Binns et al
Filing
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OPINION denying Motions to Withdraw the Reference re 1 MOTION to Withdraw Reference by United States of America. Signed by District Judge Denise Page Hood. (JOwe)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
IN RE: MOTIONS TO WITHDRAW REFERENCE
IN VARIOUS CASES:
Honorable Denise Page Hood
12-11555, In re Nancy Faye Kibbe
Tammy Terry, Trustee
12-11556, In re Philip Adorjan
David W. Ruskin, Trustee
12-11557, In re Cedric Binns
Tammy L. Terry, Trustee
12-11558, In re June Lester
Tammy L. Terry, Trustee
12-11559, In re Kimberly Ann Klaus
Krispen S. Carroll, Trustee
12-11560, In re Dennis M. Karol
Tammy L. Terry, Trustee
12-11563, In re Kenneth and Cynthia Stafford
Krispen S. Carroll, Trustee
12-11564, In re Kenneth and Genevie Forbes
David W. Ruskin, Trustee
12-11565, In re Shari-Lyn Ann Oberdorf
Krispen S. Carroll, Trustee
______________________________________________________________________________
OPINION DENYING MOTIONS TO WITHDRAW THE REFERENCE
I.
BACKGROUND
These matters are before the Court on Motions to Withdraw the Reference of the Motions
for Relief from Provision in Confirmation Orders Enjoining Internal Revenue Service (“IRS”) to
Redirect Future Tax Refunds to Trustees filed in each of the bankruptcy actions noted above. These
motions were filed by the United States of America (“United States”) on April 6, 2012. In each
case, the applicable chapter 13 Bankruptcy Trustees (“Trustees”) filed responses opposing the
Motions to Withdraw the Reference filed in their particular action.
On May 4, 2012, the United States requested an expedited hearing on the issue and for
consideration of the merits of the sovereign immunity issue. The Trustees opposed the motion
asserting that the United States was merely rearguing its case with no basis for either relief and
requesting that the Court strike the motion. The Court initially scheduled the hearing for June 1,
2012, but the United States and the Trustees jointly requested the matter be adjourned because of
various counsels’ scheduling conflicts.
Prior to these motions, the United States filed a Complaint and Petition for Writ of
Mandamus before this Court on September 4, 2009 against the standing chapter 13 Trustees for the
Eastern District of Michigan, seeking to enjoin the enforcement of provisions of plan confirmation
orders compelling the Internal Revenue Service to pay to the Trustees future tax refunds claimed
by chapter 13 debtors. On January 20, 2010, this Court issued an opinion and order issuing a writ
of mandamus enjoining the chapter 13 Trustees from enforcing any provisions of the chapter 13 plan
confirmation orders to compel the IRS to pay future tax refunds claimed by chapter 13 debtors.
The Trustees appealed the matter to the Sixth Circuit Court of Appeals which issued an
opinion reversing this Court, finding that this Court had no jurisdiction to review the matter since
the United States lacked standing to seek declaratory or injunctive relief against the Trustees.
United States v. Carroll, 667 F.3d 742, 745-46 (6th Cir. Jan. 30, 2012). The United States sought
rehearing which was denied by the Sixth Circuit on April 27, 2012. United States v. Carroll, 2012
WL 1570386 (6th Cir. Apr. 27, 2012)(unpublished).
While the motion for rehearing was pending the United States filed eleven separate Motions
to Withdraw the Reference in this district seeking to withdraw the reference on the Motion for Relief
filed in the eleven separate bankruptcy actions. Responses and replies have been filed. A hearing
was held on the matter.
II.
ANALYSIS
A.
Possible Companion Cases
Before addressing the merits of the motions to withdraw the reference, it is noted that when
the United States filed the eleven motions to withdraw the reference, the United States urged the
Clerk’s Office to assign all the cases to the undersigned as a possible companion case to the
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previously filed mandamus action. Local Rule 83.50 addresses the issue of how to assign cases from
the bankruptcy court as follows:
(e) Submitting Papers, Records or Files to the District Court;
Assigning District Judges.
