TD Bank NA v. Stettin
Opinion and Order granting in part and denying in part Motion (COMPLAINT) to Withdraw Reference. This case is CLOSED. Signed by Judge Kenneth A. Marra on 3/8/2012. (ir)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
CASE NO. 11-62172-CIV-MARRA
ROTHSTEIN, ROSENFELDT, ADLER, P.A.,
HERBERT STETTIN, Trustee,
TD BANK, N.A.,
OPINION AND ORDER ON MOTION TO WITHDRAW REFERENCE
THIS CAUSE is before the Court upon Defendant’s Motion for Immediate
Withdrawal of Reference of Entire Adversary Proceeding [DE 1]. Plaintiff Herbert
Stettin, the Trustee, filed a Response [DE 2-8] and Defendant TD Bank, N.A. (“TD
Bank”) filed a reply [DE 2-9]. The Court has carefully considered the filings, recent
opinions addressing the issues raised herein, and is otherwise fully advised in the
District courts have original jurisdiction over bankruptcy cases and all civil
proceedings “arising under” or “related to” cases under Title 11 of the United States
Code. 28 U.S.C. § 1334. Under 28 U.S.C. § 157(a), a district court may refer actions
within its bankruptcy jurisdiction to bankruptcy judges of the district. The Southern
District of Florida has a standing order that provides for automatic reference. See
Local Rule S.D. Fla. 87.2. Section 157(d) of the Judicial Code specifies that a District
Court “may withdraw, in whole or in part, any [case referred to the bankruptcy
court] on its own motion or on timely motion of any party, for cause shown.” 28
U.S.C. § 157(d).
Under 28 U.S.C. § 157(b)(1), bankruptcy judges may hear and enter final
judgments in “all core proceedings arising under Title 11, or arising in a case under
Title 11,” subject to deferential review by a district court. Where a bankruptcy court
acts in a non-core proceeding, a final order may be issued only in one of two ways:
by the district court after de novo review of the bankruptcy court's proposed factual
findings and legal conclusions, § 157(c)(1); or by the bankruptcy court in matters over
which it has jurisdiction with the consent of the parties, § 157(c)(2). Adelphia
Recovery Trust v. FLP Group, Inc., No. 11-6847, 2012 WL 264180, *2 (S.D.N.Y. Jan. 30,
2012) quoting Cent. Vermont Pub. Serv. Corp. v. Herber, 341 F.3d 186, 190 (2d Cir.
2003); Stern v. Marshall, 131 S.Ct. 2594, 2606, 2607 (2011). Congress provided a
non-exclusive enumeration of “core matters” under 28 U.S.C. § 157(b)(2); a
fraudulent transfer claim was designated a “core” proceeding under 28 U.S.C. §
157(b)(2)(H). While 28 U.S.C. § 157(c)(1) allows a bankruptcy judge to render
findings and conclusions in “a proceeding that is not a core proceeding but that is
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otherwise related to a case under title 11,” no other code provision explicitly
authorizes bankruptcy judges to do the same in core proceedings.
The underlying bankruptcy case of Rothstein Rosenfeldt Adler, P.A. (the
“Debtor” or “RRA”) and this adversary proceeding arise from the elaborate fraudulent
investment scheme perpetrated by RRA’s CEO and founder, Scott R. Rothstein
(“Rothstein”), and certain co-conspirators. Rothstein’s ponzi scheme is alleged to
have begun in 2005, and involved the sale of fictitious structured settlements with
what turned out to be non-existent clients of RRA. Complaint ¶¶ 10, 12. The Plaintiff
in this proceeding is Herbert Stettin, as chapter 11 Trustee (“Trustee”) for the
bankruptcy estate of RRA.
On November 10, 2009, a group of petitioning creditors commenced this
liquidating bankruptcy case (the “RRA Chapter 11 Case”) by filing an involuntary
petition for reorganization under Chapter 11 of Title 11 of the United States Code, as
amended (the “Bankruptcy Code”), against the Debtor in the United States
Bankruptcy Court for the Southern District of Florida (the “Bankruptcy Court”). On
November 25, 2009, the Debtor consented to the entry of an Order for Relief under
Chapter 11 of the Bankruptcy Code. On July 25, 2011, the Trustee filed a Complaint
to Avoid and Recover Preferential and Fraudulent Transfers and for Damages [DE 2-3]
against TD Bank.
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TD Bank moves to withdraw the reference of the instant bankruptcy-based
causes of action (Adv. No. 11-02368-RBR) pending before the Bankruptcy Court based
upon the authority of the Supreme Court’s opinion in Stern v. Marshall, 131 S.Ct.
