Field v. Kepoikai et al

Filing 26

ORDER DENYING WITHOUT PREJUDICE DEFENDANTS' MOTIONS TO WITHDRAW REFERENCE 1 . Excerpt of conclusion: ~ "[T]he Rowland Defendants' Motion and the Mancini Law Firm's Motion, both filed September 12, 2011, are HEREBY DENIED WITHOUT PREJUDICE. The parties are HEREBY DIRECTED to file an appropriate motion renewing their request to withdraw the reference when the bankruptcy court has sufficiently resolved the core matters, including the fraudule nt transfer claims." Signed by JUDGE LESLIE E. KOBAYASHI on 12/29/2011. (afc) CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications will be served by first class mail on December 30, 2011.

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
In Re Maui Industrial Loan &
Finance Company,

)
)
)
)
Debtor.
_____________________________ )
DANE S. FIELD,
)
)
Plaintiff,
)
)
vs.
)
)
)
THE TRUST ESTATE OF ROSE
)
KEPOIKAI, ET AL.,
)
)
Defendants.
_____________________________ )

CIVIL NO. 11-00559 LEK-KSC

ORDER DENYING WITHOUT PREJUDICE
DEFENDANTS’ MOTIONS TO WITHDRAW REFERENCE
Before the Court are two Motions to Withdraw Reference,
filed September 12, 2011: (1) Defendants Robert E. Rowland, in
his individual capacity and his capacity as Successor Trustee of
The Trust Estate of Rose Kepoikai, and Robert E. Rowland Attorney
at Law, a Law Corporation’s (collectively “Rowland Defendants”)
Motion to Withdraw Reference to Bankruptcy Court (“Rowland
Defendants’ Motion”); and (2) Defendant Mancini, Welch & Geiger
LLP’s (“Mancini Law Firm”) Motion to Withdraw the Reference of
the Trustee’s First Amended Complaint Filed June 30, 2011
(“Mancini Law Firm’s Motion”).

Trustee Dane S. Field

(“Plaintiff” or “Trustee”) filed his memoranda in opposition on
November 7, 2011.

The Rowland Defendants and the Mancini Law

Firm filed their replies on November 14, 2011.
on for hearing on November 28, 2011.

This matter came

Appearing on behalf of the

Trustee were Bradley Tamm, Esq., and Lissa Schultz, Esq.,
appearing on behalf of the Rowland Defendants were Theodore
Young, Esq., and Jeffrey Portnoy, Esq., and appearing on behalf
of the Mancini Law Firm was Calvin Young, Esq.

After careful

consideration of the motions, supporting and opposing memoranda,
and the arguments of counsel, the Rowland Defendants’ Motion and
the Mancini Law Firm’s Motion are HEREBY DENIED WITHOUT PREJUDICE
for the reasons set forth below.

The parties are HEREBY DIRECTED

to file an appropriate motion renewing their request to withdraw
the reference when the bankruptcy court has resolved the core
claims and fraudulent transfer claims.
BACKGROUND
In the Chapter 7 bankruptcy matter of debtor Maui
Industrial Loan & Finance Company, Inc. (“Maui Industrial”), the
Trustee brought an adversary proceeding (No. 10-90126) against
Defendants The Trust Estate of Rose Kepoikai (“Estate”),
Robert E. Rowland individually, and Robert E. Rowland, Attorney
at Law, a Law Corporation (“Roland ALC”), the Mancini Law Firm,
individual beneficiaries of the Estate (“Beneficiary
Defendants”), and Lloyd Kimura (collectively “Defendants”).

The

Trustee’s First Amended Complaint alleges that the bankruptcy
court has jurisdiction pursuant to 28 U.S.C. §§ 1334 and 1367,

2

and 11 U.S.C. §§ 544, 548, and 550.

He alleges that this is a

core proceeding under 28 U.S.C. § 157(b)(2)(A), (C), (E), (H),
and (O).

[First Amended Complaint at ¶¶ 9-10.1]
The First Amended Complaint further alleges that

Mr. Kimura operated Maui Industrial as a Ponzi scheme.
Mr. Kimura was appointed as the Successor Trustee of the Estate
in 1987.

