Chubb et al v. LG Warranty Co LLC et al
Filing
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ORDER denying 1 Motion to Withdraw Reference. Signed by Judge Miranda M. Du on 11/12/2014. (Copies have been distributed pursuant to the NEF - KR)
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UNITED STATES DISTRICT COURT
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DISTRICT OF NEVADA
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In re
Case No. 3:13-cv-00699-MMD
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ACCESS INSURANCE SERVICES, INC.,
a Nevada Corporation,
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Debtor,
ORDER
(Defs’ Motion to Withdraw Reference
– dkt. no. 1)
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JANET L. CHUBB, Chapter 7 Trustee for
ACCESS INSURANCE SERVICES, INC.,
a Nevada corporation, and LENNARD W.
STILLMAN, Special Duty Liquidator of
WESTERN INSURANCE COMPANY, a
Utah Corporation,
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Plaintiffs,
v.
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LG WARRANTY CO., LLC, an Ohio limited
liability company, et al.,
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Defendants.
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I.
SUMMARY
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Before the Court is Defendants LG Warranty Co., LLC (“LG”) and Dale Holding
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Co. of Columbus’ (“Dale Holding”) Motion to Withdraw Reference (“Motion”). (Dkt. no.
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1.) For the reasons set out below, the Motion is denied.
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II.
BACKGROUND
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Plaintiffs Janet L. Chubb, the Chapter 7 Trustee (“Trustee”) for Debtor Access
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Insurance Services, Inc. (“Access” or “Debtor”), and Lennard W. Stillman, Special
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Deputy Liquidator (“Liquidator”) of Western Insurance Company (“Western”), filed a
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Complaint as co-plaintiffs in United States Bankruptcy Court, District of Nevada, against
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Defendants LG, Dale Holding, Christopher W. Lucas (“Lucas”), Sean M. Gouhin
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(“Gouhin”), and Thomas P. Heilman II (“Heilman”). (Dkt. no. 1-4.)
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The Complaint alleges that Western and Access had business dealings with LG
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relating to the writing of insurance for automobile warranty programs “written, sold,
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and/or administered by [LG] in Ohio and elsewhere” and had loaned money secured by
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promissory notes to LG. (Id.) Plaintiffs assert the following seventeen (17) claims for
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relief: (1) breach of a 2006 Promissory Note against LG regarding money owed to
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Liquidator/Western; (2) breach of guaranty for the 2006 Promissory Note against Lucas
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and Gouhin; (3) breach of a 2008 Promissory Note against LG regarding money owed to
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Trustee/Access; (4) breach of guaranty for the 2008 Promissory Note against Lucas and
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Gouhin regarding money owed to Trustee/Access; (5) breach of 2010 Promissory Notes
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against LG regarding money owed to Liquidator/Western; (6) declaratory relief regarding
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escrow proceeds and request for order directing proceeds to pay the promissory notes;
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(7) fraud against all Defendants; (8-14) claims for turnover, fraudulent transfer,
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avoidance of transfer, preferences and recovery of avoided transfers pursuant to Title 11
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bankruptcy statutes and Utah state law; (15) breach of contract regarding money owed
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Trustee/Access; (16) unjust enrichment regarding money owed Trustee/Access; and (17)
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request for attorney’s fees. (Id.)
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In sum, the first, second and fifth claims in the Complaint seek relief for the
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Liquidator only and are apparently based in state common law. The third, fourth, fifteenth
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and sixteenth claims seek relief for the Trustee only and also appear to be based in state
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common law. The sixth, seventh and seventeenth claims for relief appear to be jointly
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asserted. The eighth through fourteenth claims for relief are asserted pursuant to title 11
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by the Trustee and pursuant to state statutes by the Liquidator.
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Defendants moved to dismiss this action and the bankruptcy court held a hearing.
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(Dkt. no. 1-1 at 2.) At the hearing, the bankruptcy court instructed the parties to file a
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motion to withdraw the reference. (Id. at 3.)
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III.
DISCUSSION
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A.
