has also joined
(D.1. 12). The Court has considered the responses (D.1. 9, 10) filed by North Carolina
Capital, LLC ("Plaintiff'), in its capacity as Trustee of and for the Aneth Trust and
the EPI Liquidating Trust (each as defined below). For the reasons set forth below,

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Defendants' unopposed Motion for Determination is granted, and Defendants'
Motion to Withdraw is denied.
1.

Background. On May 22, 2019 ( "Petition Date"), Debtors Elk

Petroleum, Inc. ("EPI"), Elk Petroleum Aneth, LLC ("EPA") and Resolute Aneth,
LLC filed voluntary petitions for bankruptcy relief in the Bankruptcy Court.
2.

Pursuant to EPA's plan of reorganization (B.D.I. 594) 1 ("EPA Plan")

confirmed by the Bankruptcy Court on October 8, 2019 (B.D.I. 619) ("EPA
Confirmation Order"), the Aneth Trust Assets, which include the claims pursued in
this adversary proceeding, were transferred to the Aneth Trust. The Bankruptcy
Court retained jurisdiction over the claims pursued in the adversary proceeding.
(EPA Confirmation Order§ 12.l(b) (retaining jurisdiction "to determine any motion,
adversary proceeding, contested matter, and other litigated matter pending on or
commenced after the entry of the Confirmation Order, including any Cause of Action
which may be asserted by the Aneth Trustee"). The Bankruptcy Court further
retained jurisdiction "over all matters ... that relate to the matters set forth in the
Plan" (EPA Confirmation Order ,r 164), "to determine whether or not any claim or
right has been affected by the Plan or this Confirmation Order" (id.

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,r 165), and "to

The docket of the Chapter 11 cases, captioned In re Elk Petroleum, Inc., et al., No.
19-11157 {LSS) (Bankr. D. Del.), is cited herein as "B.D.I. _." The docket of the
adversary proceeding, captioned North Country Capital, LLC v. Bradley William
Lingo, et al., Adv. No. 21-50474 {LSS) (Bankr. D. Del.), is cited herein as "Adv. D.I.

"
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take any action and issue such orders ... as may be necessary to construe, enforce,
implement, execute, and consummate this Plan, including any release, exculpation, or
injunction provisions set forth in this Plan" (EPA Confirmation Order§ 12.1(1)).
3.

Likewise, pursuant to EPI' s plan of reorganization (B .D .I. 926-1) ("EPI

Plan") confirmed by the Bankruptcy Court on July 24, 2020 (B.D.I. 928) ("BPI
Confirmation Order"), the EPI Liquidating Trust Assets, which include the claims
pursued in the adversary proceeding, were transferred to the EPI Liquidating Trust.
(EPI Plan§ 6.4). The Bankruptcy Court similarly retained jurisdiction over the
claims pursued in the adversary proceeding, as well as "to hear and determine
disputes arising in connection with the interpretation, implementation, or enforcement
of this EPI Plan," "to reconcile any inconsistency in any order of the Bankruptcy
Court, including, without limitation, the EPI Confirmation Order," and "to hear and
determine all disputes involving the existence, nature, or scope of the exculpation or
releases provided for in this BPI Plan." (EPI Plan § 11.1 (g), (k), (o ); see also EPI
Confirmation Order at ,r 67).
4.

On May 19, 2021, Plaintiff, as Trustee of and for the Aneth Trust and the

EPI Liquidating Trust, filed a complaint (Adv. D.I. 1) ("Complaint") initiating the
adversary proceeding against Defendants, who are former directors and officers of
EPI and BPA, asserting claims for breaches of fiduciary duties, aiding and abetting
breaches of fiduciary duties, and corporate waste, and asserting damages in excess of
$30,000,000.00.
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5.

Defendant Piccone has filed certain proofs of claim ("POCs") against the

Debtors in the Chapter 11 cases. (See D.I. 9 at Ex. A-C). On August 10, 2021,
Piccone filed his answer to the Complaint (Adv. D.I. 37). He did not demand in the
answer a jury trial.
6.

The docket of the adversary proceeding reflects that the discovery

process is underway. (See Adv. D.I. 87-89, 93, 95-97). On July 18, 2022, the
Bankruptcy Court entered an Amended Scheduling Order (Adv. D.I. 118), which
provides that fact discovery will conclude by January 13, 2023; expert reports will be
completed by April 24, 2023; expert depositions will conclude by May 12, 2023;
briefing on case dispositive motions will be completed by July 28, 2023; and no trial
date has been set.
7.