The Trustee alleges that, in 1989, Mr. Kimura, as

Successor Trustee, invested $500,000 of the Estate’s assets in
Maui Industrial, and subsequently, invested additional assets.
Between 1989 and 2000, Maui Industrial paid the Estate
$3,106,907.32 on its investment.

The trust assets were

distributed to the Beneficiary Defendants, until the last life
estate income beneficiary died in 1994.

Despite the death of the

last life estate income beneficiary, Mr. Kimura did not
distribute the Estate trust assets to the Beneficiary Defendants
or terminate the trust.

Mr. Kimura resigned as Successor Trustee

in October 1999, at which point Mr. Rowland was appointed as
Successor Trustee.

Mr. Rowland, Rowland ALC, and the Mancini Law

Firm acted as legal counsel for Mr. Rowland in his capacity as
Successor Trustee until 2002, at which point Mr. Rowland and
Rowland ALC acted as legal counsel for Mr. Rowland in his
capacity as Successor Trustee and for the Estate.

1

[First

The First Amended Complaint is attached as Exhibit A to
the Memorandum in Support of the Mancini Law Firm Motion,
Declaration of Counsel.
3

Amended Complaint at ¶¶ 14-29.]
In February 2002, Mr. Rowland filed a petition for
approval of an annual account for the Estate in the Second
Circuit Court, indicating that Mr. Kimura owed various sums to
the Estate.

The Rowland Defendants and the Mancini Law Firm

secured the debt due to the Estate with assets belonging to
Mr. Kimura and his spouse, recording a $756,500 mortgage against
three parcels of property.

Mr. Kimura also drew several checks

on Maui Industrial’s bank account payable to the Estate totaling
$1,477,669.71.

[Id. at ¶¶ 35-40.]

Mr. Rowland, Rowland ALC, and

the Mancini Law firm made four distributions to the Beneficiary
Defendants with checks drawn on the Mancini Firm’s trust account
from 2000 through 2004.

In 2005, the Second Circuit Court

granted Mr. Rowland and Rowland ALC’s motion requesting
permission to deposit with the court all unclaimed funds from the
Estate.

[Id. at ¶¶ 41-49.]
The First Amended Complaint alleges the following seven

direct claims, seeking to avoid the transfers from Maui
Industrial to the Defendants: (1) fraudulent transfer (11 U.S.C.
§ 548); (2) transferee liability (11 U.S.C. § 550); (3) state law
fraudulent transfer (Haw. Rev. Stat. § 651C-4 (“HUFTA”)); (4)
strong arm powers (11 U.S.C. § 544); (5) unjust enrichment/
constructive trust; (6) aiding and abetting/participation in
breach of fiduciary duty; and (7) Uniform Fiduciaries Act (Haw.

4

Rev. Stat. § 556-4).

[Id. at ¶¶ 50-82.]

The Trustee also

alleges the following four causes of action, obtained by way of
assignment (“assigned claims”): (1) negligent misrepresentation;
(2) breach of fiduciary duty; (3) attorney malpractice; and (4)
aiding and abetting/participation in breach of fiduciary duty.
[Id. at ¶¶ 83-106.]

Both the Rowland Defendants and the Mancini

Law Firm demanded a jury trial in response to the First Amended
Complaint.
I.

Rowland Defendants’ Motion
The Rowland Defendants state that they have demanded a

jury trial, have not consented to trial in bankruptcy court, have
not filed any claims against the bankruptcy estate, do not
consent to the bankruptcy court’s entry of final judgment on any
claims, and, therefore, under the circumstances, the case cannot
be efficiently handled in bankruptcy court and the reference
should be withdrawn.

[Mem. in Supp. of Rowland Defs.’ Mot. at

2.]
The Rowland Defendants’ Motion explains that the
original Complaint in the adversary proceeding did not include
the four assigned claims.

On May 6, 2011, United States

Bankruptcy Judge Robert Faris granted the Trustee’s motion to
approve a settlement between the Trustee and three individual
Beneficiary Defendants, which contained an assignment of claims.
The First Amended Complaint filed on June 30, 2011 includes the

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four assigned claims.

[Id. at 4-5.]

The motion first argues that the Rowland Defendants are
entitled to a jury trial, which may not be held in bankruptcy
court.

The Rowland Defendants argue that the matter involves

legal, rather than equitable, rights which entitles them to a
jury trial under the Seventh Amendment.

