IN RE: RITE WAY ELECTRIC, INC. et al v. CIARDI
MEMORANDUM AND/OR OPINION. SIGNED BY HONORABLE LAWRENCE F. STENGEL ON 2/16/17. 2/17/17 ENTERED AND COPIES EMAILED.(rf, )
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
Miscellaneous Matter No. 14-232 & 14-231
RITE WAY ELECTRIC, INC.,
TERRY P. DERSHAW, TRUSTEE, by
No. 11-19633 (SR)
ROSENZWEIG & HALTZMAN, LLC,
Special Counsel to Chapter 7 Trustee,
Adv. Pro. No. 14-00026
Albert A. Ciardi, III,
TERRY P. DERSHAW, TRUSTEE, by
ROSENZWEIG & HALTZMAN, LLC,
Special Counsel to Chapter 7 Trustee,
Ciardi Ciardi & Astin, P.C.,
Adv. Pro. No. 14-00027
A Chapter 7 bankruptcy trustee filed adversary proceedings in Bankruptcy Court against
the bankrupt corporation’s attorney and against his law firm. The attorney and law firm filed
motions in this court to withdraw the reference of those actions to Bankruptcy Court. They seek
to have this court oversee the proceedings because they have made jury trial demands and did not
consent to the jurisdiction of the Bankruptcy Court. I address their motions together because they
involve the same underlying facts. I will deny their motions to withdraw a reference without
A. The Chapter 7 Petition against Rite Way Electric, Inc.1
On December 20, 2011, International Brotherhood of Electrical Workers Local 654
Health & Welfare Fund, International Brotherhood of Electrical Workers Local 654 Pension
Fund, and International Brotherhood of Electrical Workers Local 654 Annuity Fund filed a
Chapter 7 Involuntary Bankruptcy Petition against Rite Way Electric, Inc. Shortly thereafter,
three additional entities joined in the petition. Rite Way Electric, which was represented by
Albert Ciardi III of Ciardi Ciardi & Astin, P.C., moved to dismiss the petition.
On February 9, 2012, Judge Raslavich of the Bankruptcy Court entered an Order for
Relief, allowing the bankruptcy to move forward. On February 14, 2012, Marvin Krasny was
appointed the Chapter 7 Trustee. Marvin Krasny died while the bankruptcy was pending. On
April 26, 2013, the Bankruptcy Court appointed Terry Dershaw as the new trustee.
Information from this section can be found in 14-mc-232, Doc. No. 3, Ex. C (the bankruptcy
petition’s docket report), unless otherwise noted.
B. Adversary Proceedings Against Albert Ciardi and Ciardi Ciardi & Astin, P.C.2
On January 22, 2014, Dershaw—as Trustee—filed a complaint against Rite Way’s
counsel Albert Ciardi (the Ciardi Complaint) and another complaint against counsel’s law firm
Ciardi Ciardi & Astin (the CCA Complaint). The complaints involved several contract
arrangements and/or monetary transfers between Rite Way, its principals, Ciardi, and/or CCA
around the time the bankruptcy petition was filed.
1. Factual Basis for Adversary Proceedings
The Ciardi Complaint alleged that Rite Way Electric had performed services for Ciardi’s
two personal homes. Ciardi allegedly never paid for those services in full before the petition was
filed. At the time the petition was filed, Ciardi allegedly owed Rite Way money for the services
rendered.3 The Schedules and Statement of Financial Affairs did not disclose this debt nor any
setoff, forgiveness of a loan, or transfer of assets to satisfy the debt.
The actions against Ciardi and CCA (“the defendants,” collectively) were based on
documents and receipts the Trustee had found amongst Rite Way’s financial documents. The
Trustee had found a receipt for services performed for Ciardi between August 26, 2010 through
September 27, 2011. These services were valued at $67,705.33.4 Upon finding the receipt, the
Trustee requested payment by Ciardi. He indicated that no amount was owed or due. The Trustee
has not been provided evidence that these services were ever paid for by Ciardi.
Information from this section can be found in 14-mc-232, Doc. No. 3, Ex. A & B (the
bankruptcy petition’s docket report), unless otherwise noted.
Ciardi Complaint, 14-00026-sr (Bankr. E.D. Pa.), Doc. No. 1 at ¶ 28.
Ciardi Complaint, 14-00026-sr (Bankr. E.D. Pa.), Doc. No. 1, Ex. A.
A month before the petition was filed, Rite Way wrote a check to CCA on November 17,
2011. That check was then voided. It was replaced on November 18, 2011 by a cashier’s check
to CCA in the amount of $50,000.5 On November 18, 2011, another check (#36107) in the
amount of $50,000 was written from Rite Way to Donn Kirk—a Principal of Rite Way—and
marked as a travel expense.6 Just before this—on November 15, 2011—John and Lucille Parks
(John Parks is another Principal of Rite Way) wrote a check (#681) to Rite Way from their joint
account in the amount of $50,000.7 On November 17, 2011, John and Lucille Parks also wrote a
check to CCA for $50,000 from their joint account.8
On February 3, 2012—after the bankruptcy petition had been filed but before Krasny was
appointed as Trustee—Rite Way wired CCA two payments in the amounts of $20,000 and
$26,000, leaving little money in Rite Way’s Bank Account.9 On February 3, 2012—post-petition
and after the appointment of Krasny as Trustee—Ciardi wrote a check to Local 654 in the
amount of $28,672 from CCA’s IOLTA Account in order to settle a debt of Rite Way with the
Union.10 These transfers were not disclosed on the Schedule and Statement of Financial Affairs.
