In Re: Queyrouze, et al

Filing 19

ORDER AND REASONS denying 1 Motion to Withdraw Reference. Signed by Judge Susie Morgan. (bwn)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
CIVIL ACTION
IN RE: QUEYROUZE, ET AL.

NO. 14-2715
SECTION: “E” (2)

ORDER AND REASONS
Before the Court is a Motion to Withdraw the Reference filed by Defendants
Randall M. Alfred and Randall M. Alfred, APLC.1 Plaintiff opposes the motion.2 Both
parties have briefed the matter and the underlying issues extensively. 3 For the reasons
stated herein, the motion is DENIED.
BACKGROUND
On January 11, 2011, Forty Acre Corporation (“Forty Acre”) filed a voluntary
petition for bankruptcy under Chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court for the Eastern District of Louisiana. 4 Randall M. Alfred (“Alfred”),
the Defendant in the present adversarial matter, served as counsel to Forty Acre both
before and during the bankruptcy proceedings.5 Steve Queyrouze (“Queyrouze”), the
Plaintiff, serves as the plan trustee in Forty Acre’s bankruptcy proceedings.6
On October 2, 2014, Queyrouze filed a Complaint against Alfred and his law firm,
arguing inter alia that Alfred negligently represented Forty Acre both prior to and

In re Queyrouze, No. 14-2715, R. Doc. 1 (E.D. La.).
In re Queyrouze, No. 14-2715, R. Doc. 9 (E.D. La.).
3 In re Queyrouze, No. 14-2715, R. Docs. 1, 9, 13, 17, 18 (E.D. La.).
4 In re Forty Acre Corporation, No. 11-10074, R. Doc. 1 (Bankr. E.D. La.).
5 See In re Forty Acre Corporation, No. 11-10074, R. Doc. 1, 10 (Bankr. E.D. La.). Alfred no longer
represents Forty Acre. The bankruptcy court terminated Alfred’s representation of Forty Acre on
November 15, 2013. See In re Forty Acre Corporation, No. 11-10074, R. Doc. 213 (Bankr. E.D. La.).
6 See In re Forty Acre Corporation, No. 11-10074, R. Doc. 1, at ¶4 (Bankr. E.D. La.).
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during its bankruptcy.7 It is this Complaint that Defendants argue should be withdrawn
from the bankruptcy court and decided by the district court.8 The facts pertinent to the
resolution of Defendants’ motion to withdraw the reference are set forth below.
I.

PRE-BANKRUPTCY
In the Complaint, Queyrouze represents that Alfred committed a series of

negligent acts while serving as counsel to Forty Acre and its principal shareholders—
Michael LeBlanc and Mary Kaye LeBlanc (collectively, “the LeBlancs”). 9 Queyrouze
argues that the LeBlancs hired Alfred to provide legal advice and services in connection
with a potential sale and/or exchange of real property owned by Forty Acre.10 Soon
thereafter, the LeBlancs introduced Alfred to a buyer interested in purchasing the
property from Forty Acre. 11 However, this buyer, C&R Developers, Inc. (“C&R”),
allegedly promised Alfred financial incentives during the course of the negotiations, and
Alfred consequently agreed to become a registered agent for C&R in Louisiana.12 Alfred
continued to serve as Forty Acre’s attorney after becoming the registered agent of C&R.13
Queyrouze contends that Alfred owed fiduciary duties to both C&R and Forty
Acre, but Alfred was unable to satisfy those duties due to the “opposite and competing
interests” possessed by C&R and Forty Acre in connection with the sale negotiations.14
For example, Alfred allegedly persuaded Forty Acre to pass on other qualified and

