W.I.S.E. Underwriting Agency Limited et al v. OGGUSA, Inc.
MEMORANDUM OPINION & ORDER: (1) Defendants' Motion to Withdraw Reference [DE 1 ] is DENIED; (2) Defendants' Motion to Set Hearing [DE 8 ] is DENIED; (3) The Clerk SHALL FILE this Memorandum Opinion and Order in this action and send a c ertified copy to the Clerk of the United States Bankruptcy Court for the Eastern District of Kentucky; and (4) This matter is STRICKEN FROM THE COURT'S ACTIVE DOCKET and REMANDED to the U.S. Bankruptcy Court for the Eastern District of Kentucky. Signed by Judge Joseph M. Hood on 3/31/21.(JLM)cc: COR, and USBC(certified),David Mellott by US mail
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION at LEXINGTON
OGGUSA, INC. f/k/a GENCANNA
W.I.S.E. UNDERWRITING AGENCY
LIMITED, et al.,
In re OGGUSA, INC.,
Adv. Proc. No.
This matter is before the Court on a motion by Defendants
“Defendants”), to withdraw reference of this adversary proceeding
from the bankruptcy court pursuant to 11 U.S.C. § 157(d) [DE 1].
Having been fully briefed, this matter is ripe for decision. For
the following reasons, the Motion to Withdraw Reference and request
for a hearing are DENIED.
I. FACTUAL AND PROCEDURAL BACKGROUND
On August 28, 2020, OGGUSA, Inc.1 (hereafter “GenCanna”), a
Chapter 11 bankruptcy debtor, commenced the adversary proceeding
against Defendants seeking to recover insurance proceeds and other
damages. [DE 1 at 3; DE 2 at 4]. GenCanna then filed an Amended
Complaint on August 31, 2020. [DE 1 at 3]. Following a motion by
Defendants to dismiss the amended complaint, GenCanna subsequently
filed a Second Amended Complaint on October 26, 2020. [Id.].
Specifically, GenCanna alleges: (Count I) breach of contract,
(Count II) violation of the Kentucky Unfair Claims Settlement
Practices Act, (Count III) bad faith, (Count IV) negligence, (Count
V) third party beneficiary, (Count VI) quantum meruit and unjust
enrichment, (Count VII) tortious interference with contractual
relations, (Count VIII) implied covenant of good faith and fair
dealing, (Count IX) violation of KRS 304.12-010, (Count X) breach
of fiduciary duty, and (Count XI) civil conspiracy. [DE 1-1].
On December 1, 2020, the Bankruptcy Court issued an order
determining that the adversary proceeding was a non-core matter.
[DE 2 at 8]. The Bankruptcy Court has since entered scheduling
orders to govern the pretrial discovery process in the proceedings
Bankruptcy Court has also reviewed a variety of motions, including
In July 2020, GenCanna Global USA, Inc. changed its name to
OGGUSA, Inc. [See DE 2 at 2].
those related to discovery, dismissal, the filing of amended
complaints, and interventions. [DE 1 at 4; DE 2 at 4-8].
On January 6, 2021, Defendants moved to withdraw this Court’s
reference to the Bankruptcy Court pursuant to 28 U.S.C. § 157(d).
In support, Defendants argue that they have a right to a jury trial
over the underlying claims involved in this action and they have
not consented to a trial over such non-core issues within before
the Bankruptcy Court. [DE 1 at 5-13]. GenCanna, on the other hand,
contends that despite the right to a jury trial, several factors
and similar cases within this district support a “wait-and-see”
approach. [DE 2 at 9]. Each of the parties’ arguments and factors
will be considered below.
District courts have original and exclusive jurisdiction over
“all cases under title 11.” 28 U.S.C. § 1334(a). In addition,
jurisdiction over all civil proceedings “arising under title 11”
or “arising in or related to cases under title 11.” 28 U.S.C. §
1334(b). Given the specialized nature of bankruptcy proceedings,
however, this Court automatically refers bankruptcy matters to the
Bankruptcy Court. See 28 U.S.C. § 157(a); LR 83.12(a). Pursuant to
§ 157(d), which provides a referral process, district courts have
proceeding” referred to the bankruptcy court “for cause shown.”
Sergent v. McKinstry, 472 B.R. 387, 404-405 (E.D. Ky. 2012). Thus,
a court may grant a party’s motion for discretionary withdrawal of
reference if (1) the motion was timely, and (2) the movant has
shown cause. Irvin v. Faller, 531 B.R. 704, 706 (W.D. Ky. 2015).
Withdrawal of the reference is the exception to the general rule
that bankruptcy matters should be adjudicated in bankruptcy court.
Id.; See Official Comm. Of Unsecured Creditors of Appalachian
Fuels, LLC v. Energy Coal Res., Inc. (In re Appalachian Fuels,
LLC), 472 B.R. 731, 748 (E.D. Ky. 2012).
Although “cause” to withdraw claims from bankruptcy court is
not defined by the statute, courts consider several factors to
Properties, LLC, No. 5:14-007-DCR, 2014 WL 201614, at *3 (E.D. Ky.
