IN RE: Anderson & Strudwick, Incorporated

Filing 5

OPINION. Signed by District Judge John A. Gibney, Jr. on 9/4/2015. Opinion was electronically sent to all counsel of record. (sbea, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
Richmond Division

BRUCE E. ROBINSON, TRUSTEE, et al,

Counterclaim Plaintiff,
V.

Civil No. 3:15cv382-JAG-3

STERNE AGEE GROUP, INC.,

Counterclaim Defendant,
OPINION

In May of 2014, an involuntary bankruptcy proceeding began against Anderson &
Strudwick, Inc ("Anderson"). Prior to the bankruptcy proceeding, Anderson merged its assets
with the Sterne Agee Group, Inc. ("SAG"). In late 2014, SAG brought a declaratory action in
Bankruptcy Court to determine the rights to common stock held in an escrow account ("Escrow
Funds"). The Trustee filed counterclaims, asserting that SAG had no rights to the Escrow Funds.
On May 26, 2015, five months after the Trustee filed his counterclaims, SAG filed a Motion to
Withdraw Reference and to Sever, Transfer and Consolidate the Counterclaims.

SAG claims that the Court should grant either mandatory or permissive withdrawal
because the Bankruptcy Court does not have the authority to hear and decide the Trustee's
counterclaims.

After considering the factors for mandatory and permissive withdrawal, the

Court finds neither appropriate. The Court finds SAG's claim untimely thus ineligible for
mandatory withdrawal. In addition, because the counterclaims are core claims, the factors for

permissive withdrawal dictate that this case should remain in bankruptcy court. Accordingly, the

Court DENIES the motions and REMANDS the case to the United States Bankruptcy Court.

I. BACKGROUND

In December 2011, SAG entered an Agreement to merge its assets with Anderson. The
Agreement provided that Anderson would indemnify SAG against Anderson's liabilities with the

Escrow funds, held in trust in the event that SAG faced claims relating to the asset acquisition.
In May 2012, SAG became the target of two class action lawsuits alleging successor-in-

interest liability for Anderson's underwriting of the Initial Public Offering of Tibet
Pharmaceuticals, Inc. In re Anderson & Striidwick, Inc., No. 14-32679, 2015 WL 1651146, at *2

(Bankr. E.D. Va. Apr. 8, 2015). In May 2014, Downs (a defendant in the Tibet litigation) filed

an involuntary bankruptcy petition against Anderson. Id. The Bankruptcy Court appointed the
Trustee in June 2014.

In December 2014, SAG filed an action against the Trustee and Debtor to obtain a

declaration from the Bankruptcy Court that the Escrow Funds were not a part of the Debtor's
estate and not subject to the bankruptcy proceeding.

On January 2, 2015, the Trustee filed

counterclaims alleging: 1) SAG is liable for all of Anderson's obligations under successor
liability; or, alternatively, 2) the asset purchase is voidable as a fraudulent transfer under Virginia
law.

On January 30, 2015, SAG filed a motion to dismiss the Trustee's counterclaims. The

Bankruptcy Court denied SAG's motion on April 8, 2015, holding the Trustee had standing and

the Trustee had properly alleged its fraudulent conveyance claims. The Bankruptcy Court set

trial for October 5, 2015. SAG submitted its Motion to Withdraw the Reference and Supporting
Memorandum of Law on May 26, 2015.

II. DISCUSSION

Bankruptcy law provides two avenues by which a court can order a case withdrawn from
the Bankruptcy Court: mandatory withdrawal or permissive withdrawal. 28 U.S.C. § 157(d).
1. Mandatory Withdrawal

Under § 157(d), mandatory withdrawal requires (1) a timely motion of a party and (2)
"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).

Section 157 does not specify what constitutes "timely" in this context. Courts generally
hold that, to meet the timeliness requirement, movants should file the motion soon after grounds
for withdrawal become apparent. See e.g., In re Mahlmann, 149 B.R. 866, 869 (N.D. 111. 1993);
In re H & W Motor Express Co., 343 B.R. 208 (N.D. Iowa 2006) (holding a five month delay
following the service of a complaint rendered a motion to withdraw untimely)). Courts have

held motions for withdrawal were not timely when filed as close as one month after discovering
the grounds for dismissal. In re Mahlmann, 149 B.R. at 870 (holding untimely a motion filed
one month after counterclaim). An important factor in the timeliness inquiry is whether the
movant had discovered something to gain by forum shopping. See, e.g., In re Stavriotis, 111
B.R. 154, 158 (N.D. III. 1990) ("That the

motion was filed as soon as [movant] realized

withdrawal might be to its advantage is not sufficient to make the motion for withdrawal of the

reference 'timely.'"). These cases clarify that the timeliness requirement does not provide a hard
and fast deadline, but rather prevents a movant from "engaging in obstructionist tactics." See In
re Mahlmann, 149 B.R. at 869.