In re Forty Acre Corporation, No. 11-10074, R. Doc. 245 (Bankr. E.D. La.); Steve Queyrouze v. Randall
M. Alfred, et al., No. 14-1050, R. Doc. 1, at ¶66 (Bankr. E.D. La.).
8 See In re Queyrouze, No. 14-2715, R. Doc. 1 (E.D. La.).
9 Steve Queyrouze v. Randall M. Alfred, et al., No. 14-1050, R. Doc. 1, at ¶¶9–64 (Bankr. E.D. La.).
10 Steve Queyrouze v. Randall M. Alfred, et al., No. 14-1050, R. Doc. 1, at ¶10 (Bankr. E.D. La.).
Specifically, Alfred was hired to represent Forty Acre and the LeBlancs in the sale or exchange of
approximately 1,042 acres of land owned by Forty Acre and 3 acres of land owned individually by the
LeBlancs. Id.
11 Id. at ¶14.
12 Id. at ¶¶16–17.
13 Id.
14 Id. at ¶¶20–22.
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interested buyers due to the prospective sale to C&R. 15

Moreover, according to

Queyrouze, Alfred convinced the LeBlancs to structure the pending sale to C&R in a
manner that was ultimately disadvantageous to Forty Acre.16 Specifically, Queyrouze
alleges that Alfred persuaded the LeBlancs to transfer ownership of the property to C&R,
such that C&R could then use the property as collateral to obtain adequate financing to
consummate the sale.17 Alfred assured the LeBlancs that their interests would remain
protected.18 Nevertheless, Queyrouze argues that Alfred failed to safeguard the interests
of the LeBlancs and Forty Acre, causing Forty Acre to ultimately lose the subject
property in foreclosure.19 Forty Acre then declared bankruptcy.20
II.

POST-BANKRUPTCY
Queyrouze argues that Alfred continued his negligent representation of Forty

Acre in the bankruptcy proceedings.21 Specifically, Alfred allegedly failed to timely file a
plan of reorganization,” which allowed the sole creditor of Forty Acre to prepare and
propose a plan instead.22 More generally, Queyrouze submits that Alfred was negligent

Id. at ¶20.
See generally id. at ¶¶39–53, 66. Among Alfred’s misdeeds and omissions, Queyrouze argues inter alia
that Alfred (1) failed to ensure that “Forty Acre’s right and interests in the Subject Property would not be
lost or impaired;” (2) failed to “competently prepare and record a Counter Letter;” and (3) advised “Forty
Acre to pass on other qualified and willing purchases in lieu of the deal proposed by [C&R].” Id. at ¶66.
Although the transaction between Forty Acre and C&R is rather complicated, its details are not relevant to
the present motion.
17 Id. at ¶¶20, 28.
18 Id. at ¶26. Specifically, Alfred apparently explained that C&R would provide Forty Acre with a counter
letter, which would allow Forty Acre to rescind the sale and regain possession and ownership of the
property. Id.
19 Id. at ¶¶41–53.
20 Id. at ¶¶53–57. Queyrouze also argues that Forty Acre could have avoided bankruptcy by using available
bond forfeiture money to stay current on its loan obligations. Id. at ¶57. Queyrouze seemingly submits
that Alfred’s failure to recommend this course of action forced Forty Acre into bankruptcy. See generally
id. at ¶¶55–57.
21 See, e.g., id. at ¶¶57–64.
22 Id. at ¶¶58–59.
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and committed malpractice throughout “the course and scope of his representation of
the Forty Acre Corporation, the debtor in possession.”23
As stated above, Queyrouze filed a Complaint against Alfred on October 2, 2014,
alleging malpractice and negligence on the part of Alfred both prior to and during the
bankruptcy proceedings.24 This Complaint was automatically referred to the bankruptcy
court per Local Rule 83.4.1 of the Eastern District of Louisiana.25 On November 26,
2014, Defendants Alfred and Randall M. Alfred, APLC, filed the present motion to
withdraw the reference, arguing that Queyrouze’s Complaint is not properly before the
bankruptcy court and should instead be decided by the district court.26
LAW AND ANALYSIS
The standard for when a district court may withdraw the reference from
bankruptcy court is set forth in 28 U.S.C. § 157(d). Section 157(d) provides for both
mandatory and permissive withdrawal:
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.27
I.

