Viera v. Vice et al

Filing 3

ORDER denying 1 Motion to Withdraw Reference. Signed by the Honorable R. Bryan Harwell on 12/16/2016. (hcic, )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
FLORENCE DIVISION
In re:

)
)
Legacy Development SC Group, LLC,
)
)
Debtor,
)
____________________________________)
)
Michelle L. Vieira, Chapter 7 Trustee for
)
Legacy Development SC Group, LLC,
)
)
Plaintiff,
)
)
v.
)
)
Richard L. Vice and Dinah B. Vice,
)
)
Defendants.
)
____________________________________)

Civil Action No.: 4:16-cv-00300-RBH

ORDER

This matter is before the Court for resolution of the Motion to Withdraw Reference of Adversary
Proceeding filed by Defendants Richard L. Vice and Dinah B. Vice. See ECF No. 1. Defendants seek
to withdraw the reference of Adversary Proceeding No. 14-80082-dd, which is currently pending in the
United States Bankruptcy Court for the District of South Carolina (“the Bankruptcy Court”). Plaintiff
Michelle L. Vieira—who is the Chapter 7 Trustee for Legacy Development SC Group, LLC (“the
Debtor”)—opposes the motion. See ECF No. 2. Having reviewed the motion, the designated record,
and the parties’ arguments, the Court denies Defendants’ motion for the reasons below.1
Background
This case arises from an adversary proceeding that Plaintiff filed in the Bankruptcy Court against

1

Under Local Civil Rule 7.08 for the District of South Carolina, “hearings on motions may be ordered by
the Court in its discretion. Unless so ordered, motions may be determined without a hearing.” The Court has
reviewed the briefs and determined a hearing is unnecessary.

Defendants for breach of contract for failure to make payments on a promissory note (“the Note”).2 The
following facts are taken from the record before the Court.
On October 16, 2012, an involuntary petition under Chapter 7 of the United States Bankruptcy
Code3 was filed against the Debtor in the Bankruptcy Court. ECF No. 1-9 at 2. On November 13,
2012, the Bankruptcy Court entered an order for relief and appointed Plaintiff as the trustee. Id.
On August 8, 2014, Plaintiff filed Adversary Proceeding No. 14-80082-dd against Defendants
in the Bankruptcy Court seeking to enforce the Note. ECF No. 1-4. Defendants timely answered,
conceding the underlying facts asserted by Plaintiff but asserting the Note was unenforceable due to the
circumstances surrounding Defendants’ signing of the Note and real estate purchase agreement.4 ECF
No. 1-5. On October 10, 2014, the parties jointly filed an adversary proceeding report stating, “The
single cause of action in this matter is breach of contract. All parties agree that this cause of action is
core but that this Court [the Bankruptcy Court] does not have constitutional authority to finally
adjudicate.” ECF No. 1-6 at ¶ 3.
On October 17, 2014, the Bankruptcy Court entered a scheduling order requiring discovery to
conclude on or before January 12, 2015, and dispositive motions to be filed and served on or before
January 26, 2015. See ECF No. 1-7. Plaintiff filed a timely motion for summary judgment, and on
April 6, 2015, the Bankruptcy Court entered an order granting the motion, finding the Note was
enforceable, and scheduling a damages hearing. See ECF No. 1-9. The Bankruptcy Court held the

2

As explained below, this Court previously heard an appeal in the related case of In re Legacy Dev. SC Grp.,
LLC, No. 4:15-cv-01966-RBH. The Court’s order in that case sets forth the underlying facts relating to the breach
of contract claim. See ECF No. 1-11 at 2-4.

