KEACH v. WORLD FUEL SERVICES CORPORATION et al

Filing 23

ORDER denying 1 Motion to Withdraw Reference By JUDGE NANCY TORRESEN. (mb)

UNITED STATES DISTRICT COURT
DISTRICT OF MAINE
In re:
MONTREAL MAINE & ATLANTIC
RAILWAY, LTD.,
Debtor.

ROBERT KEACH, solely in his
capacity as the chapter 11 trustee for
MONTREAL MAINE & ATLANTIC
RAILWAY, LTD.,
Plaintiff,
v.
WORLD FUEL SERVICES CORP.,
WORLD FUEL SERVICES, INC.,
WESTERN PETROLEUM CO.,
WORLD FUEL SERVICES, CANADA,
INC., PETROLEUM TRANSPORT
SOLUTIONS, LLC, CANADIAN
PACIFIC RAILWAY CO., and IRVING
OIL LTD.,
Defendants.

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Bk. No. 13-10670
Chapter 11

Adversary Proceeding No. 14-1001
Docket No. 1:15-mc-22-NT

ORDER ON DEFENDANT CANADIAN PACIFIC’S MOTION TO WITHDRAW
THE REFERENCE
Before me is Defendant Canadian Pacific Railway Co.’s (“Canadian Pacific”)
motion requesting that I withdraw the reference of an adversary proceeding that was
automatically referred to the Bankruptcy Court. For the reasons stated below, I
DENY the motion.

FACTUAL & PROCEDURAL BACKGROUND1
On June 29, 2013, a train known as “Train 282” departed from an intermodal
transloading facility in New Town, North Dakota with seventy-two tank cars in tow,
bound for an Irving Oil Ltd. (“Irving”) refinery in Saint John, New Brunswick.
Under an arrangement Irving had with World Fuel Services Corp. and a number of
affiliated entities (collectively, the “World Fuel Affiliates”), the cars had been
loaded with crude oil transported to New Town by truck.
Canadian Pacific operated Train 282 from New Town to Cote Saint-Luc,
Québec. There, it transferred control of the train to Montreal Maine & Atlantic
Railway, Ltd. (“MMA”), which was to carry it the remainder of its journey.
At about 11:25 p.m. on July 5, 2013, MMA stopped Train 282 for the evening
in Nantes, Québec. Shortly after midnight, the Nantes Fire Department was called
to put out a fire in one of Train 282’s locomotives. The train’s lead engine was powered
down to allow firefighters to put down the blaze, and the fire was extinguished by
12:15 a.m. on July 6, 2013. Firefighters turned the train over to the custody of an
MMA employee, who allegedly left the scene without restarting the lead engine.
Without power from a running locomotive, Train 282’s air-brake system lost
power and the train began rolling downhill toward Lac-Mégantic. It reached
downtown at around 1:15 a.m. and derailed, causing many of its tank cars to rupture.

The underlying facts, gleaned from the Trustee’s Amended Complaint, the World Fuel
Affiliates’ proofs of claim, Canadian Pacific’s proof of claim, and the parties’ briefing, are not materially
disputed for the purposes of the motion before the Court.
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Large explosions and a massive, uncontrolled fire followed. Forty-seven people were
killed.
Lawsuits against MMA mounted in the weeks following the accident, including
wrongful death claims filed in Cook County, Illinois (later transferred to this District)
and a proposed class action filed in the Superior Court of the Province of Québec.
Facing massive potential liability, MMA petitioned for chapter 11 bankruptcy in this
District on August 7, 2013. MMA’s Canadian subsidiary initiated a parallel
bankruptcy case in the Superior Court of the Province of Québec. On August 21, 2013,
Robert Keach was appointed as the trustee of the bankruptcy estate in the U.S. case
(the “Trustee”).
To date, MMA’s purported creditors have filed nearly 500 proofs of claim2 in
the U.S. case seeking approximately $2.1 billion from the bankruptcy estate. Among
those are proofs of claim filed by each of the World Fuel Affiliates and by Canadian
Pacific. The World Fuel Affiliates’ proofs of claim dispute that they bear any fault for
the Lac-Mégantic tragedy and assert claims for subrogation, indemnification,
reimbursement, and contribution related to the wrongful death suits. In re Montreal
& Atlantic, Bk. No. 13-10670, D. Me. Bankr. Ct., Claim Register, Doc. Nos. 28-1
through 32-1. Canadian Pacific’s proof of claim also disputes that it bears any fault