(1)
The bankruptcy clerk will submit the necessary papers
to the district clerk when:
* * *
(C) a party files a motion to withdraw a case
or proceeding;
* * *
(3)
Subject to (4), below, the district clerk will assign a
civil case number to each matter submitted. The district clerk will
assign all cases and proceedings arising out of a bankrupt estate to
the district judge to whom the case was first assigned. If there is no
prior assignment, the district clerk will assign the matter under LR
83.11.
E.D. Mich. LR 83.50(e)(italics added). The district clerk declined to assign the eleven cases to the
undersigned because there was no previous case “arising out of a bankruptcy estate” which was
assigned to the undersigned. The previous case filed by the United States was an original action–a
Complaint for Writ of Mandamus. No specific bankrupt estate was at issue in the prior original
action filed by the United States. Two of the eleven new cases were assigned to the undersigned
according to the Court’s blind draw system; the other nine cases were assigned to various judges.
Because the United States noted the case it filed previously, Case No. 09-13505, most of the new
cases not assigned to the undersigned by blind draw were reassigned to the undersigned. Each of
the bankruptcy cases at issue is based on different facts and brought by different debtors. However,
the same legal issue is raised in these new cases as in the writ of mandamus action filed the United
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States. Seven of the nine cases were reassigned to the undersigned, for a total of nine cases currently
before the Court. Two cases were not reassigned, In re Brian and Melissa Kelly, Case No. 12-11561
(Lawson) and In re Steven and Linda Jurgiel, Case No. 12-11562 (Duggan). These two cases were
voluntarily dismissed by the United States prior to reassignment because the cases did not contain
the refund-redirection orders at issue.
B.
Motion to Withdraw the Reference, 28 U.S.C. § 157(d)
1.
Reference
The United States argues that the reference should be withdrawn as to the “Identical Motions
for Relief filed March 29, 2012” filed by the United States in each of the cases noted above, a
“Motion for Relief from Provision in the Confirmation Orders Enjoining IRS to Redirect Future Tax
Refunds to Trustees (Unless the Sixth Circuit Grants Rehearing in United States v. Carroll) and to
Stay Enforcement of all Such Orders During These Proceedings.” The Trustees filed responses in
each of the cases opposing the motion to withdraw the reference.
Before the Court addresses the merits of the motion, the Court will address whether a
“motion” only, as opposed to the all the underlying bankruptcy action, can be withdrawn. Local
Rule 83.50 provides:
(a) Matters Referred to the Bankruptcy Judges
(1) Unless withdrawn by a district judge, all cases
under Title 11 of the United States Code and any or
all proceedings arising under Title 11 or arising in or
related to case under Title 11 are referred to
bankruptcy judges. The court intends to give
bankruptcy judges the broadest possible authority to
administer cases and proceedings properly within
their jurisdiction.
E.D. Mich. LR 83.50(a)(1). Based on the referral, this district court has referred “all cases under
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Title 11 ... and any or all proceedings arising under Title 11” to the bankruptcy court. The term
“proceeding” is generally referred to in connection with the terms “core” and “non-core”
proceedings before the bankruptcy court. The term “core proceeding” has been noted as “the
restructuring of debtor-creditor relations, which is at the core of the federal bankruptcy power,”
which is distinguished from the adjudication of state-created private rights, which are “non-core”
proceedings. See In re Depew, 51 B.R. 1010, 1013 (Bkrtcy. Tenn. 1985). The term “arising under”
has a well defined and broad meaning which gives bankruptcy courts jurisdiction to hear any matter
under which a “claim” is made under a provision of title 11, such as claim of exemptions. Id. The
underlying Motions for Relief do not appear to be a proceeding related to the restructuring of debtorcreditor relations, given that the United States is not a creditor in these cases, nor do the motions
relate to a “claim” by the United States against the bankruptcy estate. The United States has not
cited any authority to support withdrawal of one particular motion from a bankruptcy action.
