City Bank Texas v. Compass Bank
ORDER DENYING "City Bank Texas's Motion to Withdraw the Reference" ECF No. 1 . Signed by Judge Kathleen Cardone. (mc4, )
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
EL PASO DIVISION
On this day, the Court considered “City Bank Texas’s Motion to Withdraw the
Reference,” (“Motion”) ECF No. 1. For the reasons set forth below, the Motion is DENIED.
The Sambrano Corporation (“SamCorp”) was formerly a general contracting firm based
in El Paso, Texas, which specialized in the construction of larger commercial and government
buildings. City Bank v. Compass Bank, 717 F. Supp. 2d 599, 602 (W.D. Tex. 2010). In
September of 2005, SamCorp obtained a three million dollar revolving line of credit from City
Bank (the “City Bank loan”). Id. The purpose of this line of credit was to support corporate
expansion and replace an older and smaller line of credit. Id. To secure the loan, City Bank took
a security interest in SamCorp’s receivables. Id.
Two years later, in September of 2007, SamCorp obtained a four million dollar revolving
line of credit from State National Bank (the “State National loan”), for the purpose of refinancing
the City Bank loan and providing an additional one million dollars for corporate expansion. Id.
Like City Bank, State National Bank secured a lien against the receivables as a security interest.
See id. As a condition to both loans, SamCorp had to pay off the City Bank loan. Id. at 603.
But SamCorp did not pay back the City Bank loan. Id. Instead, the advances on the State
National loan were used for general corporate purposes. Id. For a few months, neither bank
realized that SamCorp was drawing on the State National loan without retiring the City Bank
loan. Id. at 603-04. However, in mid-January of 2008, the banks realized what was happening
— almost at the same time — and it touched off a headlong race by the banks to obtain as much
additional security, collateral, and cash as possible. Id.
Eventually, that race led to this courthouse. On July 24, 2008, Compass Bank, State
National Bank’s successor in interest, filed suit in this Court against SamCorp, Adelina V.
Sambrano, Steven M. Sambrano, Cecilia Sambrano, City Bank, and Hartford Fire Insurance
Company.1 See Pl.’s Original Compl. 1, Compass Bank v. Sambrano Corp., No. 08-CV-280-KC
(W.D. Tex. July 24, 2008) (“2008 Case”).
On August 25, 2008, City Bank filed an answer asserting several counterclaims. City
Bank, 717 F. Supp. 2d at 604-05. First, City Bank alleged that the Sabranos illegally pledged an
EDI brokerage account to Compass Bank. See City Bank’s Original Answer and Countercl. ¶¶
28-30, Compass Bank v. Sambrano Corp., No. 08-CV-280-KC (W.D. Tex. Aug. 25, 2008).
Second, City Bank alleged that the Sabranos illegally pledged 7,500 shares of Bank of the West
stock to Compass Bank. Id. Third, City Bank alleged that in December of 2007 — the period
when the banks did not know about the two outstanding loans — SamCorp received a
$1,075,806.54 check (the “one million dollar payment”) from the City of El Paso. See City Bank,
Because Compass Bank has become State National Bank’s successor in interest
for all matters relating to this case, the two names may be regarded as
interchangeable for present purposes.
717 F. Supp. 2d at 603-05. SamCorp then used the one million dollar payment to pay down the
State National Loan. Id. at 605. But about two weeks later, the one million dollars was
re-advanced to SamCorp. Id. City Bank alleges that because it had a lien on SamCorp’s
accounts receivable, these transactions were fraudulent, tortiously interfered with its contract, and
constituted conversion. Id. This fraudulent transfer claim regarding the one million dollar
payment is the focus of the instant Motion.
At roughly the same time as City Bank filed its answer, the Hartford Fire Insurance
Company filed an involuntary bankruptcy petition against the Sambranos and SamCorp. See id.
In connection with this bankruptcy filing, an automatic stay on claims against the Sambranos and
SamCorp took effect. Id.
On February 18, 2009, Compass Bank moved the bankruptcy court to modify the stay.