MANDATORY WITHDRAWAL
The district court is required to withdraw the reference if it determines that

resolution of the proceedings requires consideration of both the Bankruptcy Code and
See In re Queyrouze, No. 14-2715, R. Doc. 9, at *3 (E.D. La.).
In re Forty Acre Corporation, No. 11-10074, R. Doc. 245 (Bankr. E.D. La.); Steve Queyrouze v. Randall
M. Alfred, et al., No. 14-1050, R. Doc. 1, at ¶66 (Bankr. E.D. La.).
25 Local Rule 83.4.1 provides: “All cases under Title 11 and all proceedings arising under Title 11 or arising
in or related to a case under Title 11 are transferred by the district court to the bankruptcy judges of this
district. As set forth in 28 U.S.C. 157(b)(5), personal injury tort and wrongful death claims must be tried
in the district court.”
26 See generally In re Queyrouze, No. 14-2715, R. Doc. 1 (E.D. La.).
27 28 U.S.C. § 157(d).
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other U.S. laws regulating organizations or activities that affect interstate commerce. 28
The mandatory withdrawal provision has generally been interpreted strictly, “granting
withdrawal of the reference when the claim and defense entail material and substantial
consideration of non-Bankruptcy Code federal law.”29
In this case, the Defendants do not seek mandatory withdrawal of the reference,30
nor is such withdrawal appropriate under the circumstances. 31 Thus, the Court will
consider whether permissive withdrawal is appropriate.
II.

PERMISSIVE WITHDRAWAL
The Fifth Circuit has held that, to determine whether to withdraw a reference on

permissive grounds, district courts should consider whether the matter at issue is a core
or a non-core proceeding.32 Further, courts should consider whether the proceedings
involve a jury demand and whether withdrawal would further the goals of promoting
uniformity in bankruptcy administration, reducing forum shopping and confusion,
fostering the economical use of the debtor’s and creditors’ resources, and expediting the
bankruptcy process.33
a.

Nature of the Proceedings

The first element addresses whether the claims at issue are “core” or “non-core.”
The term “core proceeding” is not explicitly defined by statute, but the Bankruptcy Code

Id.
In re OCA, Inc., No. 06-3811, 2006 WL 4029578, at *2 (E.D. La. Sept. 19, 2006) (citing Lifemark
Hosps. of La., Inc. v. Liljeberg Enters., Inc., 161 B.R. 21, 24 (E.D. La. 1993); U.S. Gypsum Co. v. Nat’l
Gypsum Co., 145 B.R. 539, 541 (N.D. Tex. 1992); In re Johns-Manville Corp., 63 B.R. 600, 603 (S.D.N.Y.
1986); In re White Motor Corp., 42 B.R. 693, 704 (N.D. Ohio 1984)).
30 See generally In re Queyrouze, No. 14-2715, R. Doc. 1, at *10 (E.D. La.).
31 The claims sought to be withdrawn are not founded upon federal law. Rather, the claims are state-law
causes of action for negligence and dereliction of professional duty. Steve Queyrouze v. Randall M.
Alfred, et al., No. 14-1050, R. Doc. 1, at ¶67 (Bankr. E.D. La.).
32 See, e.g., Holland Am. Ins. Co. v. Succession of Roy, 777 F.2d 992, 999 (5th Cir. 1985).
33 Id.
28
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provides some illustrative examples. 34 Moreover, the Fifth Circuit has noted that a
proceeding is core if it “invokes a substantive right provided by title 11 or if it is a
proceeding that, by its nature, could arise only in the context of a bankruptcy case.” 35
In this case, Plaintiff Queyrouze argues that the allegations in his Complaint set
forth core matters, and thus the motion to withdraw the reference should be denied. 36
Queyrouze contends that the action against Alfred is “inextricably connected to the
bankruptcy proceeding” and is “inseparable from the bankruptcy context.”37 Queyrouze
relies extensively on the Fifth Circuit’s decision in Southmark, in which the court
deemed certain professional malpractice claims to be core matters. 38 However, the
Court notes that the parallels between the present case and the Southmark decision are
tenuous, due to the many acts of negligence that allegedly took place pre-bankruptcy in
this case. 39 Moreover, the malpractice allegations in Southmark were levied against
“court-appointed professionals,” not a private attorney for the debtor.40 The Southmark
court narrowed its holding on those grounds, recognizing a need for the court to “police
the fiduciaries” that it appoints.41