It is noted that the Sixth Circuit’s ruling was very particular. The Sixth Circuit ruled that the
United States lacked standing because it sued the wrong parties–the Trustees. Carroll, 667 F.3d at
745. As noted by the Sixth Circuit,
The government sued a group of bankruptcy trustees, but the harm it
suffered–administrative costs associated with processing tax
refunds–flows not from the trustees’ actions but from the bankruptcy
court’s orders. When the entity does not like a court order, the
answer is not to sue the lawyer or party who recommended the order;
it is to appeal the order or, if utterly necessary, to sue the court.
Bankruptcy trustees do not control bankruptcy courts.
Id.
The Sixth Circuit further noted that the trustees are not the only parties to chapter 13
bankruptcies and that the debtor and creditors have an interest in ensuring that tax refunds make
their way to the trustees. Id. at 746. “The upshot is that the government lacks standing to seek
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declaratory or injunctive relief against the trustees.” Id. The Sixth Circuit went on to note that the
government could have filed a direct appeal from the entry of a redirection order, which it did in
2001 in this district. Id.
Although in the instant cases the United States styled its requests as “Motions to Withdraw
the Reference,” it is noted that the only responses to the motions were filed by the Trustees. Based
on a review of the motions, the United States is essentially seeking a declaratory action, although
styled as a Motion to Withdraw the Reference, raising the same issues already ruled upon by this
Court and the Sixth Circuit–the appropriateness of the redirection orders. The United States did not
submit the actual “Motion for Relief” filed before the bankruptcy court, the motion it seeks to be
withdrawn, until the United States filed its Reply Brief. In the Motion for Relief before the
bankruptcy court, it appears the United States is requesting that the refund redirection injunctions
contained in the confirmation orders in the cases at issue be dissolved or vacated as void.
The Court finds that the “Motions for Relief” which the United States asks this Court to
withdraw should be first addressed by the Bankruptcy Court since the United States has not shown
that such a “motion” can be withdrawn. It appears the United States is attempting to bypass any
time limitations under Bankruptcy Rule 9024 as to any motions seeking relief from a judgment or
order or to seek revocation of a confirmation order. Bankr. R. 9024. Modification of a chapter 13
plan after confirmation is governed by 11 U.S.C. § 1329 and revocation of an order of confirmation
is governed by 11 U.S.C. § 1330 (180 days from the entry of the confirmation order). The Court
will not circumvent the appropriate procedures in the bankruptcy rules as to seeking relief from an
order of confirmation. The Sixth Circuit did not address the merits of the case because it found that
it had no authority to do so; this Court will not address the merits of the motions at issue, however
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styled, in order to circumvent the procedural and appellate rules pertaining to confirmation orders.
2.
Mandatary Withdrawal
If the “Motion for Relief” could be withdrawn, as opposed to withdrawal of the underlying
bankruptcy action, the Court addresses the Motion to Withdraw the Reference argument.
Addressing the motion to withdraw the reference, the United States argues that this Court
has authority to withdraw the reference both under the mandatory and discretionary withdrawal
provisions. The Trustees oppose the withdrawal of the reference. The Court addresses the
mandatory withdrawal provision first.
The Bankruptcy Rules provide that a motion for withdrawal of a case shall be heard by a
district judge. Bankr.R. 5011(a). Motions for withdrawal must be filed pursuant to Rule 5005(a).
The withdrawal statute, 28 U.S.C. § 157(d), provides discretionary and mandatory withdrawal of
cases or proceedings referred to the bankruptcy court 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 proceedings 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). The burden of withdrawal is on the movant. In re Anderson, 395 B.R. 7, 9
(E.D. Mich. 2008).
There are three conditions in the statute which must be met to withdraw a case or proceeding
under the mandatory withdrawal provision in § 57(d): 1) the movant is a party; 2) the motion is
timely; and 3) the resolution of the proceeding before the Bankruptcy Court requires consideration
of both Title 11 and another federal law regulating organizations or activities affecting interstate
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commerce. In re Baldwin-United Corp., 47 B.R. 898, 899 (S.D. Ohio 1984).
