Crypto Colo Center Corp. et al v. Dei Vitae Enterprises, LLC et al

Filing 9

ORDER granting 1 Motion to Withdraw Reference. The parties shall meet and confer to determine a deadline for Defendants' responsive pleadings within 14 days.. Signed by Senior Judge Robert J. Conrad, Jr on 0301/2024. (mdp)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NORTH CAROLINA
CHARLOTTE DIVISION
3:23-cv-00283-RJC
Crypto Colo Center Corp. et al.,

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Plaintiffs,
v.
Dei Vitae Enterprises, LLC et al.,
Defendants.

ORDER

THIS MATTER is before the Court on Plaintiffs’ Motion to Withdraw
Reference pursuant to 28 U.S.C. § 157(d), (Doc. No. 1), and Motion for Hearing;
Notice of Filing of Plaintiff’s Notice of Dismissal in Bankruptcy Cases and Request
for a Hearing on the Motions to Withdraw the Reference, (Doc. No. 5). Following a
February 22, 2024 hearing, the Court took the matter under advisement. For the
reasons set forth below, Plaintiffs’ Motion to Withdraw Reference is GRANTED.
I.

BACKGROUND
On February 22, 2023, Defendants James Reuben Burton, Jr., and Susan

Hunt Burton (“Burtons”) filed a petition to commence a chapter 13 bankruptcy case
in the bankruptcy court for this district. (Case No. 23-30128). Soon after, on
February 28, 2023, Defendant Dei Vitae Enterprises, LLC (“DVE”) filed a petition to
commence a chapter 11 bankruptcy case in the same court. (Case No. 23-30148).
Then, on March 24, 2023, Plaintiffs filed identical complaints in the Burtons’

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chapter 13 bankruptcy case (Adv. Pro. No. 23-03007) and DVE’s chapter 11
bankruptcy case (Adv. Pro. No. 23-03008).
On May 15, 2023, Plaintiffs filed a Motion to Withdraw Reference, (Doc.
No. 1), seeking to have the references to the adversary proceedings withdrawn
pursuant to 28 U.S.C. § 157(d). The Clerk for this Court assigned a case number to
each adversary proceeding: the Burtons’ chapter 13 proceeding was before Judge
Frank D. Whitney (Case No. 3:23-cv-00282), and DVE’s chapter 11 proceeding is
before this Court (Case No. 3:23-cv-00283). On May 30, 2023, Defendant DVE filed
a Response in Opposition to Plaintiffs’ Motion to Withdraw. (Doc. No. 3). And on
June 5, 2023, Plaintiffs filed a Reply to Defendant DVE’s Response in the case
before Judge Whitney. (3:23-cv-00282, Doc. No. 3). Plaintiffs filed a Notice of Filing
Reply in this Court. (Doc. No. 4).
On June 6, 2023, Judge Laura T. Beyer of the United States Bankruptcy
Court for this district dismissed the Burtons’ chapter 13 bankruptcy case. (2330128, Doc. No. 73). Then, by order entered on August 10, 2023, Judge Beyer
granted Plaintiffs’ motion to dismiss Adversary Proceeding No. 23-03007. (23-03007,
Doc. No. 43). On October 4, 2023, Judge Whitney necessarily denied as moot
Plaintiffs’ Motion to Withdraw Adversary Proceeding No. 23-03007. See Crypto Colo
Ctr. Corp. v. Dei Vitae Enters., LLC, No. 3:23-cv-00282-FDW, 2023 U.S. Dist. LEXIS
179357 (W.D.N.C. Oct. 4, 2023).
Following dismissal of the Burtons’ chapter 13 bankruptcy case, on July 27,
2023, Plaintiffs filed an amended complaint in Adversary Proceeding No. 23-03008,

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alleging fifteen non-title 11 causes of action. (23-03008, Doc. No. 43). On September
6, 2023, Judge Beyer dismissed DVE’s chapter 11 bankruptcy case. (23-30148, Doc.
No. 139). Defendants then filed motions to dismiss Adversary Proceeding No. 2303008 in the bankruptcy court. (23-03008, Doc. Nos. 62, 64, 65). By order entered on
October 13, 2023, Judge Beyer denied Defendants’ motions to dismiss Adversary
Proceeding No. 23-03008 and, in the alternative, granted Defendants’ motions for
abstention to the extent that all proceedings in Adversary Proceeding No. 23-03008
were suspended subject to this Court’s ruling on the pending motion. (23-03008,
Doc. No. 75). With briefing complete and following a hearing held on February 22,
2024, Plaintiffs’ motion is ripe for review.
II.

STANDARD OF REVIEW
Federal district courts have original jurisdiction over all bankruptcy matters

and related proceedings. 28 U.S.C. § 1334(a), (b). 28 U.S.C. § 157(a) allows district
courts to refer bankruptcy cases to the bankruptcy court, which by standing order,
this district has done. See In re Standing Order of Reference re Title 11, No. 3:14-mc00044 (Apr. 14, 2014) (citing 28 U.S.C. § 157(a)); see also In re Adversary
Proceedings in Bankruptcy Court, No. 3:04-mc-00156, 2011 U.S. Dist. LEXIS
158125 (May 17, 2011). Bankruptcy courts are authorized to enter orders and
judgments on all core bankruptcy matters and to submit proposed findings and
recommendations to this Court on all non-core matters. 28 U.S.C. § 157(b)–(c).
28 U.S.C. § 157(d) empowers a district court to withdraw a proceeding from
the bankruptcy court “on its own motion or on timely motion of any party, for cause