3

4

11 U.S.C. § 101 et seq.
The Vices also asserted affirmative defenses. ECF No. 1-5.

2

damages hearing on April 21, 2015, and it entered judgment in favor of Plaintiff on April 23, 2015. See
ECF No. 1-10.
On May 7, 2015, Defendants filed a timely notice of appeal with the Bankruptcy Clerk, and on
May 8, 2015, the Bankruptcy Clerk transmitted the notice to the Clerk of this Court, which docketed
the appeal. ECF No. 1-8; see In re Legacy Dev. SC Grp., LLC, No. 4:15-cv-01966-RBH. On
November 18, 2015, this Court issued an order reversing the Bankruptcy Court’s order granting
summary judgment for Plaintiff, vacating the judgment against Defendants, and remanding the matter
to the Bankruptcy Court for further proceedings. ECF No. 1-11; see In re Legacy Development SC
Group, LLC, 551 B.R. 209, 211 (D.S.C. 2015).
On December 15, 2015, the Bankruptcy Court held a status conference during which it
confirmed that (a) Defendants had not consented to the Bankruptcy Court entering a final order in the
Adversary Proceeding, and that (b) Defendants agreed to withhold filing any motion to withdraw the
reference until Plaintiff’s time to appeal this Court’s decision expired on December 18, 2015. ECF No.
1 at 3. The Bankruptcy Court issued a scheduling order setting December 31, 2015, as the deadline for
filing a motion to withdraw the reference in the absence of an appeal. ECF No. 1-12. Plaintiff did not
appeal, and on December 31, 2015, Defendants filed the instant motion asking this Court to exercise
its discretion to permissively withdraw the reference of the Adversary Proceeding from the Bankruptcy
Court. ECF No. 1. Plaintiff filed a response opposing withdrawal on January 14, 2016. ECF No. 2.
Discussion
United States district courts have original jurisdiction over all bankruptcy cases and related
proceedings. 28 U.S.C. §§ 1334(a), (b). However, the district court may decide that any or all
bankruptcy cases and related proceedings should be referred to Bankruptcy Judges, see 28 U.S.C.
3

§ 157(a), and the District Court for the District of South Carolina has by local rule automatically
referred “to the bankruptcy judges for this district all cases under Title 11 [the Bankruptcy Code] and
all proceedings arising under Title 11 or arising in or related to a case under Title 11.” Local Civ. Rule
83.IX.01 (D.S.C.). Even so, the district court retains the discretionary authority to withdraw a reference
to the Bankruptcy Court: “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.” 28
U.S.C. § 157(d).5 This is known as a “permissive” or “discretionary” withdrawal of reference. See
Houck v. Substitute Tr. Servs., Inc., 791 F.3d 473, 482 (4th Cir. 2015); In re First Nat’l Bancshares,
Inc., No. 7:12-3441-TMC, 2014 WL 108372, at *2 (D.S.C. Jan. 10, 2014). The party seeking
permissive withdrawal bears the burden of demonstrating cause. Vieira v. AGM, II, LLC, 366 B.R. 532,
535 (D.S.C. 2007) (citing In re U.S. Airways Grp., Inc., 296 B.R. 673, 677 (E.D. Va. 2003)). “The
district court has broad discretion in deciding whether reference should be withdrawn for cause shown.”
Albert v. Site Mgmt., Inc., 506 B.R. 453, 455 (D. Md. 2014).
In this case, Defendants contend sufficient cause exists for the Court to permissively withdraw
the reference of the Adversary Proceeding. ECF No. 1 at 3. “Although the Fourth Circuit has not

5

In full, § 157(d) provides:
The district court m ay 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) (emphases added). The first sentence (containing the word “may”) in § 157(d) is often referred
to as permissive withdrawal, while the second sentence (containing the word “shall”) is often referred to as mandatory
withdrawal. See, e.g., Vieira v. AGM, II, LLC, 366 B.R. 532, 535 (D.S.C. 2007); In re U.S. Airways Grp., Inc., 296
B.R. 673, 677 (E.D. Va. 2003). In the instant case, Defendants move to withdraw the reference only on permissive
grounds, so the Court properly confines its analysis to the first sentence in § 157(d).