See 28 U.S.C. §157(b)(2) (“Core proceedings include, but are not limited to—matters concerning the
administration of the estate; . . . proceedings to determine, avoid, or recover preferences; . . . proceedings
to determine, avoid, or recover fraudulent conveyances; . . . [and] other proceedings affecting the
liquidation of the assets of the estate . . . .”).
35 In re Wood, 825 F.2d 90, 97 (5th Cir. 1987). See also In re Southmark, 163 F.3d 925, 930 (5th Cir.
1999).
36 In re Queyrouze, No. 14-2715, R. Doc. 9, at *3–4 (E.D. La.).
37 Id. at *3, 5.
38 Id. at *5 (citing In re Southmark, 163 F.3d at 930; 28 U.S.C. § 157(b)(3)).
39 Cf. In re Southmark, 163 F.3d 925. Moreover, Defendants contend that Southmark is inapplicable, as
the claims of negligence in that case arose pre-plan confirmation, whereas the allegations of negligence in
the present case arose post-plan confirmation. In re Queyrouze, No. 14-2715, R. Doc. 13, at 2–3 (E.D. La.).
However, the Court notes that Queyrouze alleges Alfred was negligent throughout the bankruptcy
proceedings, as well as prior to the initiation of bankruptcy. Steve Queyrouze v. Randall M. Alfred, et al.,
No. 14-1050, R. Doc. 1, at ¶¶41–57 (Bankr. E.D. La.).
40 In re Southmark, 930 F.3d at 927–28, 930.
41 Id. at 931. (“A sine qua non in restructuring the debtor-creditor relationship is the court’s ability to
police the fiduciaries, whether trustees or debtors-in-possession and other court-appointed professionals,
who are responsible for managing the debtor’s estate in the best interest of creditors. The bankruptcy
court must be able to assure itself and the creditors who rely on the process that court-approved managers
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The Defendants argue that the matter involves non-core proceedings, and thus
the bankruptcy reference should be withdrawn.42 Specifically, Defendants allege that
“the vast majority of the allegations in the adversary proceedings against Alfred involve
acts, omissions, or errors that occurred well before Forty Acre Corporation filed for
Chapter 11 bankruptcy protection.” 43

In other words, Defendants suggest that

Queyrouze’s allegations are “non-core” because they do not arise within the bankruptcy
context and would exist irrespective of the bankruptcy proceedings.44
The Court agrees with Defendants’ argument. In the present case, the claims at
issue do not invoke a substantive right under Title 11, as Queyrouze alleges state law
causes of action for negligence, legal malpractice, and breach of fiduciary duty. 45
Moreover, such claims can clearly arise outside of the bankruptcy context. Malpractice
claims against attorneys are not exclusive to bankruptcy cases.46 Thus, the Court finds
that the matter at issue involves non-core proceedings.
However, such a finding does not require the Court to withdraw the reference. If
a matter is a non-core proceeding, the bankruptcy court is authorized to make findings
of fact and law, but those determinations are subject to de novo review by the district
of the debtor’s estate are performing their work, conscientiously and cost-effectively.”). See also 11 U.S.C.
§§ 321, 322, 324 326–331.
42 See generally In re Queyrouze, No. 14-2715, R. Doc. 1, at *12 (E.D. La.).
43 In re Queyrouze, No. 14-2715, R. Doc. 13, at *1 (E.D. La.).
44 See generally id.
45 Steve Queyrouze v. Randall M. Alfred, et al., No. 14-1050, R. Doc. 1, at ¶67 (Bankr. E.D. La.). However,
the Court notes that the state law nature of Queyrouze’s allegations is not dispositive. See In re
Southmark, 163 F.3d at 930 (holding that the “state law origin of Southmark’s claims is not dispositive.”);
Schultze v. Chandler, 765 F.3d 945, 949 (9th Cir. 2014). The governing statute expressly provides that the
applicability of state law to a proceeding is by itself insufficient to render it a non-core proceeding. See 28
U.S.C. § 157(b)(3). This principle stands for the fact that many state law causes of action turn on issues
central to the bankruptcy proceeding. See id.; In re Southmark, 163 F.3d at 930–31 (“This provision, as
Wood explains, recognizes Justice White’s sensible observation in Marathon that many truly bankruptcy
issues, like the determination of the basis for creditor’s claims, turn on state law.”).
46 See In re Gulf States, 455 B.R. 869, 875 (E.D. La. 2011) (citing In re Wood, 825 F.2d at 95, 97) (“[T]he
claims for legal malpractice, breach of fiduciary duty, breach of contract, conspiracy, and fraud are not
created by virtue of Title 11. Nor are they of the sort that could only exist in the context of a bankruptcy
case. . . . The Debtor would be able to bring these state law claims regardless of whether a bankruptcy case
had ever been brought.”).
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court.47 In those circumstances, the bankruptcy court acts like a magistrate judge with
respect to proceedings that are related but non-core.48 Although the bankruptcy court
cannot issue a final ruling as to non-core matters, it may still serve judicial economy for
the bankruptcy court to retain the matter and issue findings, provided the non-core
proceedings call upon the special knowledge and experience of the bankruptcy court.49
b.