See Mot. to Lift Stay to Permit Foreclosure of Lien and Disposition of Collateral: West Financial,
Inc. Stock and Primevest Account, In re Adelina V. Sambrano, No. 08-31294-LMC (Bankr.
W.D. Tex. Feb. 18, 2009). The bankruptcy court granted the motion, allowing Compass Bank
and City Bank to pursue their claims against each other. City Bank, 717 F. Supp. 2d at 605.
This then led to a complex procedural maze. First, there were several motions to sever,
and eventually on September 8, 2009, this Court consolidated the claims between City Bank and
Compass Bank into a case captioned City Bank v. Compass Bank, No. EP-09-CV-96-KC (“2009
case”). See Order 1-5, City Bank v. Compass Bank, No. 10-CV-62-KC (W.D. Tex. Oct. 21,
2010); Order on Joint Mot. for Clarification on Consolidation of Actions 2, Compass Bank v.
Sambrano Corp., No. 08-CV-280-KC (W.D. Tex. Sept. 8, 2009). Next, after conducting
discovery in the 2009 case, Compass Bank filed a motion for summary judgment in January of
2010. City Bank, 717 F. Supp. 2d at 605. Shortly thereafter, City Bank moved to amend its
complaint to include additional claims for breach of contract, money had and received, and
negligence. Id. at 606. Compass Bank opposed the amendment, so City Bank also filed suit over
those claims in state court. Id. Compass Bank then removed the state court case to this Court
under the caption City Bank v. Compass Bank, No. EP-10-CV-62-KC. Id. Now there was a third
case — the “2010 case.”
On May 12, 2010, the Court ruled on Compass Bank’s motions for summary judgment
and dismissal in the 2009 case. See id. at 599, 626. In that order, the Court: (1) transferred City
Bank’s fraudulent transfer claim regarding the one million dollar payment to bankruptcy court,
(2) held that City Bank did not have standing to pursue the fraudulent transfer claims based on
the EDI brokerage account or the 7,500 shares of Bank of the West; (3) granted Compass Bank’s
summary judgment on City Bank’s conversion claim; (4) severed City Bank’s tortious
interference with contract claim and consolidated it into the 2010 case, and (5) stayed further
proceedings in the 2009 case until the bankruptcy court resolved relevant matters.2 Id. at 626.
City Bank then filed an unopposed motion for continuance in the 2010 case, which
included claims for breach of contract, money had and received, negligence, and now tortious
interference, because it argued that it could not finalize its damages amount until the conclusion
of the bankruptcy proceedings. Order 4-5, City Bank v. Compass Bank, No. 10-CV-62-KC
(W.D. Tex. October 21, 2010). The Court granted that motion on October 21, 2010, and stayed
the 2010 case pending resolution of all relevant bankruptcy matters involving SamCorp and the
The Order had additional holdings, but they are not discussed here because they
have no bearing on the matter at hand.
Sambranos. Id. at 8. This Court explained that “City Bank and Compass Bank’s claims are
interrelated with and dependent upon the myriad proceedings in Bankruptcy Court.” Id. at 8.
In its Motion, City Bank argues that this Court should revoke its earlier referral of the
fraudulent transfer claim to bankruptcy court pursuant to 28 U.S.C. § 157(d). Mot. ¶¶ 8-9.
Under § 157(d), a district court may withdraw the reference to bankruptcy court if there is “cause
shown.” 28 U.S.C. § 157(d). Although the statute does not define “cause shown,” the Fifth
Circuit has explained that the decision “must be based on a sound, articulated foundation.”
Holland Am. Ins. Co. v. Succession of Roy, 777 F.2d 992, 998 (5th Cir. 1985). In Holland, the
Fifth Circuit identified the relevant factors for determining whether a court should withdraw a
reference to bankruptcy: (A) whether the matter is a core or a non-core proceeding, (B) whether
there is a right to a jury trial, (C) whether withdrawal promotes efficiency, and (D) whether
withdrawal raises forum shopping concerns. See id. at 998-99; In re Gulf States Long Term
Acute Care of Covington, L.L.C., 455 B.R. 869, 874 (E.D. La. 2011); In re EbaseOne Corp.,
Bankruptcy No. 01–31527–H4–7, 2006 WL 2405732, at * 2 (Bankr. S.D. Tex. June 14, 2006).
