ZEBLEY v. SOOM

Filing 4

ORDER re 1 Motion to Withdraw the Reference, filed by DANIEL S. SOOM. Signed by Judge Arthur J. Schwab on 8-28-12. (Moschetta, Nicole)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
IN RE: SHAD’S HANNA’S EAST INC.

CHARLES O. ZEBLEY, JR,

12cv1150
ELECTRONICALLY FILED

Plaintiff,
v.
DANIEL S. SOOM,
Defendant.

Memorandum Order re: Motion to Withdraw the Reference (Doc. No. 1)
I. Introduction
Currently before the Court is Defendant Daniel S. Soom’s Motion to Withdraw the
Reference, and Plaintiff’s response in opposition thereto. Doc. Nos. 1 and 3. On June 15, 2012,
Charles O. Zebley, the trustee for Shad’s Hanna’s East, Inc., filed a Trustee’s Complaint against
four Defendants, including Soom, in the Bankruptcy Court for the Western District of
Pennsylvania. Doc. No. 1-4. The Complaint alleges, five counts against Soom: (1) Negligence
(Count III); (2) Breach of Fiduciary Duty (Count IV); (3) Assumpsit (Count V); (4) Racketeering
Influenced and Corrupt Organizations Act (“RICO”) (Count VI); and (5) Statutory Conversion of
Instrument (Count VIII). Id. For the following reasons, the Motion to Withdraw the Reference
(doc. no. 1) will be DENIED.

II. Standard of Review
The Bankruptcy Code states that:
The district court may withdraw, in whole or in part, any case or proceeding
referred under this section, on its own motion or on timely motion of any party,
for cause shown. The district court shall, on timely motion of a party, so withdraw
a proceeding if the court determines that resolution of the proceeding requires
consideration of both title 11 and other laws of the United States regulating
organizations or activities affecting interstate commerce.
28 U.S.C. § 157(d).
A. Mandatory Withdrawal
While the United States Court of Appeals for the Third Circuit has not directly
considered the situation of when a withdrawal of the reference is mandatory, the United States
Court of Appeals for the Second Circuit has stated that withdrawal is mandatory when the case
requires “significant interpretation, as opposed to simple application of federal laws apart from
the bankruptcy statutes.” Falblaum v. Leslie Fay Cos., Inc., 182 F.3d 899 (2d Cir. 1999) (table)
(quoting City of New York v. Exxon Corp., 932 F.2d 1020, 1026 (2d Cir.1991)).
B. Permissive Withdrawal
The United States Court of Appeals for the Third Circuit has held that five (5) factors
should be considered when deciding if cause has been shown for permissive withdrawal of the
reference: (1) promoting uniformity of bankruptcy administration; (2) reducing forum shopping
and confusion; (3) fostering economical use of debtor/creditor resources; (4) expediting the
bankruptcy process; and (5) timing of the request for withdrawal. In re Pruitt, 910 F.2d 1160,
1168 (3d Cir.1990).

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III. Discussion
A. Withdrawal of the Reference Is Not Mandatory
In the Trustee’s Complaint, Zebley broadly alleges a legal malpractice action and, at
issue, is Count VI of the Trustee’s Complaint, wherein he alleges that Soom violated the RICO
statute. Although the United States Court of Appeals for the Third Circuit has not considered the
issue, the United States Court of Appeals for the Seventh Circuit has held that even when there is
the possibility of novel issues in a civil RICO action pending before the Bankruptcy Court,
withdrawal of the reference is not mandatory. Matter of Vicars Ins. Agency, Inc., 96 F.3d 949
(7th Cir. 1996). The Court finds the analysis of the United States Court of Appeals for the
Seventh Circuit persuasive and finds that withdrawal of the reference is not mandated by the
presence of a RICO claim such as this.
B. Cause Has Not Been Shown For Permissive Withdrawal
Soom has failed to make a showing of cause that the reference should be withdrawn at
this time. First, withdrawing the reference would not promote the uniform administration of
bankruptcy proceedings. In fact, this Court is of the view that it would detract from uniform
administration. The Bankruptcy Court routinely handles these types of matters (negligence,
breach of fiduciary duty, etc.). E.g. In re Lemington Home for the Aged, Adversary Proceeding
No. 06-2448 (Bankr. W.D. Pa) (transferred to this Court when trial ready). Next, withdrawing
the reference would potentially promote forum shopping and would undoubtedly lead to
confusion of the issues. Furthermore, withdrawing the reference would decrease economic
efficiency because the case would be proceeding in both the Bankruptcy Court and in this Court,
leading to confusion and potentially inconsistent rulings. Moreover, withdrawing the reference
would not expedite the bankruptcy process because the Court would first adjudicate certain

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claims and then potentially return issues to the Bankruptcy Court for its determination. Finally,
the timing of the request for withdrawal is premature. Therefore, no factor weighs in favor of
permissive withdrawal; rather, all factors weigh against permissive withdrawal at this juncture.
C. Withdrawal for the Possibility of A Jury Trial Is Not Appropriate
The Honorable Gary L. Lancaster, Chief Judge of this Court, has held, as have other
District Courts, that the fact that a jury trial might be held in the future does not warrant
immediate withdrawal of the reference. In re American Capital Equipment, LLC, 325 B.R. 372,
378 (W.D. Pa. 2005) (Lancaster, J.); In re Northwestern Institute of Psychiatry, Inc., 268 B.R.
79, 84 (Bankr. E.D. Pa. 2001); Commercial Fin. Servs. v. Brady (In re Commercial Fin. Servs.),
239 B.R. 586, 596 (N.D. Okla. 1999); Barlow & Peek, Inc. v. Manke Truck Lines, Inc., 163 B.R.
177, 179 (D. Nev. 1993).
The speculative nature of a jury trial on the RICO count is great. See LCvR 7.1(B).
Furthermore, as a matter of public policy, if this Court were to withdrawal the reference anytime
a jury trial could potentially occur, it would encourage forum shopping between the Bankruptcy
Court and the District Court. Also, there are other proceedings relating to Soom and the
insurance company currently pending in the Bankruptcy Court. It would be more efficient to
allow the Bankruptcy Court to oversee all of these proceedings. Therefore, the Court will
decline to withdraw the reference at this time.
IV. Conclusion
Withdrawal of the reference is not mandatory and Soom has not made a showing of cause
that this Court should exercise its discretion to withdraw the reference. Furthermore, the mere
possibility that a portion of this adversary proceeding may proceed to a jury trial at some future

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date does not warrant withdrawal of the reference at such an early stage of the proceedings.
Therefore, the Motion to Withdraw the Reference (doc. no. 1) will be DENIED.1
V. Order
AND NOW, this 28th day of August, 2012, IT IS HEREBY ORDERED that the Motion
to Withdraw the Reference (doc. no. 1) is DENIED without prejudice.

s/Arthur J. Schwab
United States District Judge
cc: All Registered ECF Counsel

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The Court recognizes that the parties take opposing views of whether this adversary proceeding
is “core” or “non-core” to the bankruptcy proceeding. The Court will not resolve the issue at this
time because whether the adversary proceeding is “core” or “non-core” does not impact the
Court’s resolution of the pending Motion to Withdraw the Reference (doc. no. 1).
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