2594 (2011) (“Stern”). TD Bank argues that Stern invalidates 28 U.S.C. § 157(b)(2)(H)
as a basis for bankruptcy courts to determine fraudulent transfer cases where, as
here, they have not filed a proof of claim against the bankruptcy estate.1
Regarding the application of Stern, TD Bank asserts that the Bankruptcy Court
does not have the constitutional and statutory authority to either enter final
judgment or render a report and recommendation on the core fraudulent conveyance
claims where, as here, no proof of claim has been filed. TD Bank also seeks
withdrawal of the reference based on its demand for a jury trial, which it does not
consent to the bankruptcy court conducting. In response, Plaintiff argues that
withdrawal of the reference is not required and permissive withdrawal is not
appropriate. In this Order, the Court incorporates and adopts parts of the following
decisions which address this issue extensively: Adelphia Recovery Trust v. FLP Group,
Inc., No. 11-6847, 2012 WL 264180, *2 (S.D.N.Y. Jan. 30, 2012) and In re American
Housing Foundtion, No. 09-20232, 2012 WL 443967 (Bankr. N.D. Tex. Feb. 10, 2012).
The Court notes that some district courts, including the Middle District of
Florida and the Southern District of New York, have recently amended their standing
order of reference to bankruptcy judges, giving them explicit authority to issue
proposed findings and conclusions in connection with core matters that are found to
fall within the Stern holding.
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In Stern, the Supreme Court held that Congress's delineation of core matters in
§157(b)(2) overstepped constitutional boundaries in at least one respect, and thus
established “that identifying a claim as ‘core’ or ‘non-core’ under the bankruptcy law
does not necessarily determine whether a bankruptcy court is constitutionally
empowered to finally adjudicate the matter.” Dev. Specialists, Inc. v. Akin Gump
Strauss Hauer & Feld LLP, (In re Coudert Brothers LLP), No. 11–5994, 2011 WL
5244463, at *4 (S.D.N.Y. Nov. 2, 2011) (“Coudert”). The Supreme Court stated that
the Bankruptcy Court's power to enter final judgments on matters is not co-extensive
with what the statute considers “core;” some matters considered core cannot be
finally adjudicated in the Bankruptcy Court where they involve only private rights2
(such as fraudulent transfer claims) that will not necessarily be determined in ruling
on a proof of claim filed against the estate, unless all the parties consent. Id.
TD Bank argues that withdrawal of the reference is mandatory because the
Bankruptcy Court lacks express statutory authority to submit proposed findings of fact
and conclusions of law on fraudulent conveyance claims post- Stern. The Bankruptcy
Code specifically provides that a bankruptcy court may hear and “submit proposed
findings of fact and conclusions of law to the district court,” subject to de novo
review, in a proceeding “that is not a core proceeding.” 28 U.S.C. § 157(c)(1).
In Stern, the Supreme Court relied on and recounted its prior holding in
Granfinanciera that a bankruptcy trustee's right to recover a fraudulent conveyance
is “more accurately characterized as a private right than a public right.” Stern, 131
S.Ct. at 2614 (quoting Granfinanciera S.A. v. Nordberg, 492 U.S. 33, 55–56 (1989)).
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However, since fraudulent conveyance matters, such as those at issue here, are
expressly “core” matters under 28 U.S.C. § 157(b)(2)(H), there is no explicit
comparable authority to follow a similar procedure. TD Bank argues that even if one
would speculate that Congress would have allowed bankruptcy courts to render
proposed findings of fact and conclusions of law in core proceedings had they
foreseen Stern, a federal court is not free to rewrite a statutory scheme in
anticipation of what Congress might have wanted. Willy v. Coastal Corp., 503 U.S.
131, 135 (1992). Thus, TD Bank argues that absent explicit statutory authority
bankruptcy courts cannot follow this procedure. TD Bank cites the opinion In re
Blixseth from the Montana bankruptcy court in support of this conclusion. Bankr. No.
09–60452–7, Adv. No. 10–0088, 2011 WL 3274042, at *12 (Bankr. D. Mont. Aug. 1, 2011)
(holding it had no authority to enter proposed findings of fact and conclusions of law
on a “core” fraudulent conveyance claim because it "may not constitutionally hear
the fraudulent conveyance claim as a core proceeding, and this Court does not have
statutory authority to hear it as a non-core proceeding").
