Wild et al

Filing 16

ORDER Denying 1 Motion to Withdraw Reference. Signed by District Judge Thomas L. Ludington. (KWin)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
NORTHERN DIVISION
THOMAS MCDONALD, JR.
CHAPTER 13 TRUSTEE
Plaintiff,

Case no. 17-cv-13858
Hon. Thomas L. Ludington

v.
PAUL WENZLOFF,
JOSHUA FIREMAN
WENZLOFF & WENZLOFF P.L.C., and
WILDFIRE CREDIT UNION,
Defendants.
__________________________________________/
ORDER DENYING MOTION TO WITHDRAW THE REFERENCE
Mr. Thomas McDonald (“Plaintiff” or “Trustee”) was the Chapter 13 trustee in the
bankruptcy matter In Re: Wild, et al. (Case No. 14-21888-dob). Defendant Wildfire Credit Union
(Wildfire) is an unsecured creditor of the debtors Jonathan William Wild and Tamara Jean
Moore (Debtors) with an unsecured claim of $9,391.05. Defendants Paul Wenzloff, Joshua
Fireman, and Wenzloff & Wenzloff P.L.C. (Defendants) represented Wildfire as its counsel in
the Chapter 13 proceedings.
The Debtors’ chapter 13 plan was confirmed on October 14, 2014. Approximately two
and a half years later Debtor’s 11-year old Jeep failed and they sought approval to obtain a loan
to purchase a replacement vehicle. It is fair to surmise that Mr. McDonald and Mr. Wenzloff did
not and do not agree on the process or procedure to be observed by Debtors to secure postconfirmation approval to purchase a replacement vehicle or to borrow the funds to accomplish
that objective. Their disagreement is well documented in what the gentlemen refer to as “the

pleadings” that followed in the bankruptcy matter. These “pleadings” explain not only their
difference of opinion on the applicable law and procedure but also their reciprocal displeasure
with each other’s behavior.
Plaintiff then initiated an adversary proceeding, filing a 7 count complaint containing
over 100 factual allegations. Plaintiff has moved to have this Court withdraw the reference from
the bankruptcy court (ECF No. 1).
I.
On April 10, 2017, the Debtors filed a post-confirmation motion for approval to purchase
a 2014 GMC Acadia to replace their older automobile that had mechanical problems. Am.
Compl. at 2 (Case No. 17-02118-dob). The Trustee approved the request. Id. Debtors then filed
an ex parte motion to approve the purchase, which the bankruptcy court granted. Id. Santander
Consumer USA, the creditor who financed the GMC purchase, then filed a proof of claim.
Defendants objected to the claim. Id. at 3. The dispute as to the propriety of the Trustee’s
approval of the purchase centers on the applicability of what counsel refer to as the “Fuller
order”. The Fuller order is described as a settlement embedded in an order in another (entirely
separate) case in which Plaintiff and Defendant Wenzloff agreed Plaintiff would “advise
Debtor’s counsel that ex-parte motions to purchase contain certain information.” Id. at 4.
Plaintiff’s position is that the Fuller order is not applicable to the Wild matter and did not limit
his discretion in approving the GMC purchase. Id. Defendants have a different view. Allegedly,
Defendants filed “the pleadings” in the bankruptcy matter accusing Plaintiff of misconduct in
conjunction with his approval of the car purchase. Plaintiff initiated the adversary proceeding on
November 15, 2017.

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Counts I and IV seek declaratory and injunctive relief that the Fuller order is not
applicable to the In re Wild matter and that Plaintiff did not commit fraud on the court when he
approved the GMC purchase. Id. at 4, 9. On their face, these counts raise core bankruptcy issues.
The abuse of process counts (counts II and III) allege Defendants “filed the Pleadings
with the ulterior motive of obtaining money or property from the Debtors and/or Bankruptcy
estate, attempting to pressure debtors to convert or dismiss their Bankruptcy case, in an attempt
to slander the Trustee and damage his reputation and in an attempt to create unnecessary delay
and expense in the administration of this Bankruptcy case” in violation of Rule 9011, thereby
“undermining the whole bankruptcy system, or process.” Id. at 8. Again, whether Rule 9011 was
violated appears to raise a core bankruptcy law question.
The defamation, libel, and slander counts (counts V-VII) are unrelated to the Debtors’
chapter proceeding other than that they occurred during its administration. Plaintiff alleges
Defendants accused him of “wrongful conduct involving moral turpitude,” “cast his character in
a false light”, accused him of “Fraud, Contempt of Court and collusion,” and “breached the
public trust in the office of the Standing Chapter 13 Trustee.” Id. at 10. Embedded in his three
overlapping defamation counts also appears to be a claim for “false light,” a privacy tort distinct
from defamation. Again, although the alleged wrongful conduct occurred in the context of a
bankruptcy matter, counts V-VII assert only state law claims. There is also no apparent predicate
for the exercise of federal jurisdiction on these state law claims between Michigan citizens.
As for relief, Plaintiff asks the court to “strike the entirety of the pleadings, statements
and discovery from the record due to their scandalous, disparaging and unnecessary and untrue
nature.” Id. at 13. He also asks the court to dismiss Defendant’s allegations in the Chapter 13
matter, award costs and fees, set aside the Fuller order in its entirety, and impose sanctions.