2. Initial Complaints against Ciardi and CCA
CCA Complaint, 14-00027-sr (Bankr. E.D. Pa.), Doc. No. 1 at ¶ 24 and Ex. A.
CCA Complaint, 14-00027-sr (Bankr. E.D. Pa.), Doc. No. 1 at ¶ 26 and Ex. B.
CCA Complaint, 14-00027-sr (Bankr. E.D. Pa.), Doc. No. 1 at ¶ 27 and Ex. C.
CCA Complaint, 14-00027-sr (Bankr. E.D. Pa.), Doc. No. 1 at ¶ 28 and Ex. C.
CCA Complaint, 14-00027-sr (Bankr. E.D. Pa.), Doc. No. 1 at ¶¶ 31 & 32 and Ex. D.
CCA Complaint, 14-00027-sr (Bankr. E.D. Pa.), Doc. No. 1 at ¶ 34 and Ex. E. Ciardi was
allegedly facing pressure from the Union to settle this debt. Id.
On the basis of these allegations, the Ciardi Complaint asserted claims for: (1)
explanation of undisclosed transfers pursuant to 11 U.S.C. § 329 (Debtor’s transactions with
attorneys); (2) turnover of property of the estate and accounting pursuant to 11 U.S.C. § 542
(Turnover of property to the estate); (3) disallowance of Ciardi’s claim or future claim pursuant
to 11 U.S.C. § 502(d) and (j) (Allowance of claims or interests); (4) avoidance of preferential
transfers pursuant to 11 U.S.C. § 547 (Preferences); (5) fraud; (6) unjust enrichment; (7)
avoidance and recovery of actual and/or constructive fraudulent transfers pursuant to 11 U.S.C.
§§ 548(A)(1)(A) & (B), 550(A), and 551. The CCA Complaint asserted claims for: (1) demand
for explanation of undisclosed transfers pursuant to 11 U.S.C. § 329 (Debtor’s transactions with
attorneys); (2) avoidance of preferential transfers pursuant to 11 U.S.C. § 547 (Preferences); (3)
avoidance of post-petition transfers pursuant to 11 U.S.C. § 549 (Postpetition transactions); (4)
avoidance and recovery of actual or constructive transfers avoided pursuant to 11 U.S.C. §§
548(A)(1)(A) & (B), 550, and 551; (5) disallowance of claims pursuant to 11 U.S.C. § 502
(Allowance of claims or interests); and (6) breach of fiduciary duty.
On February 24, 2014, Ciardi and CCA moved to dismiss the complaints against them, as
unsubstantiated and legally insufficient under Rule 12(b)(6).11 The motions to dismiss did not
raise the issue of whether jurisdiction was appropriate.
See CCA Complaint, 14-00027-sr (Bankr. E.D. Pa.), Doc. No. 5; Ciardi Complaint, 14-00026sr (Bankr. E.D. Pa.), Doc. No. 5.
In responding to the motions to dismiss, the Trustee admitted that Count VII against CCA and
Count III against Ciardi (regarding disallowance of all claims pursuant to 11 U.S.C. § 502)
should be dismissed. See 14-00027-sr (Bankr. E.D. Pa.), Doc. No. 7 at 14–15; 14-00026-sr
(Bankr. E.D. Pa.), Doc. No. 7 at 11.
On May 1, 2014, the Bankruptcy Court granted Ciardi’s motion without prejudice and
ordered CCA to file a Statement outlining their compensation for legal services under Rule
3. Amended Complaints against Ciardi and CCA
On May 14, 2014, the Trustee filed Motions for Clarification, requesting that the court
grant him leave to amend the complaints. Ciardi and CCA opposed the motions. The Bankruptcy
Court held oral argument on June 18, 2014 on the Motions for Clarification. At the end of the
hearing, Judge Raslavich ruled from the bench that he would not grant the Motions for
Clarification but would allow the Trustee to file motions for leave to amend the complaints. On
July 29, 2014, the Trustee filed Motions for Leave to Amend, attaching the proposed amended
complaints. Ciardi and CCA opposed these motions. Judge Raslavich granted these motions on
August 27, 2014.
The Trustee filed Amended Complaints against Ciardi and CCA on September 3, 2014.
The Amended Complaints provided further evidence of the Trustee’s initial allegations.13 The
See In re Rite Way Elec., Inc., 510 B.R. 471, 490 (Bankr. E.D. Pa. 2014).
Rule 2016(b) states:
(b) Disclosure of compensation paid or promised to attorney for debtor
Every attorney for a debtor, whether or not the attorney applies for compensation,
shall file and transmit to the United States trustee within 14 days after the order
for relief, or at another time as the court may direct, the statement required by §
329 of the Code including whether the attorney has shared or agreed to share the
compensation with any other entity. The statement shall include the particulars of
any such sharing or agreement to share by the attorney, but the details of any
agreement for the sharing of the compensation with a member or regular associate
of the attorney’s law firm shall not be required. A supplemental statement shall be
filed and transmitted to the United States trustee within 14 days after any payment
or agreement not previously disclosed.
Trustee narrowed the claims asserted against Ciardi and CCA in the Amended Complaints. The
Amended Complaint against Ciardi only included the following claims: (1) unjust
enrichment/quantum merit; (2) breach of contract; (3) avoidance of post-petition transfers
pursuant to 11 U.S.C. § 549 (Postpetition transactions);14 and (4) recovery of transfers avoided
The Trustee included email exchanges between Rite Way Donn Kirk (Principal) and a Rite
Way employee and other financial statements to support the amended allegations. See CCA
Complaint, 14-00027-sr (Bankr. E.D. Pa.), Doc. No. 23 at ¶¶ 24–46; Ciardi Complaint, 1400026-sr (Bankr. E.D. Pa.), Doc. No. 26 at ¶¶ 24–44.