Legal Standard
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District courts have original and exclusive jurisdiction over all cases under title
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11. 28 U.S.C. § 1334(a). District courts also “have original but not exclusive jurisdiction
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of all civil proceedings arising under title 11, or arising in or related to cases under title
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11.” 28 U.S.C. § 1334(b). District courts may refer to the bankruptcy court “all cases
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under title 11 and any or all proceedings arising under title 11 or arising in or related to a
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case under title 11.” 28 U.S.C. § 157(a). Section 157(d) provides for two ways that a
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reference may be withdrawn from a bankruptcy proceeding, one mandatory and one
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permissive. Defendants appear to seek permissive withdrawal. Section 157(d) allows
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permissive withdrawal “for cause shown,” but does not provide guidance as to what is
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necessary to show cause. Accordingly, courts have identified a variety of factors that
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may be considered, including: (1) efficient use of judicial resources; (2) delay and costs
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to parties; (3) uniformity of bankruptcy administration; (4) prevention of forum shopping;
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and other related factors. Sec. Farms v. Int'l Bhd. of Teamsters, Chauffers,
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Warehousemen & Helpers, 124 F.3d 999, 1008 (9th Cir. 1999) (citation omitted).
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B.
Analysis
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Defendants ask this Court to withdraw the reference for the following reasons: (1)
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the bankruptcy court cannot enter final judgment as to the Liquidator’s claims because
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they are non-core; (2) the bankruptcy court cannot enter final judgment as to the
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Liquidator’s claims as a result of Stern v. Marshall, 131 S.Ct. 2594 (2011); and (3) the
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Liquidator’s claims are not “related to” the underlying bankruptcy proceeding for
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purposes of § 1334(b) jurisdiction. (Dkt. no. 1-1 at 6–7.) The Court finds that it is
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appropriate to leave this action with the bankruptcy court.
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The Court notes that the parties do not dispute the bankruptcy court’s jurisdiction
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over the Trustee’s claims. Defendants acknowledge that the Trustee’s claims may fall
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“within the ambit of ‘related to’ jurisdiction” and indeed do not present any arguments to
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the contrary. (Id. at 7.) Section 1334 provides for jurisdiction over three types of
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proceedings: (1) proceedings “arising under” title 11; (2) proceedings “arising in” a case
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under title 11; and (3) proceedings “related to” a case under title 11. 28 U.S.C. §§
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1334(a), 1334(b). These types of proceedings may be referred to the bankruptcy court
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pursuant to 28 U.S.C. § 157(a). “Proceedings ‘arising under’ title 11 involve causes of
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action created or determined by a statutory provision of that title.” In re Wilshire
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Courtyard, 729 F.3d 1279, 1285 (9th Cir. 2013) (citation omitted). It is undisputed that
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the Trustee asserts claims eight through fourteen pursuant to 11 U.S.C. §§ 547 and 548.
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The Trustee’s remaining claims all relate in some way to recovery of money owed under
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the Promissory Notes. As the bankruptcy court’s jurisdiction over the Trustee’s claims is
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not presently in dispute, the question before this Court is whether the Liquidator’s claims
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should proceed in bankruptcy court as well.
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The Liquidator’s claims may proceed in the bankruptcy court pursuant to that
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court’s supplemental jurisdiction. Pursuant to 28 U.S.C. § 1367(a), district courts have
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“supplemental jurisdiction over all other claims that are so related to claims in the action
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within [the court's] original jurisdiction that they form part of the same case or
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controversy under Article III of the United States Constitution.” The Ninth Circuit has
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determined that “the bankruptcy court’s ‘related to’ jurisdiction also includes the district
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court’s supplemental jurisdiction pursuant to 28 U.S.C. § 1367 . . . .” In re Sasson, 424
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F.3d 864, 869 (9th Cir. 2005); see also In re Pegasus Gold Corp., 394 F.3d 1189, 1195
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(9th Cir. 2005) (citing Sec. Farms v. Int'l Bhd. of Teamsters, 124 F.3d 999, 1008 n.5 (9th
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Cir. 1997)) (section 1367 supplemental jurisdiction applies to bankruptcy claims). A
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bankruptcy court can properly exercise supplemental jurisdiction over “claims that
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involve a ‘common nucleus of operative facts’ and would ordinarily be expected to be
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resolved in one judicial proceeding,” even where said claims have a relationship to the
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underlying bankruptcy proceeding more tangential than what is generally required for
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“related to” jurisdiction. In re Pegasus, 394 F.3d at 1194-95 (citing United Mine Workers
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v. Gibbs, 383 U.S. 715 (1966)).Plaintiffs argue that there is a common nucleus of
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operative fact in this case because Access and Western had an agency agreement, both
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worked with LG, both loaned money to LG secured by the 2006 Promissory Note, and
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both were parties to the escrow agreement through which Access and Western’s interest
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in the promissory notes allegedly attached to the sale proceeds. (Dkt. no. 1-16 at 9-10.)