They rely on

Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989), which
characterized fraudulent conveyance actions by bankruptcy
trustees as “private rights,” providing defendants with a right
to a jury trial regardless of the fact that the action was a core
proceeding.

Because they have not consented to a jury trial

before the bankruptcy court, that court lacks the authority to
conduct a jury trial, and they argue the reference should be
withdrawn.

[Id. at 7-8.]
Next, the Rowland Defendants argue that the bankruptcy

court may not enter final judgment against them on the non-core
proceedings, pursuant to 11 U.S.C. § 157(c)(1).

The Trustee’s

aiding and abetting breach of fiduciary duty claim, Haw. Rev.
Stat. § 556-4 claim, and all of the assigned claims are state law
claims that do not depend on the resolution of questions of
bankruptcy law, and are non-core claims.

Further, under Stern v.

Marshall, 131 S. Ct. 2594 (2011), they argue that a bankruptcy
judge lacks authority to enter a final judgment on a claim that
is traditionally adjudicated by Article III courts and does not

6

involve “public rights.”

In this adversary proceeding, they

argue that the fraudulent transfer claims are essentially common
law claims that do not involve “public rights,” and the
bankruptcy court lacks constitutional authority to enter final
judgment on these claims.

[Id. at 9-12.]

They maintain that, under the circumstances, the
bankruptcy court has no authority to enter final judgment on any
of the Trustee’s claims against them, and can only enter proposed
findings and conclusions subject to de novo review by this Court,
which will result in duplication of judicial efforts and
increased costs to the parties.

The Rowland Defendants argue

that judicial economy is best served by having these claims
decided by this Court.

[Id. at 12-14.]

Finally, the Rowland Defendants assert that the
withdrawal of reference should not be delayed.

They acknowledge

that the bankruptcy court may be permitted to retain jurisdiction
over the action for pretrial matters.

They argue, however, that

it is not clear that the bankruptcy court even has jurisdiction
over the fraudulent conveyance claims.

Further, the bankruptcy

court cannot enter final orders on dispositive motions, and can
only enter proposed findings and conclusions to the district
court for de novo review, which is not in the interests of
judicial economy or efficiency.

The Rowland Defendants note that

Judge Faris already dismissed portions of the Trustee’s “core” 11

7

U.S.C. § 548 claim on statute of limitations grounds, thus, to
the extent his bankruptcy expertise was needed, it is no longer
needed.

The bankruptcy court’s unique knowledge of Title 11 is

not necessary to decide the eight state law claims of the ten
remaining total claims.
A.

[Id. at 15-17.]

Plaintiff’s Memorandum in Opposition
The Trustee argues in his opposition to the Rowland

Defendants’ Motion that: the demand for jury trial is not a basis
for withdrawal and has been waived; the Stern decision does not
provide a basis for withdrawal, and even if withdrawal is
appropriate, it need not be immediate.
First, the Trustee argues that the demand for jury
trial made for the first time after a pleading has been amended
is effective only as to any new issues of fact raised in the
amended pleading.

The Trustee believes that, although he asserts

several new causes of action in the First Amended Complaint,
there is no significant difference in the facts necessary to
support his original claims and those supporting his new claims,
and turn on the same matrix of facts.
Defs.’ Mot. at 5-9.]

[Mem. in Opp. to Rowland

The Trustee maintains that the Rowland

Defendants are not entitled to a jury trial on any of the issues
the Trustee asserted in the original Complaint.

[Id. at 10.]

Second, the Trustee argues that the Stern case does not
apply here and that, even if it did apply, consideration of all

8

the factors articulated in Stern do not weigh in favor of
withdrawal of the reference.

[Id. at 11-15.]

Finally, he argues that, even if withdrawal were
appropriate, immediate withdrawal is not.

The bankruptcy court

may retain jurisdiction for pre-trial matters, which does not
abridge any Seventh Amendment right.
B.

[Id. at 16-19.]

Rowland Defendants’ Reply
In their Reply, the Rowland Defendants state that the

First Amended Complaint raised new factual issues absent from the
original Complaint, including allegations that they instructed an
accountant to misrepresent debts of Maui Industrial as debts of
Mr. Kimura and that they knowingly accepted checks drawn on Maui
Industrial’s bank account in payment of the re-stated Kimura
personal debt.