4

enumerated the factors to consider when determining whether ‘cause’ has been shown, other circuits
are in ‘substantial agreement on the factors that should be weighed in considering a discretionary
withdrawal of reference.’” Vieira, 366 B.R. at 537-38 (quoting U.S. Airways, 296 B.R. at 681). Those
factors are: (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. “[D]iscretionary withdrawal of reference should be determined on a
case-by-case basis by weighing all the factors presented in a particular case, including the core/non-core
distinction.” Id. at 538.
The parties have briefed each of the six factors in substantial detail. See ECF No. 1 at 4-10;
ECF No. 2 at 3-11. Having considered the parties arguments and independently examined each factor,
the Court declines to withdraw the reference.
1.

Core Versus Non-Core

Section 157(b)(1) gives a bankruptcy court authority to “hear and determine all cases under title
11 and all core proceedings arising under title 11, or arising in a case under title 11,” subject to
appellate review by the district court under § 158.6 28 U.S.C. § 157(b)(1) (emphasis added). In a
proceeding that is not “core” but otherwise related to a case under Title 11, the bankruptcy court can
only submit proposed findings of fact and conclusions of law to the district court: “any final order or
judgment shall be entered by the district judge after considering the bankruptcy judge’s proposed
findings and conclusions and after reviewing de novo those matters to which any party has timely and

6

Section 157(b)(2) provides a non-exclusive list of “core” proceedings.

5

specifically objected.”7 28 U.S.C. § 157(c)(1).
Two recent United States Supreme Court cases essentially modified the general rule set forth
in § 157(b) regarding the power of the bankruptcy courts over core proceedings: Stern v. Marshall, 564
U.S. 462 (2011), and Executive Benefits Insurance Agency v. Arkison, 134 S. Ct. 2165 (2014). In Stern,
which involved a core proceeding brought by the debtor under 28 U.S.C. § 157(b)(2)(C), the Supreme
Court held bankruptcy courts do not have constitutional authority to enter final judgments in certain
core proceedings, despite their statutory authority to adjudicate those matters under § 157(b). See id.
at 469, 482-84, 503. This is the case when “a suit is made of the stuff of the traditional actions at
common law tried by the courts at Westminster in 1789, and is brought within the bounds of federal
jurisdiction,” because “the responsibility for deciding that [type of] suit rests with Article III judges in
Article III courts.” Id. at 484 (internal quotation marks and citation omitted). In other words, “the
question is whether the action at issue stems from the bankruptcy itself or would necessarily be resolved
in the claims allowance process.” Id. at 499.
Stern has therefore affected the first factor in determining whether to
allow permissive withdrawal of the reference—whether the
proceeding is core or non-core. [A]fter Stern, one can still [consider
the applicable factors] but not looking at whether the matter can be
classified as core under 28 U.S.C. § 157, but rather at whether, under
Stern, the [b]ankruptcy [c]ourt has the final power to adjudicate it.8
ACC Retail Prop. Dev. & Acquisition Fund, LLC v. Bank of Am., N.A., No. 5:12-CV-361-BO, 2012 WL

7

“There is one statutory exception to this rule: If all parties “consent,” the statute permits the bankruptcy
judge “to hear and determine and to enter appropriate orders and judgments” as if the proceeding were core.
§ 157(c)(2).” Arkison, 134 S. Ct. at 2172. In the instant case, the parties do not consent to a final adjudication by
the Bankruptcy Court.

8

“Prior to Stern, the determination of whether a matter was core or non-core was a comparatively simple one
and was governed by 28 U.S.C. § 157(b)(1), which accords to bankruptcy judges the authority to ‘hear and
determine’ all core proceedings that ‘arise under title 11’ or in a case brought under title 11.” Blue Cross & Blue
Shield of N. Carolina v. Jemsek Clinic, P.A., 506 B.R. 694, 697 (W .D.N.C. 2014).