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Finally, Plaintiff seeks punitive damages of $100,000 “to be distributed as follows: $50,000 to a
charity promoting bankruptcy education or assistance of the court’s choosing and $50,000 to the
Office of the Chapter 13 Trustee for having been forced to defend and respond [to] the Pleadings
. . .,” and additional damages for defamation, libel, and slander. Id.
II.
Plaintiff filed the instant motion on November 30, 2017, seeking to have the reference to
the United States Bankruptcy Court withdrawn. ECF No. 1. Defendant Wenzloff & Wenzloff,
PLC responded on December 13, 2017. ECF No. 6. Defendants then moved to dismiss Plaintiff’s
first amended complaint filed in the adversary proceeding. ECF Nos. 7-9.
As neither party had briefed the issue of withdrawal of the reference in light of the
standard set forth in 28 U.S.C. § 157(d), the Court entered an order on January 10, 2018 holding
the motion to dismiss in abeyance, and ordering briefing on the motion to withdraw the
reference. ECF No. 13. Plaintiff filed his supplemental brief on January 22 and Defendant
responded on January 26. ECF No’s 14, 15.
III.
28 U.S.C. § 1334(a)-(b) vests district courts with jurisdiction over bankruptcy matters.
The district courts may, however, refer bankruptcy cases and all proceedings arising therefrom to
bankruptcy courts. 28 U.S.C. § 157(a). A standing order of the Eastern District of Michigan
automatically refers bankruptcy cases. Local Rule 83.50(a)(1). § 157(b) authorizes bankruptcy
judges to hear all cases under title 11 and all core proceedings arising therefrom.
28 U.S.C. § 157(d) provides for withdrawal of the reference on discretionary and
mandatory grounds. The first sentence of 157(d) sets forth the standard for discretionary
withdrawal: “The district court may withdraw, in whole or in part, any case or proceeding

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referred under this section, on its own motion or on timely motion of any party, for cause
shown.” The second sentence sets forth the standard for mandatory withdrawal: “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.”
IV.
A.
Plaintiff first argues that the bankruptcy court lacks jurisdiction. Plaintiff provides an
exposition of the source of bankruptcy court jurisdiction and that of article III courts. Plaintiff
surveys the Supreme Court precedent on bankruptcy court jurisdiction from Northern Pipeline to
Stern v. Marshall. The discussion is interesting. Unfortunately, it does not help resolve the only
issue that is ripe for review in this matter, namely the propriety of withdrawing the reference
under 28 U.S.C. § 157(d). Noticeably absent from 28 U.S.C. § 157(d) is any statement that the
district court may withdraw the reference if it determines that the bankruptcy court lacks
jurisdiction. Rather, it sets forth two grounds for withdrawal of the reference: discretionary and
mandatory.
B.
Plaintiff argues that “the mandatory withdrawal provisions under Section 157(d) requires
that withdrawal is mandatory in this matter because resolution of this proceeding will require
consideration of both bankruptcy law and non-bankruptcy law.” Pl. Br. at 6, ECF No. 14.
(emphasis added). That is an inaccurate statement of law and is directly at odds with the text of
157(d), which provides for mandatory withdrawal if the proceeding “requires consideration of