The Bankruptcy Code statutorily defines the term “claim” broadly, to refer to any “right to
payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent,
. . . disputed, undisputed, legal, [or] equitable, secured, or unsecured,” or any “right to an equitable
remedy for breach of performance” that could give rise to a right to payment. 11 U.S.C. § 101(5); see
also Rederford v. U.S. Airways, Inc., 589 F.3d 30, 35-36 (1st Cir. 2009) (explaining that Congress “gave
the term ‘claim’ the ‘broadest available definition.’ ” (quoting F.C.C. v. NextWave Pers. Commc’ns, 537
U.S. 293, 302 (2003)).
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for the derailment and asserts the following: (1) claims for subrogation,
indemnification, contribution, and reimbursement for any amount Canadian Pacific
is required to pay under the wrongful death suits and the Québec class action; and
(2) claims for reimbursement for any amount Canadian Pacific is ordered to pay
under (a) a lawsuit for the value of Train 282’s cargo and railcars, among other things,
brought by a number of the other defendants in this adversary proceeding, (b) other
lawsuits for derailment-related property damages that may be brought against
Canadian Pacific in the future, and (c) environmental remediation orders issued by
the Québec Minister of Sustainable Development, Environment, Wildlife and Parks.
Am. Claim #92, In re Montreal & Atlantic, Bk. No. 13-10670, D. Me. Bankr. Ct., Claim
Register, Doc. No. 92-2, ¶¶ 6-30 (“Can. Pac.’s Am. Proof of Claim”).
In response, the Trustee initiated an adversary proceeding, filing a complaint
both: (1) objecting to the allowance of the claims filed by the World Fuel Affiliates and
Canadian Pacific; and (2) asserting common law negligence claims against Canadian
Pacific, three of the World Fuel Affiliates, and Irving. Keach v. World Fuel Services
Corp. (In re Montreal, Me. & Atlantic Ry., Ltd.), Bk. No. 13-10670, Adversary
Proceeding No. 14-1001, Doc. No. 95, First Am. Compl., (“Tr.’s Am. Compl.”).
The complaint implicates the Defendants under two main theories of liability.
First, it alleges that the Defendants had duties to evaluate whether the train’s load
was classified properly and that they breached those duties by classifying it as low
volatility “Packing Group III” cargo rather than high volatility “Packing Group I”
cargo. Tr.’s Am. Compl. ¶¶ 7-8, 111. Had they properly classified the crude oil, the

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complaint alleges, MMA would have operated Train 282 under more stringent
protocols that would have prevented the derailment altogether. Tr.’s Am. Compl.
¶ 83. Second, it alleges that the Defendants had a duty to ensure that the cargo was
packaged safely, and that they breached that duty by shipping the crude oil in
unsuitable non-retrofitted DOT-111 tank cars. Tr.’s Am. Compl. ¶¶ 9, 111. Had they
shipped the crude oil in stronger tank cars, the complaint alleges, the derailment
would not have caused nearly as much damage. Tr.’s Am. Compl. ¶¶ 9-11, 114.
The complaint also narrows in on a more specific legal theory of why Canadian
Pacific should bear liability for the Lac-Mégantic disaster despite its limited role in
the events preceding it. It asserts that Canadian Pacific “had reasonable grounds to
suspect that the classification of the crude oil shipment was incorrect” and therefore
“had an affirmative duty to not carry the shipment or to stop the shipment until the
classification was correct.” Tr.’s Am. Compl. ¶ 108. The Trustee clarified at oral
argument that this is the only claim he intends to bring against Canadian Pacific.3
The Trustee’s complaint was automatically referred to the Bankruptcy Court
under 28 U.S.C. § 157(a) and Local Rule 83.6. In lieu of filing an answer, Canadian
Pacific filed the motion before me, requesting the withdrawal of the reference
pursuant to 28 U.S.C. § 157(d). See Can. Pac.’s Mem. of Law in Support of Mot. to
Withdraw Reference (ECF No. 1-1) (“Can. Pac.’s Mot.”).

Because most of the complaint’s allegations are directed at “the Defendants” collectively, it can
be fairly read to assert more expansive claims against Canadian Pacific. The Trustee asserts he did
not intend to raise such broad claims against Canadian Pacific and I construe the complaint in light
of his narrowing clarification.
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DISCUSSION
Article I of the United States Constitution authorizes Congress to pass
“uniform Laws on the subject of Bankruptcies.” U.S. Const. art. I, § 8, cl. 4. Under
this grant of authority, Congress passed the Bankruptcy Amendments and Federal
Judgeship Act of 1984 (the “1984 Act” or the “Act”), Pub. L. 98-353, 98 Stat. 333,
which vests United States district courts with “original but not exclusive jurisdiction
of all civil proceedings arising under title 11 [the “Bankruptcy Code” or the
“Code”], or arising in or related to cases under title 11.” 28 U.S.C. § 1334(b).
The Act also provides that “[e]ach district court may provide that . . . all cases
under title 11 and . . . all proceedings arising under title 11 or arising in or related to
a case under title 11 shall be referred to the bankruptcy judges for the district.” 28
U.S.C. § 157(a). The District of Maine has established a standing rule, Local Rule
83.6, which does just that.
Another 1984 Act provision, 28 U.S.C. § 157(d), permits and in some cases
requires district courts to withdraw the reference of a proceeding from a bankruptcy
judge. It provides as follows:
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.
28 U.S.C. § 157(d) (emphasis added).