Jury Demand

Alfred demanded a jury in his Answer to Queyrouze’s Complaint. 50 Thus, Alfred
argues that the reference should be withdrawn because it is well established that
bankruptcy courts cannot conduct jury trials. 51 In response, Queyrouze argues that
Alfred waived his right to a jury trial by filing an administrative claim with the
bankruptcy court.52 It is without question that a party filing a “formal proof of claim”
with the bankruptcy court consents to that court’s jurisdiction.53

Executive Benefits Ins. Agency v. Arkison, 134 S. Ct. 2165, 2172–73 (2014). See also In re OCA, 2006
WL 4029578, at *3 (citing In re United States Lines, Inc., 197 F.3d 631, 636 (2d Cir. 1999)).
48 Arkison, 134 S. Ct. at 2172; In re OCA, 2006 WL 4029578, at *3.
49 Arkison, 134 S. Ct. at 2172; In re OCA, 2006 WL 4029578, at *3.
50 Steve Queyrouze v. Randall M. Alfred, et al., No. 14-1050, R. Doc. 9, at *9 (Bankr. E.D. La.).
51 In re Queyrouze, No. 14-2715, R. Doc. 1, at *13–14 (E.D. La.). See also In re Clay, 35 F.3d 190, 197 (5th
Cir. 1994).
52 In re Queyrouze, No. 14-2715, R. Doc. 9, at *11–12 (E.D. La.). On November 15, 2012, Alfred filed a
motion for administrative claim approving his professional fees. In re Forty Acre Corporation, No. 1110074, R. Doc. 136 (Bankr. E.D. La.). In connection therewith, the bankruptcy court ordered Alfred to
submit an order within two days of the court’s ruling, but Alfred failed to do so. The status of Alfred’s
claim for professional fees and whether it remains pending is unclear. However, the Court notes that the
motion has not been withdrawn. Moreover, an opposition to the motion was filed by the LeBlancs on
November 15, 2013, which suggests that the motion was never resolved or denied. See In re Forty Acre
Corporation, No. 11-10074, R. Doc. 216 (Bankr. E.D. La.).
53 See In re OCA, 2006 WL 4029578, at *4. Both parties submitted memoranda on the recent Supreme
Court decision Wellness International Network, Limited v. Sharif, 135 S. Ct. 1932 (2015). See In re
Queyrouze, No. 14-2715, R. Docs. 17, 18 (E.D. La.). The parties agree that the Supreme Court in Wellness
International found that private litigants may consent to have their claims adjudicated by a federal
bankruptcy court. Rather, the parties dispute the applicability of the Wellness International decision to
the present case. The Court finds that the Wellness International decision does not alter the arguments
previously set forth by the parties or the reasoning and conclusions included herein.
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In this case, Alfred filed a motion seeking to recover his professional fees, which
is tantamount to a formal proof of claim. 54 Alfred demanded a trial by jury in his
Answer, but he has waived this right. This factor does not favor a withdrawal of the
reference.
c.

