Joe Gibson's Auto World Inc v. Zurich American Insurance Company et al
Filing
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ORDER denying 1 Motion to Withdraw Reference to the Bankruptcy Court. The Clerk is directed to close this case. When any proposed findings of fact and conclusions of law are ready for review by the district court or the claims are ready for trial, a new case may be opened in the district court at that time. Signed by Honorable Timothy M Cain on 4/2/2012.(gpre, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
SPARTANBURG DIVISION
In re:
Zurich American Insurance
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Company and Universal
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Underwriters Insurance Company,
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Joe Gibson’s Auto W orld, Inc.,
Debtor,
Joe Gibson’s Auto W orld, Inc.,
Plaintiff,
v.
C/A No. 7:11-2482-TMC
OPINION & ORDER
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Defendants.
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_________________________________
This matter is before the Court on Defendants Zurich American Insurance
Company and Universal Underwriters Insurance Company’s Motion to W ithdraw
Reference to the Bankruptcy Court.
(Dkt. # 1). Plaintiff did not file a response to the
motion. A hearing on this motion was held on March 14, 2012, and the court took the
motion under advisement. After reviewing the motion and arguments of the parties, the
court denies the motion for the reasons discussed below.
Background
Plaintiff Joe Gibson’s Auto W orld, Inc., was a South Carolina car dealership which
was sued by hundreds of customers who alleged a fraudulent and deceptive advertising
scheme (“Consumer Claimants”). On July 16, 2008, Plaintiff filed for bankruptcy. A global
settlement agreement was reached with Defendants paying a settlement amount in
exchange for a release from defense and/or indemnity obligations. Plaintiff alleges that
any claims under the umbrella portions of the policies were preserved and not released.
On April 1, 2009, Plaintiff filed a complaint alleging that the claims brought by the
Consumer Claimants are covered by an umbrella policy and that even though Defendants
assumed the defense of many claims and parts of claims, they have denied other claims.
Plaintiff alleges causes of action for breach of contract, bad faith refusal to pay a claim,
and asks for a declaratory judgment finding the claims of the Consumer Claimants are
covered by the umbrella policy. Plaintiff also demanded a jury trial on these claims.
Defendants deny that coverage is available under the umbrella policy and counterclaimed
requesting a declaratory judgment determining their rights and obligations, if any, under
the umbrella policy. On September 30, 2009, the bankruptcy court found that these claims
were core proceedings and Defendants’ subsequent motion to reconsider the order was
denied.
Defendants then filed the instant motion seeking a mandatory withdrawal of
reference to the bankruptcy court pursuant to Stern v. Marshall,
U.S.
, 131 S.Ct.
2594, 180 L.Ed.2d 475 (2011), or alternatively a permissive withdrawal.
Mandatory Withdrawal
United States District Courts have original jurisdiction over all bankruptcy matters
and related proceedings. 28 U.S.C. §§ 1334(a), (b). Section 157(a) allows district courts
to refer bankruptcy cases to the bankruptcy court. 28 U.S.C. § 157(a). This district has
referred all bankruptcy cases to its bankruptcy court. Under 28 U.S.C. § 157(d):
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
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commerce.
Thus, § 157(d) contains both a permissive and mandatory component.
In re Marine
Energy Systems Corp., 2010 W L 680328 (D.S.C. 2010)(unpublished). Defendant argues
that withdrawal is mandatory because of the holding in Stern.
Recently, in Stern v. Marshall, the Supreme Court held bankruptcy courts do not
have the constitutional authority to enter final judgments in certain “core proceedings.”
131 S.Ct. 2594. In Stern, the Supreme Court held that, while a bankruptcy judge has the
statutory authority to enter a final judgment on a debtor's counterclaim pursuant to the
plain language of 28 U.S.C. § 157(b)(2)(C), it was unconstitutional for a bankruptcy judge
to enter a final judgment on a debtor's state law counterclaim that was not resolved in the
process of ruling on a creditor's proof of claim. 131 S.Ct. at 2620.
Here, the bankruptcy court found that the claims asserted by Plaintiff, like the
claims asserted in Stern, are core matters 1 under §157(c)(1) which “are only remotely
related and likely unrelated to Defendant’s proofs of claims against the estate and there is
no reason to believe that the ‘process of adjudicating [the] proof[s] of claim would
necessarily resolve [the estate’s] counterclaim.’”