11 U.S.C. § 549 (Postpetition transactions) states:
(a) Except as provided in subsection (b) or (c) of this section, the trustee may avoid a
transfer of property of the estate-(1) that occurs after the commencement of the case; and
(2)(A) that is authorized only under section 303(f) or 542(c) of this title; or
(B) that is not authorized under this title or by the court.
(b) In an involuntary case, the trustee may not avoid under subsection (a) of this section a
transfer made after the commencement of such case but before the order for relief to the
extent any value, including services, but not including satisfaction or securing of a debt
that arose before the commencement of the case, is given after the commencement of the
case in exchange for such transfer, notwithstanding any notice or knowledge of the case
that the transferee has.
(c) The trustee may not avoid under subsection (a) of this section a transfer of an interest
in real property to a good faith purchaser without knowledge of the commencement of the
case and for present fair equivalent value unless a copy or notice of the petition was filed,
where a transfer of an interest in such real property may be recorded to perfect such
transfer, before such transfer is so perfected that a bona fide purchaser of such real
property, against whom applicable law permits such transfer to be perfected, could not
acquire an interest that is superior to such interest of such good faith purchaser. A good
faith purchaser without knowledge of the commencement of the case and for less than
present fair equivalent value has a lien on the property transferred to the extent of any
present value given, unless a copy or notice of the petition was so filed before such
transfer was so perfected.
(d) An action or proceeding under this section may not be commenced after the earlier of(1) two years after the date of the transfer sought to be avoided; or
(2) the time the case is closed or dismissed.
pursuant to 11 U.S.C. § 550 (Liability of transferee of avoided transfer).15 The Amended
Complaint against CCA only included claims under the Bankruptcy Code for: (1) avoidance of
11 U.S.C. § 550 (Liability of transferee of avoided transfer) states:
(a) Except as otherwise provided in this section, to the extent that a transfer is avoided
under section 544, 545, 547, 548, 549, 553(b), or 724(a) of this title, the trustee may
recover, for the benefit of the estate, the property transferred, or, if the court so orders,
the value of such property, from-(1) the initial transferee of such transfer or the entity for whose benefit such transfer
was made; or
(2) any immediate or mediate transferee of such initial transferee.
(b) The trustee may not recover under section 1 (a)(2) of this section from-(1) a transferee that takes for value, including satisfaction or securing of a present or
antecedent debt, in good faith, and without knowledge of the voidability of the
transfer avoided; or
(2) any immediate or mediate good faith transferee of such transferee.
(c) If a transfer made between 90 days and one year before the filing of the petition-(1) is avoided under section 547(b) of this title; and
(2) was made for the benefit of a creditor that at the time of such transfer was an
the trustee may not recover under subsection (a) from a transferee that is not an insider.
(d) The trustee is entitled to only a single satisfaction under subsection (a) of this section.
(e)(1) A good faith transferee from whom the trustee may recover under subsection (a) of
this section has a lien on the property recovered to secure the lesser of-(A) the cost, to such transferee, of any improvement made after the transfer, less the
amount of any profit realized by or accruing to such transferee from such property;
(B) any increase in the value of such property as a result of such improvement, of the
(2) In this subsection, “improvement” includes-(A) physical additions or changes to the property transferred;
(B) repairs to such property;
(C) payment of any tax on such property;
(D) payment of any debt secured by a lien on such property that is superior or equal
to the rights of the trustee; and
(E) preservation of such property.
(f) An action or proceeding under this section may not be commenced after the earlier of-
preferential transfers pursuant to 11 U.S.C. § 547;16 (2) avoidance of post-petition transfers
pursuant to 11 U.S.C. § 549 (Postpetition transactions); and (3) recovery of transfers avoided
pursuant to 11 U.S.C. § 550 (Liability of transferee of avoided transfer).
(1) one year after the avoidance of the transfer on account of which recovery under
this section is sought; or
(2) the time the case is closed or dismissed.
11 U.S.C. § 547 (Preferences) states (in relevant part):
(a) In this section--…
(3) “receivable” means right to payment, whether or not such right has been
earned by performance; and…
(b) Except as provided in subsections (c) and (i) of this section, the trustee may
avoid any transfer of an interest of the debtor in property-(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such
transfer was made;
(3) made while the debtor was insolvent;
(4) made-(A) on or within 90 days before the date of the filing of the petition; or
(B) between ninety days and one year before the date of the filing of the
petition, if such creditor at the time of such transfer was an insider; and
(5) that enables such creditor to receive more than such creditor would receive
if-(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by
the provisions of this title.