[Rowland Defs.’ Reply at 3.]

They first argue that their jury demand is a basis for
withdrawing the reference because they are entitled to a jury
trial on all the new issues raised in the First Amended
Complaint.
jury trial.

They do not concede that they waived any right to
They argue that, although they did not file a jury

demand with their answer to the original Complaint, they did file
a general jury demand with respect to the First Amended
Complaint, and that, a previously waived right to a jury trial
may be revived by an amended pleading that raises new issues.
[Id. at 5 (citing Pradier v. Elespuru, 641 F.2d 808, 810 n.1 (9th

9

Cir. 1981)).]

They argue that the allegations in the First

Amended Complaint are more than reworded allegations from the
original Complaint, but are the basis for the negligent
misrepresentation, breach of fiduciary duty, attorney
malpractice, and aiding and abetting participation in breach of
fiduciary duty claims.

The new facts are substantially different

and necessary to support the new causes of action.

Accordingly,

the Rowland Defendants argue that they are entitled to a jury
trial as to those new issues raised in the First Amended
Complaint.

[Id. at 6-7.]
Next, they argue that the bankruptcy court’s inability

to enter final orders and judgments against them is a basis for
withdrawing the reference.

The Rowland Defendants assert that

the Trustee’s opposition does not directly dispute that the
bankruptcy court lacks such authority, but that this Court should
not weigh that factor heavily among the other factors in favor of
withdrawing the reference.
II.

Mancini Law Firm’s Motion
In its motion, the Mancini Law Firm joins the Rowland

Defendants’ Motion and requests that it be granted the same
relief requested therein.

It asks the Court to allow it to

defend against the unrelated, non-core state law claims for which
jury trial has been demanded in this Court.

It characterizes the

First Amended Complaint as seeking to recoup disbursements

10

authorized by the Probate Court to the Beneficiary Defendants
that were made more than ten years ago, because the disbursements
were allegedly the proceeds of Maui Industrial’s Ponzi scheme.
Rowland and the Mancini Law Firm are sued in order to obtain the
same recovery of disbursements sought from the Beneficiary
Defendants under the theory that Rowland and the Mancini Law firm
were “initial transferees” of the funds invested by Mr. Kimura.
[Mem. in Supp. of Mancini Law Firm Mot. at 2-3.]
The First Amended Complaint alleges that Mr. Rowland
deposited transfers from Maui Industrial into the Mancini Law
Firm’s client trust account for purposes of distribution to the
Beneficiary Defendants.

The Mancini Law Firm argues that it was

not a trustee of the Estate, was not a “payee” of the transfers,
never asserted any dominion or control over the funds, and only
served as co-counsel to Mr. Rowland.

It believes that the

Trustee has sued it purely because Rowland deposited the Maui
Industrial loan proceeds into its trust account.

[Id. at 4.]

It argues that, under bankruptcy law, funds deposited
into an attorney’s client trust account do not become the
personal property of the attorney, and as such, merely depositing
funds into a lawyer’s client trust account does not make the
lawyer or its law firm an “initial transferee” from whom the
disputed transfers can be collected (i.e., “clawback”).

It

argues that it never owned the disputed funds and was not an

11

initial transferee.

The only potential liability to Plaintiff

would arise under the state law tort claims alleged in the First
Amended Complaint; none of these causes of action involve the
process of resolving a creditor’s proof of claim.

[Id. at 5-7.]

The Mancini Law Firm asserts that the Trustee
seeks to improperly litigate state tort claims in
Bankruptcy Court, denying the Mancini Law Firm of
its right to a jury trial, and strategically
burdening the Mancini Law Firm with excess
attorneys’ fees and costs associated with
litigating the state law claims twice. . . . This
is a strong arm tactic to coerce a settlement from
uninvolved third-parties in order to fund the ongoing bankruptcy litigation.
[Id. at 7.]
The Mancini Law Firm argues that this proceeding is
principally non-core: the unrelated state law tort claims were
not brought by creditors or by adversary proceeding defendants as
a counterclaim against the bankrupt estate; do not involve the
same issues relating to the process of allowance or disallowance
of claims; and involve matters of private contract between thirdpersons other than the debtors and creditors.

