In Re/In the Matter Of Ron Wilson, Sr. LaRhonda Wilson

Filing 14

ORDER granting 1 Motion to Withdraw Reference. Signed by Judge Martin L.C. Feldman on 7/25/2012. (caa, )

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
IN THE MATTER OF RON
AND LaRHONDA WILSON

CIVIL ACTION
NO.: 12-1256
SECTION: “F”
ORDER AND REASONS

Before the Court is Lender Processing Service’s motion to
withdraw a reference of certain proceedings pending in bankruptcy
court.

For the reasons that follow, the motion is GRANTED.
Background

This case comes before the Court on a motion to withdraw
reference, filed by Lender Processing Services (LPS), a party
facing possible criminal sanctions for misconduct in an
underlying bankruptcy proceeding.
Debtors Ron and LaRhonda Wilson filed for bankruptcy under
Chapter 13 of the Bankruptcy Code in late September 2007.
was instituted on all collection proceedings against them.

A stay
In

March 2008, the Wilsons’ mortgage servicer, Option One, filed a
motion for relief from the stay, in an effort to collect on their
outstanding mortgage.

The motion was accompanied by an affidavit

of debt, which certified that the Wilsons were delinquent on
their payments.

The affidavit was prepared by Dory Goebel, who

is an LPS employee, and executed the affidavit pursuant to a
corporate resolution.

Supposedly unknown to Dory Goebel, the
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Wilsons had in fact made payments, and were current on their
mortgage.

The affidavit of debt was, therefore, erroneous.

Concerned about the oversight, the bankruptcy judge ordered
Option One’s attorney, Dory Goebel, and another Option One
representative, to explain the amounts due on the mortgage in an
Order to Show Cause hearing in August 2008.

Just before the

August hearing, the bankruptcy court issued another Order to Show
Cause, directing LPS to also participate in the August hearing,
along with the other individuals.
The bankruptcy court held a hearing on both of its Orders to
Show Cause on August 21, 2008.

Unsatisfied with the answers

given by LPS, the judge continued the Order to Show Cause,
specifically as to LPS, and authorized the U.S. Trustee to
“conduct discovery with the orders to show cause presently before
the Court.”

The bankruptcy court also authorized the U.S.

Trustee to further investigate Dory Goebel’s conduct, and asked
that the Trustee “report back to the Court whatever it believes
is relevant.”
The Trustee investigated the situation for nearly two years,
and filed a motion for sanctions in mid-May 2010.

The Trustee

accused LPS of misrepresenting at the August 2008 Order to Show
Cause hearings what it knew about the petitioners’ mortgage
payments, and what role it was playing in the mortgage payments
collection process.

The bankruptcy court bifurcated proceedings

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on the Trustee’s motion for sanctions, and held what appears to
be a fairly extensive evidentiary hearing on the issue of
liability in early December 2010.

In early April 2011, the

bankruptcy court issued a Memorandum Opinion granting the
Trustee’s motion as to liability for LPS, and stated that an
evidentiary hearing on sanctions would be scheduled.

The

bankruptcy court ordered both the Trustee and LPS to brief any
issues they thought relevant to the sanctions hearing no later
than mid-October 2011.

But the sanctions hearing never happened.

Instead, on April 4, 2012, the bankruptcy court issued a 31page order setting forth findings of fact related to LPS’
misconduct, and asked this Court take up the Trustee’s motion for
sanctions, relying on the bankruptcy court’s findings.

The

bankruptcy court reasoned that since it did not have the
authority to impose criminal contempt sanctions, the case could
only proceed before this Court.

By Order dated April 20, 2012,

this Court found the bankruptcy court’s sua sponte referral of
the Trustee’s motion for sanctions was procedurally improper, and
held that it had no jurisdiction over the matter.

LPS now moves

the Court to withdraw reference of proceedings related to the
Trustee’s sanctions motion from the bankruptcy court.
I.
Local Rule 83.4.1 of the Eastern District of Louisiana
provides that all cases under Title 11 and any case arising in or

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related to cases under Title 11 are automatically “transferred by
the district court to the bankruptcy judges of this district.”
The District Court may withdraw, in whole or in part, any case or
proceeding referred to the bankruptcy court on its own motion, or
on timely motion of any party for cause shown. 28 U.S.C. Section
157(d).

In deciding whether the withdraw the reference, district

courts typically consider the following factors: (a) whether the
proceedings involve core bankruptcy matters; (b) the interests of
judicial economy; (c) promoting uniformity in bankruptcy
administration; (d) reducing forum shopping and confusion; (e)
fostering economical use of the debtor’s and creditor’s
resources; (f) expediting the bankruptcy process; and (g) whether
there has been a jury demand.

So. La. Ethanol v. Agrico Sales,

Inc. (In re So. La. Ethanol), No. 11-3059, 2012 U.S. Dist. LEXIS
6465, at *5-6 (E.D. La. Jan. 20, 2012).
II.
The Court is persuaded that cause exists to withdraw the
reference of proceedings related to the Trustee’s motion for
sanctions.

The bankruptcy judge’s previous referral order to

this Court establishes that the bankruptcy court found criminal
contempt sanctions on LPS appropriate after an extensive
evidentiary hearing on the issue of LPS’ liability.

But the law

ties the bankruptcy court’s hand by preventing it from imposing
criminal contempt sanctions.

In re Hipp, 895 F.2d 1503, 1509

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(5th Cir. 1990); In re Ho, No. 11-1512, 2012 WL 405092 (E.D. La.
Feb. 8, 2012); and In re Ritter, No. 11-1513, 2011 WL 5974623
(E.D. La. Nov. 29, 2011).

No judicial economy or efficiency

would be promoted by leaving these proceedings in the hands of
the bankruptcy judge, who is powerless to impose the type of
sanctions that she deems appropriate.

To do so would delay, at

best, the resolution of this issue.1
Accordingly, IT IS ORDERED: the reference of proceedings
related to the U.S. Trustee’s motion for sanctions against LPS is
withdrawn from the bankruptcy court.

The remainder of the

bankruptcy proceedings continue to be referred.

New Orleans, Louisiana, July 25, 2012.

______________________________
MARTIN L. C. FELDMAN
UNITED STATES DISTRICT JUDGE

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It is unclear to the Court what relief the parties seek
once the reference has been withdrawn.
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