Ricks v. Wood et al

Filing 8

MEMORANDUM DECISION AND ORDER denying without prejudice 1 Rick's Motion for Partial Withdrawal of the Reference. Signed by Judge B. Lynn Winmill. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (cjm)(Emailed Order to TLM, sh, and aw at the Bankruptcy Court.)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO

In re:

Case No. 1:14-mc-07802-BLW

THOMAS MECHAM RICKS,

MEMORANDUM DECISION AND
ORDER

Debtor.
__________________________________
THOMAS MECHAM RICKS, an
individual,
Plaintiff
v.
JOHN WOOD, and individual; PARK
HAMPTON LLC; and DOES I-X,
Defendants.

INTRODUCTION
Pending before the Court is debtor Thomas Ricks’ Motion for Partial Withdrawal
of Reference (Dkt. 1). For the reasons expressed below, the Court will deny the motion
without prejudice.

MEMORANDUM DECISION & ORDER - 1

BACKGROUND
1.

Procedural History
Thomas Ricks, a chapter 11 debtor in possession, sued John Wood and Park

Hampton LLC in an adversary proceeding. Park Hampton moved to dismiss, contending
that the bankruptcy court lacked “authority and subject matter jurisdiction pursuant to
Stern v. Marshall, 131 S. Ct. 2594 (2011).” The bankruptcy court determined that
although it had subject matter jurisdiction over the entire proceeding under 28 U.S.C.
§ 1334, there was a potential issue as to its “constitutional authority to enter final orders
and judgments concerning Park Hampton.” See Jan. 16, 2014 Summary Order, Bk. Adv.
Dkt. 13. The bankruptcy court stayed the adversary action until the parties either
negotiated a solution or filed papers with this Court “asking for withdrawal of the
reference of this adversary proceeding and/or for other appropriate relief.” Id. Ricks
then filed this withdrawal motion.
2.

The Adversary Complaint
Ricks’ motion focuses on one claim within the adversary complaint – the second

claim for “Declaratory Relief and . . . Quiet Title” against Wood and Park Hampton.
This claim relates to roughly five acres of land in Eagle, Idaho, which was previously
owned by Gary and Sandra Hazen. Ricks claims he entered into an agreement with
Wood to develop the Hazen property and, based on that agreement, spent roughly
$106,000 “toward the development and entitlement” of the property. Adversary Compl.
¶ 32. Ricks says he is entitled to 50 percent of the net profits from any sale of the Hazen
property. Id. ¶ 49.
MEMORANDUM DECISION & ORDER - 2

Ricks initially alleged that defendants were wrongfully attempting to sell the
property. He sought a declaratory judgment that “Wood and Park Hampton are without
any right to sell, transfer, convey, or develop the Hazen Property without the consent of
Ricks.” Id. ¶ 51. But by the time Ricks filed his adversary complaint, the Hazen
property had already been sold. 1 Based on this new information, Ricks contends that his
second claim for relief “should be limited to a breach of contract claim against Wood
and/or Park Hampton and a request for monetary damages in an amount to be proved at
trial.” Reply, Dkt. 5, at 2. He plans to file a motion to amend his complaint after the
withdrawal motion is resolved.
ANALYSIS
1.

This Court Has Jurisdiction over Ricks’ State-Law Claim Against Park
Hampton
The Court’s first task in resolving this motion is to determine jurisdiction. Park

Hampton asserts that there is no federal jurisdiction over the second claim – either in
district court or in bankruptcy court – because it is a state-law claim and the parties are
not diverse.
This argument is not persuasive because Ricks’ claim against Park Hampton is
related to his bankruptcy case. Jurisdiction thus exists under 28 U.S.C. § 1334(b).
Section 1334(b) section provides, with exceptions not relevant here, 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.” (emphasis added).
1

Ricks filed his adversary complaint on October 11, 2013. Defendants say the Hazen Property was sold
to a third party on September 24, 2013, with the deed being recorded on October 1, 2013.

MEMORANDUM DECISION & ORDER - 3

Ricks’ adversary proceeding against Park Hill is a “civil proceeding” under § 1334. See
H.R. Rep. No. 595, 95th Cong., 1st Sess. 445 (1997) (the term “proceeding here is used
in its broadest sense, and would encompass . . . adversary proceedings . . . .”). And the
adversary proceeding – though it does not “arise under” or “arise in” a bankruptcy case –
is “related to” Rick’s bankruptcy case.
The most frequently cited case discussing “related to” jurisdiction is Pacor, Inc. v.
Higgins, 743 F.2d 984 (3d Cir. 1985). Pacor held that a civil proceeding is related to a
bankruptcy case when “the outcome of that proceeding could conceivably have any effect
on the estate being administered in bankruptcy.” Id. at 994. An action is “related to”
bankruptcy if it could alter “the debtor’s rights, liabilities, options, or freedom of action
(either positively or negatively) and which in any way impacts upon the handling and
administration of the bankrupt estate.” In re Fietz, 852 F.2d 455, 457 (9th Cir. 1988).
The Ninth Circuit, along with almost every court considering the issue, has adopted this
analytical standard for determining related-to jurisdiction. See In re Fietz, 852 F.2d 455,
457 (9th Cir. 1988); In re Wilshire Courtyard, 459 B.R. 416, 428 n.12 (9th Cir. BAP
2011).
Here, it is at least conceivable that Ricks could prevail on his claim against Park
Hampton, and, further, that he could win a monetary damages award. That award would
be absorbed into Ricks’ bankruptcy estate. See generally 11 U.S.C. § 1306(a). Ricks’
claim against Park Hampton thus falls within 28 U.S.C. § 1334(b)’s “related to” grant of
jurisdiction. Cf. Am. Hardwoods, Inc. v. Deutsche Credit Corp. (In re American
Hardwoods, Inc.), 885 F.2d at 622-24 (9th Cir. 1989) (bankruptcy court had jurisdiction
MEMORANDUM DECISION & ORDER - 4