(c) The trustee may not avoid under this section a transfer-(1) to the extent that such transfer was-(A) intended by the debtor and the creditor to or for whose benefit such
transfer was made to be a contemporaneous exchange for new value given
to the debtor; and
(B) in fact a substantially contemporaneous exchange;
(2) to the extent that such transfer was in payment of a debt incurred by the
debtor in the ordinary course of business or financial affairs of the debtor and
the transferee, and such transfer was-(A) made in the ordinary course of business or financial affairs of the
debtor and the transferee; or
(B) made according to ordinary business terms;
(3) that creates a security interest in property acquired by the debtor--
(A) to the extent such security interest secures new value that was-(i) given at or after the signing of a security agreement that contains a
description of such property as collateral;
(ii) given by or on behalf of the secured party under such agreement;
(iii) given to enable the debtor to acquire such property; and
(iv) in fact used by the debtor to acquire such property; and
(B) that is perfected on or before 30 days after the debtor receives
possession of such property;
(4) to or for the benefit of a creditor, to the extent that, after such transfer,
such creditor gave new value to or for the benefit of the debtor-(A) not secured by an otherwise unavoidable security interest; and
(B) on account of which new value the debtor did not make an otherwise
unavoidable transfer to or for the benefit of such creditor;
(5) that creates a perfected security interest in inventory or a receivable or the
proceeds of either, except to the extent that the aggregate of all such transfers
to the transferee caused a reduction, as of the date of the filing of the petition
and to the prejudice of other creditors holding unsecured claims, of any
amount by which the debt secured by such security interest exceeded the value
of all security interests for such debt on the later of-(A)(i) with respect to a transfer to which subsection (b)(4)(A) of this
section applies, 90 days before the date of the filing of the petition; or
(ii) with respect to a transfer to which subsection (b)(4)(B) of this
section applies, one year before the date of the filing of the petition; or
(B) the date on which new value was first given under the security
agreement creating such security interest;
(6) that is the fixing of a statutory lien that is not avoidable under section 545
of this title;
(7) to the extent such transfer was a bona fide payment of a debt for a
domestic support obligation;
(8) if, in a case filed by an individual debtor whose debts are primarily
consumer debts, the aggregate value of all property that constitutes or is
affected by such transfer is less than $600; or
(9) if, in a case filed by a debtor whose debts are not primarily consumer
debts, the aggregate value of all property that constitutes or is affected by
such transfer is less than $6,4251.
(d) The trustee may avoid a transfer of an interest in property of the debtor
transferred to or for the benefit of a surety to secure reimbursement of such a
surety that furnished a bond or other obligation to dissolve a judicial lien that
would have been avoidable by the trustee under subsection (b) of this section. The
liability of such surety under such bond or obligation shall be discharged to the
extent of the value of such property recovered by the trustee or the amount paid to
(e)(1) For the purposes of this section--
(A) a transfer of real property other than fixtures, but including the interest of
a seller or purchaser under a contract for the sale of real property, is perfected
when a bona fide purchaser of such property from the debtor against whom
applicable law permits such transfer to be perfected cannot acquire an interest
that is superior to the interest of the transferee; and
(B) a transfer of a fixture or property other than real property is perfected
when a creditor on a simple contract cannot acquire a judicial lien that is
superior to the interest of the transferee.
(2) For the purposes of this section, except as provided in paragraph (3) of this
subsection, a transfer is made-(A) at the time such transfer takes effect between the transferor and the
transferee, if such transfer is perfected at, or within 30 days after, such time,
except as provided in subsection (c)(3)(B);
(B) at the time such transfer is perfected, if such transfer is perfected after
such 30 days; or
(C) immediately before the date of the filing of the petition, if such transfer is
not perfected at the later of-(i) the commencement of the case; or
(ii) 30 days after such transfer takes effect between the transferor and the
(3) For the purposes of this section, a transfer is not made until the debtor has
acquired rights in the property transferred.
(f) For the purposes of this section, the debtor is presumed to have been insolvent
on and during the 90 days immediately preceding the date of the filing of the
(g) For the purposes of this section, the trustee has the burden of proving the
avoidability of a transfer under subsection (b) of this section, and the creditor or
party in interest against whom recovery or avoidance is sought has the burden of
proving the nonavoidability of a transfer under subsection (c) of this section.
(h) The trustee may not avoid a transfer if such transfer was made as a part of an
alternative repayment schedule between the debtor and any creditor of the debtor
created by an approved nonprofit budget and credit counseling agency.
(i) If the trustee avoids under subsection (b) a transfer made between 90 days and
1 year before the date of the filing of the petition, by the debtor to an entity that is
not an insider for the benefit of a creditor that is an insider, such transfer shall be
considered to be avoided under this section only with respect to the creditor that is
4. Ciardi and CCA’s Motions for Withdrawal of a Reference
Ciardi and CCA filed answers on September 17, 2014 in Bankruptcy Court. In their
answers, Ciardi and CCA “did not consent” to the jurisdiction of the Bankruptcy Court and
included jury demands.17 In addition to offering affirmative defenses, CCA filed a counterclaim
“for a determination under 11 U.S.C. §§ 105 and 506 that all property transferred by the Debtor
within ninety (90) days of the Petition Date were not transfers of property of the estate and,
therefore, are not preferential payments under 11 U.S.C. § 547.” Neither Ciardi nor CCA have
filed a proof of claim in bankruptcy court, asserting a right to property owed them by Rite
Way.18 However, CCA is listed as a creditor on the Schedules and Statement of Financial Affairs
filed by Rite Way in Bankruptcy Court.19
On September 18, 2014, the defendants also filed motions in this court to withdraw a
reference to Bankruptcy Court of the complaints against them.
Standard for Withdrawal of a Reference to Bankruptcy Court
District courts may refer certain cases to bankruptcy judges: (1) “any or all cases” under
the Bankruptcy Code and “any or all proceedings arising under” the Bankruptcy Code, or (2)
proceedings related to a case under the Bankruptcy Code. 28 U.S.C. § 157(a). The bankruptcy
judge may oversee those proceedings and enter judgments or orders subject to review of the
district court. 28 U.S.C. § 157(b)(1). See also 28 U.S.C. § 158. This reference is typically made
automatically when a case relates to a bankruptcy.