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Furthermore, the Complaint alleges that Defendants presented Access with a letter
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signed on behalf of Western and Access deeming all debts owed by LG under the 2006
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and 2008 Promissory Notes to be satisfied. (Dkt. no. 1-4 ¶ 21.) The seventh claim for
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relief asserts that this letter was produced by Defendants’ fraud. (Id. at 11-12.) Although
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only the Liquidator seeks to recover on the 2006 Promissory Note, the Trustee seeks to
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recover on the 2008 Promissory Note. The seventh claim for relief therefore affects
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recovery under the promissory notes by both the Liquidator and the Trustee. The Court
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determines that there is a common nucleus of operative facts such that it makes sense
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to resolve the Trustee’s and the Liquidator’s claims in one proceeding.
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Supplemental jurisdiction need not be exercised in every case in which it is found
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to exist and courts should consider matters of “judicial economy, convenience and
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fairness to litigants” before asserting jurisdiction over supplemental claims. Gibbs, 383
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U.S. at 726. Judicial economy would best be served in this case by allowing all of the
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claims to proceed in the bankruptcy court, where the Trustee’s claims properly reside.
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This would also be more convenient to the parties as it would avoid potentially
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duplicative discovery proceedings between the Trustee’s action in bankruptcy court and
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the Liquidator’s action in this Court.
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Defendants’ main objection to the exercise of supplemental jurisdiction is on
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fairness grounds. Defendants argue that it would be unfair to Defendants to allow the
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Liquidator to bootstrap its claims into bankruptcy court and then take advantage of the
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bankruptcy rules’ nationwide service of process. (Dkt. no. 2 at 4-5, 7-9.) Defendants’
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argument is speculative, however, and relies on the mere fact that the service of process
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rules in bankruptcy court and district court are different, without explaining why that
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difference is significant in this case. Defendants assert that the Liquidator is trying to
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take advantage of the bankruptcy court’s procedures but that alone is not sufficient to
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raise fairness issues that would warrant refusal of supplemental jurisdiction.
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Defendants additionally argue that the reference should be withdrawn because
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claims before the bankruptcy court are non-core or Stern claims. The Court disagrees.
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The Court is not compelled to withdraw a reference simply because certain claims may
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be non-core. Recently, in Executive Benefits Insurance Agency v. Arkison, 134 S.Ct.
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2165 (2014), the Supreme Court of the United States found that “[i]f a matter is non-core,
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and the parties have not consented to final adjudication by the bankruptcy court, the
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bankruptcy judge must propose findings of fact and conclusions of law.” 134 S.Ct. at
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2172. Thus, the bankruptcy court has authority to hear non-core claims and “submit
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proposed findings of fact and conclusions of law to the district court for de novo review
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and entry of judgment.” Id. at 1273. As the Supreme Court further noted, the bankruptcy
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court may “determine whether each claim before it is core or non-core.”1 Arkinson, 134
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S.Ct. at 2171 (citing 28 U.S.C. § 157(b)(3)).
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In light of Arkinson, the Court finds it is appropriate for this proceeding to remain
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in bankruptcy court. As it is undisputed that some of the Trustee’s claims are core claims
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that arise under title 11, and as the Court determines that the bankruptcy court may
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exercise supplemental jurisdiction over Plaintiffs’ remaining claims, efficient use of
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judicial resources and uniformity of bankruptcy administration support leaving the
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reference in place so that all claims may proceed in the bankruptcy court. See Sec.
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Farms, 124 F.3d at 1008. The bankruptcy court may determine whether Plaintiffs’ claims
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The Court is not persuaded to a different result by In re Coe-Truman
Technologies, Inc., 214 B.R. 183 (N.D. Ill. 1997). Defendants rely on this case to argue
that withdrawal is appropriate because certain claims in the Complaint are non-core.
(Dkt. no. 1-1 at 4.) However, in Coe-Truman, the entire proceeding was non-core. CoeTruman, 214 B.R. at 187. Here, it is undisputed that Trustee’s title 11 claims are core.
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are core, non-core or Stern claims and make final judgment or recommendations
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accordingly.
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IV.
CONCLUSION
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The Court notes that the parties made several arguments and cited to several
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cases not discussed above. The Court has reviewed these arguments and cases and
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determines that they do not warrant discussion or reconsideration as they do not affect
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the outcome of the Motion.
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It is therefore ordered that Defendants’ Motion to Withdraw Reference (dkt. no. 1)
is denied.
DATED THIS 12th day of November 2014.
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MIRANDA M. DU
UNITED STATES DISTRICT JUDGE
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