Motions to dismiss are pending. Defendant Evans filed a Motion to

Dismiss the Complaint, arguing that certain releases contained in the EPI Plan and
EPI Confirmation Order released the claims asserted against him in the Complaint
(Adv. D.I. 35) ("Evans Motion to Dismiss"). Defendant Lingo has also filed a
motion to dismiss (Adv. D.I. 50, 52). Oral argument has not yet been scheduled, and
the Bankruptcy Court has not ruled on either motion to dismiss. Additionally, the
Trustee and Defendant Alexander Hunter have stipulated to extend the deadline for
Defendant Hunter to file a motion to dismiss the adversary proceeding ("Hunter
Filing Deadline") through March 17, 2022, and that the parties were free to "further

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extend the [Hunter] Filing Deadline without Court approval." (Adv. D.I. 103-1 at ,I
7).
8.

Jurisdiction. 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 or arising in or related
to a case under title 11" to the United States Bankruptcy Court for the District of
Delaware. See Am. Standing Order of Reference, Feb. 29, 2012 (C.J. Sleet); In re

Visteon Corp., 2011 WL 1791302, *3 (D. Del. May 9, 2011).
9.

Discussion. The reference to the Bankruptcy Court may be withdrawn

by this Court in accordance with the mandatory and permissive withdrawal
provisions of28 U.S.C. § 157(d). 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
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policy." Hatzel & Buehler, Inc. v. Cent. Hudson Gas & Elec. Corp., 106 B.R. 367,
371 (D. Del. 1989) (internal quotations omitted). To overcome that presumption, the
moving party has the burden to prove that cause exists to withdraw the reference. See
NDEP Corp. v. Handl-It, Inc. (In re NDEP Corp.), 203 B.R. 905, 907 (D. Del. 1996).
10.

The well-recognized factors for this Court to consider in evaluating

whether cause for permissive withdrawal is established, as determined by the Third
Circuit in In re Pruitt, 910 F.2d 1160, 1168 (3d Cir. 1990), are: (1) whether retention
of the proceeding promotes the uniformity of bankruptcy administration; (2) whether
retention of the proceeding reduces forum shopping and confusion; (3) whether
retention of the proceeding fosters the economical use of debtor/creditor resources;
(4) whether retention of the proceeding would expedite the bankruptcy process; and,
(5) whether the request for withdrawal was timely. Id.; see also In re Visteon Corp.,
2011 WL 1791302, *3 (D. Del. May 9, 2011). Although a jury demand is not a
dispositive factor, whether the claims will be tried to a jury is another factor that
weighs in favor of withdrawing non-core proceedings. Visteon, 2011 WL 1791302,
*3 (citing NDEP and Hatzel & Buehler).
11.

A threshold determination is whether the matter to be withdrawn is a

core or non-core proceeding in bankruptcy court. Visteon, 2011 WL 1791302, at *3.
Defendants' attempt to demonstrate cause to support permissive withdrawal rests
almost entirely on the non-core status of the claims pursued in the adversary
proceeding, which has been conceded by Plaintiff. (See D.I. 9-1, 11, 14). But "the
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mere fact the Complaint asserts non-core claims does not mandate withdrawal." In re
AgFeed USA, LLC, 565 B.R. 556, 564 (D. Del. 2016). "Proceedings should not be

withdrawn for the sole reason that they are non-core." Hatzel & Buehler, 106 B.R. at
371. Indeed, "[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." AgFeed, 565 B.R. at 564
(citing Schubert v. Lucent Techs., Inc. (In re Winstar Commc 'ns, Inc.), 2004 WL
2713101, at *2 (D. Del. Nov. 16, 2004)).
12.

A defendant's right to a jury trial is also considered in conjunction with

the Pruitt factors, although it is not dispositive. NDEP, 203 B.R. at 908. Plaintiff
argues that Defendant Piccone has waived his right to a jury trial by filing proofs of
claim against the estate. (D.I. 9 at 7-8). Defendant Piccone argues that he has not
waived his right to a jury trial because his proofs of claim do not implicate the claims
allowance process. (D.I. 14 at 1-2). Indeed, a creditor's right to a jury trial depends
upon whether that creditor filed a proof of claim and if the dispute in which it
requested a jury trial implicates the claims allowance process. Granfinanciera, S.A.
v. Nordberg, 492 U.S. 33, 58 (1989); In re WorldCom, Inc., 378 B.R. 745, 752

(Bankr. S.D.N.Y. 2007) (recognizing line of United States Supreme Court cases that
stand for the proposition that "by filing a proof of claim a creditor forsakes its right to
adjudicate before a jury any issue that bears directly on the allowance of that claim.").

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13.