See CCA Complaint, 14-00027-sr (Bankr. E.D. Pa.), Doc. No. 25 at ¶¶ 1–4; Ciardi Complaint,
14-00026-sr (Bankr. E.D. Pa.), Doc. No. 28 at ¶¶ 1–4.
See 14-mc-232, Doc. No. 1, at 4 n. 3.
See 14-mc-231, Doc. No. 3 at 3.
Once a case is “referred,” the district court may “withdraw a reference” of a case in
whole or part “on its own motion or on timely motion of any party, for cause shown.” 28 U.S.C.
§ 157(d). This is a permissive withdrawal. See, e.g., Northwestern Institute of Psychiatry, Inc. v.
Travelers Indem. Co., 272 B.R. 104, 107 (E.D. Pa. 2001); In re Winstar Communications, Inc.,
No. 01–01430, 01–01063, Civ.A.04–928–JJF, 2004 WL 2713101, at *1, *3 (D. Del. Nov. 16,
The district court must withdraw a reference on timely motion of a party if the
“resolution of the proceeding requires consideration of both title 11 [the Bankruptcy Code] and
other laws of the United States regulating organizations or activities affecting interstate
commerce.” 28 U.S.C. § 157(d). This would be a mandatory withdrawal. See, e.g., S.V. v. Kratz,
Nos. 12–C–705, 10–C–919, 2012 WL 3070979, at *1 (E.D. Wis. Jul. 26, 2012); In re U.S.
Airways Group, Inc., 296 B.R. 673, 676–77 (E.D. Va. 2003).
The defendants provide two legal bases for withdrawal: (1) “cause shown” under §
157(d), and (2) their jury demand coupled with their lack of consent to the bankruptcy court’s
A. Permissive Withdrawal of a Reference
Ciardi and CCA request a permissive withdrawal based on “cause” shown.21 See 28
U.S.C. § 157(d). The burden to show “cause” is on Ciardi and CCA. See, e.g., Feldman v. ABN
AMRO Mortg. Group Inc., 515 B.R. 443, 452 (E.D. Pa. 2014) (citing
The defendants’ points about their right to a jury trial appear to be a separate jurisdictional
argument for withdrawal from their request for a permissive withdrawal (and not simply a part of
the § 157(d) analysis).
In re NDEP Corp., 203 B.R. 905, 907 (D. Del. 1996)).
The bankruptcy statute does not define “cause.”22 The Third Circuit’s decision In re Pruitt
provides factors for a district court to consider whether “cause” exists:
(1) the promotion of uniformity in bankruptcy administration,
(2) the reduction of forum shopping and confusion,
(3) the economical use of the debtors’ and creditors’ resources,
(4) expediency of the bankruptcy process, and
(5) the timing of the request for withdrawal.
In re Pruitt, 910 F.2d 1160, 1168 (3d Cir. 1990) (adopting Holland America Ins. Co. v.
Succession of Roy, 777 F.2d 992, 999 (5th Cir. 1985)).
The Pruitt factors do not warrant withdrawal of a reference at this time. The first and
third factors weigh against withdrawal. Allowing these actions to remain in Bankruptcy Court
would promote uniformity in bankruptcy administration. After several years of overseeing the
bankruptcy estate and several months litigating the specific adversary proceedings in this case,
Judge Raslavich is much more familiar with the relationships between Rite Way, Ciardi, CCA,
and the principals of Rite Way. Given that he is administering the bankruptcy action, he has a
better frame with which to view how the money transfers in question relate to the estate’s assets.
The claims against Ciardi and CCA are either premised on the Bankruptcy Code and/or
involve state law (not other federal statutes); the mandatory withdrawal provision is inapplicable.
Neither party contends a mandatory withdrawal under the statute is appropriate.
See, e.g., In re Pruitt, 910 F.2d 1160, 1168 (3d Cir. 1990); In re Eagle Enterprises, Inc., 259
B.R. 83, 87 (Bankr. E.D. Pa. 2001) (“[T]here is no statutory definition of what constitutes ‘cause
shown’ under 28 U.S.C. § 157(d).”); In re Pelullo, Nos. 95–22430, 96–2254, 96–MC–303, 1997
WL 535155, at *2 (E.D. Pa. Aug. 15, 1997) (“There is no statutory definition of what constitutes
‘cause shown’ under 28 U.S.C. § 157(d) for permissive withdrawal of reference.”).
This information may be important to understanding the nature of the claims asserted in the
The defendants argue that it would be more economical for this court to oversee the pretrial and discovery matters of these actions given that this court may have to hold a jury trial on
the actions.23 As I explain below, the defendants have not provided me with enough information
to determine if, in fact, they have a right to a jury trial on the claims asserted against them.
Assuming that they are entitled to a jury trial, it would still be more favorable for Judge
Raslavich to oversee the adversary proceedings at this stage of litigation. He is already more
familiar with the facts of these proceedings and the relevant law.24
The second factor weighs against withdrawal. I will not assume that the defendants’ filing
these motions is an attempt to “forum shop,” as the Trustee argues. However, allowing a
The defendants only address factors 3 and 5, stating that the other factors have no effect on the
As I explain below, the defendants have failed to address some of the important facts and legal
questions affecting the outcome of these proceedings (i.e., whether the defendants, in fact, are
attempting to have a claim on the bankruptcy estate, etc.). See In re Lloyd Securities, Inc., 1993
156 B.R. 750, 752 (Bankr. E.D. Pa. 1993) (“[W]hen a creditor presents a ‘claim’ against the
bankruptcy estate, that creditor triggers the process of allowance and disallowance of claims,
thereby subjecting the creditor to the bankruptcy court’s equitable powers and placing the
parties’ dispute into the arena of ‘public rights,’ i.e., the public restructuring of debtor-creditor
relations.”). See also In re Barto, Bkrtcy. No. 93-22540-JKF, 1996 WL 16664, at *4 (Bankr.