The Court examines each in turn.
Core versus Non-Core Proceeding
The first Holland factor to consider is whether the claim is a “core” or a “non-core”
proceeding under bankruptcy law. This distinction is significant because a bankruptcy judge can
only enter final judgments in core proceedings. 28 U.S.C § 157(b)(1). In non-core proceedings,
a bankruptcy judge may only “submit proposed findings of fact and conclusions of law to the
district court, and any final order or judgment shall be entered by the district judge.” Id. §
157(c)(1). In that situation, withdrawal from bankruptcy may be more efficient because it will
avoid this two-step process.
Core proceedings are those “that arise in a bankruptcy case or under Title 11.” Stern v.
Marshall, --- U.S. ----, 131 S. Ct. 2594, 2605 (2011); see 28 U.S.C § 157. According to the
statute, examples of core proceedings include “matters concerning the administration of the
estate,” “counterclaims by the estate against persons filing claims against the estate,”
“proceedings to determine, avoid, or recover preferences,” and “determinations of the validity,
extent, or priority of liens.” 28 U.S.C § 157(b)(2). However, even if a matter is a core
proceeding under the statute, the Supreme Court recently held that Article III of the Constitution
prohibits a bankruptcy court from entering final judgment on a state law claim that is
independent of a federal statutory scheme. See Stern, 131 S. Ct. at 2614-15, 2620. For these
claims too, Article III requires a district court to enter final judgment, not the bankruptcy court.
Here, the parties appear to assume that City Bank’s fraudulent transfer claim based on the
one million dollar payment is a non-core proceeding. City Bank explicitly states that the
proceeding is non-core, but does not analyze the issue. See Mot. ¶ 10. For its part, Compass
Bank states that the bankruptcy court will not enter final judgment. Compass Bank’s Resp. to
City Bank Texas’s Mot. to Withdraw the Reference (“Resp.”) ¶ 5. This suggests that Compass
Bank assumes the matter is non-core because if it were a core proceeding, then the bankruptcy
court could likely enter final judgment. See 28 U.S.C § 157(b)(1); Stern, 131 S. Ct. at 2614-15,
2620. The rationale for assuming the proceeding is non-core appears to be that the claim is based
on a state law and does not directly relate to the debtor-creditor relationship. See Mot. ¶ 10.
For the purpose of this Motion, the Court assumes without deciding, that the fraudulent
transfer claim is non-core. Accordingly, this factor may cut in favor of granting the motion to
withdraw the reference to bankruptcy court to avoid the possibility of the two step process — i.e.
when the bankruptcy court submits proposed findings of fact and conclusions of law, and then
the district court enters final judgment after de novo review. Nevertheless, it is more efficient
here to allow the case to proceed in the bankruptcy court. As explained in more detail below, the
bankruptcy court is familiar with the facts in this complex case, and thus in the best position to
monitor discovery and narrow the issues to be resolved at trial. See In re Centrix Fin., LLC, No.
09–cv–00088–PAB, 2009 WL 1605826, at *4 (D. Colo. June 8, 2009) (holding that the case
should remain with the bankruptcy judge because she “has familiarity with the underlying
procedural and substantive facts so as to allow efficient pretrial case management”); Levine v. M
& A Custom Home Builder & Developer, LLC, 400 B.R. 200, 207 (S.D. Tex. 2008)
(“[W]ithdrawal should be deferred until [the bankruptcy] court has ruled on all dispositive
motions, to further judicial economy and expedite the bankruptcy process.”).
Right to a Jury Trial
The second factor to consider is whether the parties have a right to a jury trial. This
factor is relevant to the Holland analysis because a bankruptcy judge lacks the authority to
conduct a jury trial unless the parties consent. In re Clay, 35 F.3d 190, 196–97 (5th Cir. 1994).
