Residential Capital, LLC et al v. Mortgage Investors Group, Inc.

Filing 12

OPINION AND ORDER re: 1 MOTION TO WITHDRAW THE BANKRUPTCY REFERENCE. Bankruptcy Court Case Numbers: 14-2004A, 12-B-12020 (MG), filed by American Real Estate Corporation, Mortgage Investors Group, Inc. Having considered each of the Orion fa ctors, the Court determines that this non-core claim should remain before Judge Glenn. Accordingly, the motion to withdraw the reference to the bankruptcy court is DENIED. Because the motion to withdraw is denied, the motion to transfer is also DENIE D without prejudice. See Adelphia Commc'ns Corp. v. Thomson, Inc., No. 10-cv-4464, 2010 WL 3000169, at *5 (S.D.N.Y. July 22, 2010) ("Because the Court declines to withdraw the reference to the Bankruptcy Court, it also denies [the] motion t o transfer the case."); McHale v. Citibank, N.A., No. 09-cv-6064, 2009 WL 2599749, at *8 (S.D.N.Y. Aug. 24, 2009) ("Because I decline to withdraw the reference to the bankruptcy court, I also deny [the] motion to transfer the case...."). The Clerk of Court is instructed to close the motion at Docket Number 1 and to close this matter. (As further set forth in this Order.) (Signed by Judge J. Paul Oetken on 9/11/2015) (kko)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-------------------------------------------------------------X
:
RESCAP LIQUIDATING TRUST,
:
:
Plaintiff,
:
:
-v:
MORTGAGE INVESTORS GROUP, INC;
:
MORTGAGE INVESTORS GROUP, a general :
partnership; and AMERICAN REAL ESTATE :
:
CORPORATION,
Defendants. :
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15-CV-1902 (JPO)
OPINION AND ORDER

J. PAUL OETKEN, District Judge:
Plaintiff ResCap Liquidating Trust (“ResCap”) filed this adversary proceeding against
Mortgage Investors Group, Inc. (“MIG Inc.”) in the Bankruptcy Court in the Southern District of
New York on May 13, 2014. Rescap Liquidating Trust v. Mortg. Inv’r Grp., Inc. et al, No. 14ap-2004, ECF No. 1 (Bankr. S.D.N.Y.). On January 9, 2015, ResCap filed an Amended
Complaint, which added Mortgage Investors Group, a general partnership (“MIG Partnership”),
and American Real Estate Corporation (“AREC”), as defendants. Id. at ECF No. 36. MIG
Partnership now moves to withdraw the reference to the bankruptcy court and to transfer venue
to the United States District Court for the District of Minnesota. (Dkt. No. 1.) For the reasons
that follow, the motion to withdraw the reference and the motion to transfer are denied.
I.

Background
ResCap is the successor to Residential Funding Company, LLC (“RFC”), a limited

liability company that specialized in the purchase and resale of mortgage loans. Prior to 2012,
RFC bought mortgage loans from a number of mortgage originators, including MIG Inc. RFC
then resold the loans to whole-loan purchasers or pooled them with other loans for sale into
residential mortgage-backed security trusts.

After many of the loans defaulted, RFC and fifty affiliates filed Chapter 11 bankruptcy
petitions in the Bankruptcy Court for the Southern District of New York. In re Residential
Capital LLC, No. 12-bk-12020, ECF No. 1 (Bankr. S.D.N.Y.). Judge Glenn has jointly
administered those bankruptcy cases since May 14, 2012. Id. On December 11, 2013, Judge
Glenn confirmed a Global Settlement and a Chapter 11 liquidation plan, which established
ResCap as successor to RFC. Id. at ECF No. 6065.
Two days after Judge Glenn approved the Global Settlement, ResCap filed a breach of
contract and indemnification suit against MIG Inc. in the United States District Court for the
District of Minnesota. 1 Residential Funding Co., LLC v. Mortg. Inv’r Grp., Inc., No. 13-cv3494, ECF No. 1 (D. Minn. Dec. 13, 2013). That suit, one of dozens that ResCap filed against
mortgage originators, alleged that provisions in ResCap’s contracts with MIG Inc. protected
ResCap from liability and losses associated with the underlying mortgage loans. Id. at ¶¶ 63, 6970. On February 28, 2014, after the District of Minnesota court denied its motion to transfer the
case, ResCap voluntarily dismissed the action against MIG Inc. Residential Funding, No. 13-cv3494, ECF No. 11. ResCap thereafter re-filed the suit as an adversary proceeding in the
Bankruptcy Court for this district. Rescap Liquidating Trust v. Mortg. Inv’r Grp., Inc. et al, No.
14-ap-2004, ECF No. 1 (Bankr. S.D.N.Y.).
Since May 2014, Judge Glenn has adjudicated this action in coordination with several
similar suits involving RFC’s mortgage loan contracts. See In re ResCap Liquidating Trust
Mortg. Purchase Litig., No. 14-ap-7900 (Bankr. S.D.N.Y.). Defendants in a number of those