6

8667572, at *2 (E.D.N.C. Sept. 28, 2012) (alterations in original) (internal quotation marks omitted).
Although Stern made clear that some claims labeled by Congress as “core” may not be
adjudicated by a bankruptcy court in the manner contemplated by § 157(b), it did not address how the
bankruptcy court should proceed under those circumstances. The Supreme Court resolved this
uncertainty in Arkison, holding “that when, under Stern’s reasoning, the Constitution does not permit
a bankruptcy court to enter final judgment on a bankruptcy-related claim, the relevant statute [§ 157(c)]
nevertheless permits a bankruptcy court to issue proposed findings of fact and conclusions of law to be
reviewed de novo by the district court.” 134 S. Ct. at 2168; see Moses v. CashCall, Inc., 781 F.3d 63,
70 (4th Cir. 2015) (“When a bankruptcy court is faced with a claim that is statutorily core but
constitutionally non-core—a so-called ‘Stern claim’—it must treat the claim as if it were statutorily
non-core, submitting proposed findings of fact and conclusions of law to the district court for de novo
review.” (citing Arkison, 134 S. Ct. at 2173)).9
The parties agree the Adversary Proceeding is a core proceeding but that, pursuant to Stern, the
Bankruptcy Court lacks constitutional authority to enter final judgment on Plaintiff’s state law claim
for breach of contract. See ECF No. 1 at 6; ECF No. 2 at 4, 10; see also ECF No. 1-6 at ¶ 3. However,
the parties disagree as to whether the core/non-core factor favors withdrawal. Defendants argue the fact
that the Bankruptcy Court lacks constitutional authority to issue a final order strongly favors
withdrawal, whereas Plaintiff contends the Bankruptcy Court still has jurisdiction to hear the matter and
submit proposed findings of fact and conclusions of law. Compare ECF No. 1 at 6, with ECF No. 2 at
5.

9

Post-Stern, the Supreme Court has also held “that Article III permits bankruptcy courts to decide Stern
claims submitted to them by consent.” Wellness Int’l Network, Ltd. v. Sharif, 135 S. Ct. 1932, 1949 (2015). As
noted above, the parties do not consent to a final adjudication by the Bankruptcy Court.

7

Although the Bankruptcy Court lacks constitutional authority to issue a final judgment in
Plaintiff’s “core” proceeding, and therefore the core/non-core factor likely weighs in favor of
withdrawal,10 the Court is not inclined to withdraw the reference simply for this reason. As explained
above, even when a bankruptcy court cannot enter final judgment on a Stern claim (that is, a statutorily
core but constitutionally non-core claim), the bankruptcy court can still treat the claim as if it were
statutorily non-core and submit proposed findings of fact and conclusions of law to the district court
for de novo review. See Arkison, 134 S. Ct. at 2168; Moses, 781 F.3d at 70. In any event, the Court
finds the remaining five factors conclusively weigh in favor of not withdrawing the reference.
2.

Remaining Factors11

Regarding the second, third, and fourth factors, Defendants argue withdrawal would not affect
uniform administration of the bankruptcy proceedings, would foster judicial economy, and would be
an efficient use of the debtors’ and creditors’ resources because the Bankruptcy Court can only make
proposed findings of fact and conclusions of law, which this Court will then have to review de novo.
ECF No. 1 at 6-9. Even though the Bankruptcy Court cannot enter a final judgment, Defendants’
argument is unpersuasive. Other courts presented with the same argument have flatly rejected it:
Although [the movant] argues that the entitlement to de novo review
would make the bankruptcy court determination “superfluous,” that
line of reasoning would prevent any non-core matter from ever being
10

The Court recognizes other courts have ruled that when a bankruptcy court lacks constitutional authority
to issue a final judgment, the core/non-core factor weighs in favor of withdrawal of the reference. See, e.g., In re
Madison Bentley Assocs., LLC, No. 16 Civ. 1083 (GBD), 2016 W L 5793990, at *3 (S.D.N.Y. Sept. 27, 2016);
Residential Funding Co., LLC v. UBS Real Estate Sec., Inc., No. 14 CIV. 03039 GBD, 2015 W L 1062264, at *4
(S.D.N.Y. M ar. 6, 2015); Blue Cross, 506 B.R. at 698; ACC Retail, 2012 W L 8667572, at *3. Significantly, the
district court in each of these cited cases determined other factors weighed against withdrawal.