The United States admits that the Bankruptcy Court has the authority to determine the
appropriateness of tax assessments under 11 U.S.C. § 505(a) but argues that the “instant proceeding”
does not involve adjudicating tax liabilities but rather involves the administration of the entire tax
refund program relating to chapter 13 bankruptcies. The United States did not address the first two
conditions in its brief but merely noted that the provision requiring refunds be made to the person
who made the tax overpayments is a law regulating activities affecting interstate commerce which
goes to the third condition.
The United States has not shown that it is a “party” to the underlying bankruptcy action. The
Supreme Court has noted that a “party” to a litigation is “one by or against whom a lawsuit is
brought” or one who “becomes a party by intervention, substitution, or third-party practice.” Smith
v. Bayer Corp., 131 S.Ct. 2368, 2379 (2011). The Sixth Circuit has noted that a charitable trust who
is the sole residuary beneficiary of a case, was not a party to the underlying suit. Estate of Palumbo
v. United States, 675 F.3d 234, 240 (6th Cir. 2012). The Sixth Circuit has identified a “party” as it
relates to a bankruptcy includes the debtor, creditors, and equity security holders in the debtor.
Sanders Confectionary Products, Inc. v. Heller Financial, Inc., 973 F.2d 474, 480-81 (6th Cir.
1992). The United States does not assert that it is acting as a “creditor” in the underlying bankruptcy
actions since it is not seeking unpaid taxes from the debtors. The United States claims that the
bankruptcy court’s redirection provisions in the confirmation orders affects how the IRS processes
those claims. The United States has not shown that it is a “party” to the underlying bankruptcy
action.
As to the issue of whether the United States “timely” brought the instant Motions to
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Withdraw, courts have held that generally, something will be considered timely if it is done at the
“first reasonable opportunity.” In re Baldwin-United Corporation, 57 B.R. 751, 753 (S.D. Ohio
1985). Timeliness requires that action be taken without undue delay and must be evaluated in the
context of the specific situation. Id. A motion in a bankruptcy proceeding must be evaluated in light
of the status of those proceedings. Id. If the motion could have been filed before a reorganization
plan or disclosure statement had been approved, the motion would not be timely. Id. A request for
withdrawal should be filed as soon as practicable after it has become clear that “other laws” of the
genre described in the statute are implicated, so as to protect the court and the parties in interest from
useless costs and disarrangement of the calendar and to prevent unnecessary delay and use of stalling
tactics. Id. at 754 (quotation omitted). “Once it becomes apparent that such an issue is in the case,
a party has a plain duty to act diligently–or else, to forever hold his peace.” Id.
In this case, it appears that the Motions to Withdraw Reference are untimely as the
confirmation plans have been approved in the underlying cases since the United States seeks to
withdraw “Motions for Relief” from the provision of the confirmation orders redirecting tax refunds
to the trustees. As noted by the Sixth Circuit in Carroll, when an entity does not agree with a court
order the answer is to appeal the order (or sue the court). Carroll, 667 F.3d at 745. The United
States had notice of the redirection provisions as early as 2008, when the bankruptcy court entered
the first of these orders. (Motion to Withdraw, p. 2) Although the United States claims it filed a
mandamus action in 2008, it later withdrew the action. In any event, given the Sixth Circuit’s ruling,
such an action would not have succeeded since the action was improper. The United States has not
shown that the instant Motions to Withdraw the Reference are filed timely.
The third condition requires consideration of both Title 11 and other federal law regulating
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organizations or activities affecting interstate commerce in order to resolve the proceeding before
the Bankruptcy Court. As the United States admits, the Bankruptcy Court has the authority to
determine tax liabilities under Title 11. The non-bankruptcy federal law the United States asserts
is its sovereign immunity defense. Courts have held that mandatory withdrawal is not required
unless resolution of the issue will require “substantial and material consideration of non-bankruptcy
federal law.” In re Baldwin, 57 B.R. at 755. Consideration is substantial and material when the case
requires the bankruptcy judge to make a significant interpretation, as opposed to simple application,
of federal non-bankruptcy statutes. In re Anderson, 395 B.R. at 11. The language of 157(d)
regarding mandatory withdrawal is to be construed narrowly. In re Baldwin, 57 B.R. at 756.