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The action against MIG Inc. in the District of Minnesota was brought in the name of RFC.
Residential Funding Co., LLC v. Mortg. Inv’r Grp., Inc., No. 13-cv-3494, ECF No. 1 (D. Minn.
Dec. 13, 2013). For clarity, this Opinion and Order refers to suits involving RFC that were
initiated after the December 2013 Global Settlement as actions brought by ResCap, RFC’s
successor.
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cases have moved to withdraw the reference to the bankruptcy court. E.g., Residential Funding
Co. LLC v. Greenpoint Mortg. Funding Inc., No 14-cv-5452, ECF No. 1 (S.D.N.Y. July 18,
2014); ResCap Liquidating Trust v. Primary Capital Advisors LLC, No. 14-cv-5224, ECF No. 1
(S.D.N.Y. July 14, 2014); ResCap Liquidating Trust v. RBC Mortg. Co., No. 14-cv-4457,
ECF.No. 1 (S.D.N.Y. June 19, 2014). Judges Abrams, Castel, and Daniels have each denied
these motions. Residential Funding Co. LLC v. UBS Real Estate Sec. Inc., No 14-cv-03039,
2015 WL 1062264 (S.D.N.Y. Mar. 6, 2015); Residential Funding Co. v. Suntrust Mortg., Inc. (In
re Residential Capital, LLC), No. 14-cv-6015, 2015 WL 739829 (S.D.N.Y. Feb. 20, 2015);
Residential Funding Co. v. Greenpoint Mortg. Funding, Inc. (In re Residential Capital, LLC),
No. 14-cv-5452, 519 B.R. 593 (S.D.N.Y. 2014). But see ResCap Liquidation Trust v. First
Mariner Bank, No. 14-cv-5064, ECF No. 25 (S.D.N.Y. Jan. 8, 2015).
As a result, three cases involving RFC’s loan contracts remain before Judge Glenn, who
has consolidated motion practice and established a brisk case management plan. 2 On January 7,
2015, Judge Glenn granted ResCap’s motion to amend the complaint to add MIG Partnership
and AREC as defendants. Rescap Liquidating Trust, No. 14-ap-2004, ECF No. 35. On February
3, 2015, Judge Glenn denied in part defendants’ joint omnibus motion to dismiss. In re ResCap
Liquidating Trust Mortg. Purchase Litig., 524 B.R. 563 (Bankr. S.D.N.Y. 2015). MIG
Partnership filed the instant motion just over one month later. (Dkt. No. 1.)

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A fourth motion to withdraw the reference to bankruptcy court in a ResCap contract dispute is
currently pending before Judge Gardephe. ResCap Liquidating Trust v. Summit Fin. Mortg. LLC
et al, No. 14-cv-5453 (S.D.N.Y. July 18, 2014). If that motion is denied, five ResCap contract
cases, including this one, will proceed before Judge Glenn.
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II.

Legal Standard
District courts have jurisdiction over “all civil proceedings arising under title 11, or

arising in or related to cases under title 11” of the Bankruptcy Code. 28 U.S.C. § 1334(b).
District courts may refer such proceedings to the bankruptcy courts for adjudication. Id. §
157(a). Once a matter is referred, bankruptcy courts have authority to enter final judgments in
matters that are “core” to the bankruptcy proceeding. 3 Id. § 157(b)(1). If a matter is “non-core”
but nonetheless related to a case arising under title 11, the bankruptcy court may “propose
findings of fact and conclusions of law,” which the district court reviews de novo. Exec. Benefits
Ins. Agency v. Arkinson, 134 S. Ct. 2165, 2172 (2014) (citing 28 U.S.C. § 157(c)(1)).
Cases referred to bankruptcy court may be withdrawn for cause. 28 U.S.C. § 157(d).
Under Second Circuit precedent, district courts evaluating motions to withdraw a reference to
bankruptcy court undertake a two-part inquiry. See Orion Pictures Corp. v. Showtime Networks
Inc. (In re Orion Pictures Corp.), 4 F.3d 1095, 1101 (2d Cir. 1993). Courts first consider
whether the claim at issue is “core” to the bankruptcy proceeding. Id. In general, “[a]
proceeding that involves rights created by bankruptcy law, or that could arise only in a
bankruptcy case, is a core proceeding.” DeWitt Rehab. & Nursing Ctr., Inc. v. Columbia Cas.
Co., 464 B.R. 587, 591 (S.D.N.Y. 2012) (citing MBNA Am. Bank, N.A. v. Hill, 436 F.3d 104,
108-09 (2d Cir. 2006)). The conclusion that a matter is “non-core” supports but does not require
withdrawal. Id. at 593 (“While the non-core nature of [Plaintiff’s] claims weighs in favor of