The Mancini Law

Firm cites the Stern decision for the proposition that the
bankruptcy court lacks constitutional authority to adjudicate
state law claims that are not resolved in the process of ruling
on a creditor’s proof of claim.

Inasmuch as the resolution of

the claims for negligent misrepresentation, breach of fiduciary
duty, attorney malpractice, aiding and abetting/participation in

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breach of fiduciary duty between the Mancini Law Firm and the
small number of individual beneficiaries who have settled their
“clawback claims” are not related to the process of ruling on a
creditor’s proof of claim, the Mancini Law Firm argues that it is
constitutionally entitled to a jury trial in district court.

It

has not consented to have these state law non-core claims
litigated in bankruptcy court.

[Id. at 8-10.]

Last, it argues that judicial economy and substantial
prejudice to it require the withdrawal of the reference.

It

argues that, because the action is non-core, legal (not
equitable), triable by a jury, and unrelated to the process of
ruling on a creditor’s proof of claim, and the bankruptcy court
is not authorized to issue final judgment as to the state law
claims, those claims will have to be relitigated in the district
court de novo.

It argues that issues of judicial economy and

prejudice substantially weigh in favor of withdrawing the
reference.
A.

[Id. at 13-14.]
Plaintiff’s Memorandum in Opposition
As in his opposition to the Rowland Defendants’ Motion,

the Trustee argues that the demand for jury trial is not a basis
for withdrawal and has been waived, the Stern decision does not
provide a basis for withdrawal, and even if withdrawal is
appropriate, it need not be immediate.
First, the Trustee argues that the demand for jury

13

trial made for the first time after a pleading has been amended
is effective only as to any new issues of fact raised in the
amended pleading.

The Trustee believes that, although he asserts

several new causes of action in the First Amended Complaint,
there is no significant difference in the facts necessary to
support his original claims and those supporting his new claims,
and turn on the same matrix of facts.
Law Firm Mot. at 4-9.]

[Mem. in Opp. to Mancini

The Trustee maintains that the Mancini

Law Firm is not entitled to a jury trial on any of the issues the
Trustee asserted in the original Complaint.

Further, it has not

filed a motion seeking a jury trial on any of the issues raised
in the original Complaint.

[Id. at 10.]

Second, the Trustee argues that the Stern case does not
apply here and that consideration of all the factors do not weigh
in favor of withdrawal of the reference.

He also argues that the

Mancini Law Firm is wrong when it asserts that the proceeding is
not “core.”

Further, the Mancini Law Firm has not raised the

Stern issue before the bankruptcy court in the first instance.
[Id. at 11-15.]
Finally, he argues that, even if withdrawal were
appropriate, immediate withdrawal is not.

The bankruptcy court

may retain jurisdiction for pre-trial matters, which does not
abridge any Seventh Amendment right.

14

[Id. at 16-19.]

B.

Mancini Law Firm’s Reply
In its Reply, the Mancini Law Firm emphasizes that its

motion seeks only to withdraw from the jurisdiction of the
bankruptcy court the four assigned claims for negligent
misrepresentation, breach of fiduciary duty, attorney
malpractice, and aiding and abetting/participation in breach of
fiduciary duty.

[Mancini Law Firm Reply at 9.]

It states that

the Trustee’s core “clawback” claims should not be coupled with
the non-core state law claims for legal malpractice.

Prior to

the assignment of the state law claims, the Trustee’s claims were
limited to the theory that the Mancini Law Firm was an initial
transferee of the funds passing through its client trust account,
but argues that this theory has been squarely repudiated by
courts.

It claims that its motion is to partially excise the

ancillary and unrelated non-core claims from the bankruptcy court
action.

[Id. at 2-4.]
The Mancini Law Firm asserts that the Trustee does not

dispute that his assigned claims are non-core and do not involve
the application of bankruptcy law.

It argues that the Trustee is

trying to collect on a malpractice insurance policy covering “a
speculative claim against third parties owned by the “debtors of
the Debtor on behalf of the Creditors.”

[Id. at 8.]

To the extent the Trustee argues that the Mancini Law
Firm “waived” its right to jury trial on the assigned non-core

15

claims, the Mancini Law Firm asserts that the argument is
misplaced because the Trustee did not possess those claims at the
time he filed his original Complaint on October 17, 2010.