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As the above passage shows, Section 157(d) contains two prongs: (1) a federal
law prong;4 and (2) a cause prong.5 See id. Canadian Pacific seeks to have this Court
withdraw the reference of the adversary proceeding under both prongs and the Court
separately addresses each.
I.

Federal Law Prong
Canadian Pacific argues that the standard for withdrawal under the federal

law prong is met here because the Trustee’s claim against it will require consideration
of federal railroad law, including the Federal Railroad Safety Act’s (“FRSA”)
preemption scheme and Department of Transportation regulations. The Trustee
counters that Canadian Pacific has failed to show why federal railroad law is
implicated at all and, even if it is, why the deciding judge would have to engage in
“substantial and material consideration” of that law to resolve this case, as required
under the applicable standard interpreting Section 157(d)’s federal law prong. In re
White Motor Corp., 42 B.R. 693, 705 (N.D. Ohio 1984); see also Howard v. Can. Nat’l
Ry. Co., No. 04-MC-0056-B-S, 2005 WL 758446, at *1 (D. Me. Feb. 23, 2005) (adopting
the White Motor test).

This prong is intended to “assure[ ] litigants that under certain circumstances their assertion
of a federally created right will be considered by an Article III judge who considers laws regulating
interstate commerce on a regular basis.” S. Pac. Transp. Co. v. Voluntary Purchasing Grps., Inc., 252
B.R. 373, 382 (E.D. Tex. 2000).
4

Although courts typically refer to the federal law prong as the “mandatory” prong and the
cause prong as the “discretionary” prong, those terms can be confusing. As discussed in greater detail
below, the Seventh Amendment and constraints on bankruptcy judges’ authority to conduct jury trials
may in certain circumstances require withdrawal of the reference under the cause prong,
notwithstanding its employment of the word “may.” See Growe ex rel. Great N. Paper, Inc. v. Bilodard
Inc., 325 B.R. 490, 492 (D. Me. 2005).
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I address Canadian Pacific’s argument for withdrawal of the reference under
Section 157(d)’s federal law prong in light of both of the Trustee’s counterarguments.6
A.

Whether Canadian Pacific Has Shown that Consideration of
Non-Code Federal Law is Required

As a threshold matter, the federal law prong requires withdrawal of the
reference only if this Court can make an “affirmative determination” that resolution
of the claims hinges on non-Code federal law. White Motor, 42 B.R. at 705. The
Trustee and Canadian Pacific dispute whether the Trustee’s claims will involve the
consideration of federal law. Canadian Pacific takes the position that the adversary
proceeding will be governed by the FRSA, which will preempt any common law
standards of care. See Can. Pac.’s Mot. 7-27. Canadian Pacific contends that under
the FRSA, shippers/consignors and receivers/consignees bear exclusive responsibility
for the classification of dangerous substances, and a mere carrier like itself has no
duty in that regard. See Can. Pac.’s Mot. 21-22. The Trustee argues that Canadian
substantive law will decide his claims, not U.S. federal railroad law, noting that his
complaint concerns Canadians killed and injured in a derailment on Canadian soil.
Tr.’s Opp’n to Can. Pac.’s Mot. 7-9 (ECF No. 17) (“Tr.’s Opp’n”).

The Trustee also raises a third argument meriting less attention—that Canadian Pacific’s
motion is untimely, because it waited until seven months after it filed its proof of claim to move to
withdraw the reference. This argument leaves out two crucial facts: (1) that the Trustee did not object
to Canadian Pacific’s proof of claim until January 15, 2015; and (2) that Canadian Pacific filed its
motion to withdraw the reference the very same day. Because a proof of claim is prima facie evidence
of a claim’s validity, see Fed. R. Bankr. P. 3001(f); 11 U.S.C. § 502(a); Whitney v. Dresser, 200 U.S. 532,
535 (1906), Canadian Pacific would have had no reason to anticipate that “substantial and material
consideration” of any law would be required to allow or disallow its claim until the Trustee registered
his objection.
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Neither party briefed the choice-of-law principles that would govern this
question.7 Perhaps Canadian Pacific failed to undertake a meaningful analysis of
Maine’s choice of law factors because it takes the position that even if Canadian law
were to apply, the relevant Canadian regulations merely refer back to U.S. federal
railroad regulations found in Title 49 of the United States Code of Federal
Regulations.
At the center of the parties’ dispute over whether U.S. or Canadian law governs
are three Canadian regulations. See Canadian Transportation of Dangerous Goods
Regulations (“Canadian TDGRs”) §§ 2.2(6), 10.1(1), 10.1(2)(a) (Canadian
Transportation of Dangerous Goods Act of 1992), SOR/2001-286 (Can.). The first of
these regulations, which I will refer to as the “Carrier Classification Duty,” is
found in Part 2 of the Canadian TDGRs, which governs classifications of dangerous
goods. This regulation provides:
A carrier who . . . has reasonable grounds to suspect an error in
classification while dangerous goods are in transport must advise the
consignor and must stop transporting the dangerous goods until the
consignor verifies or corrects the classification. . . .