The reasoning of TD Bank and the Blixseth Court merely demonstrate that
uncertainty exists following Stern, but the majority of district and bankruptcy courts
that have addressed this argument conclude that what is certain is that the Supreme
Court did not intend to deprive the bankruptcy courts of any role in dealing with
fraudulent conveyance actions. In re El-Atari, 11-1090, 2011 WL 5828013, *4-5 (E.D.
Va. Nov. 18, 2011). See In re Canopy Fin., Inc., No 11-5360, 2011 WL 3911082, at *2,
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4 (N.D. Ill. Sept. 1, 2011) ( finding that even if entering a final judgment might be
unconstitutional, “the statute would still allow bankruptcy courts to ‘hear’ all those
claims, even if they remain core proceedings.... Given that bankruptcy courts may
propose findings of fact and conclusions of law in non-core proceedings, it is
reasonable that they could employ the same procedure in core proceedings”); Boyd v.
King Par, LLC, No. 11–1106, 2011 WL 5509873, at *2 (W.D. Mich. Nov. 10, 2011)
(“[E]ven if there is uncertainty regarding the bankruptcy court's ability to enter a
final judgment ... that does not deprive the bankruptcy court of the power to
entertain all pre-trial proceedings, including summary judgment motions”); Field v.
Lindell et al. (In re Mortgage Store, Inc.), No. 11–00439, 2011 WL 5056990, at *5–7 (D.
Haw. Oct. 05, 2011) (“Mortgage Store”) (rejecting Blixseth and noting that the “court
has little difficulty in finding that Congress, if faced with the prospect that
bankruptcy courts could not enter final judgments on certain ‘core’ proceedings,
would have intended them to fall within 28 U.S.C. § 157(c)(1) granting bankruptcy
courts authority to enter findings and recommendations”); In re Teleservices Group,
No. 05–00690, 2011 WL 3610050, at *19 (Bankr. W.D. Mich. Aug. 17, 2011) (after
exhaustively analyzing the line of cases culminating in Stern, concludes that after
Stern, the bankruptcy court may hear but not decide fraudulent conveyance actions);
In re Heller Ehrman LLP, No. 08-32514, 2011 WL 4542512, *6 (Bkrtcy. N.D. Cal. Sept.
28, 2011) (“Heller”) (Title 28 does not prohibit bankruptcy courts from issuing
proposed findings of fact and conclusions of law in core proceedings; the absence of
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an explicit provision is not a prohibition. Sections 157(a)(1) and (b)(1) of the Judicial
Code contain general grants of broad authority to both district and bankruptcy
courts. “[I]f the fraudulent transfer claims are ultimately determined to fall outside
the scope of my authority they would still be related to the bankruptcy case. I could
enter proposed findings and . . . determine dispositive motions that do not require
factual findings”); In re Emerald Casino, Inc., No. 02-22977, 2011 WL 3799643 at *1
and n.1 (Bankr. N.D. Ill. Aug. 26, 2011) (disagreeing with Blixseth and noting that if a
matter is no longer covered by the statutory definition of core, they can still be
non-core and fall fully within the definition of “related to” proceedings); Kelley v.
JPMorgan Chase & Co., No. 11-193, 2011 WL 4403289 at *6 (Bankr. D. Minn. Sept. 21,
2011) (agreeing that even if the bankruptcy judge could not issue a final judgment
“he has the unquestioned authority to conduct pretrial proceedings and submit
proposed findings of fact and conclusions of law to the district court”); In re Refco
Inc., 461 B.R. 181, 2011 WL 5974532, at *10 ("it would be absurd to conclude that the
bankruptcy courts are deprived of jurisdiction over matters designated by Congress as
core when, for Article III reasons, Congress gave jurisdiction to bankruptcy courts to
issue proposed findings of fact and conclusions of law in non-core matters").
Allowing a bankruptcy judge to issue findings of facts and conclusions of law in
core matters is described favorably in Stern:
[T]he current bankruptcy system ... requires the district court to review
de novo and enter final judgment on any matters that are “related to”
the bankruptcy proceedings, and permits the district court to withdraw
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from the bankruptcy court any referred case, proceeding or part
thereof. [Respondent] has not argued that the bankruptcy courts are
barred from hearing all counterclaims or proposing findings of fact and
conclusions of law on these matters, but rather that it must be the
district court that finally decides them. We do not think the removal of
counterclaims such as [Petitioner's] from core bankruptcy jurisdiction
meaningfully changes the division of labor in the current statute....