11

The remaining factors for permissive withdrawal are: the uniform administration of bankruptcy proceedings,
expediting the bankruptcy process and promoting judicial economy, the efficient use of debtors’ and creditors’
resources, the reduction of forum shopping, and the preservation of the right to a jury trial. Vieira, 366 B.R. at 53738.

8

referred to the bankruptcy court. Without more, this argument carries
little if any, weight in favor of withdrawal. . . . While it is true that,
on the objection of the party, the district court must review de novo
any determination by the bankruptcy judge on a non-core matter, see
28 U.S.C. § 157(c)(1), it is equally true that [the bankruptcy judge]
has a better vantage point from which to make proposed findings of
fact and conclusions of law in the first instance.
Albert, 506 B.R. at 460 (alterations and omission in original) (quoting In re H & W Motor Express Co.,
343 B.R. 208, 215 (N.D. Iowa 2006)); see also Vieira, 366 B.R. at 540 (“[E]ven if the district court
must review some issues decided by the Bankruptcy Court de novo, such a review is not, in the court’s
opinion, a waste of judicial resources.”). The Court concurs with the reasoning in these cases.
Moreover, Congress has authorized district courts to refer “any or all” bankruptcy
proceedings—both core and non-core—to the bankruptcy courts, see 28 U.S.C. § 157, and the District
of South Carolina has by local rule automatically referred all bankruptcy proceedings to the Bankruptcy
Court. See Local Civ. Rule 83.IX.01 (D.S.C.). Significantly, following the Stern decision, the Chief
Judge of this District issued a standing order allowing the Bankruptcy Court to hear core proceedings
over which it lacks constitutional authority to enter final judgment; this standing order provides:
Pursuant to 28 U.S.C. Section 157(a), and through Local Civil
Rule 83.IX.01, Referral to Bankruptcy Judges, this Court has referred
any or all cases under Title 11 and any or all proceedings arising
under Title 11 or arising in or related to a case under Title 11 to the
bankruptcy judges for this district.
If a bankruptcy judge or district judge determines that
entry of a final order or judgment by a bankruptcy judge would
not be consistent with Article III of the United States
Constitution in a particular proceeding referred under Local
Civil Rule 83.IX.0l and determined to be a core matter, the
bankruptcy judge shall, unless otherwise ordered by the district
court, hear the proceeding and submit proposed findings of fact
and conclusions of law to the district court. The district court may
treat any order of the bankruptcy court as proposed findings of fact
9

and conclusions of law in the event the district court concludes that
the bankruptcy judge could not have entered a final order or judgment
consistent with Article III of the United States Constitution.
Standing Order Concerning Title 11 Proceedings Referred Under Local Civil Rule 83.IX.01, Referral
to Bankruptcy Judges, Misc. No. 3:13-mc-00471-TLW (D.S.C. Dec. 5, 2013) (emphasis added).
Thus, there exists a strong legislative and judicial presumption that even non-core claims can
be heard by the bankruptcy court (and later adjudicated by the district court) unless cause is shown for
withdrawal of reference. See Houck, 791 F.3d at 481 (“[W]hile the district courts were given
jurisdiction over bankruptcy cases, Congress also delegated to the bankruptcy courts, as judicial officers
of the [district courts], adjudicatory authority, subject to the district courts’ supervision as particularized
in § 157 and the limits imposed by the Constitution.” (second alteration in original) (internal quotation
marks and citation omitted)). The mere fact that the Bankruptcy Court is constitutionally limited to
making proposed findings of fact and conclusions of law, rather than entering a final judgment, does
not weigh in favor of withdrawal. See Arkison, 134 S. Ct. at 2170 (“[W]hen a bankruptcy court is
presented with [a Stern] claim, the proper course is to issue proposed findings of fact and conclusions
of law. The district court will then review the claim de novo and enter judgment. This approach
accords with the bankruptcy statute and does not implicate the constitutional defect identified by Stern.”
(emphasis added)); id. at 2173 (“The bankruptcy court should hear the proceeding and submit
proposed findings of fact and conclusions of law to the district court for de novo review and entry of
judgment.” (emphasis added)). Thus, the Bankruptcy Court can issue proposed findings of facts and
conclusions of law for submission to this Court, which will conduct a de novo review of the Bankruptcy
Court’s recommendation and enter final judgment, consistent with the Supreme Court’s instructions
in Arkinson.
10