My own research indicates that federal district courts apply the choice-of-law principles of the
forum. Klaxon Co. v. Stentor Mfg. Co., 313 U.S. 487, 496 (1941); Levin v. Dalva Bros., Inc., 459 F.3d
68, 73 (1st Cir. 2006). In Maine, courts hearing tort suits apply the law of the forum with the “most
significant contacts and relationships” to the issue, considering (a) “the place where the injury
occurred,” (b) “the place where the conduct causing the injury occurred,” (c) “the domicile, residence,
nationality, place of the parties,” and (d) “the place where the relationship, if any, between the parties
is centered.” Flaherty v. Allstate Insurance Co., 822 A.2d 1159, 1165 (Me. 2003) (quoting Restatement
(Second) of Conflict of Laws § 145 (1971)). In completing this analysis, Maine courts must also
“consider” the “principles in section 6 of the Restatement,” id. at 1167, which include “the needs of the
interstate and international systems,” “the relevant policies of the forum,” “the relevant policies of
other interested states and the relative interests of those states in the determination of the particular
issue,” and “the basic policies underlying the particular field of law.” Restatement (Second) of Conflict
of Laws § 6 (1971).
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Canadian TDGRs § 2.2(6)
The second regulation, which I will refer to as the “Adoption of U.S.
Regulations Provision,” is found in a section entitled “Transporting Dangerous
Goods from the United States into or through Canada.” Canadian TDGRs § 10.1. It
provides, in pertinent part, that:
Despite the requirements in Part 2, Classification, Part 3,
Documentation, and Part 4, Dangerous Goods Safety Marks, a person
may handle or transport dangerous goods by railway vehicle from a
place in the United States to a place in Canada . . . in accordance with
the classification, marking, labelling, placarding and documentation
requirements of 49 CFR if [several additional requirements, including
some found in Part 3, are met].
Canadian TDGRs § 10.1(1).
The third regulation, which I will call the “Forbidden Goods Exception,”
immediately follows the Adoption of U.S. Regulations Provision. It provides that the
Adoption of U.S. Regulations Provision “does not apply to dangerous goods that . . .
are forbidden for transport by [the Canadian TDGRs].” Canadian TDGRs § 10.1(2)(a).
Citing the Adoption of U.S. Regulations Provision, Canadian Pacific argues
that even if Canadian law applies, it merely refers back to U.S. federal railroad
regulations. The Trustee acknowledges the Adoption of U.S. Regulations Provision,
but argues that the Forbidden Goods Exception applies. He claims that the
misclassified crude oil at issue was “forbidden for transport” because the Carrier
Classification Duty required Canadian Pacific to stop the shipment, as it had
reasonable grounds to suspect the shipment was misclassified.

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Canadian Pacific’s reply does not address the Trustee’s argument except to
assert in conclusory fashion that it “make[s] no sense.” Can. Pac.’s Reply to Tr.’s
Opp’n 4 (ECF No. 19) (“Can. Pac.’s Reply”). But from my vantage point, without
the benefit of any briefing on how Canadian courts interpret these regulations, the
Trustee’s argument is not self-evidently implausible. Canadian Pacific has neither
crafted a cogent argument nor provided a single case or authority explaining why its
interpretation of the highly technical, comprehensive Canadian regulatory scheme is
correct.8 Because Canadian Pacific has neither briefed the underlying choice of law
issue nor explained how the Court should engage in the complex task of interpreting
the Canadian TDGRs, I am not in a position to affirmatively determine that U.S.
federal law will decide this case. Accordingly, withdrawal of the reference under
Section 157(d)’s federal law prong is not warranted.
B.