Judicial Economy

The interests of uniformity, reducing forum shopping, conserving resources, and
expeditious resolution support denying the motion to withdraw the reference. Forty
Acre’s bankruptcy case has been pending before the bankruptcy court since November
2011.55 Thus, the bankruptcy court is much more familiar with the status of Forty Acre’s
bankruptcy proceedings, Alfred’s representation of Forty Acre therein, and the factors
that precipitated Forty Acre’s declaration of bankruptcy. The bankruptcy court is better
suited to determine whether Alfred’s representation of Forty Acre was in fact negligent.
“Under the circumstances, maintaining the current arrangement is preferable to
conducting duplicative pretrial proceedings.”56 In order to promote uniformity, prevent
forum shopping, foster the economical use of resources, and expedite the bankruptcy
process, the bankruptcy court should retain jurisdiction over Queyrouze’s Complaint
against Alfred and Alfred’s law firm.
CONCLUSION
The allegations of negligence and legal malpractice against Alfred are non-core
proceedings. As noted above, the bankruptcy court is generally unable to issue final
rulings on non-core matters. However, the bankruptcy court is authorized to submit
See In re Forty Acre Corporation, No. 11-10074, R. Doc. 136 (Bankr. E.D. La.). The fact that Alfred did
not file a “formal proof of claim” is irrelevant. Alfred is not a typical creditor and thus was not required to
file a formal proof of claim. See Debaillon v. Steffes, 195 B.R. 362, 364 (M.D. La. 1996). As an attorney for
the debtor, “the proper procedural mechanism for asserting [his] claims was an application for fees.” Id.
In this context, “the distinction between a proof of claim and an application for fees is immaterial.” Id.
55 See In re Forty Acre Corporation, No. 11-10074, R. Doc. 1 (Bankr. E.D. La.).
56 In re OCA, 2006 WL 4029578, at *5.
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reports and recommendations to this Court on issues that are related but non-core.57
Considering Alfred has waived his right to a jury trial, as well as the interests of judicial
economy and expeditious resolution of disputes, the Court finds it appropriate for this
matter to remain in bankruptcy court for all pre-trial matters and for trial.58 “[T]he
bankruptcy judge shall submit proposed findings of fact and conclusions of law to the
district court, and 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.”59
For the reasons stated herein, Defendants’ motion to withdraw the reference is
hereby DENIED.
New Orleans, Louisiana, this 15th day of September, 2015.
_______ _____ _________________
SUSIE MORGAN
UNITED STATES DISTRICT JUDGE

See supra notes 47–49. “[T]he Bankruptcy Judge can submit a report and recommendation to [the
district court], which will be reviewed de novo.” In re OCA, 2006 WL 4029578, at *5.
58 In re Guynes Printing Co. of Texas, Inc., No. 15-cv-149, 2015 WL 3824070, at *2 (W.D. Tex. June 19,
2015) (citing 28 U.S.C. § 157(c)(1); Wellness International, 135 S. Ct. at 1940) (“For the non-core
proceedings, the bankruptcy court can handle all pretrial matters, and issue findings of fact and
conclusions of law for any dispositive motions that this Court will then review de novo.”). See also City
Bank v. Compass Bank, No. EP-11-MC-372-KC, 2011 WL 5442092, at *6 (W.D. Tex. Nov. 9, 2011);
Michaelesco v. Shefts, 303 B.R. 249, 252 (D. Conn. 2004) (“[W]ith respect to non-core matters, the
bankruptcy court may not issue final orders unless the parties consent. If one of the parties does not
consent, the bankruptcy judge submits proposed findings of fact and conclusions of law to the district
court. Then the district court enters a final order of judgment 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.’”); see also In re OCA, 2006 WL 4029578, at *5.
59 28 U.S.C. § 157(c)(1).
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