Defendants make a related argument that this case presents a unique scenario where this Court
is already familiar with the factual underpinnings of the Adversary Proceeding because it previously
heard Defendants’ appeal. ECF No. 1 at 8. While the Court may be acquainted with the Adversary
Proceeding, the Bankruptcy Court is at least as, if not more, familiar with not only the Adversary
Proceeding itself but also with the entire bankruptcy case as a whole.12 The procedural posture of this
case—a grant of summary judgment by the bankruptcy court, an appeal to the district court, and the
district court’s reversal and remand to the bankruptcy court—is somewhat analogous to a situation
where the United States Court of Appeals for the Fourth Circuit reverses a district court’s grant of
summary judgment and remands it to the same district court for further proceedings.13 Furthermore,
if the Court were to countenance withdrawal in this case, such a decision would have broader
implications throughout this District and create the undesirable scenario where a successful appellant
would be inclined to forum shop and move for withdrawal upon remand, thereby forestalling the
proceedings even further and undermining the automatic referral process utilized in this District for
years. See Sharif, 135 S. Ct. at 1938 (“Congress has . . . authorized the appointment of bankruptcy and
magistrate judges, who do not enjoy the protections of Article III, to assist Article III courts in their
work. The number of magistrate and bankruptcy judgeships exceeds the number of circuit and district
judgeships. And it is no exaggeration to say that without the distinguished service of these judicial
colleagues, the work of the federal court system would grind nearly to a halt.” (internal footnote

12

Plaintiff explains the Bankruptcy Court has presided over matters related to the underlying bankruptcy since
2012, including four adversary proceedings and fourteen other settlements. ECF No. 2 at 11. Plaintiff further notes
the instant Adversary Proceeding is the last remaining issue being litigated. Id. These facts weigh in favor of uniform
administration.

13

Defendants have not cited any cases with a procedural posture comparable to the instant case (i.e., where
an appeal was previously taken to the district court and where the prevailing appellant subsequently moved for
withdrawal on remand).

11

omitted)). In summary, the factors of uniform administration, judicial economy, efficiency, and forum
shopping weigh against withdrawal and in favor of retention.
The final factor—the preservation of a right to a jury trial—clearly disfavors withdrawal
because, as Defendants concede, they are not entitled to a jury trial. ECF No. 1 at 9-10; see First Nat’l
Bancshares, 2014 WL 108372, at *5 & n.5 (indicating the lack of a right to a jury trial “weighs against
withdrawing the reference”).
Having considered all six factors pertaining to the permissive withdrawal procedure, the Court
finds Defendants have not demonstrated cause warranting withdrawal of the Adversary Proceeding.
Accordingly, the Court declines to exercise its discretion to withdraw the reference.
Conclusion
The Court has thoroughly reviewed the entire record, the parties’ arguments, and the applicable
law. For the foregoing reasons, the Court DENIES Defendants’ Motion to Withdraw Reference of
Adversary Proceeding [ECF No. 1]. The Court DIRECTS the Clerk to close this case.
IT IS SO ORDERED.

Florence, South Carolina
December 16, 2016

s/ R. Bryan Harwell
R. Bryan Harwell
United States District Judge

12