Whether Canadian Pacific Has Shown that Substantial and
Material Consideration of Non-Code Federal Law Would Be
Required if U.S. Federal Railroad Law Governs

In an abundance of caution, I also analyze whether withdrawal would be
required under the test laid out in White Motor if I assume federal railroad law
governs, as Canadian Pacific urges.
Courts read the language of Section 157(d)’s federal law prong narrowly, to
require to withdrawal of the reference only if the Court can make an “affirmative

In addition to failing to provide any authority to support its interpretation, Canadian Pacific
quotes italicized sections of the Canadian TDGRs as though this material was part of the regulations.
Can. Pac.’s Reply 4. The Canadian TDGRs’ own section governing “interpretation” provides that
“[a]nything written in italics in these Regulations is not part of the Regulations.” Canadian TDGRs
§ 1.3.
8

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determination” that resolving the claims will require “substantial and material
consideration” of non-Code federal law. White Motor, 42 B.R. at 705 (emphasis
added).9 The substantial and material consideration inquiry is satisfied when
resolving the proceeding would require a court to make a “significant interpretation”
or “engage itself in the intricacies” of non-Code federal law. City of New York v. Exxon
Corp., 932 F.2d 1020, 1026 (2d Cir. 1991); Shugrue v. Air Line Pilots Ass’n, Int’l, 922
F.2d 984, 995 (2d Cir. 1990). The substantial and material consideration inquiry is
not satisfied where resolving the case would require only “simple” or “routine”
application of non-Code federal law. City of New York, 932 F.2d at 1026; Shugrue, 922
F.2d at 995. “The legal questions involved need not be of cosmic proportions, but must
involve more than mere application of existing law to new facts.” In re Vicars Ins.
Agency, Inc., 96 F.3d 949, 954 (7th Cir. 1996) (internal citations and quotation marks
omitted); see also In re Enron Corp., No. 05 Civ. 4079 (GBD), 2005 WL 1185804, at *2
(S.D.N.Y. May 18, 2005) (explaining that the proper analysis focuses on “the degree
to which the bankruptcy judge would have to consider . . . federal non-bankruptcy
laws” (internal citations, quotation marks, and bracketing omitted)). Typically, the
movant’s “burden . . . is more easily met” where resolution of the proceeding will
include “matters of first impression.” In re Ames Dep’t Stores, 512 B.R. 736, 741
(S.D.N.Y. 2014) (internal quotation marks and citations omitted).

As the White Motor court explained, this narrow, non-literal interpretation is compelled by the
relevant legislative history and statutory structure, which indicates that Section 157(d) was never
“intended to become an escape hatch through which most bankruptcy matters will be removed to the
district court.” White Motor, 42 B.R. at 705 (internal quotation marks and citations omitted). Both
parties agree that the “substantial and material consideration” test first announced in White Motor
applies. See Can. Pac.’s Mot. 8-9; Tr.’s Opp’n 9-10.
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The holdings of two federal law prong cases discussed in the parties’ briefing
provide useful signposts for applying the White Motor test. In the first, Security
Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 454 B.R.
307 (S.D.N.Y. 2011), the standard for withdrawal was met where the movant
demonstrated that the question of whether the suit against it was completely
preempted depended on a novel and open question of statutory interpretation. Id. at
313-14. At issue was whether a bankruptcy trustee bringing a suit asserting the
rights of Madoff’s defrauded customers should be counted as a single “person” (i.e. a
single bankruptcy estate) or as many “persons” (i.e. many defrauded customers) for
purposes of determining whether the trustee’s suit was a “covered class action” and
preempted under the Securities Litigation Uniform Standards Act. Id. at 313-14. By
contrast, in American Body Armor & Equipment v. Clark, 155 B.R. 588 (M.D. Fla.
1993), the standard for withdrawal was not met where the movant merely
demonstrated that provisions of the Securities Exchange Act and certain SEC
regulations would be determinative, not that the deciding court would have to resolve
any legal “complexities or conflicts” to apply them. Id. at 590. At issue was whether
majority shareholders in a corporation failed to comply with U.S.C. § 78n(c) and 17
C.F.R. § 240.14c-2, which require certain companies to distribute information
statements to unsolicited security holders before taking corporate action. Id. at 589.
Canadian Pacific argues that the FRSA’s express preemption clause displaces
any state law governing the Trustee’s adversary proceeding. See 49 U.S.C. § 20106;
Norfolk S. Ry. Co. v. Shanklin, 529 U.S. 344, 347 (2000). The text of that express

