Fidelity and Deposit Company of Maryland v. Kapila

Filing 7

ORDER: Defendant Fidelity and Deposit Company of Maryland's Motion to Withdraw Reference of the Adversary Complaint (Doc. # 1 ) is denied without prejudice. Fidelity may re-file a motion to withdraw reference at the time of trial. The Clerk is directed to close the case. Signed by Judge Virginia M. Hernandez Covington on 5/17/2017. (DMD)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION
IN RE:
UNIVERSAL HEALTH CARE GROUP,
INC.,

Chapter 11
Case No. 8:13-bk-1520-KRM
Jointly Administered with
Case No. 8:13-bk-5952-KRM

AMERICAN MANAGED CARE, LLC,

Debtors.
______________________________/
SONEET KAPILA, as Liquidating
Agent for the Estates of
UNIVERSAL HEALTH CARE GROUP,
INC., and AMERICAN MANAGED
CARE, LLC,
Plaintiff,
v.

Adv. Pro. 8:17-ap-217-KRM

FIDELITY & DEPOSIT COMPANY
OF MARYLAND,
Defendant.
______________________________/
ORDER
This matter comes before the Court pursuant to Defendant
Fidelity and Deposit Company of Maryland’s Motion to Withdraw
Reference of the Adversary Complaint, filed on April 24, 2017.
(Doc. # 1). Upon consideration, the Court determines that the
Motion should be denied without prejudice.
I.

Background
This is an adversary proceeding currently pending in the

United States Bankruptcy Court for the Middle District of
1

Florida.

See

Kapila

v.

Fidelity

and

Deposit

Company

of

Maryland, Case No. 8:17-ap-217-KRM. Prior to the adversary
proceeding,

debtor

Universal

Health

Care

Group

filed

a

voluntary petition for relief under Chapter 11 of the United
States Bankruptcy Code on February 6, 2013. (Doc. # 1 at 2).
Plaintiff Soneet R. Kapila was appointed as the Chapter 11
Trustee

for

Universal

Health

Care

Group,

then

became

Liquidating Agent for its estate. (Id.). “On May 3, 2013, in
his capacity as Chapter 11 Trustee for [Universal Health Care
Group], Kapila filed a Chapter 11 Liquidating Plan for [debtor
American Managed Care, LLC].” (Id.). Based on the Liquidating
Plan, “Kapila alleges he became the Liquidating agent for”
American Managed Care. (Id.). Then, on May 30, 2013, the
Bankruptcy Court ordered the joint administration of the
Universal

Health

Care

Group

and

American

Managed

Care

bankruptcy cases. (Id.).
On

March

14,

2017,

Kapila

initiated

this

adversary

proceeding in the Bankruptcy Court against Fidelity. (Doc. #
1-2 at 2-3). The Complaint alleges Fidelity wrongfully denied
Kapila’s claim for coverage under financial institution bonds
Fidelity issued to Universal Health Care Group and American
Managed

Care,

and

seeks

declaratory

relief

regarding

coverage, damages for breach of contract, and attorney’s fees.
2

fees. (Doc. # 1 at 3-5). On April 24, 2017, Fidelity filed
the instant motion for withdrawal of reference, which has
been fully briefed. (Doc. ## 1, 2, 3). On May 11, 2017, the
Bankruptcy Court entered an order agreed upon by the parties,
holding that all four counts of the adversary complaint are
non-core. (Doc. # 6-1).
II.

Jurisdiction
The United States Code grants bankruptcy jurisdiction to

Article III district courts. Specifically, 28 U.S.C. § 1334(b)
1334(b) states that “the district courts shall have original
but

not

exclusive

jurisdiction

of

all

civil

proceedings

arising under title 11, or arising in or related to cases
under title 11.” Congress provided in 28 U.S.C. § 157(a) that
each district court may refer all cases “arising under,”
“arising in,” or “related to” Title 11 proceedings to the
bankruptcy judges for the district. “This Court has a standing
order referring all bankruptcy matters to the bankruptcy
courts.” In re Fields, No. 8:15-cv-1521-T-24, 2015 WL 5316944,
5316944, at *1 (M.D. Fla. Sept. 11, 2015). A finding that a
matter is “related to” a bankruptcy case confers subject
matter jurisdiction to the bankruptcy court and empowers it
to hear the non-core matter. In re Happy Hocker Pawn Shop,
Inc., 212 Fed. App’x 811, 817 (11th Cir. 2006).
3