Heller, 2011 WL 6179149, at *6, quoting Stern, 131 S.Ct. at 2620. Removing
fraudulent transfer actions from bankruptcy court jurisdiction would meaningfully
change the division of labor between bankruptcy and district courts. Id.; Coudert,
2011 WL 5593147, at *13 ("[t]his Court recently found that reviewing de novo
determinations of the Bankruptcy Court in ‘core' matters that nevertheless involve
private rights best effectuates the Congressional intent behind the 1984 Act, as well
as the Supreme Court's admonishment in Stern that the division of labor between the
District Court and the Bankruptcy Court should be disturbed as little as possible")
(citing Retired Partners of Coudert Brothers Trust v. Baker & McKenzie LLP, 2011 WL
5593147, at *12–15 (S.D.N.Y. Sept. 22, 2011)); accord In re Extended Stay, Inc., No.
09-13764, 2011 WL 5532258, at *7 (S.D.N.Y. Nov. 10, 2011) (“In the event that the
bankruptcy court does not have constitutional authority to enter a final judgment on
certain claims, it may submit proposed findings of fact and conclusions of law to this
Court. Withdrawing the reference simply due to the uncertainty caused by Stern is a
drastic remedy that would hamper judicial efficiency on the basis of a narrow defect
in the current statutory regime identified by Stern”); Adelphia Recovery Trust v. FLP
Group, Inc., No. 11-6847, 2012 WL 264180, *6 (S.D.N.Y. Jan. 30, 2012).
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At this time, the Court, in its discretion, finds that neither judicial economy
nor substantial prejudice to TD Bank require the immediate withdrawal of the
reference. Withdrawal 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 Maui Indus. Loan
Finance Co., 11–00552, 2011 WL 6934571, 9-11 (D. Haw. Dec. 29, 2011); Mortgage
Store, 2011 WL 5056990, at *7; Birdsell v. Schneider, No. 11–0484, 2011 WL 1540145,
at *2 (D.Ariz. Apr. 22, 2011) (“[E]ven where withdrawal of the reference may
ultimately be necessary, we may choose not to withdraw immediately so as to take
advantage of the bankruptcy court's familiar[ity] with the facts and expertise in the
This case is in its early stages. Leaving adjudication of this case with the
Bankruptcy Court means that the discovery issues, settlement conferences, and
motion practice will be supervised in this adversary proceeding most efficiently by
the same court that is currently supervising the other adversary proceedings filed in
connection with the bankruptcy estate. Given these considerations, TD Bank has not
established cause for immediate withdrawal of the reference.
TD Bank is entitled to a trial by jury for all issues so triable. TD Bank’s right to
a jury trial is deemed preserved. TD Bank does not consent to the Bankruptcy Court
conducting a jury trial in this proceeding. As a result the Bankruptcy Court may not
try any issues as to TD Bank that are triable by a jury. The reference as to this
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adversary proceeding shall be withdrawn as to TD Bank if and when this matter is
ready for trial. The reference of this adversary proceeding shall remain with the
Bankruptcy Court as to all pretrial matters, including dispositive motions such as
motions for summary judgment. In re Dreis, No. 94-4281, 1995 WL 41416, at * 3 (N.D.
Ill. Jan. 31, 1995) (“a court may wait until the case is ready to go to trial before
withdrawing the reference” because “[a]llowing the bankruptcy court to resolve
pretrial issues and enter findings of fact and recommendations of law on dispositive
issues is consistent with Congress’ intent to let expert bankruptcy judges determine
bankruptcy matters to the greatest extent possible”) (internal citations omitted); see
also Stein v. Miller, 158 B.R. 876, 880 (S.D. Fla. 1993) (the defendants were not
entitled to have dispositive motions decided by the district court, despite the
withdrawal of the reference for the purpose of jury trial).
To the extent the Bankruptcy Court may not, as a matter of law, dispose of
any pretrial matter, the Court refers that matter to the Bankruptcy Court for a
Report and Recommendation.
Accordingly, it is hereby ORDERED AND ADJUDGED as follows:
Defendant’s Motion for Immediate Withdrawal of Reference of Entire
Adversary Proceeding [DE 1] is GRANTED IN PART AND DENIED IN PART.
The Bankruptcy Court reference is WITHDRAWN IN PART for the purpose
of a jury trial. The Bankruptcy Court REFERENCE IS AFFIRMED
consistent with this Order.
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The Clerk shall CLOSE this case. When any matter is appropriate for
review by the Court or the case is ready for trial, any party may open a
new case in the district court and attach a copy of this Order so that
this case will be assigned to the undersigned.
All pending motions are DENIED AS MOOT.
DONE AND ORDERED in Chambers at West Palm Beach, Palm Beach County,
Florida, this 8th day of March, 2012.
KENNETH A. MARRA
United States District Judge
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