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preemption clause has three main functional parts: (1) a baseline preemption rule;
(2) a local hazard exception; and (3) a clarification.10 See 49 U.S.C. § 20106(a)-(b). The
baseline preemption rule provides that “[a] State may adopt or continue in force a
law, regulation, or order related to railroad safety,” but only “until the Secretary of
Transportation . . . prescribes a regulation or issues an order covering the subject
matter of the State requirement.” 49 U.S.C. § 20106(a)(2); see also CSX Transp., Inc.
v. Easterwood, 507 U.S. 658, 664 (1993) (interpreting the phrase “law, regulation, or
order” to encompass common law duties). The local hazard exception provides that,
notwithstanding the baseline preemption rule, states may nonetheless impose an
“additional or more stringent” standard covering the same subject matter as a
Department of Transportation (“DOT”) rule or order where doing so: “(A) is necessary
to eliminate or reduce an essentially local safety . . . hazard; (B) is not incompatible
with [federal law]; and (C) does not unreasonably burden interstate commerce.” 49
U.S.C. § 20106(a)(2). Finally, the clarification provides that
Nothing in [the FRSA’s preemption clause] shall be construed to
preempt an action under State law seeking damages for personal injury,
death, or property damage alleging that a party . . . has failed to comply
with the Federal standard of care established by a regulation or order
issued by the Secretary of Transportation . . . .
49 U.S.C. § 20106(b)(1)(A). Congress added this clarifying language to the statute in
2007, in response to Lundeen v. Canadian Pacific Railway Co., a case where the
Eighth Circuit erroneously held that the FRSA preempted all state negligence claims,

The clause also has a purpose statement, which provides that “[l]aws, regulations, and orders
related to railroad safety and . . . railroad security shall be nationally uniform to the extent
practicable.” 49 U.S.C. § 20106(a)(1).
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even negligence per se claims invoking only a federal standard of care. 447 F.3d 606,
612-15 (8th Cir. 2006), overruled after Congressional clarification by 532 F.3d 682
(8th Cir. 2008); see also Implementing Recommendations of the 9/11 Commission Act
of 2007, Pub. L. No. 110-53, § 1528, 121 Stat. 266, 453; H.R. Rep. No. 110-259, at 351
(2007) (Conf. Rep.).
Taken as a whole, the FRSA’s preemption clause, as clarified by Congress,
establishes a straightforward legal framework. To determine whether a state law,
regulation, or order concerning railroad safety is preempted, a court must first
determine whether DOT has issued a valid regulation or order related to railroad
safety covering the subject matter at issue. If so, the state standard is preempted,
unless the local hazard exception applies. If not, the state standard is not preempted.
According to Canadian Pacific’s motion, DOT regulations cover the subject
matter at issue in this case and Canadian Pacific did not violate those regulations.
More specifically, the motion argues that valid DOT regulations place the duty of
ensuring that crude oil is properly classified on shippers, not common carriers like
Canadian Pacific, see 49 C.F.R. § 173.22, and Canadian Pacific therefore had no duty
to stop Train 282 even if its cargo was misclassified. See Crockett v. Uniroyal, Inc.,
772 F.2d 1524, 1534 (11th Cir. 1985).
Canadian Pacific has presented a simple, coherent argument that the FRSA
would require a court hearing this proceeding to dismiss the claims against it. What
Canadian Pacific has failed to demonstrate is why that court would have to engage
in anything beyond routine application of current law to do so.

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Though Canadian Pacific tries to kick up some dust to make the relevant
analysis seem complicated, it clears quickly on closer inspection. First, Canadian
Pacific points out that courts disagreed about how to apply the FRSA preemption
scheme in the past. Can. Pac.’s Mot. 13-14. But as its own briefing reveals, that
judicial confusion was cleared up in 2007, when Congress added clarifying language
to the statute. Second, Canadian Pacific notes that the regulations at issue were
actually promulgated under the authority of the Hazardous Materials Transportation
Act (“HMTA”), 49 U.S.C. App. § 1801 et seq., not the FRSA. Can. Pac.’s Mot. 17-19.
But Canadian Pacific’s own briefing also shows that the FRSA preemption scheme
applies in precisely the same way to DOT railroad regulations promulgated under the
HMTA as it does to DOT railroad regulations promulgated under the FRSA. Third,
Canadian Pacific asserted at oral argument that no court has analyzed how the FRSA
preemption scheme applies to classification obligations. This attempt to conjure an
“issue of first impression” simply because a lawsuit involving these precise
circumstances has never been litigated suggests no more than that the deciding judge
will have to apply existing law to new facts. Fourth, Canadian Pacific points to the
complexity of the parties’ disagreement about which body of law provides the relevant
standard of care. See Can. Pac.’s Reply 3. But as discussed above, it appears that any
choice of law issues will be determined, in the first instance, by application of Maine
choice of law principles, and then possibly by interpretation of certain Canadian
regulations. The complexity here comes in the form of Canadian rather than U.S.
federal law.

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Essentially, Canadian Pacific’s briefing identifies its possible route to victory,
but no counter-arguments, complexities, or true matters of first impression. On the
current record, this proceeding more closely resembles American Body Armor, where
the moving party merely showed that resolving the claim required application of
federal statutes and regulations to new facts, than Bernard L. Madoff Investment
Securities, where the moving party identified both a genuinely novel legal issue and
persuasive arguments on either side of it. Even assuming that the court adjudicating
this adversary proceeding would have to apply federal railroad law to resolve the
Trustee’s claims, Canadian Pacific has failed to demonstrate that doing so would
require substantial and material consideration of that law.
II.