W.D. Pa. Jan. 16, 1996) (“Taylor-Winfield chose to raise its claim in this court by filing a
permissive counterclaim. In so doing, Taylor-Winfield has submitted to the jurisdiction of this
court because the filing of the permissive counterclaim, in essence, invoked the claims allowance
process. The effect is the same as it would have been had Taylor-Winfield filed a formal proof of
claim.”) and at *7 (“On the basis of Langenkamp and its progeny, we conclude that a creditor
subjects itself to the jurisdiction of the bankruptcy court by filing a permissive counterclaim. We
conclude that Taylor-Winfield has subjected itself to the jurisdiction of this court and no longer
has the right to a jury trial.”). From the information I have been provided, it may simply be that
those questions are not ripe for this court to answer. Allowing the proceedings to continue pretrial before Judge Raslavich will, hopefully, provide more information on how those open
questions should be answered.
withdrawal at this time—just after the defendants received an unfavorable determination by the
Bankruptcy Court, following several months of litigation—could create precedent that may
encourage “forum shopping” by later litigants. Furthermore, denying the withdrawal at this time
will streamline the handling of the claims in the adversary proceedings and prevent confusion.
The fourth factor appears to be neutral or weigh against withdrawal. Withdrawing a
reference will not necessarily expedite the bankruptcy administration process. However, there is
a chance that the Bankruptcy Court may have to wait for this court to adjudicate the merits of the
adversary proceedings (since this court will have to become familiar with the relevant actions).
Keeping these actions in Bankruptcy Court will allow the Bankruptcy Court Judge to monitor
these adversary proceedings, as they relate to the larger bankruptcy estate. The Bankruptcy
Judge’s knowledge of this “piece” of the bankruptcy estate may also allow him to more
efficiently administer the estate.
Lastly, the final factor—the timing of the defendants’ motions—weighs against
withdrawal. While it is true that the defendants filed their motions only after amended
complaints were filed, these motions came after Judge Raslavich had already considered and
ruled upon several motions regarding the merits of the adversary proceedings.25 His handling of
To support their arguments on timing, the defendants cite In re Schlein, 188 B.R. 13 (E.D. Pa.
1995). Schlein granted a motion for withdrawal after the debtor added a Racketeer Influenced
and Corrupt Organizations Act (RICO) claim to his amended complaint. Id. at *14. Because the
RICO claim would require “substantial and material” consideration of a federal law beyond the
Bankruptcy Code, Schlein considered the withdrawal to be “mandatory” under 28 U.S.C. §
157(d). Unlike Schlein, the amended complaints did not add a federal non-bankruptcy claim; in
fact, the amended complaints narrowed the claims asserted in the initial complaints. If the
defendants were concerned about the Bankruptcy Court’s jurisdiction over the non-bankruptcy
claims, the seemingly more appropriate time to address this point would be at the filing of the
initial complaints. Schlein is distinguishable, and the defendants’ arguments are not helpful in
those motions better positions him to handle discovery matters and pre-trial motions for those
I will deny the defendants’ request for withdrawal under § 157(d).
B. Ciardi and CCA’s Other Arguments For Withdrawal
Ciardi and CCA also argue that this court “must” withdraw a reference because they have
not consented to the jurisdiction of the Bankruptcy Court and request a jury trial.26 If a
proceeding provides a right to a jury trial, “the bankruptcy judge may conduct the jury trial if
specially designated to exercise such jurisdiction by the district court and with the express
consent of all the parties.” 28 U.S.C. § 157(e). Ciardi and CCA, however, fail to address the legal
analysis necessary to show that they do, in fact, have a right to a jury trial for the claims asserted
against them. See Granfinanciera S.A. v. Nordberg, 492 U.S. 33, 42–56 (1989) (offering a threestep test to determine whether a bankruptcy claim provides a right to a jury trial); Billing v.
Ravin, Greenberg & Zackin, P.A., 22 F.3d 1242, 1253 (3rd Cir. 1994) (Third Circuit
Some courts have addressed the request for a jury demand as part of the “cause” analysis. See,
e.g., Pennsylvania Academy of Music v. Regitz, No. 10–14377, 2010 WL 4909952, at *3 (E.D.
Pa. Nov. 30, 2010) (“Another factor sometimes considered by courts analyzing whether
withdrawal is appropriate is whether the parties have requested a jury trial.”) (quoting In re
NDEP Corp., 203 B.R. 905, 908 (D. Del. 1996) (quotation marks and additional citation
Even if I were to consider their jury demand in the permissive withdrawal analysis, the jury
demand alone would not be enough to “tip the scales” in the defendants’ favor at this stage of
litigation. See Am. Classic Voyages Co. v. Westaff (USA), Inc., 337 B.R. 509, 512 (D. Del.