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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).
As noted in the cases Plaintiff cites to, withdrawal is mandatory only when the
proceeding involves “substantial and material consideration of the non-Code federal law.”1
Matter of Vicars Ins. Agency, Inc., 96 F.3d 949, 952 (7th Cir. 1996) (emphasis added).
“Substantial and material consideration” means “significant interpretation, as opposed to simply
application, of federal laws apart from the bankruptcy statutes.” City of New York v. Exxon
Corp., 932 F.2d 1020, 1026 (2d Cir. 1991) see also In re Enron Corp., 2004 WL 2711101, at *2
(S.D.N.Y. Nov. 23, 2004). Thus, the statute itself and the interpretive case law directly foreclose
any notion that the existence of a title 11 issue and a state law claim (such as defamation) is
sufficient to require withdrawal of the reference. Rather, the proceedings must involve title 11
and some other non-code federal law. Furthermore, the proceeding must require substantial and
material consideration of that non-code federal law, meaning “significant interpretation, as
opposed to simply application.” Matter of Vicars Ins., 96 F.3d at 952; City of New York, 932
F.2d at 1026; In re Enron Corp., 2004 WL 2711101 at *2. No significant interpretation of noncode federal law is at issue here.
Plaintiff does not attempt to explain how a significant interpretation of non-code federal
law will be required in this case. Rather, Plaintiff offers one sentence, 128 words in length, in
which he lists every conceivable issue this case might involve. Indeed, the sentence is confusing:
This case will involve substantial and material consideration of the Courts’
powers to sanction parties under 28 U.S.C. 1927 (a major part of the basis for the
Plaintiff’s abuse of process counts), issues involving the federal common law of
quasi-judicial immunity and its ability to insulate the Trustee from claims raised
such as those of the Defendants, the Barton Doctrine as established by Barton v.
Barbour , 104 U.S. 126 (1881) (and its protections enjoyed by the Trustee as well
1

Indeed, Plaintiff quotes directly from Matter of Vicars, but omits the language that follows the words “substantial
and material consideration.” Plaintiff replaces the words “non-code federal law” with “non-bankruptcy law.”

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as its applicability to jurisdictional issues relating to proper forum questions) and
interpretation and construction of the Federal and State rules, codes and laws to
establish or prove abuse of process, libel, slander, defamation, and those same
rules, codes and laws to disprove fraud and contempt of Court.
Pl. Br. at 7, ECF No. 14.
First, Plaintiff’s abuse of process counts by their very nature are inextricably linked to
title 11 and the chapter proceedings in this case. Plaintiff’s complaint makes this clear, as he
alleges that Defendants “filed the Pleadings with the ulterior motive of obtaining money or
property from the Debtors and/or Bankruptcy estate, attempting to pressure debtors to convert or
dismiss their Bankruptcy case, in an attempt to slander the Trustee and damage his reputation
and in an attempt to create unnecessary delay and expense in the administration of this
Bankruptcy case” in violation of Rule 9011, thereby “undermining the whole bankruptcy system,
or process.”
Plaintiff now attempts to raise a non-code federal issue by citing 28 U.S.C. 1927. This
effort is futile for several reasons. First, 28 U.S.C. 1927 is a one paragraph provision which
allows fees and costs to be awarded against a party who acts vexatiously. Plaintiff cannot
generate a non-code federal issue by citing to an overarching fee shifting statute when his entire
complaint has nothing to do with non-code federal law. Withdrawal is not mandatory when the
only “federal issue” involves a “straightforward application of federal statutes to a particular set
of facts.” In re Merryweather Importers, Inc., 179 B.R. 61, 62 (D. Md. 1995). It is difficult to
imagine a more apt example than 28 U.S.C. 1927 of a statute that requires nothing more than a
straightforward application of law to fact. Secondly, in his complaint, Plaintiff relies on
Bankruptcy Rule 9011 to provide relief from Defendant’s vexatious conduct, not 28 U.S.C.

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1927.2

Indeed, Rule 9011 is largely indistinguishable from 28 U.S.C. 1927, and provides

discretion for bankruptcy court’s to impose sanctions.
Next, Plaintiff asserts that this case will involve the “federal common law of quasijudicial immunity and its ability to insulate the Trustee from claims raised such as those of the
Defendants.” Plaintiff appears to be referring to his theory regarding the quasi-judicial immunity
enjoyed by the Chapter 13 trustee.3 According to Plaintiff, his quasi-judicial immunity as Trustee
puts all of his actions beyond reproach and prohibits Defendants from questioning his conduct or
decision making. See ECF No. 11 at 2, 5. This theory appears to be intended to somehow bolster
his defamation claims because defaming the Chapter 13 Trustee is allegedly a more serious
violation than ordinary defamation. Even if that were true, however, it’s still unclear how quasijudicial immunity fits into the equation, considering Defendant is not suing Plaintiff. Plaintiff is
in fact the only person asserting a “claim” against anyone. Thus, the doctrine of quasi-judicial
immunity has no place.
Plaintiff next appeals to the “Barton Doctrine” which is related to his qualified immunity
theory. The Barton doctrine, established by the U.S. Supreme Court over a century ago, provides
that “before a lawsuit is brought against a receiver[,] leave of the court by which he was
appointed must be obtained.” Barton v. Barbour, 104 U.S. 126, 128 (1881). Again, Defendant
has not filed a lawsuit against Plaintiff. Thus, the Barton Doctrine has no place.