Cause Prong
A party moving for withdrawal under Section 157(d)’s cause prong bears the

burden of establishing that withdrawal is warranted. Turner v. Boyle, 425 B.R. 20,
24 (D. Me. 2010). The statute does not define the term “cause,” but courts deciding
the issue typically consider four goals: (1) “promoting uniformity in bankruptcy
administration”; (2) “reducing forum shopping and confusion”; (3) “fostering the
economical use of the debtors' and creditors' resources”; and (4) “expediting the
bankruptcy process.”11 Holland Am. Ins. Co. v. Succession of Roy, 777 F.2d 992, 999

Courts sometimes characterize the “cause” inquiry as a six-factor balancing test that requires
considering not only the four goals identified above, but also “judicial economy” and “whether a jury
trial has been requested.” See, e.g., In re Larry's Apartment, 210 B.R. 469, 474 (D. Ariz. 1997). “Judicial
economy” is a general umbrella term Holland America uses to describe the four more specific goals
identified above, see Holland Am., 777 F.2d at 999, and “whether a jury trial has been requested” is
relevant because it may eventually compel withdrawal of the reference and therefore alters how the
Holland America goals operate on a specific set of facts. See infra note 13.
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(5th Cir. 1985); see also In re Jackson Brook, 280 B.R. 779, 782 (D. Me. 2002)
(parenthetically quoting the assertion in Ponce Marine Farm, Inc. v. Browner, 172
B.R. 722, 725 n.3 (D.P.R. 1994) that “most courts facing the issue have adopted the . . .
factors articulated by the Fifth Circuit in Holland America”).
The consideration of these goals is affected by two limits on bankruptcy judges’
powers. First, if the Bankruptcy Court lacks the authority to enter a final judgment
and would only be able to issue proposed findings of fact and conclusions of law for
the district court to review de novo, see U.S. Const. art. III, § 1, 28 U.S.C. § 157(c)(1),
Stern v. Marshall, 131 S. Ct. 2594 (2011), Exec. Benefits Ins. Agency v. Arkison (In re
Bellingham), 134 S. Ct. 2165 (2015),12 withdrawing the reference obviates the need
for an extra step of judicial review. See Turner, 425 B.R. at 24. Even where this
concern is implicated, district courts sometimes determine that it would be useful to
have the bankruptcy judge’s report and recommended decision or that other factors
override any inefficiencies. See In re Connie’s Trading Corp., No. 12-11280, 2014 WL
1813751, at *9 (S.D.N.Y. May 8, 2014). Second, if one of the parties has a right to and
demands a jury trial before an Article III judge, see U.S. Const. amend. VII, 28 U.S.C.

Under the 1984 Act, bankruptcy judges may only finally resolve “core proceedings arising
under title 11, or arising in a case under title 11.” 28 U.S.C. §§ 157(b)(1). Though bankruptcy judges
may “hear” proceedings that are just “related to a case under title 11”—so-called “non-core”
proceedings—they may not enter final judgment in such proceedings without the parties’ consent. 28
U.S.C. § 157(c)(1)-(2). Absent such consent, bankruptcy judges may only issue proposed findings of fact
and conclusions of law subject to de novo review by the district court. 28 U.S.C. § 157(c); Fed. R. Bankr.
P. 9033(a), (d). Though the 1984 Act classifies “counterclaims by the estate against persons filing
claims against the estate” as “core” proceedings, the Supreme Court has held that constitutionally
compelled constraints on the authority of bankruptcy judges require courts to treat such counterclaims
as if they were “non-core” proceedings if they do not implicate “public rights,” do not stem from the
bankruptcy itself, and are not necessarily resolved during the claims allowance process. Stern, 131 S.
Ct. at 2618-20; In re Bellingham, 134 S. Ct. at 2173; Wellness Int’l Network, Ltd. v. Sharif, No. 13-193,
575 U.S. ----, slip op. at 7-18 (May 26, 2015).
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§ 157(e),13 withdrawing the reference allows the same judge to preside over both
pretrial matters and the trial itself. See In re Star Creditors’ Liquidating Trust, No.
03-793-KAJ, 2004 WL 406353, at *1 (D. Del. Mar. 3, 2004). Even where this concern
is implicated, district courts sometimes determine that it would be more efficient to
have the bankruptcy judge manage the proceedings until the case is ready for trial, a
procedure that presents no Seventh Amendment problems. Turner, 425 B.R. at 23
(“[A] district court might . . . decide that ‘a case is unlikely to reach trial, that it will
require protracted discovery and court oversight before trial, or that the jury demand
is without merit, and therefore conclude that the case at that time is best left in the
bankruptcy court.’ ” (quoting Orion Pictures Corp. v. Showtime Networks, Inc. (In re
Orion Pictures Corp.), 4 F.3d 1095, 1101-02 (2d Cir. 1993)).
The proceeding at issue is just a small piece in a sprawling, ten-figure
bankruptcy case with many, many moving parts.14 The Bankruptcy Court has been