2006) (“A District Court may consider a demand for a jury trial insufficient cause for
discretionary withdrawal if the motion is made at an early stage of the proceedings and
dispositive motions may resolve the matter.”); In re Carpenter, No. 12–21, 2012 WL 5990222, at
*2 (W.D. Pa. Nov. 30, 2012) (“[M]erely asserting a Seventh Amendment right to a jury trial is
not of itself sufficient cause to justify discretionary withdrawal.” (citing In re Northwestern Inst.
of Psychiatry, Inc., 268 B.R. 79, 84 (Bankr. E.D. Pa. 2001)).
interpretation of Granfinanciera framework pertaining to legal malpractice claim brought in
Ciardi and CCA rely on assumptions and legal conclusions to support their right to a jury trial
(i.e., “[I]t is unquestionable that the Bankruptcy Court does not have jurisdiction over the claims
against Ciardi in Adv. Pro. No 14-00026…;” arguing that “non-core” claims “cannot be heard in
bankruptcy court unless the parties consented to the bankruptcy judge’s hearing it” without
explaining which claims are “core” and “non-core”). See 14-mc-232, Doc. No. 1 at 3, 7. They do
not lay out the appropriate three-step analysis under Granfinanciera.
In addition, the defendants imply that some claims are “core” and may be heard by the
Bankruptcy Court, while others are “non-core” (i.e., “[A]ll the claims in this action should be
heard in the District Court as it would plainly be inefficient to have two different courts
considering interrelated parts of this lawsuit when this Court (and only this Court) has the power
to decide the whole case.”). See 14-mc-232, Doc. No. 1 at 7. Yet, the defendants never explain
their analysis of categorizing the claims. They fail to explain why Judge Raslavich’s and the
Trustee’s categorization of the claims as “core” would be improper. See In re Rite Way Elec.,
Inc., 510 B.R. 471, 477 n.1 (Bankr. E.D. Pa. 2014) (citing 28 U.S.C. § 157(b)(2)(A), (E), (F),
They also fail to adequately address the Trustee’s arguments in rebuttal (i.e., regarding
CCA’s filing of an informal proof of claim, waiver, implied consent, the categorization of
the claims as “core”), which do address the appropriate legal analysis. Even if the
defendants are entitled to a jury trial, they may have waived that right. See Wellness
Intern. Network, Ltd. v. Sharif, 135 S. Ct. 1932, 1947 (2015) (“Nothing in the
Constitution requires that consent to adjudication by a bankruptcy court be express. Nor
does the relevant statute, 28 U.S.C. § 157, mandate express consent; it states only that a
bankruptcy court must obtain ‘the consent’—consent simpliciter—‘of all parties to the
proceeding’ before hearing and determining a non-core claim. § 157(c)(2).”).
Courts often consider whether the claims asserted are within the Bankruptcy Court’s “core”
jurisdiction or are simply related (i.e., are “non-core”). The determination of a claim as “core” or
“non-core” can have jurisdictional implications. See Executive Benefits Ins. Agency v. Arkison
(In re Bellingham), 134 S. Ct. 2165, 2172 (2014) (“If a matter is core, the statute empowers the
bankruptcy judge to enter final judgment on the claim, subject to appellate review by the district
court. If a matter is non-core, and the parties have not consented to final adjudication by the
bankruptcy court, the bankruptcy judge must propose findings of fact and conclusions of law.
Then, the district court must review the proceeding de novo and enter final judgment.”). A
proceeding is “core” if it “invokes a substantive right provided by title 11 or if it is a proceeding
that, by its nature, could arise only in the context of a bankruptcy case.” In re Guild and Gallery
Plus, Inc., 72 F.3d 1171, 1178 (3d Cir. 1996) (citation omitted).
Whether adversary proceedings involve “core” or “non-core” claims is not an easy question to
answer, in light of recent Supreme Court precedent on the subject. See Stern v. Marshall, 564
This legal analysis has constitutional implications. It would be imprudent for me to make
a decision as to the nature of the claims or the parties’ rights without full briefing on the relevant
U.S. 462 (2011); Executive Benefits Ins. Agency v. Arkison (In re Bellingham), 134 S. Ct. 2165,
2172 (2014) (“Stern made clear that some claims labeled by Congress as ‘core’ may not be
adjudicated by a bankruptcy court in the manner designated by § 157(b).”) and at 1273
(explaining that if a court finds the labeling of an action as “core” violates constitutional bounds
the label is simply severed as null and void). See also Beard v. Braunstein, 914 F.2d 434, 437 (3d
Cir. 1990) (“[A] person who has not submitted a claim against a bankruptcy estate has a right to
a jury trial when sued by the trustee in bankruptcy to recover an allegedly fraudulent monetary
transfer . . . notwithstanding Congress’ designation of fraudulent conveyance actions as ‘core
proceedings’ in 28 U.S.C. § 157(b)(2)(H).” (quoting Granfinanciera S.A. v. Nordberg, 492 U.S.
33, 36 (1989)); Feldman v. ABN AMRO Mortg. Group Inc., 515 B.R. 443, 447 (E.D. Pa. 2014)
(Goldberg, J.) (“Following Stern, it fell to the lower courts to identify those types of claims that
are statutorily defined as core, but which fall outside the scope of the public rights exception.”)
and at 448 (“Courts within this Circuit are split on whether bankruptcy courts can enter final
judgment on fraudulent transfer claims post-Stern.”).
The facts and circumstances surrounding the claims—not simply whether they are state common
law claims—also may affect whether a claim is “core” or “non-core.” See Billing v. Ravin,
Greenberg & Zackin, P.A., 22 F.3d 1242 (3rd Cir. 1994) (considering no right to jury trial for
legal malpractice—though a state law tort claim—in bankruptcy after going through
Granfinanciera test); Northwestern Institute of Psychiatry, Inc. v. Travelers Indem. Co., 268 B.R.
79, 86–92 (E.D. Pa. 2001) (explaining that the accrual of a claim pre- or post-petition may affect
its categorization as “core” or “non-core”). The defendants simply rely on the fact that certain
claims are traditionally state court claims in arguing their right to a jury trial. This is not enough.