2

Despite describing 28 U.S.C. 1927 as “a major part of the basis for Plaintiff’s abuse of process counts,” 28 U.S.C.
1927 is not cited anywhere in his complaint.
3
Courts have granted quasi-judicial immunity to Bankruptcy Trustees for their official actions as Trustee. See, e.g.,
Smith v. Silverman, 645 F.3d 186 (2d Cir. 2011); In re McKenzie, 716 F.3d 404, 420 (6th Cir. 2013). Interestingly,
this is not at all what Plaintiff is referring to when he uses the term “quasi-judicial immunity.” Plaintiff’s immunity
theory was explained in his response to the motion to dismiss: “Defendants once again questioned the Trustee’s
discretion in approving the vehicle purchases, despite his quasi-judicial immunity arising from Court approval of
those purchases after full disclosure of the purchase terms to the Court . . . Wenzloff’s allegations in these pleadings
were inappropriate and immaterial to the case at hand as the Trustee has quasi-judicial immunity for decisions made
on vehicle purchases.” ECF No. 11 at 2, 5.

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In his final attempt to identify a non-code federal issue mandating withdrawal of the
reference, Plaintiff appeals to “Federal and State rules, codes and laws to establish or prove
abuse of process, libel, slander, defamation, and those same rules, codes and laws to disprove
fraud and contempt of Court.” The only federal law relating to abuse of process Plaintiff
identifies is 28 U.S.C. 1927, which was already discussed above. Finally, state laws, by
definition, are not “laws of the United States regulating organizations or activities affecting
interstate commerce.” 28 U.S.C. § 157(d). Thus, the presence of state law issues does not require
withdrawal of the reference.
C.
Next Plaintiff argues that discretionary withdrawal is appropriate under 28 U.S.C. §
157(d), which provides that the Court may withdraw the reference “for cause shown.” Plaintiff
primarily argues that the majority of the issues in the adversary proceeding are non-core issues,
and that efficiency and judicial economy will be furthered by withdrawing the reference.
Factors to be considered on a motion for discretionary withdrawal include: (1) whether
the claim is core or non-core, (2) promoting efficient use of judicial resources, (3) avoiding delay
and costs to the parties, (4) promoting uniformity of bankruptcy administration, (5) preventing
forum shopping, and (6) other related factors. In re Cmty. Mem’l Hosp., 532 B.R. 898 at 902
(E.D. Mich. 2015).
Counts I and IV of the complaint seek declaratory and injunctive relief that the Fuller
order (a bankruptcy order entered in another matter) is not applicable to the In re Wild matter and
that Plaintiff did not commit fraud on the court when he approved the GMC purchase. Thus,
these counts involve a core bankruptcy issue.

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The abuse of process counts (counts II and III) allege Defendants “filed the Pleadings
with the ulterior motive of obtaining money or property from the Debtors and/or Bankruptcy
estate, attempting to pressure debtors to convert or dismiss their Bankruptcy case, in an attempt
to slander the Trustee and damage his reputation and in an attempt to create unnecessary delay
and expense in the administration of this Bankruptcy case” in violation of Rule 9011, thereby
“undermining the whole bankruptcy system, or process.” Id. at 8. Again, whether Rule 9011 was
violated is a core bankruptcy law question.
The defamation, libel, and slander counts (counts V-VII), all state law causes of action,
are unrelated to the merits of Debtors’ case but are alleged to have occurred during its
administration. Plaintiff’s survey of Supreme Court precedent may be generally relevant to the
bankruptcy court’s determination of whether it may exercise jurisdiction here. Indeed, there
likely is a more significant question about the exercise of federal jurisdiction as there is no
apparent federal question and the parties are not apparently diverse. It is sensible for the
bankruptcy court to make these jurisdictional determinations, as the state law causes of action
arose during the bankruptcy proceedings.
V.
Accordingly, it is ORDERED that the motion to withdraw the reference, ECF No. 1, is
DENIED.
It is further ORDERED that the Motions to Dismiss, ECF No. 7, 8 and 9, are DENIED
without prejudice, and should be refiled in the adversary proceeding for consideration by the
bankruptcy court.

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It is further ORDERED that this is a final order and closes this case.

s/Thomas L. Ludington
THOMAS L. LUDINGTON
United States District Judge
Dated: March 7, 2018

PROOF OF SERVICE
The undersigned certifies that a copy of the foregoing order was served
upon each attorney or party of record herein by electronic means or first
class U.S. mail on March 7, 2018.
s/Kelly Winslow
KELLY WINSLOW, Case Manager

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