The

original Complaint makes no allegations of an attorney-client
relationship, or any breach thereof, between the Mancini Law Firm
and any other party.

It argues that there were no factual

allegations to put it on notice that the Trustee was asserting
legal malpractice and other common law tort claims that he did
not possess.

The Mancini Law Firm timely filed its jury demand

with its answer to the First Amended Complaint on July 15, 2011.
It argues that it cannot have waived a right to demand a jury
trial on claims that had not yet been asserted at the time of
answering the original Complaint.

[Id. at 5-6.]

It last argues that the balancing test set forth in
§ 157(d) favors withdrawal of the reference.

The claims here are

non-core, legal, triable by jury, and unrelated to the process of
ruling on a creditor’s proof of claim, not involving the
bankruptcy court’s unique knowledge of Title 11.

Further, the

issues will be relitigated de novo in district court, hence,
issues of judicial economy and prejudice substantially weigh in
favor of withdrawal.

The Mancini Law Firm argues that it is a

stranger to the bankruptcy proceeding and is not an initial
transferee, and should not be compelled to litigate in the
bankruptcy court.

[Id. at 12-14.]

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Moreover, it argues that this case involves a matter of
first impression, which is inappropriate for adjudication by the
bankruptcy court.

The issue of whether claims for legal

malpractice can be assigned has not been decided in this
jurisdiction.

It maintains that the Hawai‘i Supreme Court has

not recognized the validity of attempted assignments for claims
of legal malpractice; the weight of authority from other
jurisdictions is that such claims are personal and are not
assignable, or subject to prosecution in bankruptcy court.

[Id.

at 3 n.1, 13 (citing cases).]
STANDARD
In general, district courts have original and
exclusive jurisdiction over all bankruptcy
matters, 28 U.S.C. § 1334, and may refer all
bankruptcy matters to a bankruptcy court. 28
U.S.C. § 157(a). Pursuant to Local Rule (“LR”)
1070.1(a), “all cases under Title 11 and all civil
proceedings arising under Title 11 or arising in
or related to a case under Title 11 are referred
to the bankruptcy judges of this district.”
The court may nonetheless withdraw the
reference to the bankruptcy court pursuant to 28
U.S.C. § 157(d), which provides:
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.

17

“The party bringing a motion to withdraw the
reference to the bankruptcy court bears the burden
of persuasion.” Field v. Levin, 2011 WL 3477101,
at *2 (D. Haw. Aug. 8, 2011) (citing Hawaiian
Airlines, Inc. v. Mesa Air Grp., Inc., 355 B.R.
214, 218 (D. Haw. 2006)).
In re Mortgage Store, Inc., Civil No. 11–00439 JMS/RLP, 2011 WL
5056990, at *2-3 (D. Hawai‘i Oct. 5, 2011).
DISCUSSION
At the hearing on the motions, the Trustee acknowledged
that the non-core claims were properly before this Court, but
argued that the timing of withdrawal was not proper at this time.
The Trustee argued that the bankruptcy court should be permitted
to rule on core matters relating to the underlying Ponzi scheme,
including fraudulent transfer claims, before withdrawing the
reference.

Defendants disagreed and urged the Court to withdraw

the reference immediately.
To the extent that the claims in the First Amended
Complaint are core matters, the Court agrees with the Trustee
that they should be addressed by the bankruptcy court in the
first instance.
In determining whether cause for permissive
withdrawal exists, the Court may consider: (1)
whether the proceeding is core or non-core; (2)
whether the claim is legal or equitable; (3) the
most efficient use of judicial resources; (4)
whether the claim is triable by jury; (5)
reduction of forum shopping; (6) conversion of
estate and non-debtor resources; and (7)
uniformity of bankruptcy administration.
The determination of whether claims are core
18

or non-core is not dispositive of a motion to
withdraw a reference, but characterization of the
claims as core or non-core is useful before
considering the other factors. . . . The
existence of core matters weighs in favor of
resolution of the adversary proceeding by the
bankruptcy court.
Hawaiian Airlines, Inc. v. Mesa Air Group, Inc., 355 B.R. 214,
223 (D. Hawai‘i 2006) (some citations omitted).
To the extent Defendants seek withdrawal on the ground
that they are entitled to a jury trial on certain state law
claims, the Court FINDS that it need not withdraw the reference
immediately.