I will not make any rulings on the “core” or “non-core” nature of the proceedings at this time. If
necessary, I will address this point when and if these motions are re-filed. Assuming some claims
are “core” and others “non-core”—as the defendants imply—there is no prejudice to the
defendants in delaying this ruling. The claims would proceed together during pre-trial because
they appear to be “intertwined.” If the defendants are entitled to a jury trial on some claims, the
claims will be tried together, if a trial is necessary. See In re Carpenter, No. 12–21, 2012 WL
5990222, at *3 (W.D. Pa. Nov. 30, 2012) (explaining how, when core and non-core claims are
intertwined and based on the same factual predicate, the non-core claims “should be managed
through trial in conjunction with the core claims.”). Keeping them together in Bankruptcy Court
during pre-trial and discovery promotes their efficient adjudication.
I will deny the motions to withdraw a reference without prejudice.28 Given the
considerations explained above, discovery and pre-trial motions on Ciardi and CCA adversary
proceedings should be handled by the Bankruptcy Court.29 See Feldman v. ABN AMRO Mortg.
Given that this motion implicates important constitutional considerations, a denial of the
motion with prejudice would not be warranted. If the defendants re-file this motion at a later
time, I strongly encourage them to pay greater attention to the governing precedent on the issues
Like magistrate judges, Bankruptcy Judges may oversee pre-trial motions and discovery
without running afoul of constitutional boundaries. See, e.g., Feldman v. ABN AMRO Mortg.
Group Inc., 515 B.R. 443, 448 (E.D. Pa. 2014) (Goldberg, J.) (“It is now clear that the
bankruptcy court can conduct the necessary pretrial proceedings, including submitting proposed
findings on dispositive motions, without overstepping the bounds of its constitutional
authority.”); Pennsylvania Academy of Music v. Regitz, No. 10–14377, 2010 WL 4909952, at
*3 (E.D. Pa. Nov. 30, 2010) (Baylson, J.) (“Moreover, the fact that Defendants are entitled to a
jury trial in this Court does not mean pre-trial proceedings must be conducted in the District
Court. Rather, at this stage, the decision to withdraw is discretionary: the Court may ‘withdraw[ ]
the entire adversary matter, or withdraw[ ] only the trial portion, leaving the pre-trial and
discovery matters to be handled by the bankruptcy judge.’”); Northwestern Institute of
Psychiatry, Inc. v. Travelers Indem. Co., 268 B.R. 79, 84 (E.D. Pa. 2001) (“[I]t is not uncommon
for district courts to defer withdrawal of the reference to allow the bankruptcy court to handle a
proceeding until such time as the district court determines that the bankruptcy court may not do
so. Many district courts have held that withdrawal of the reference on the ground that a party is
entitled to a jury trial should be deferred until the case is ‘trial ready.’”).
See also Williams v. Avnet, Inc. (In re Techs. Liquidations Co.), No. 07–177, 2007 WL
1152518, at *1 (W.D. Pa. Apr. 17, 2007) (denying a permissive withdrawal based on a right to a
jury trial without prejudice so that bankruptcy court could handle pre-trial proceedings); Am.
Classic Voyages Co. v. Westaff (USA), Inc., 337 B.R. 509, 512 (D. Del. 2006) (“Courts… have
TTT recognized that it serves the interests of judicial economy and efficiency to keep an action
in Bankruptcy Court for the resolution of pre-trial, managerial matters, even if the action will
ultimately be transferred to a district court for trial.” (citation omitted)); MicroBilt Corp. v.
Fidelity Nat. Information Services, No. 12–3861 (JAP), 2012 WL 4955267, at *4 (D.N.J. Oct.
16, 2012) (“The Court is aware of Defendants' concern that the Bankruptcy Court does not have
the constitutional authority to finally adjudicate the claims in the Adversary Proceeding. It is not
necessary to decide the issue at this time, however, because even if the District Court ultimately
must adjudicate the matter, the Bankruptcy Court is currently in the best position to preside over
the Adversary Proceeding and resolve motions and discovery disputes until such time as the case
is ready for final adjudication.”).
Group Inc., 515 B.R. 443, 448 (E.D. Pa. 2014) (“Given the resources already expended in that
forum, and the possibility that the adversary proceedings will never reach the stage at which a
jury trial is held in this Court, we find that economy of both the Court and the parties’ resources
is best served by denying the Trustee’s motion.”).
Ciardi and CCA may re-file motions to withdraw a reference after any rulings on motions
for summary judgment have been made by the Bankruptcy Court on claims that have not been
An appropriate Order follows.
See Executive Benefits Ins. Agency v. Arkison (In re Bellingham), 134 S. Ct. 2165, 2174–75
(2014) (explaining how a district court may later correct a jurisdictional issue related to later
categorization of claims as non-core by reviewing the bankruptcy court’s findings de novo and
treating them as “proposed,” in the event a party did not consent to the jurisdiction of the
bankruptcy court to enter final judgment on non-core claims); Perkins v. Verma, No. 11–2557
(SDW) (MCA), 2011 WL 5142937, at *5 (D.N.J. Oct. 27, 2011) (“The Bankruptcy Court may
also rule on summary judgment motions after the conclusion of discovery because a ‘bankruptcy
judge ruling on [a] summary judgment motion does not raise Seventh Amendment issues since
motion [is] disposed of as a matter of law and review by Article III judges is de novo.’”); In re
Carpenter, No. 12–21, 2012 WL 5990222, at *3 (W.D. Pa. Nov. 30, 2012) (“A district court may
deny a motion to withdraw until the case is ‘trial ready.’”).
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