Defendant contends that pursuant to Stern, the bankruptcy court lacks the
constitutional authority to decide Plaintiff’s state law claims. The court rejects this
1
Core proceedings are those that either arise under Title 11 or arise in a bankruptcy
case. In re Nichols & Assocs. Tryon Props., Inc., 36 F.3d 1093, *3 (4th Cir.1994). “[C]ore
proceedings should be given a broad interpretation that is close to or congruent with
constitutional limits.” In re Johnson, 960 F.2d 396, 401 (4th Cir.1992) (“Many courts
construe the term ‘core proceedings' quite broadly. Indeed, the ambiguity in § 157(b)(2)
invites such interpretation with such broadly inclusive language that encompasses
proceedings ‘affecting the liquidation of assets of the estate’ and matters ‘concerning the
administration of the estate.’ ”).
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interpretation of the holding in Stern. W hile pursuant to Stern, the bankruptcy court cannot
enter a final judgment on the state law claims, the court does not believe that Stern
precludes the court from allowing the pretrial proceedings to be handled by the bankruptcy
court. Further, the Court also finds the bankruptcy court has authority to enter proposed
findings of fact and conclusions of law on dispositive motions in regard to the state law
claims, and thus, mandatory withdrawal of the reference is not required at this time.
The Bankruptcy Code specifically provides that a bankruptcy court may hear and
“submit proposed findings of fact and conclusions of law to the district court,” subject to de
novo review, in a proceeding “that is not a core proceeding.” 28 U.S.C. § 157(c)(1)
(emphasis added). However, when the claims are core matters, there is no explicit
comparable authority to follow a similar procedure.
At least one bankruptcy court initially determined that it had “no statutory authority
to render findings of fact and conclusions of law for core proceedings that it may not
constitutionally hear.” Samson v. Blixseth (In re Blixseth), 2011 W L 3274042, at *12
(Bankr. D. Mont. Aug. 1, 2011) (holding it had no authority to enter proposed findings of
fact and conclusions of law on a “core” fraudulent conveyance claim).2 However, this court
joins the majority of courts that have since concluded that Stern did not eliminate the ability
of bankruptcy courts to issue proposed findings and conclusions of law. See McCarthy v.
Wells (In re El–Atari), 2011 W L 5828013, at *3 (E.D.Va. Nov.18, 2011) (holding in core
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Recently, the bankruptcy court amended its earlier ruling in In re Blixseth. In re
Blixeth, 2012 W L 10193, at *8–10 (Bankr.D.Mont. Jan. 3, 2012) (“The Court sua sponte
amends its August 1, 2011, Memorandum of Decision and Order. . . . [S]everal courts
have recently concluded that Stern v. Marshall does not deprive bankruptcy courts of
subject matter jurisdiction . . . . [B]ecause the United States District Court for the District of
Montana would have the requisite subject-matter jurisdiction to adjudicate the claims in
this Adversary Proceeding, so too does this Court.”).
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matters related to a case under title 11 the bankruptcy court retains the authority to submit
proposed findings of fact and conclusions of law to the district court); Field v. Lindell (In re
Mortg. Store, Inc.), 2011 W L 5056990, at *5–6 (D.Hawai'i Oct. 5, 2011) (holding “that
Congress, if faced with the prospect that bankruptcy courts could not enter final judgments
on certain ‘core’ proceedings, would have intended them to fall within 28 U.S.C. §
157(c)(1) granting bankruptcy courts authority to enter findings and recommendations.”);
Paloian v. Am. Express Co (In re Canopy Fin., Inc.), 2011 W L 3911082, at *3–4 (N.D.Ill.
Sept. 1, 2011) (holding “the [Stern] Court at least implied that the effect of its decision was
to ‘remove’ certain claims from ‘core bankruptcy jurisdiction,’ and to relegate them to the
category of claims that are merely ‘related to’ bankruptcy proceedings and thus subject to
being heard, but not finally decided, by bankruptcy courts.”); JustMed, Inc. v. Bryce (In re
Byce), 2011 W L 6210938, at *4 (D.Idaho Dec.14, 2011) (stating “[a] majority of district
courts considering the issue hold that the bankruptcy courts retain the power to enter
proposed findings and recommendations.”); Levey v. Hanson’s Window & Constr., Inc. (In
re Republic Windows & Doors, LLC), 460 B.R. 511, 2011 W L 6157342 (Bankr.N.D.Ill.