Therefore, if a party has invoked her Seventh Amendment jury trial right and does not consent to
a jury trial in bankruptcy, the reference to bankruptcy must be withdrawn. See id.; Levine, 400
B.R. at 205-07. However, immediate withdrawal is not required — the district court has
discretion to allow the bankruptcy court to manage the pretrial proceedings. See King v. Fidelity
Nat’l Bank of Baton Rouge, 712 F.2d 188, 192–93 (5th Cir. 1983) (holding that the jury trial
right is not implicated by a summary judgment motion); In re Centrix, 2009 WL 1605826, at *34 (“[I]t is within the district court’s discretion to determine at what stage in the proceedings the
reference should be withdrawn.”); Levine, 400 B.R. at 207 (“The right to a jury trial does not
preclude a bankruptcy court from resolving pre-trial dispositive motions”). Thus, the Court
proceeds to consider whether a jury trial is available, and if so, when the Court should withdraw
The Seventh Amendment provides the constitutional right to a jury trial in a civil case:
In Suits at common law, where the value in controversy shall exceed twenty
dollars, the right of trial by jury shall be preserved, and no fact tried by a jury shall
be otherwise re–examined in any Court of the United States, than according to the
rules of the common law.
U.S. Const. amend. VII.
The Supreme Court has created a two-part test to parse this language and determine whether a
party has a Seventh Amendment right to a jury trial. See Markman v. Westview Instruments, Inc.,
517 U.S. 370, 376 (1996). First, courts consider whether a jury trial was available for the party’s
action or an analogous action in 1791. See id. Second, courts consider whether the remedy is
legal or equitable in nature. See Tull v. United States, 481 U.S. 412, 417-18 (1987). A remedy
that is legal in nature suggests the plaintiff has a Seventh Amendement right to a jury. See
Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 42, 47-48 (1989).
Here, City Bank asserts it has a jury trial right, but provides no analysis of the issue. Mot.
¶ 9(c). Compass Bank simply ignores the issue. See generally Resp. It appears that City Bank
has a jury trial right because fraudulent transfer actions were brought at law in the 18th-century
and City Bank seeks a legal remedy — money damages. See Granfinanciera, 492 U.S. at 43;
Mot. ¶ 10. But because of the lack of discussion, the Court assumes for the purposes of this
Motion, but does not decide, that City Bank has a jury trial right.
Accordingly, this Court may at some point be required to withdraw this case from
bankruptcy court, but the critical question is when. The final two factors of the Holland analysis
— efficiency and forum shopping — provide guidance as to when the Court should withdraw the
reference. See In re Centrix, 2009 WL 1605826, at *3-4; Andrew S. Atkin, Permissive
Withdrawal of Bankruptcy Proceedings Under 28 U.S.C. Section 157(D), 11 Bankr. Dev. J. 447,
466, 478 (1994-1995).
Efficiency is a critical factor in the Holland analysis. See Holland, 777 F.2d at 999
(labeling it “considerations of judicial economy”). The Fifth Circuit explained that courts should
consider the goals of promoting uniformity in bankruptcy administration, reducing confusion,
fostering the economical use of the debtor’s and creditor’s resources, and expediting the
bankruptcy process. Id.
Here, efficiency concerns counsel in favor of allowing this claim to proceed in
bankruptcy court, and only withdrawing the referral if a jury trial becomes necessary. First, the
bankruptcy court is familiar with this case because it has heard evidence on two related
fraudulent transfer claims. See Mot. ¶¶ 4-5; Pl.’s Unopposed Mot. for Continuance ¶ 3, City
Bank v. Compass Bank, No. 10-CV-62-KC (W.D. Tex. Mar. 13, 2009). City Bank’s original
counterclaims alleged that Compass Bank’s re-advancement of the one million dollar payment,
the Sambranos’s pledge of the EDI Financial account, and the Sambranos’s pledge of the Bank of
the West stock all constituted fraudulent transfers. The underlying theory of all three claims was
the same — namely, that all these transfers were made with the intent to defraud City Bank. See
City Bank’s Original Answer and Countercl. ¶¶ 28-30, Compass Bank v. Sambrano Corp., No.