As to whether or not the issue of sovereign immunity requires “substantial and material
consideration of non-bankruptcy federal law,” this Court does not so find, given that the Bankruptcy
Court is able to review constitutional and standing issues and the United States has not shown that
the Bankruptcy Court is unable to address such issues. The United States’ argument is that the
redirection provision violates its sovereign immunity. However, based on its briefs, it appears the
main issue is the sheer number of cases involved and the IRS’s ability to handle the redirection
orders. The bankruptcy court is versed in law relating to tax issues and IRS redirection orders.
Many issues before the bankruptcy court involve tax-related issues and how assets, either from the
IRS or other entities, can be garnered by the Trustees. This Court has addressed the sovereign
immunity argument which, although not directly addressed by the Court of Appeals, cannot be
reached at this time since the United States has not met the two conditions noted above.
For the reasons stated above, mandatory withdrawal is not required as to the “Motion for
Relief” from the confirmation orders in the underlying bankruptcy actions.
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3.
Discretionary Withdrawal
The United States argues that the Court should exercise its discretion under § 157(d) to
withdraw the reference as to the “Motion for Relief.” The Trustees oppose the motion arguing that
core matters are at issue and withdrawal would reward forum shopping and add confusion.
Section 157(d) grants the district court the discretion to withdraw the reference for “any case
or proceeding referred under this section, on its own motion or on timely motion of any party, for
cause shown. For the same reasons set forth above, the United States’ motions to withdraw the
reference are not timely.
Even if the motions were timely, the United States has not established “cause.” Courts have
considered the following factors to determine whether cause exists to withdraw the reference: 1)
judicial economy; 2) uniformity in Bankruptcy administration; 3) reducing forum shopping and
confusion; 4) fostering economical use of the debtor’s and creditor’s resources; 5) expediting the
bankruptcy process; and 6) the presence of a jury demand. In re Appalachian Fuels, LLC, 472 B.R.
731, 2012 WL 1344984 at *3 (E.D. Ky. 2012). Others courts in this circuit have found that
discretionary withdrawal of reference requires “compelling” cause. Id. In considering a withdrawal
motion, “whether a proceeding is core or non-core ... is a central question.” Id. at *4. A district
court should first evaluate whether the claim is core or non-core and then turn to the other factors.
Id. Congress has provided a non-exhaustive list of “core” matters in § 157(b)(2), including: 1)
matters concerning the administration of the estate; 2) counterclaims by the estate against persons
filing claims against the estate; 3) proceedings to determine, avoid, or recover preferences and
fraudulent conveyances; 4) orders to turn over property of the estate; and 5) confirmation of plans.
28 U.S.C. § 157(b)(2).
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The United States argues that it is not seeking to “modify” the plan confirmation, therefore
this issue is not a “core” matter. It claims instead that the refund redirection injunctions should not
have been included in the confirmation orders in the first place; no plan modifications are sought.
The United States claims that garnishing future income is ordinarily entered in a separate order
“after confirmation” as provided in 11 U.S.C. § 1325(c), which states that “[a]fter confirmation of
a plan, the court may order any entity from whom the debtor received income to pay all or any part
of such income to the trustee.” It is noted that 1325(c) is discretionary since it states “may.” Even
if such an order is generally entered after confirmation, in these cases, the redirection provisions are
currently included in the confirmation orders. The United States should have appealed the orders
after they were entered. Seeking relief from the redirection provisions is an action to “modify” the
plan confirmation order, despite the United States’ characterization of its request at this time since
the provision is currently in the confirmation orders.
Courts have held that “[r]esolution turning on the interpretation of a prior court order, which
in turn interpreted and applied a specific provision of Title 11 ... is a core proceeding pursuant to 28
U.S.C. § 157(b)(2)(A) and (O) ...” In re McKenzie, 471 B.R. 884, 907 (Bkrtcy. E.D. Tenn.