However, under § 157(c), the bankruptcy court’s power to
determine a non-core matter is limited, as compared to its
power to hear and determine core matters under § 157(b)(l).
Specifically, the bankruptcy court has the power to determine
matters properly before it under Title 11, but with respect
to “related to” or non-core matters, an Article III court
must render final judgment unless the parties consent to allow
the bankruptcy court to handle the matter. 28 U.S.C. § 157(b)
and (c).
III. Permissive Withdrawal of Reference Standard
The standard for permissive withdrawal is stated in 28
U.S.C. § 157(d): “The district court may withdraw, in whole
or in part, any case or proceeding referred under [§ 157], on
its own motion or on timely motion of any party, for cause
shown.” Congress has not given a definition or explanation of
the

“cause”

required

for

permissive

withdrawal,

but

the

Eleventh Circuit has stated that cause “is not an empty
requirement.” In re Parklane/Atlanta Joint Venture, 927 F.2d
532, 536 (11th Cir. 1991).
In

determining

whether

the

movant

has

established

sufficient cause to withdraw the reference, “a district court
should

consider

bankruptcy

such

goals

administration,

as

advancing

decreasing
4

forum

uniformity

in

shopping

and

confusion,

promoting

the

economical

use

of

the

parties’

resources, and facilitating the bankruptcy process.” In re
Advanced Telecomm. Network, Inc., No. 6:13-cv-700-Orl-28,
2014 WL 2528844, at *1 (M.D. Fla. June 4, 2014)(quoting In re
Simmons, 200 F.3d 738, 742 (11th Cir. 2000)). Additional
factors to consider include: (1) whether the claim is core or
non-core; (2) efficient use of judicial resources; (3) a jury
demand; and (4) prevention of delay. Control Ctr., L.L.C. v.
Lauer, 288 B.R. 269, 274 (M.D. Fla. 2002)(citations omitted).
“The moving party bears the burden of demonstrating cause for
withdrawal

of

the

reference.”

In

re

Advanced

Telecomm.

Network, Inc., 2014 WL 2528844, at *1.
The

Eleventh

Circuit

has

noted

that

“the

cause

prerequisite should not be used to prevent the district court
from properly withdrawing reference either to ensure that the
judicial power of the United States is exercised by an Article
III court or in order to fulfill its supervisory function
over the bankruptcy courts.” In re Parklane/Atlanta Joint
Venture, 927 F.2d at 538. The determination of whether to
grant a motion for permissive withdrawal is within the court’s
discretion. See In re Fundamental Long Term Care, Inc., 8:14cv-1800-EAK, 2014 WL 4452711, at *1 (M.D. Fla. Sept. 9,

5

2014)(citing In re TPI lnt’l Airways, 222 B.R. 663, 668 (S.D.
Ga. 1998)).
IV.

Motion to Withdraw Reference
Fidelity

argues

the

reference

should

be

withdrawn

immediately because the adversary proceeding is non-core,
Fidelity has a right to a jury trial, and withdrawal would
conserve judicial resources. (Doc. # 1 at 6-7, 10). Indeed,
the Bankruptcy Court recently ruled that the complaint’s
claims are non-core. (Doc. # 6-1). Fidelity intends to demand
a jury trial, and “does not consent to the Bankruptcy Court’s
entry of any final orders or judgments in these proceedings.”
(Doc. # 1 at 3).
While

these

factors

weigh

in

favor

of

withdrawing

reference, they do not require immediate withdrawal. Cf.
GulfMark Offshore, Inc. v. Bender Shipbuilding & Repair Co.,
No. CIV. A. 09-0249-WS-N, 2009 WL 3756708, at *3 (S.D. Ala.
Nov. 9, 2009)(“Federal courts have universally held that ‘a
Seventh

Amendment

jury

trial

right

does

not

mean

the

bankruptcy court must instantly give up jurisdiction and that
the case must be transferred to the district court.’” (quoting
In re Healthcentral.com, 504 F.3d 775, 787 (9th Cir. 2007)));
In re Fields, 2015 WL 5316944, at *3 (denying motion to
immediately withdraw reference of non-core proceeding and
6

concluding that

“allowing these adversary proceedings to

continue in the bankruptcy court for all pretrial matters
promotes the efficient use of judicial resources and will not
result in delay”).
The

