In Re: Kanetha Arun Chau
Filing
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ORDER AND REASONS granting 1 Motion to Withdraw Reference. Signed by Judge Susie Morgan on 10/31/2016. (cg)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
CIVIL ACTION
IN RE: KANETHA ARUN CHAU
NO. 16-14733
SECTION: “E”
ORDER AND REASONS
Before the Court is a Motion to Withdraw the Reference filed by Defendant Capital
One, N.A.1 The Plaintiff filed an opposition to the motion.2 For the reasons stated herein,
the motion is GRANTED.
BACKGROUND
On January 13, 2014, Kanetha Arun Chau (“Chau”) 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.3 In August of 2015, Capital One, N.A. (“Capital
One”) imposed an administrative freeze on the accounts of Chau and her related
companies. As a result of the administrative freeze, Chau filed an adversary bankruptcy
proceeding against Capital One.4
In her Amended Complaint, Chau alleged Capital One is liable to her for violations
of the automatic stay provisions of the Bankruptcy Code, for breach of contract, and for
negligence under Louisiana Civil Code articles 2315 and 2317. 5 On August 4, 2016, the
Bankruptcy Court granted the Plaintiff’s motion to withdraw the company plaintiffs from
the matter, leaving Chau as the only plaintiff. 6 The company plaintiffs then filed suit
In re Chau, No. 16-14733, R. Doc. 1 (E.D. La.).
In re Chau, No. 16-14733, R. Doc. 4 (E.D. La.).
3 In re Kanetha Arun Chau, No. 14-10059, R. Doc. 1 (Bankr. E.D. La.).
4 Chau v. Capital One, N.A., No. 16-1006, R. Doc. 1 (Bankr. E.D. La.).
5 Chau v. Capital One, N.A., No. 16-1006, R. Doc. 16 (Bankr. E.D. La.).
6 Chau v. Capital One, N.A., No. 16-1006, R. Doc. 26 (Bankr. E.D. La.).
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against Capital One in state court on August 2, 2016, alleging breach of contract and
negligence under Louisiana Civil Code articles 2315 and 2317.7 Capital One then removed
the suit to this Court on September 1, 2016.8
On August 17, 2016, the company plaintiffs, with the addition of Sake 21, LLC, filed
suit in state court, alleging the same causes of action and seeking the same damages as
the August 2, 2016 state court petition.9 Capital One removed the matter to this Court on
October 24, 2016.10
On September 15, 2016, Capital One filed its motion to withdraw the reference
before this Court, alleging the state court petition in case 16-14400 and the complaint in
the bankruptcy petition set forth the same operative facts and causes of action, except for
the automatic stay violation claim.11 It is Chau’s adversary complaint in the bankruptcy
proceeding that Capital One argues should be withdrawn from the bankruptcy court and
decided by the district court.
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
Pho An, LLC, et al. v. Capital One, N.A., No. 2016-13199, 22nd Judicial District Court for the Parish of St.
Tammany, State of Louisiana.
8 Pho Ann, LLC, et al. v. Capital One, N.A., No. 16-14400 (E.D. La.).
9 Sake 21, LLC, et al. v. Capital One, N.A., No. 2016-13305, 22nd Judicial District Court for the Parish of
St. Tammany, State of Louisiana.
10 Sake 21, LLC, et al. v. Capital One, N.A., No. 16-15802, R. Doc. 1 (E.D. La.).
11 In re: Kanetha Arun Chau, No. 16-14733, R. Doc. 1 (E.D. La.).
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United States regulating organizations or activities affecting interstate
commerce.12
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
other U.S. laws regulating organizations or activities that affect interstate commerce. 13
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.”14
In this case, Capital One does not seek mandatory withdrawal of the reference, nor
is such withdrawal appropriate under the circumstances.15 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. 16 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.17
28 U.S.C. § 157(d).
Id.
14 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)).
15 The claims sought to be withdrawn are not founded upon federal law. Rather, the claims are state-law
causes of action for negligence and breach of contract.
16 See, e.g., Holland Am. Ins. Co. v. Succession of Roy, 777 F.2d 992, 999 (5th Cir. 1985).
17 Id.
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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
provides some illustrative examples. 18 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.” 19
In this case, Capital One argues that non-core claims predominate in this matter,
and thus the bankruptcy reference should be withdrawn.20 Capital One concedes that the
claim with respect to the alleged violation of the automatic stay provisions in section 362
of the Bankruptcy Code is a “core” claim.21 The breach of contract and negligence claims,
however, are “non-core” claims.22 Capital One contends that the “[a]uthority to withdraw
applies to both core and non-core proceedings.”23
The Court agrees with Capital One. “The cumulative effect of the grant of original
jurisdiction to the district court and its right to withdraw the reference in a bankruptcy
case or related matter or to refer bankruptcy-related matters to the bankruptcy court
leaves little doubt that the district court may exercise jurisdiction broadly, even over ‘core’
bankruptcy matters.”24 Therefore, even though this matter contains a “core” claim, this
Court is not precluded from withdrawing the reference.
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 . . . .”).
19 In re Wood, 825 F.2d 90, 97 (5th Cir. 1987). See also In re Southmark, 163 F.3d 925, 930 (5th Cir. 1999).
20 In re Chau, No. 16-14733, R. Doc. 1-1, at 5–6 (E.D. La.).
21 Id. at 5.
22 Id.
23 Id.
24 Holland Am. Ins. Co. v. Succession of Roy, 777 f.2d 992, 998 (5th Cir. 1985).
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b.
Jury Demand
Although Capital One has made no jury demand with respect to the state law claims
in the adversary proceeding, it contends the Seventh Amendment provides Capital One a
right to a jury trial on those claims.25 Thus, Capital One argues that the reference should
be withdrawn because it is well established that bankruptcy courts cannot conduct jury
trials.26 This factor, therefore, favors withdrawal of the reference.27
c.
Judicial Economy
The interests of uniformity, reducing forum shopping, conserving resources, and
expeditious resolution in this case support granting the motion to withdraw the reference.
“Where a proceeding in bankruptcy involves common issues of law and fact with a case
pending in district court, the overlapping of facts, transactions and issues in the two cases
. . . is good cause for withdrawal of the reference and consolidation with the district court
proceeding.” 28 The claims pending in the adversary proceeding and the pending civil
actions have overlapping facts, and will require the use of the same witnesses and
evidence. Therefore, this factor favors withdrawal of the reference.
CONCLUSION
Although the adversary proceeding contains a core bankruptcy claim, it is
appropriate in this matter to withdraw the reference because of the substantial overlap of
the facts and issues in the three cases.
In re Chau, No. 16-14733, R. Doc. 1-1, at 6 (E.D. La.).
See In re Clay, 35 F.3d 190, 197 (5th Cir. 1994).
27 See In re Gulf States Long Term Acute Care of Covington, LLC, 455 B.R. 869, 876 (Bankr. E.D. La. 2011)
(“The Court finds that even though the Movant–Defendants have not yet demanded a jury trial, the obvious
right to such a trial is a factor weighing in favor of withdrawal of the reference.”).
28 Big Rivers Elec. Corp. v. Green River Coal Co., 182 B.R. 751, 755 (W.D. Ky. 1995) (internal quotation
omitted).
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For the reasons stated herein, Defendants’ motion to withdraw the reference is
hereby GRANTED.
New Orleans, Louisiana, this 31st day of October, 2016.
________________________________
SUSIE MORGAN
UNITED STATES DISTRICT JUDGE
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