over a debtor’s action against a nondebtor for injunctive relief from a state court
judgment against the president and vice-president of the debtor even though those
individuals were not debtors themselves); Kaonohi Ohana, Ltd. v. Sutherland, 873 F.2d
1302, 1307 (9th Cir. 1989) (upholding “related to” jurisdiction over third-party action
because specific-performance remedy in that action would reduce damages on contract
claim against bankruptcy estate).
2.

Although the Bankruptcy Court Cannot Finally Determine Ricks’ State-Law
Claim Against Park Hampton, it Can “Hear” the Claim
Having determined federal jurisdiction, the next question is whether the district

court can refer its power to finally determine Ricks’ claim to a bankruptcy court. The
short answer is no. Under 28 U.S.C. § 157(c)(1), the bankruptcy court can “hear”
noncore proceedings and submit proposed findings and conclusions to this Court, but the
bankruptcy court cannot finally “determine” the claim. Rather, “any final order or
judgment shall be entered by the district judge after considering the bankruptcy judge’s
proposed findings and conclusions and after reviewing de novo those matters to which
any party has timely and specifically objected.” 28 U.S.C. § 157(c)(1).
Ricks’ claim against Park Hampton, which Ricks now seeks to pursue under a
breach-of-contract theory, is not a core proceeding. Cf. Piombo Corp. v. Castlerock
Props. (In re Castlerock Props.), 781 F.2d 159, 162 (9th Cir. 1986) (debtor’s state law
cause of action for breach of contract is noncore). It thus falls within the purview of 28
U.S.C. § 157(c)(1).

MEMORANDUM DECISION & ORDER - 5

3.

There is No Cause to Withdraw the Reference at this Point
Given that the bankruptcy court can “hear” the claim against Park Hampton, the

Court finds no reason to withdraw the reference at this point. The bankruptcy court may
proceed to hear the case, with this Court later entering final judgment, without any need
of withdrawing the reference.
This analysis is complicated somewhat by the fact that Park Hill might demand a
jury trial. See generally Parsons v. Bedford, 28 U.S. (3 Pet.) 433, 446-47 (1830)
(Seventh Amendment preserves right to trial by jury for suits at common law). But even
assuming Park Hill demands a jury trial, the claim may still remain before the bankruptcy
court until it is ready to be tried. As the Ninth Circuit has explained, “a Seventh
Amendment jury trial right does not mean the bankruptcy court must instantly give up
jurisdiction” and transfer the case to district court. Sigma Micro Corp. v.
Healthcentral.com (In re Healthcentral.com), 504 F.3d 775, 787 (9th Cir. 2007). There
are two reasons for this. First, “allowing the bankruptcy court to retain jurisdiction over
pre-trial matters . . . does not abridge a party’s Seventh Amendment right to a jury trial.”
Id. (emphasis in original). Second, allowing the claim to remain before the bankruptcy
court for pre-trial proceedings “promotes judicial economy and efficiency by making use
of the bankruptcy court’s unique knowledge of Title 11 and familiarity with the actions
before them.” Id. at 787-88.
In light of these authorities, and after considering all factors relevant to permissive
withdrawal – “the efficient use of judicial resources, delay and costs to the parties,
uniformity of bankruptcy administration, the prevention of forum shopping, and other
MEMORANDUM DECISION & ORDER - 6

related factors” 2 – the Court declines to withdraw the reference at this point. The more
efficient way to proceed is to keep all the claims in the adversary action together, before
the bankruptcy court. The bankruptcy court may preside over all pretrial matters,
including discovery and pretrial conferences, and it may resolve routine and dispositive
motions. If either party files a dispositive motion on the second claim, the bankruptcy
court could entertain that motion and submit proposed findings of fact, conclusions of
law, and a recommendation for disposition of the claim to this Court. If and when it
becomes clear that a jury trial will be necessary, and the case is prepared and ready for
trial to begin, Park Hampton may file another withdrawal motion.
CONCLUSION
For all the foregoing reasons, it is ORDERED that Ricks’ Motion for Partial
Withdrawal of the Reference (Dkt. 1) is DENIED WITHOUT PREJUDICE.
DATED: April 29, 2014

_________________________
B. Lynn Winmill
Chief Judge
United States District Court

2

Sec. Farms v. Int’l Brotherhood of Teamsters, 124 F.3d 999, 1008 (9th Cir. 1997).

MEMORANDUM DECISION & ORDER - 7