Loveridge v. Johnson et al

Filing 10

MEMORANDUM DECISION denying without prejudice 2 Motion to Withdraw Bankruptcy Reference. Signed by Judge Ted Stewart on 05/30/2013. (asp)

IN THE UNITED STATES COURT FOR THE DISTRICT OF UTAH
CENTRAL DIVISION

In re
SOUTH VALLEY HEALTH CENTER, LLC,
Debtor.

MEMORANDUM DECISION AND
ORDER DENYING WITHOUT
PREJUDICE DEFENDANTS’
MOTION TO WITHDRAW
BANKRUPTCY REFERENCE

_____________________________________
ELIZABETH R. LOVERIDGE, Chapter 7
Trustee,

Case No. 2:12-CV-1050 TS

Plaintiff,

Bankruptcy No. 10-28752
Adversary Proceeding No. 12-02488

vs.
CRAIG JOHNSON; PATRICIA JOHNSON
and GULF SOUTH MEDICAL SUPPLY,
INC., a Delaware corporation,
Defendants.

This matter is before the Court on Defendants Craig and Patricia Johnson’s (the “Johnson
Defendants”) Motion to Withdraw Bankruptcy Reference. For the reasons discussed below, the
Court will deny Defendants’ Motion without prejudice.

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I. BACKGROUND
This dispute arises out of the Chapter 7 bankruptcy proceedings of South Valley Health
Center, LLC. Plaintiff, the trustee of the bankruptcy estate, filed an adversary proceeding against
Defendants on October 5, 2012, alleging that the Johnson Defendants received insider
preferences recoverable under §§ 547, 549, and 550 of the Bankruptcy Code. Defendants were
served on October 15, 2012, and the Johnson Defendants filed their Motion to Withdraw on
November 5, 2012. The Johnson Defendants have requested a jury trial.
II. DISCUSSION
28 U.S.C. § 157(d) provides that “[t]he 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.” “Because the bankruptcy court does not have authority to conduct a jury
trial, ‘cause’ to withdraw the reference automatically exists in cases where the party seeking
withdrawal is entitled to a jury trial under the Seventh Amendment.”1 The Johnson Defendants
assert, and Plaintiff agrees, that Plaintiff’s claim under 11 U.S.C. § 547 is a legal claim on which
the Johnson Defendants are entitled to a jury trial. Although the parties agree that the Johnson
Defendants do not have a right to a jury trial on Plaintiff’s claims under 11 U.S.C. §§ 549 and
550, the Johnson Defendants argue that it would be in the best interests of judicial economy to
try those claims in conjunction with Plaintiff’s § 547 claim. Plaintiff disagrees, asserting that it

1

Rushton v. Phila. Forest Prods., Inc. (In re Americana Expressways, Inc.), 161 B.R. 707,
709 (D. Utah 1993) (citing Kaiser Steel Corp. v. Frates (In re Kaiser Steel Corp.), 911 F.2d 380,
392 (10th Cir. 1990)).
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would be in the best interests of judicial economy to permit the bankruptcy court to handle all
pre-trial proceedings.
“[A] Seventh Amendment jury trial right does not mean the bankruptcy court must
instantly give up jurisdiction and that the case must be transferred to the district court. Instead,
the bankruptcy court is permitted to retain jurisdiction over the action for pre-trial matters.”2
There are two reasons for doing so. “First, allowing the bankruptcy court to retain jurisdiction
over pre-trial matters, does not abridge a party’s Seventh Amendment right to a jury trial.”3
“Second, requiring that an action be immediately transferred to district court simply because of a
jury trial right would run counter to our bankruptcy system.”4 “The bankruptcy court has
authority even when a jury trial has been demanded, to supervise discovery, conduct pretrial
conferences, and rule on motions.”5
Other district courts have denied without prejudice motions to withdraw, allowing the
parties an opportunity to file a stipulated withdrawal once the case is ready to proceed to a jury
trial.6 Such an approach capitalizes on “the bankruptcy court’s unique knowledge of Title 11 and
familiarity with the actions before them.”7

2

In re Healthcentral.com, 504 F.3d 775, 787 (9th Cir. 2007).

3

Id.

4

Id.

5

Kirk E. Douglas, Inc. v. Watrous & Ehlers, P.C. (In re Kirk Douglas, Inc.), 170 B.R.
169, 170 (D. Colo. 1994) (internal citations omitted).
6

See Hardesty v. Severson (In re Hardesty), 190 B.R. 653, 657 (D. Kan. 1995).

7

In re Healthcentral.com, 504 F.3d at 787-88.
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As noted, both parties argue that their position best serves judicial economy. As it is
early on in the adversarial proceeding, and as the claim under 11 U.S.C. § 547 will ultimately be
transferred to this Court for trial, transferring the case early would serve judicial economy by
avoiding duplication of efforts. On the other hand, the bankruptcy court already has familiarity
with the underlying bankruptcy action and has greater familiarity with Title 11. Furthermore, it
is not certain whether Plaintiff’s 11 U.S.C. § 547 claim will ultimately reach trial, and
Defendants have not established a right to a jury trial on Plaintiff’s other claims.
Considering these arguments, the Court finds that judicial economy will best be served by
denial of the motion at this time to allow the bankruptcy court to consider the pre-trial issues in
this case. This will not deprive the parties of their right to a jury trial and will promote the
division of labor between this Court and the Bankruptcy Court established by Congress.
Therefore, the Court will deny the Johnson Defendants’ Motion without prejudice, allowing them
to bring it again at such time as this case becomes ready for trial.
III. CONCLUSION
It is therefore
ORDERED that Defendants’ Motion to Withdraw Bankruptcy Reference (Docket No. 2)
is DENIED WITHOUT PREJUDICE. The parties may file a joint motion to withdraw the
reference when, and if, any remaining issues are ready to be submitted for a jury trial.
The hearing set for June 5, 2013 is STRICKEN.

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DATED May 30, 2013.
BY THE COURT:

_____________________________________
TED STEWART
United States District Judge

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