08-CV-280-KC (W.D. Tex. Aug. 25, 2008). The bankruptcy court has already heard evidence
and ruled on the fraudulent transfer claims regarding the EDI Financial and Bank of the West
pledges. Mot. ¶ 5; Resp. ¶ 2. Therefore, given the bankruptcy court’s familiarity with the facts,
the parties, and the underlying theories of recovery, the bankruptcy court is in the best position to
conduct pre-trial matters relating to the alleged fraudulent transfer claim of the one million dollar
Moreover, withdrawing the case will delay the proceedings because City Bank seeks to
join the fraudulent transfer claim with its claims pending in the 2010 case. See Mot. ¶ 4. Adding
the fraudulent transfer claim to the 2010 case will delay the proceedings because this Court
stayed that case “pending resolution of all relevant bankruptcy matters” based upon City Bank’s
own motion. Order 8, City Bank v. Compass Bank, No. 10-CV-62-KC (W.D. Tex. Oct. 21,
2010). Therefore, withdrawing the fraudulent transfer claim will unnecessarily stop all pre-trial
activity while this Court waits for the resolution of the bankruptcy proceedings.
City Bank argues that withdrawing the reference will promote efficiency because “little
discovery has taken place” in the bankruptcy proceeding. Mot. ¶ 9(b). However, City Bank
offers no persuasive reason, and the Court sees none, that discovery cannot continue in bankruptcy
court. Mot. ¶ 4. On the contrary, the bankruptcy court’s familiarity with the facts of this case put
it in the best position to promote “efficient pretrial case management.” See In re Centrix, 2009
WL 1605826, at *4.
Forum Shopping Concerns
Finally, concerns over forum shopping counsel this Court to allow the case to continue in
bankruptcy court until a jury trial is necessary. See Holland, 777 F.2d at 999; Atkin, supra, at
478. Forum shopping raises fairness concerns — i.e. it is unfair for a party to have a better
chance of winning the case because of the forum when the underlying law should be the same.
See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 74-75, (1938); Kevin M. Clermont & Theodore
Eisenberg, Exorcising the Evil of Forum-Shopping, 80 Cornell L. Rev. 1507, 1511-12 (1995).
Motions to withdraw pose significant risks of forum shopping because a party can first
observe the bankruptcy judge’s rulings, and then decide whether to bring the motion. In re
Blackwell, 267 B.R. 724, 727-28 (Bankr. W.D. Tex. 2001) (Clark, J.); Atkin, supra, at 469. If
the party likes the bankruptcy judge’s rulings, then the party will not bring the motion. Atkin,
supra, at 469. But if the party dislikes the rulings, then the party could bring a motion to
withdraw. Id. By waiting to decide the withdrawal motion until the eve of a jury trial, the
district court takes this power out of the hands of the parties. A bankruptcy judge can manage
the pretrial issues with the potential for de novo review in the district court. And if a jury trial
becomes necessary, a party can then move to withdraw the case at that time.
Weighing the Factors
In summary, the factors suggest this Court should not withdraw this case from
bankruptcy. Although this case may be a non-core proceeding and City Bank may have a jury
trial right, the availability of de novo review of dispositive orders and a jury trial in this Court
ensures adherence with the Constitution while still allowing the bankruptcy court to efficiently
manage the pre-trial proceedings. See In re Centrix, 2009 WL 1605826, at *3-4; Levine, 400
B.R. at 205-07. This process will be more efficient because the bankruptcy court is familiar
with this case, withdrawal of the reference will only delay the proceedings, and the bankruptcy
court is in the best position to supervise discovery. Additionally, forum shopping concerns
suggest that this Court should only withdraw the case if and when a jury trial becomes necessary.
Therefore, the Court DENIES City Bank’s Motion to withdraw the reference to bankruptcy
For the foregoing reasons, City Bank’s Motion is DENIED.
The Clerk shall close the case.
SIGNED on this 9th day of November, 2011.
UNITED STATES DISTRICT JUDGE
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