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shown.” Id. § 157(d). In other contexts, withdrawal is mandatory. See id. (“The
district court shall . . . 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.”).
“Permissive withdrawal of reference should be decided on a case-by-case
basis by determining whether cause exists for the court to grant withdrawal.”
Finley Grp. v. 222 S. Church St., LLC, No. 3:15-cv-00029-FDW, 2015 U.S. Dist.
LEXIS 27746, at *6–7 (W.D.N.C. Mar. 6, 2015). “While neither statute nor the
Fourth Circuit have explicitly defined ‘cause,’ several district courts within the
Fourth Circuit have consistently considered the following factors: (1) whether the
proceeding is core or non-core; (2) the uniform administration of bankruptcy
proceedings; (3) expediting the bankruptcy process and promoting judicial economy;
(4) the efficient use of debtors’ and creditors’ resources; (5) the reduction of forum
shopping; and, (6) the preservation of the right to a jury trial.” Id. at 7 (citations
omitted); see also In re U.S. Airways Group, Inc., 296 B.R. 673, 681–82 (E.D. Va.
2003).
III.

DISCUSSION
Plaintiffs argue that the Court should exercise its discretion to withdraw the

reference of Adversary Proceeding No. 23-03008. Since the filing of Plaintiffs’
motion, Judge Beyer dismissed the underlying chapter 11 bankruptcy case;
Adversary Proceeding No. 23-03008 nevertheless remains. Having evaluated the

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parties’ arguments and independently examined the relevant factors, the Court
finds sufficient cause to withdraw the reference.
1. Core Versus Non-Core
The first factor is “whether the proceeding is core or non-core.” Finley Grp.,
2015 U.S. Dist. LEXIS 27746, at *7. District courts in the Fourth Circuit have
deemed this factor most important “since it is upon this issue that questions of
efficiency and uniformity will turn.” Haigler v. Dozier, No. 4:18-1888-MGL, 2019
U.S. Dist. LEXIS 36458, at *12–13 (D.S.C. Mar. 7, 2019) (citations omitted). Before
the Supreme Court’s decision in Stern v. Marshall, 564 U.S. 462 (2011), “the
determination of whether a claim was core or non-core was as simple as looking to
the list of core proceedings in 28 U.S.C. § 157(b)(2).” Finley Grp., 2015 U.S. Dist.
LEXIS 27746, at *7. “Any proceeding that was considered ‘core’ could be tried in a
bankruptcy court.” Id. (citing 28 U.S.C. § 157(b)(1)). But now, beyond determining
whether a given claim is a core or non-core proceeding under 28 U.S.C. § 157(b)(2), a
court must also consider whether “‘the action at issue stems from the bankruptcy
itself or would necessarily be resolved in the claims allowance process.’” ACC Retail
Prop. Dev. & Acquisition Fund, LLC v. Bank of Am., N.A., No. 5:12-cv-361-BO, 2012
U.S. Dist. LEXIS 186666, at *7 (E.D.N.C. Sept. 27, 2012) (quoting Stern, 564 U.S. at
499).
The Court finds that the remaining causes of action raised in Adversary
Proceeding No. 23-03008 against only former debtors and one non-debtor are noncore. They include one federal cause of action for securities fraud and a variety of

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other state law causes of action for securities fraud, fraud, misappropriation, and
breaches of fiduciary duty. Each is capable of resolution without reference to the
Bankruptcy Code and exist without regard to any bankruptcy action. Thus, the
Court finds that the first factor weighs heavily in favor of withdrawing the
reference.
2. Remaining Factors
Application of the remaining factors also counsel in favor of withdrawing the
reference. The uniformity of bankruptcy administration will not be negatively
impacted, and it is more expedient to withdraw the reference in light of the
underlying chapter 11 bankruptcy case dismissal, and the fact that Adversary
Proceeding No. 23-03008 involves only issues governed by non-title 11 law.
See Allen v. Nat’l City Mortg., No. 2:04-mc-188, 2006 U.S. Dist. LEXIS 94819, at *5
(S.D.W. Va. July 13, 2006) (granting motion to withdraw and noting that
“[w]ithdrawing the reference certainly will not affect the uniform administration of
bankruptcy law because the Amended Complaint raises issues governed by nonTitle 11 law.”). Further, the Court finds that because none of the remaining claims
are unique to a bankruptcy proceeding or constitute claims with which the
bankruptcy court would ordinarily be expected to have a greater familiarity or
expertise, withdrawing the reference would facilitate efficient use of the parties’
resources.
Because nothing in the record suggests that withdrawing the reference would
increase the likelihood of forum shopping in this case, the Court finds that the fifth

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factor is inapplicable. Finally, because bankruptcy courts may not hold jury trials in
non-core matters absent the parties’ consent, and a jury demand has been filed in
this case, the Court finds that the last factor weighs in favor of withdrawing the
reference. See, e.g., Joseph DelGreco & Co. v. DLA Piper LLP (US), No. 10 CV 6422
(NRB), 2011 U.S. Dist. LEXIS 10972, at *11–12 (S.D.N.Y. Jan. 26, 2011) (noting
that in this scenario, a district court may find the inability of the bankruptcy court
to hold the trial constitutes cause to withdraw the reference).
IV.

CONCLUSION
As each of the above factors weighs in favor of withdrawal or is otherwise

inapplicable, the Court finds sufficient cause to withdraw the reference.
IT IS, THERFORE, ORDERED that:
1. Plaintiffs’ Motion to Withdraw Reference, (Doc. No. 1), is GRANTED.
2. The parties shall meet and confer to determine a deadline for
Defendants’ responsive pleadings within 14 days.
Signed: March 1, 2024

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