As this district court recognized in Field v.

Levin:
The court need not decide at this time
whether Defendants have waived their right to a
jury trial because, issues of waiver
notwithstanding, there is no good cause to
transfer the matter to the district court at this
time. The bankruptcy court may conduct a jury
trial only “with the express consent of all the
parties.” 28 U.S.C. § 157(e). But even if a
party does not consent, a “valid right to a
Seventh Amendment jury trial in the district court
does not mean the bankruptcy court must instantly
give up jurisdiction and that the action must be
transferred to the district court.” In re
Healthcentral.com, 504 F.3d 775, 788 (9th Cir.
2007). The Ninth Circuit has held that it is
appropriate for the bankruptcy court to “retain
jurisdiction over the action for pre-trial
matters.” Id. Accordingly, even when withdrawal
of the reference may ultimately be necessary, the
court need not withdraw the reference immediately.
The Ninth Circuit emphasized that there are two
reasons for leaving the case with the bankruptcy
court for resolution of pretrial matters. First,
allowing the bankruptcy court to retain
jurisdiction does not abridge a party’s Seventh
Amendment right to a jury trial. Id. at 787.
19

“Second, requiring that an action be immediately
transferred to district court simply because of a
jury trial right would run counter to our
bankruptcy system.” Id. The current system
“promotes judicial economy and efficiency by
making use of the bankruptcy court’s unique
knowledge” of bankruptcy law as well as its
familiarity with the action before it. Id. at
787–88. Accord Nat’l Hockey League v. Moyes, 2010
WL 3719289, at *2 (D. Ariz. Sept. 15, 2010) (“The
majority of courts in this District addressing
this issue have held that bankruptcy courts
generally are best equipped to manage all pretrial
issues and that the ultimate need for district
court adjudication is speculative.”).
Transfer of this case would be premature at
this time. The main causes of action alleged in
this adversary proceeding are fraudulent transfer
claims, which are core bankruptcy matters.
Because of the bankruptcy court’s unique expertise
in such matters, it would be an inefficient
allocation of judicial resources to withdraw the
claims at this time. Withdrawing the action would
also be wasteful of the parties’ resources and
jeopardize the uniformity of bankruptcy
administration, because both the district court
and bankruptcy court would have to become familiar
with facts about the estate and make
determinations regarding the parties’ rights and
obligations.
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.
Should a jury trial ultimately be warranted
and necessary, Defendants may again seek to
withdraw the action to this court after all
pretrial matters have been resolved in the
bankruptcy court. See In re Healthcentral.com,
504 F.3d at 788 (“Only by allowing the bankruptcy
court to retain jurisdiction over the action until
20

trial is actually ready do we ensure that our
bankruptcy system is carried out”). Cf. Lattig v.
820 Mgmt. Trust (In re Lake at Las Vegas Joint
Venture, LLC), Nos. 2:10–cv–1679–GMN–PAL,
2:10–cv–1680–GMN–PAL, 2011 WL 1303216, at *4 (D.
Nev. Mar. 31, 2011) (denying motion to withdraw
reference as premature because issues upon which
Defendant sought jury trial were not yet ripe for
trial); Hawaiian Airlines, Inc., 355 B.R. at
224–25 (same).
Field v. Levin, Civil No. 11–00394 SOM/BMK, 2011 WL 3477101, at
*3-4

(D. Hawai‘i Aug. 8, 2011) (emphasis added).
The Court agrees with the reasoning in Levin and FINDS

that the bankruptcy court is the appropriate forum at this stage,
and that transfer would be premature at this time.

Specifically,

because of the bankruptcy court’s unique expertise, it would be
an inefficient allocation of judicial resources to withdraw the
reference at this time.

The Court is cognizant of Defendants’

concerns that they may be bound by certain bankruptcy court
findings with respect to the assigned state-law claims.

The

Trustee, however, represented at the hearing that the fraudulent
transfer claims and the non-core state-law claims were likely not
intertwined, and that there would be no res judicata or
preclusion issues upon the eventual withdrawal of those claims to
this Court.
To the extent Defendants argue that the recent holding
in Stern v. Marshall means that the bankruptcy court lacks the
authority to enter final judgment on all of the claims in the
First Amended Complaint, the Court is not persuaded that cause
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exists for immediate withdrawal of the reference.