Defendant Piccone asserts that his POCs are not inextricably intertwined

with the causes of action in the Complaint, but his briefs provide no additional detail
or substantive analysis. (See D.I. 1-2, 14). Lingo argues that "Piccone's POC relates
to his employment contracts and were filed as claims sounding in tort and equity
against the Debtor for breach of those contracts." (D.I. 11 at 4-5). "This is distinct
from the Fiduciary Duty Claims," Lingo asserts, "which concern Piccone's purported
breaches of fiduciary duties as a former director and/or officer of the Debtor. Even if
the Bankruptcy Court determines that Piccone has any amount due to him under the
employment contracts forming the basis of his assertions in the POC, the Bankruptcy
Court does not have to resolve the Fiduciary Duty Claims at that time in order to
make that determination." (Id.) Conversely, Plaintiff argues that the POCs filed by
Piccone are inextricably tied to the adversary proceeding. Plaintiffs argument is
compelling. The POCs assert amounts due to Defendant Piccone pursuant to an
employment agreement with the Debtors and certain rights to indemnification from
the Debtors. Defendant Piccone alleges that he was "compelled to resign" his
employment with the Debtors, and indemnification rights were triggered, "due to the
gross failure of proper governance by the board and [Defendant Lingo]." (See D.I. 9,
Ex. A-C). Thus, the gross failures of governance identified by Defendant Piccone
also give rise to the claims asserted by the Plaintiff in the adversary proceeding.
14.

Defendant Lingo asserts that, even if Piccone has waived his jury trial

right, Lingo has not. See D.I. 11 at 3-4. In deciding whether to withdraw a case from
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the bankruptcy court based on a jury demand, courts consider ( 1) whether the case is
likely to reach trial; (2) whether protracted discovery with court oversight will be
required; and (3) whether the bankruptcy court is familiar with the issues presented.

In re Enron Corp., 317 B.R. 232,235 (S.D.N.Y. 2004). Here, one can only speculate
when the case will proceed to trial. The adversary proceeding remains in the early
stages of discovery, and it is possible that the issues regarding release and other
issues raised in the pending motions to dismiss may eliminate any need for trial. If
not, the claims involving breach of fiduciary duty may involve significant discovery
requiring court oversight. The Bankruptcy Court is familiar with the parties and the
circumstances that led to the bankruptcy filing, and it routinely adjudicates contested
matters involving corporate and contractual issues.
15.

As Plaintiff correctly points out, even if certain Defendants may

ultimately be entitled to a jury trial, the right to a jury trial does not justify withdrawal
of the reference until the case is trial ready. See In re LTC Holdings, Inc., 2019 WL
4643801, at *6 (D. Del. Sept. 24, 2019) (collecting cases); In re Big V Holding Corp.,
2002 WL 1482392, at *5 (D. Del. July 11, 2002) ("Withdrawal of the reference based
on the ground that a party is entitled to a jury trial should be deferred until the case is
'trial ready.'"); Schneider v. Riddick (In re Formica Corp.), 305 B.R. 147, 150
(S.D.N.Y. 2004) ("While the plaintiff has a right to a jury trial, such a right does not
compel withdrawing the reference until the case is ready to proceed to trial."); In re

Enron Corp., 318 B.R. 273, 275-76 (S.D.N.Y. 2004) (finding that the bankruptcy
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court was in a "superior position to manage" the "complex pretrial proceedings" in
the case because it had familiarity with the contracts that were the subject of the
· dispute and the facts and circumstances which precipitated the debtors' bankruptcy
filing).
16.

In American Classic Voyages and Big V Holding Corp., this Court

denied withdrawal requests as premature because, among other things, the cases were
not trial ready and the proceedings could still have been resolved through dispositive
motions or settlement, eliminating the need for trial altogether. See Am. Classic

Voyages Co., 337 B.R. 509,510 (D. Del. 2006); Big V, 2002 WL 1482392, at* 1.
That is precisely the situation here, where Defendant Piccone may have waived his
jury trial right and where the remaining Defendants have pending motions to dismiss
the adversary proceeding entirely. Based on these facts, I conclude that it would still
· be "premature to withdraw the reference to the bankruptcy court based upon the
unfixed proposition that a jury trial may occur in the future." Big V, 2002 WL
1482392, at *5.
17.

Nor do the Pruitt factors establish cause for permissive withdrawal at

this time. Importantly, these factors are not weighed "on a scale of equipoise"rather, the Defendants must "overcome a scale already heavily weighted against
withdrawal." Feldman v. ABN AMERO Mortg. Grp., Inc., 2020 WL 618604, at *7
(E.D. Pa. Feb. 10, 2020).

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18.