2012)(quotations and citations omitted). Given that the redirection provision is set forth in the
confirmation order, the Court finds that the relief sought by the United States is a “core” proceeding
since it essentially seeks to modify the confirmation orders to delete the redirection provisions. The
relief requested by the United States also implicates the administration of the estate since the request
affects the orders relating to turning property over to the Trustees.
Turning to the other factors, judicial economy and the uniformity of bankruptcy
administration, the Court finds that withdrawing the reference would not promote economy or
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uniformity since the confirmation orders in the underlying Bankruptcy cases have been entered in
each of the individual underlying cases. The Sixth Circuit noted in its opinion that the redirection
provisions resulted from an attempt by the Bankruptcy Court to improve successful completion of
chapter 13 bankruptcy cases because the Eastern District of Michigan ranked near the bottom of
judicial districts in completing such cases. Carroll, 667 F.3d at 744. Although the United States’
prior writ of mandamus action was filed with good intentions, the Sixth Circuit declined to
circumvent the jurisdiction issue, noting that the United States could have filed direct appeals from
the entry of the redirection orders. Id. at 746.
The forum shopping and confusion factors are implicated. Instead of initially seeking a
ruling from the Bankruptcy Court on the underlying Motion to Set Aside the redirection provisions,
the United States sought to have this Court review the matter. Forum shopping is implicated in that
the Bankruptcy Court issued the redirection orders and this Court’s previous opinion was favorable
to the United States.
As to the debtor’s and creditor’s resources, creditor resources are not implicated. Inasmuch
as the Trustee is attempting to garner the debtor’s assets in these redirection provisions, each of the
Trustees in the underlying cases have had to file a response to these motions, have had to litigate the
same issue previously before this Court and the Court of Appeals. The Trustees’ resources have not
been economically used by this litigation. As to expediting the bankruptcy process, because the
confirmation orders have been entered below, this factor is not at issue, other than litigation of the
sovereign immunity issue raised by the United States. The issue before the Court does not implicate
the jury demand factor.
Weighing the factors above, the United States has not carried its burden to show that the
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Motions to Withdraw the Reference were timely filed. The United States also has not carried its
burden that “cause” is present in order for the Court to withdraw the reference in its discretion. It
is noted that the Sixth Circuit, both in its main opinion and the opinion denying the motion for
rehearing noted that there are at least two courts with appellate jurisdiction over the bankruptcy
courts: the district courts and the court of appeals. The Sixth Circuit noted that the United States
has the authority to intervene in a bankruptcy case to raise its sovereign-immunity defense. The
United States can then appeal and seek a stay from the district court or from the Sixth Circuit “after
this traditional path has been followed in a case over which we and the district court have
jurisdiction.” United States v. Carroll, 2012 WL 1570386 at *2 (6th Cir. Apr. 27, 2012)(denying
motion for r’hrg). The United States failed to do so, but instead filed the instant Motions to
Withdraw the Reference. The Sixth Circuit found that the United States’ writ of mandamus action
was an “unusual vehicle for handling” its assertion of sovereign immunity. Carroll, 667 F.3d at 746.
Instead of raising the issue before the Bankruptcy Court in a post-confirmation motions, the United
States chose to file a motion to withdraw in each of the underlying cases, which is another such
“unusual vehicle for handling” the United States’ sovereign immunity defense. As noted by the
Sixth Circuit, the United States “walked this way before” in that it filed consolidated appeals in
2001 in this district and in the Western District of Washington in 2003 regarding redirection
provisions involving the IRS. Id.
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III.
CONCLUSION
For the reasons set forth above, the United States’ Motions to Withdraw the Reference and
the Motions for Relief from Provision in Confirmation Orders Enjoining the IRS to Redirect Future
Tax Refunds are DENIED. An order in each case will be entered.
S/Denise Page Hood
Denise Page Hood
United States District Judge
Dated: October 31, 2012
I hereby certify that a copy of the foregoing document was served upon counsel of record on
October 31, 2012, by electronic and/or ordinary mail.
S/LaShawn R. Saulsberry
Case Manager
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