As this

district court explained in In re Mortgage Store:
Stern addressed the constitutionality of
bankruptcy courts entering judgments on a
different type of core proceeding — “counterclaims
by the estate against persons filing claims
against the estate.” 11 U.S.C. § 157(b)(2)(C).
Stern described this question as a “narrow” one,
and held that Congress exceeded its constitutional
authority “in one isolated respect” in granting
bankruptcy courts the right to enter judgment on
such counterclaims. [Stern, 131 S. Ct. 2594,]
2620. Specifically, Stern held that the
bankruptcy courts “lacked the constitutional
authority to enter final judgment on a state law
counterclaim that is not resolved in the process
of ruling on a creditor’s proof of claim.” Id. at
2620.
2011 WL 5056990, at *3 (footnote omitted).

Similar to the

instant case, the defendants in In re Mortgage Store argued that
Stern “has called into question this entire scheme such that the
bankruptcy court does not have jurisdiction to determine
Plaintiff’s fraudulent conveyance claims and withdrawal of
reference is therefore mandatory.”

Id.

The district court

explained that:
Stern only addresses a bankruptcy court’s
jurisdiction to enter a judgment, as opposed to
findings and recommendations, on a core proceeding
over which it has no constitutional authority to
enter a final judgment. Indeed, Stern discussed
only whether the bankruptcy court could enter a
final judgment; it did not express any opinion
regarding whether the bankruptcy court has
authority to conduct pretrial proceedings and
submit findings and recommendations. And even if
the bankruptcy court does not have jurisdiction to
enter a final judgment on the fraudulent transfer
claims, mandatory withdrawal of the reference is
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inapplicable if the bankruptcy court retains the
ability to enter a finding and recommendation on
these claims.
Id. at *5.

This Court agrees with the district court’s

conclusion that, “even if the bankruptcy court does not have
jurisdiction to enter a final judgment on the fraudulent
concealment claims-an issue this court need not decide at this
time-the bankruptcy court may enter findings and
recommendations.”

Id. at *6 (footnote omitted).

Further, the

Court is not persuaded, on the current record, that the Ninth
Circuit’s recent order inviting supplemental briefing by amicus
curiae in In re Bellingham Insurance Agency, No. 11-35162 (9th
Cir. Nov. 4, 2011), mandates a contrary conclusion.
At this time, the Court, in its discretion, FINDS that
neither judicial economy nor substantial prejudice to Defendants
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.

See Birdsell v. Schneider, No. CV–11–0484–PHX–FJM,

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 law.”).

Given these considerations, at this time, Defendants

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have not established cause for immediate withdrawal of the
reference.

Accordingly, the Rowland Defendants’ Motion and the

Mancini Law Firm’s Motion are DENIED WITHOUT PREJUDICE.
Based on the Trustee’s representations that discovery
is due shortly, that he will be filing a motion for summary
judgment on core matters, including fraudulent transfer claims,
and that such matters are ripe for the bankruptcy court’s
determination, the Court will allow the adversary proceedings to
go forward in the bankruptcy court at this time.

Upon resolution

of these core matters, the parties may file a renewed motion to
withdraw the reference with respect to the remaining claims.
CONCLUSION
On the basis of the foregoing, the Rowland Defendants’
Motion and the Mancini Law Firm’s Motion, both filed September
12, 2011, are HEREBY DENIED WITHOUT PREJUDICE.

The parties are

HEREBY DIRECTED to file an appropriate motion renewing their
request to withdraw the reference when the bankruptcy court has
sufficiently resolved the core matters, including the fraudulent
transfer claims.
IT IS SO ORDERED.

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DATED AT HONOLULU, HAWAII, December 29, 2011.

/S/ Leslie E. Kobayashi
Leslie E. Kobayashi
United States District Judge

DANE FIELD V. TRUST ESTATE OF ROSE KEPOIKAI, ET AL; CIVIL NO. 1100559 LEK-KSC; ORDER DENYING WITHOUT PREJUDICE DEFENDANTS’
MOTIONS TO WITHDRAW REFERENCE

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