The Seventh Amendment provides that “the right of trial by jury shall be preserved” “in suits
at common law” where the matter in controversy exceeds twenty dollars. U.S. Const. amend. VII. In
turn, 28 U.S.C. § 157(e) provides that “[i]f the right to a jury trial applies in a proceeding,” “the
bankruptcy judge may conduct the jury trial” only if the district court “specially designate[s]” and all
parties give their “express consent.” By implication, where the right to a jury trial applies but a party
withholds consent, the district court must withdraw the reference when the proceeding is trial-ready,
see 28 U.S.C. § 157(e), presumably via Section 157(d)’s cause prong. See supra note 5. In general, the
right to a jury trial applies to tort actions, including negligence claims, but not to causes of action
“customarily heard by courts of equity,” such as the Bankruptcy Court. Granfinanciera, S.A. v.
Nordberg, 492 U.S. 33, 42, 51 (1989). Additionally, it is possible for a party that would otherwise hold
a right to a jury trial to lose that right by filing a proof of claim in a bankruptcy case. Langenkamp v.
Culp, 498 U.S. 42, 44-45 (1990) (per curiam); Katchen v. Landy, 382 U.S. 323, 336-37 (1966).
13

During oral argument, the Trustee updated the Court on the progress of the U.S. bankruptcy
case and parallel Canadian bankruptcy proceedings. The Trustee indicated that MMA’s American and
Canadian railway operations have been liquidated and that he and his Canadian counterpart have
negotiated a global settlement agreement that will provide over $300 million to victims of the LacMégantic disaster and extinguish any claims arising out of the derailment against the settling
defendants. According to the Trustee, the only material parties who have not agreed to settle are
Canadian Pacific and the World Fuel Affiliates.
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ably presiding over the bankruptcy case for more than a year and a half and is
familiar with the divergent interests at stake. Denying the motion for immediate
withdrawal of the reference would discourage parties from forum shopping and
encourage them to expend their legal energy on the merits of their claims. It would
also allow the Bankruptcy Court to oversee the early stages of this adversary
proceeding in concert with the rest of the bankruptcy case and allow both this Court
and the parties to take advantage of the Bankruptcy Court’s broad expertise in
bankruptcy law and complex case management. As a general matter, the Holland
America goals all weigh heavily against finding cause to withdraw the reference
under these circumstances.
Canadian Pacific argues that a different result is warranted because the
Trustee’s negligence claim falls under the holding of Stern v. Marshall and because
Canadian Pacific is entitled to and plans to demand a jury trial under the Seventh
Amendment and 28 U.S.C. 157(e). However, I need not decide whether Canadian
Pacific is correct about the application of Article III and the Seventh Amendment,
because even if Canadian Pacific is correct, the Holland America goals still counsel
against withdrawing the reference at this time. To the extent there are Stern issues,

The Trustee’s Canadian counterpart has filed a plan of arrangement in the parallel Canadian
proceedings that will be voted on by creditors on June 9, 2015. If it wins enough creditor support, it
will come before the Bankruptcy Court’s Canadian counterpart for approval on June 17, 2015.
Meanwhile, in this District, the Trustee will submit a disclosure statement to the Bankruptcy Court
for approval on June 23, 2015. If the disclosure statement is approved, it will be distributed to creditors
and a confirmation hearing regarding a proposed plan of liquidation will be held in the Bankruptcy
Court on August 20, 2015. According to the Trustee, the Bankruptcy Court will likely hold proceedings
to estimate the value of Canadian Pacific’s claims against the estate for voting purposes at some point
in the next two months. The Trustee anticipates that at some point between June 23, 2015 and August
20, 2015, his Canadian counterpart will submit a filing to the Bankruptcy Court requesting that it
recognize the anticipated order approving the Canadian plan of arrangement.

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under these circumstances, I find it would be beneficial to have an initial report and
recommended decision by the bankruptcy judge. With respect to possible Seventh
Amendment issues, it is far from clear that this proceeding will actually reach trial,
and even if it does, it will likely require extensive court oversight before trial. Here,
the Bankruptcy Court is best situated to provide that oversight.
In sum, Canadian Pacific has not established cause to withdraw the reference
of the proceeding at this time.
CONCLUSION
For the reasons stated above, the Court DENIES Canadian Pacific’s motion
to withdraw the reference.

SO ORDERED.
/s/ Nancy Torresen
United States Chief District Judge
Dated this 8th day of June, 2015.

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