With respect to the first factor-forum shopping-Defendants assert that

there are no concerns regarding forum shopping or confusion, as Defendants do not
seek transfer of the adversary proceeding from the District of Delaware and the
resolution of the adversary proceeding turns on the application of Delaware state
· law." Plaintiff counters that, through the intense litigation that occurred in the early
stages of the Chapter 11 cases, the Bankruptcy Court has been made aware of
"Defendants' misconduct" and that Defendants are "[s]eeking to "secur[e] a more
friendly forum," which "is not a valid reason for a district court to withdraw [the]
reference ..." Doctors Assocs., Inc. v. Desai, 2010 WL 3326726, at *7 (D.N.J. Aug.
23, 2010) (internal citation omitted). Plaintiff also points to the fact that that the
United States Trustee moved to appoint an examiner to address allegations of
"mismanagement," arguing that "an examiner would be able to provide "[the
Bankruptcy] Court and parties in interest with an objective opinion and report of the
Debtors' prepetition transactions." (B.D.I. 150). Defendants dispute any
characterization of the litigation as intense, give that it "was resolved after limited
discovery and before the director defendants even filed a response to the complaint."
(D.I. 11 at 6). Based on the limited record, this factor is neutral.
19.

With respect to the second factor-timeliness-Plaintiff concedes that

the request is not untimely, and this weighs in Defendants' favor. (D.I. 9 at 14).
20.

With respect to the third factor-uniformity-I do not agree that

withdrawal of the reference will promote uniformity of administration in the Debtors'
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bankruptcy cases. As noted already, the Bankruptcy Court is familiar with the
parties, and the fact that Defendant Evans has raised the impact of releases provided
in the BPI Plan and the BPI Confirmation Order demonstrates that the uniformity of
bankruptcy administration is best served here by denying the Motion to Withdraw, as
the Bankruptcy Court expressly retained jurisdiction to hear and decide disputes
relating to its orders in the bankruptcy proceedings.
21.

With respect to the fourth factor-expediting the bankruptcy process-

Defendants mainly argue that resolution of the adversary proceeding by the
Bankruptcy Court would require the Bankruptcy Court to expend resources on
resolving issues that do not bear on the administration of the Debtors' estates. (D.I.
1-2 at 4). Plaintiff disagrees, arguing (1) that the Bankruptcy Court already has
familiarity with the claims at issue, and it would be a waste of estate resources to
restart that process with this Court; (2) Piccone has subjected himself to the
jurisdiction of the Bankruptcy Court, so even if this Court were to withdraw the
reference now for pre-trial purposes, this Court would be required to remand the case
against Piccone for trial; and (3) the Bankruptcy Court expressly retained jurisdiction
to hear any disputes regarding the scope and interpretation of the releases provided in
the BPI Plan, which resolution of the adversary proceeding will require. I agree that
this factor weighs against withdrawal of the reference at this time. Adjudication of
t~e adversary proceeding implicates the scope and interpretation of the BPI Plan

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release provisions. The process is streamlined by leaving the adversary proceeding in
the Bankruptcy Court unless and until a jury trial is required by any Defendants.
22.

With respect to the fifth factor-economical use of resources-

Defendants argue that, because the adversary proceeding raises non-core claims and
may require a jury trial against some Defendants, judicial economy would be
promoted if the Court withdraws the reference because the Court would be required
to review the Bankruptcy Court's factual findings and legal conclusions de novo.
This review, however, does not support permissive withdrawal. As Plaintiff correctly
points out, this is precisely the shortcoming noted by the United States District Court
for the District of New Jersey in denying certain defendants' request to withdraw the
reference:
Here, the Court finds Defendants failed to satisfy their
burden in demonstrating cause to withdraw the referral. .
. . Defendants ... essentially rearticulate the same
argument for each [Pruitt] factor-that granting their
Motion to Withdraw Reference will promote judicial
economy because the Court is required to review the
Bankruptcy Court's factual findings and legal
conclusions de novo.
Defendants' argument is not persuasive. As other courts
in this district have found, duplication of judicial effort is
insufficient to demonstrate cause because "Congress
contemplated the district court will have the benefit of
the bankruptcy judge's findings of fact and conclusions
of law with respect to matters over which the bankruptcy
court could not enter final judgments."

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In re Princeton Alt. Income Fund, LP, 2018 WL 4854639, at *2 (D.N.J. Oct. 14,
2018) (internal citations omitted).
23.

Conclusion. With respect to the Motion to Withdraw, Defendants have

failed to demonstrate a "contravening policy" which rebuts the presumption created
by§ 157(d) that the adversary proceeding should be adjudicated by the Bankruptcy
Court. With respect to the unopposed Motion for Determination, the claims asserted
in Counts I-VIII of the Complaint arise from state law and are non-core proceedings.
NOW, THEREFORE, it is HEREBY ORDERED that the Motion to Withdraw
(D.I. 1) is DENIED, and the unopposed Motion for Determination (D.I. 8) is
GRANTED.
Entered this Twentieth day of September 2022.

CL?4 �

UNITED STATES DISTCT JUDGE

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