Jan. 17, 2014). These factors include: (1) whether the matter is
core or non-core; (2) whether the right to a jury trial exists;
confusion; (6) conserving the creditor’s and debtor’s resources;
and (7) expediting the bankruptcy process. See In re Black Diamond
Min. Co., LLC, No. 13-145-ART, 2014 WL 549202, at *1 (E.D. Ky.
Feb. 11, 2014); see also Sergent, 472 B.R. at 404-405; Big Rivers
Elec. Corp. v. Green River Coal Co., Inc., 182 B.R. 751, 754-755
(W.D. Ky. 1995). As the parties seeking withdrawal, Defendants
have the burden of proving that the Court should withdraw the
Energy Commodities Grp., Inc. (In re Black Diamond Mining Co.),
2010 WL 5173271, at *1 (E.D. Ky. Dec. 14, 2010).
Here, Defendants seek to withdraw the reference of this matter
from the Bankruptcy Court, arguing that the factors relevant to
this Court’s decision all weigh in favor of withdrawal. [DE 1].
GenCanna concedes that some of the factors weigh in favor of
withdrawal is premature at this stage in the proceedings. [DE 2 at
9]. Defendants push back, contending that withdrawal should be
immediate so as to avoid issues concerning judicial economy. [DE
7 at 3-5; DE 8 at 2-3]. The Court will consider the arguments in
The parties both agree that the issue of whether these claims
are core or non-core has been resolved by the Bankruptcy Court
already, which ultimately determined that the Adversary Proceeding
involves non-core issues. [DE 1 at 7; DE 2 at 9]. Additionally,
the parties agree that the claims involved here include the right
to a jury trial. Defendants argue that these being the most
important factors, the Court should withdraw its reference to the
Bankruptcy Court. [DE 1 at 7]. Standing alone, these factors weigh
in favor of withdrawal. However, GenCanna argues that the mere
existence of a jury demand and involvement of non-core issues is
not a basis to immediately withdraw the reference. [DE 2 at 11].
The Court agrees.
While it is true that the Bankruptcy Court may not enter a
final judgment in non-core proceedings, it does have authority to
issue proposed findings of fact and conclusions of law that the
district court reviews de novo. Courts within the Sixth Circuit
have treated the issue of withdrawal based on the presence of noncore claims to be tried by a jury as a timing issue, affecting
when the District Court becomes involved in the action. See In re
The Antioch Co., 435 B.R. 493, 500-502 (S.D. Ohio 2010).
Although the Bankruptcy Court has determined that the claims
asserted here are non-core and Defendant has the right to a jury
trial, withdrawal is not appropriate at this time. The litigation
of this adversary proceeding is still in its early stages and
discovery is ongoing. Because of this, the Bankruptcy Court is in
a better position to manage and handle the complex pre-trial issues
and determine the contract claim to the ongoing bankruptcy matters.
See First Energy Solutions Corp. v. Bluestone Energy Sales Corp.,
No. 5:19MC95, 2019 WL 3423157, at *2 (N.D. Ohio July 30, 2019). In
fact, the Bankruptcy Court has done just that in resolving the
began, including issues related to discovery, the parties, and in
narrowing the claims filed by GenCanna. [DE 1 at 4; DE 2 at 4-8].
Thus, while the claims may be non-core, the proceedings at this
stage are best reviewed using the Bankruptcy Court’s expertise,
since issues involving bankruptcy provide context to the claims
between the parties. See In re Appalachian Fuels, LLC, 472 B.R.
731, 745-746 (E.D. Ky. 2012); see also First Energy Solutions
Corp., 2019 WL 3423157, at *2.
Defendants argue that waiting to withdraw the reference would
result in increased costs and the relitigating of various issues,
and that because it is in the early stages of litigation, now is
the time to withdraw. [DE 7 at 4, 9]. On the contrary, withdrawal
of the reference at this time would likely delay, rather than
Bankruptcy Court has already made several determinations relevant
to the early stages of litigation, including whether certain
parties ought to be joined, the narrowing of issues in GenCanna’s
complaint, and other discovery. Nevertheless, this matter remains
in the early stages of the pretrial process.
Given the proceedings thus far, and the bankruptcy issues
involved in the background, the Bankruptcy Court has a particular
expertise that is relevant to the claims here. The Bankruptcy Court
parties involved, and the relevant claims. See In re Appalachian
Fuels, LLC, 472 B.R. at 745-746; First Energy Solutions Corp.,
2019 WL 3423157, at *2.
However, that this matter is in the early
Bankruptcy Court. See In re: Lifestyle Lift Holding, Inc., No. 1613049,
Bankruptcy Court at this time, as other courts in the Sixth Circuit
resources, and uniformity.
Accordingly, for the reasons stated herein and the Court being
sufficiently advised, IT IS ORDERED as follows:
Defendants’ Motion to Set Hearing [DE 8] is DENIED;
The Clerk SHALL FILE this Memorandum Opinion and Order
in this action and send a certified copy to the Clerk of the United
States Bankruptcy Court for the Eastern District of Kentucky; and
This matter is STRICKEN FROM THE COURT’S ACTIVE DOCKET
and REMANDED to the U.S. Bankruptcy Court for the Eastern District
This the 31st day of March, 2021.
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