Dec.12, 2011) (noting that “[n]othing in [the Stern] decision can be read to preclude this
Court from submitting proposed findings of fact and conclusions of law to the district
court.”); D&B Swine Farms, Inc v. Murphy-Brown, LLC (In re D&B Swine Farms, Inc.),
2011 W L 6013218, at *2 (Bankr.E.D.N.C. Dec.2, 2011) (rejecting Blixseth holding that
bankruptcy court has no statutory authority to render proposed findings and conclusions);
Reed v. Linehan (In re Soporex), 2011 W L 5911674, at *5 (Bankr.N.D.Tex Nov. 28,
2011)(holding that “Stern did not strip the bankruptcy courts of the authority to hear these
types of claims and to propose findings of fact and conclusions of law to the district court
for de novo review.”); Goldstein v. Eby-Brown, Inc. (In re Universal Mktg., Inc.), 459 B.R.
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573, 578 (Bankr.E.D.Pa. 2011) (declining to follow Blixseth); Heller Ehrman, LLP, v. Arnold
& Porter (In re Heller Ehrman, LLP), 2011 W L 4542512, at *6 (Bankr.N.D.Cal. Sept. 28,
2011).3
Even where the parties have a right to a jury trial, immediate withdrawal is not
required.
[T]he mere fact that the district court must conduct a jury trial in an adversary
proceeding does not mean that the bankruptcy court immediately loses
jurisdiction of the entire matter or that the district court cannot delegate to
the bankruptcy court the responsibility for supervising discovery, conducting
pre-trial conferences, and other matters short of the jury selection and trial.
In re El-Atari,
2011 W L 5828013 * 6 (internal citations omitted).
“Stern creates no
impediment to so doing . . . and the reference can readily be withdrawn when the case is
trial-ready if the parties still do not consent to allow the Bbankruptcy Court to preside at
trial. In this sense, the district court would be using the Article I Bankruptcy Judge in the
same manner as it routinely employs Article I Magistrate Judges: to supervise discovery,
rule on non-dispositive motions, and report and recommend on dispositive motions.” Dev.
Specialists, Inc., v. Orrick, Herrington & Sutcliffe, LLP, 2011 W L 6780600 * 4 (S.D. N.Y.
Dec. 23, 2011)(internal citation omitted).
Permissive Withdrawal
Defendants also argue the court should exercise its discretion to withdraw the
reference (i.e. permissive withdrawal).
Permissive withdrawal of the reference to the
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Additionally, the court notes that at least three districts, the Southern District of
New York, the Southern District of Florida and the District of Delaware, recently issued
standing orders giving bankruptcy courts explicit authority to issue proposed findings and
conclusions of law in connection with core matters that are found to fall within the Stern
holding.
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bankruptcy judge is within the sound discretion of the district court and is predicated upon
cause shown on a case-by-case basis.
In considering whether to grant permissive
withdrawal of a reference, district courts have 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. Vieira v. AGM, II, LLC, 366 B.R. 532,
538 (D.S.C. 2007)(citing In re U.S. Airways Group, Inc., 296 B.R. 673, 681 (E.D.Va. 2003).
“Some courts view the core/non-core factor as a threshold question that must be
answered before analysis may proceed and is determinative of most of the other factors,
while other courts simply place substantial weight on the core/non-core factor.” In re U.S.
Airways, 296 B.R. at 681–82. The fact that the proceeding at issue is a core proceeding
weighs against withdrawal of the reference. See In re Orion Pictures Corp., 4 F.3d 1095,
1102 (2d Cir. 1993) (noting that “hearing core matters in a district court could be an
inefficient allocation of judicial resources given that the bankruptcy court generally will be
more familiar with the facts and issues”). Section 157(b)(3) provides that the “bankruptcy
judge shall determine . . . whether a proceeding is a core proceeding under this
subsection.” 28 U.S.C. § 157(b)(3). W hile Defendants maintain that this is a non-core
matter, the bankruptcy court has found these to be core matters. Given the bankruptcy
court's finding that these claims are core matters, her familiarity with the case, her
expertise on bankruptcy issues, and that some discovery has already occurred, the court
declines to exercise its discretion to withdraw the reference at this time. Additionally, the
right to a jury trial will be preserved on these claims as discussed above.
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Conclusion
Based on the foregoing, the reference of this adversary proceeding shall remain
with the bankruptcy court as to all pretrial matters, including dispositive motions, such as
motions for summary judgment, which the bankruptcy court may handle by submitting
proposed findings of fact and conclusions of law to the district court.
Accordingly, Defendants’ Motion to W ithdraw Reference to the Bankruptcy Court
(Dkt. # 1) is DENIED.
The Clerk is directed to close this case. W hen any proposed
findings of fact and conclusions of law are ready for review by the district court or the
claims are ready for trial, a new case may be opened in the district court at that time.
IT IS SO ORDERED.
s/Timothy M. Cain
United States District Judge
Greenville, South Carolina
April 2, 2012
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