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In Stern v. Marshall, 131 S. Ct. 2594 (2011), the Supreme Court held that bankruptcy courts
“lacked the constitutional authority to enter . . . final judgment[s]” on certain state law
counterclaims that the Bankruptcy Amendments and Federal Judgeship Act of 1984 had
designated as “core” proceedings. Id. at 2620. After Stern, courts assess not only whether a
matter is classified as “core” by statute, but also whether final judgment by a bankruptcy court
would violate Article III of the Constitution. Exec. Benefits Ins. Agency v. Arkinson, 134 S. Ct.
2165, 2173 (2014) (“Stern made clear that some claims labeled by Congress as ‘core’ may not be
adjudicated by a bankruptcy court . . . .”).
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withdrawing the reference from the bankruptcy court, the core/non-core determination does not
end the inquiry.”).
After making the “core/non-core” determination, courts then weigh whether withdrawal
is prudent. Orion, 4 F.3d at 1101. Relevant factors include the “efficient use of judicial
resources, delay and costs to the parties, uniformity of bankruptcy administration, [and] the
prevention of forum shopping.” Id. Ultimately, the guiding concern in the Orion inquiry is
efficient and uniform judicial administration.
III.

Discussion
MIG Partnership asserts that this action is non-core and that the Orion factors necessitate

withdrawal of the reference. 4 (Dkt. No. 3 (“Def. Motion”) at 4, 7.) The Court agrees that
ResCap’s breach of contract and indemnification claims are not core to the bankruptcy
proceeding. ResCap’s suit against MIG Partnership does not arise under the Bankruptcy Code,
nor “could [it] arise only in a bankruptcy case.” MBNA Am. Bank, 436 F.3d at 109; see also
Suntrust, 2015 WL 739829, at *7 (“[T]he Court finds, as have numerous other judges on this
court, that RFC’s claims are ‘non-core’”); Greenpoint, 519 B.R. at 602 (“The three district
judges who have adjudicated a motion to withdraw the reference have each concluded that
RFC’s . . . claims against different [mortgage loan] originators are non-core.”). The non-core
nature of this matter advances the argument for withdrawal.

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While MIG Partnership states in its Motion that this action “bears no relation to [the] . . .
Chapter 11 Plan,” it does not explicitly assert that the bankruptcy court lacks jurisdiction under
the “related” cases provision of the Bankruptcy Code. 28 U.S.C. § 157(c)(1). The Court concurs
with other courts in this district that have concluded that the bankruptcy court has jurisdiction
over ResCap’s contract claims. E.g. Suntrust, 2015 WL 739829, at *3 (“[T]his case is at least
‘related to’ RFC’s pending bankruptcy case . . . .”); Greenpoint, 519 B.R. at 600 (“[T]his Court
concludes that the bankruptcy court has “related to” jurisdiction over RFC’s claims.”). This
Court has federal question jurisdiction under 28 U.S.C. § 1334.
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However, the remaining Orion factors support denial of the motion to withdraw.
Concerns about forum shopping and uniform bankruptcy administration favor neither party given
that ResCap’s contract claims are already split between jurisdictions and both parties have
sought to litigate in a favorable forum. In terms of efficiency, the Court finds persuasive the
analysis by Judges Abrams, Castel, and Daniels in nearly identical ResCap cases. See UBS Real
Estate, 2015 WL 1062264, at *4-6; Suntrust, 2015 WL 739829, at *7-8; Greenpoint, 519 B.R. at
603-06. In February 2015, Judge Abrams concluded that keeping ResCap’s contract claims in
bankruptcy court “conserves judicial resources and promotes judicial economy.” Suntrust, 2015
WL 739829, at *8. In March, Judge Daniels noted that Judge Glenn “has great expertise over
the facts” and has established a case management plan that “negates th[e] delay and . . . costs”
associated with non-final adjudication in bankruptcy court. UBS Real Estate, 2015 WL
1062264, at *4-5. These considerations are amplified today, more than six months further into
Judge Glenn’s administration of the ResCap cases.
IV.

Conclusion
Having considered each of the Orion factors, the Court determines that this non-core

claim should remain before Judge Glenn. Accordingly, the motion to withdraw the reference to
the bankruptcy court is DENIED. Because the motion to withdraw is denied, the motion to
transfer is also DENIED without prejudice. See Adelphia Commc’ns Corp. v. Thomson, Inc.,
No. 10-cv-4464, 2010 WL 3000169, at *5 (S.D.N.Y. July 22, 2010) (“Because the Court
declines to withdraw the reference to the Bankruptcy Court, it also denies [the] motion to transfer
the case.”); McHale v. Citibank, N.A., No. 09-cv-6064, 2009 WL 2599749, at *8 (S.D.N.Y. Aug.
24, 2009) (“Because I decline to withdraw the reference to the bankruptcy court, I also deny [the]
motion to transfer the case . . . .”).

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The Clerk of Court is instructed to close the motion at Docket Number 1 and to close this
matter.
SO ORDERED.
Dated: September 11, 2015
New York, New York
____________________________________
J. PAUL OETKEN
United States District Judge

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