Court

finds

that

foregoing

withdrawal

of

the

reference until the time of trial would result in the most
efficient use of judicial resources. While the adversary
proceeding

was

filed

two

months

ago,

Kapila

notes

the

“Bankruptcy Court has been presiding over the Debtors’ complex
Chapter 11 bankruptcies for approximately four years” during
which time “the Bankruptcy Court has become familiar with the
Debtors’ businesses and the circumstances leading up to the
Debtors’ bankruptcy filings.” (Doc. # 2 at 5). The Court
agrees with Kapila that the adversary proceeding will benefit
from

the

Bankruptcy

Court’s

deep

familiarity

with

the

financial situations of both Universal Health Care Group and
American Managed Care. The bond transactions at issue in the
adversary proceeding are part of the larger financial history
of the debtors, over which the Bankruptcy Court has greater
knowledge and firsthand experience.
In contrast, Fidelity argues immediate withdrawal of the
reference would increase judicial economy. Fidelity notes the
Bankruptcy Court’s rulings would be subject to this Court’s
7

de novo review because the adversary proceeding is a non-core
matter. (Doc. # 1 at 7). But this “reasoning would result in
the reference always being withdrawn from the Bankruptcy Court
Court in the name of efficiency because of the omnipresent
possibility of appeal.” In re Tate, No. 09-0039-WS-M, 2010 WL
320488, at *10 (S.D. Ala. Jan. 19, 2010)(emphasis original);
see also In re H & W Motor Express Co., 343 B.R. 208, 215
(N.D. Iowa 2006)(“[A] party’s mere threat to file objections
to

any

future

report

and

recommendation

issued

by

the

bankruptcy judge in a non-core proceeding is not ‘cause’ for
withdrawal of the reference under Section 157(d).” (citation
omitted)). Rather, “[w]ithdrawal of the reference at this
stage would result in this Court losing the benefit of the
bankruptcy court’s experience in both the law and facts, and
leading to an inefficient allocation of judicial resources.”
In re Rothstein, Rosenfeldt, Adler, P.A., No. 11-62612-CIV,
2012 WL 882497, at *4 (S.D. Fla. Mar. 14, 2012).
Furthermore,

the Bankruptcy Court can make proposed

findings of fact and conclusions of law on any claim for which
it cannot constitutionally issue a final decision pursuant to
Stern v. Marshall, 564 U.S. 462 (2011), just as the Bankruptcy
Court may for non-core claims under 28 U.S.C. § 157(c)(1).
Exec. Benefits Ins. Agency v. Arkison, 134 S. Ct. 2165, 21728

73

(2014).

Therefore,

since

the

Court

may

treat

such

Bankruptcy Court orders as proposed findings of fact and
conclusions of law, the concern that the Bankruptcy Court may
exceed its statutory or constitutional authority unless the
reference is immediately withdrawn is minimal.
Many courts have declined to withdraw reference for
pretrial

matters,

even

if

they

decide

reference

should

eventually be withdrawn if the case proceeds to trial. See,
e.g., In re Fields, 2015 WL 5316944, at *3 (“[A]llowing these
adversary proceedings to continue in the bankruptcy court for
all pretrial matters promotes the efficient use of judicial
resources and will not result in delay.”); In re Fundamental
Long Term Care, Inc., 2014 WL 4452711, at *3 (denying a motion
to withdraw the reference without prejudice so that defendant
could refile at the time of trial); In re Gunnallen Fin.,
Inc., No. 8:10-cv-2855-T-24, 2011 WL 398054, at *4 (M.D. Fla.
Feb. 3, 2011)(“This Court finds that USSIC has established
cause for withdrawing the reference so that this Court can
conduct the jury trial in this case. However, since the
adversary proceeding is still in its initial stage, withdrawal
at this time is unnecessary.”).
“Retention of jurisdiction by the Bankruptcy Court for
pretrial

matters

does

not

curtail
9

any

party’s

Seventh

Amendment right, but it does ‘promote[ ] judicial economy and
efficiency by making use of the bankruptcy court’s unique
knowledge of Title 11 and familiarity with the actions before
them.’” GulfMark Offshore, Inc., 2009 WL 3756708, at *3
(quoting In re Healthcentral.com, 504 F.3d at 787-88). Thus,
the

Bankruptcy

Court

will

handle

all

pretrial

matters,

including dispositive motions, and Fidelity may re-file a
motion to withdraw reference if the case proceeds to trial.
See In re Gunnallen Fin., Inc., 2011 WL 398054, at *4 (“[E]ven
if withdrawal is appropriate, a district court can allow the
bankruptcy
pretrial

court

to

matters,

retain
from

jurisdiction

discovery

to

through

address

all

dispositive

motions.”). Fidelity’s Motion is denied without prejudice so
that it may file a renewed motion to withdraw the reference
at the time of trial.
Accordingly, it is now
ORDERED, ADJUDGED, and DECREED:
(1)

Defendant Fidelity and Deposit Company of Maryland’s
Motion to Withdraw Reference of the Adversary Complaint
(Doc. # 1) is DENIED WITHOUT PREJUDICE. Fidelity may refile a motion to withdraw reference at the time of trial.

(2)

The Clerk is directed to CLOSE THE CASE.

10

DONE and ORDERED in Chambers in Tampa, Florida, this
17th day of May, 2017.

11