SAG did not submit its Motion to Withdraw until May 26, 2015. At that point, SAG had
already filed and the Bankruptcy Court had denied a motion to dismiss the counterclaims. SAG

and the Trustee had taken part in months of discovery and a trial was set for October 5, 2015.
The timeline of the Motion to Withdraw and its filing after an unfavorable ruling in Bankruptcy

Court suggest that the motion is an attempt to delay.' SAG cites a large volume of cases,
insisting the weight of precedent is in favor of permitting a lengthy filing period. Regardless of
the time period in these precedents, they all hold that a movants should file a motion to withdraw

at the first reasonable opportunity and courts will consider the motion untimely if the movant
•
*2
acts in bad faith. In this case, SAG did not file a timely motion to withdraw. Accordingly, the

Court denies mandatory withdrawal.
2.

Permissive Withdrawal

District courts consider permissive withdrawals on a case-by-case basis. This Court has

used the following factors to determine whether a permissive withdrawal is appropriate: 1)

whether a proceeding is core or non-core; 2) the uniform administration of bankruptcy
proceedings; 3) expediting the bankruptcy process and promoting judicial economy; 4) efficient
use of debtors' and creditors' resources; 5) reduction of forum shopping; and finally, 6) the
preservation of the right to a jury trial. See, e.g.. In re QSM, LLC, 453 B.R. 807, 809-10 (E.D.

' Stern v. Marshall, put it best: "If [the Movant] believed that the Bankruptcy Court lacked the
authority to decide his claim. . ., then he should have said so—and said so promptly. . . . Instead,
[the Movant] repeatedly staled to the Bankruptcy Court that he was happy to litigate there. We
will not consider his claim to the contrary, now that he is sad." 131 S. Ct. 2594, 2608 (2011)
(citations omitted).
^ A review of SAG's string of supporting parenthetical cases reveals exculpatory or
nonprejudicial circumstances for the delays in filing the motion to withdraw. In re Sevko, which
SAG relies on heavily, accords with the precedents we have adopted as instructive in recognizing
"that the test for timeliness of a motion to withdraw reference is either as soon as possible, or at
the first reasonably opportunity after the moving party has notice of the grounds for
withdrawal[.]" 143 B.R. at 116. SAG has not timely tiled its motion; therefore, this Court denies
mandatory withdrawal.

Va. 2011). If the Court finds that the claims are core it "strongly militates against withdrawal of
the reference." Dwyer v. First Nat 7 Bank (In re O 'Brien), 414 B.R. 92, 98 (S.D. W. Va. 2009).

After Stern v. Marshall, a bankruptcy court must conduct a two-part analysis to
determine if it has the authority to enter final judgment in a proceeding. A bankruptcy court
must determine (1) whether a proceeding is "core" and, thus, whether the court has statutory

authority to finally adjudicate it; and (2) whether the court has the constitutional authority to
enter such a final judgment. 28 U.S.C § 157; Stern v. Marshall, 131 S. Ct. 2594, 2608 (2011).
Specifically, a bankruptcy court cannot enter a "final judgment on a state law counterclaim that

is not resolved in the process of ruling on a creditor's claim of proof" Id. at 2620. In order for
the Bankruptcy Court to have jurisdiction to decide such a claim, the claim must either "stem[]
from the bankruptcy itself[,] or would necessarily be resolved in the claims allowance process."
Id. at 2618.

Trustee's counterclaims fall under § 157(b)(2)'s definition of core claims because the

Trustee asserts counterclaims against "persons filing claims against the estate" and the

counterclaims seek "to determine, avoid, or recover fraudulent conveyances."

28 U.S.C.

§§ 157(b)(2)(C), (H). The Trustee's counterclaims focus on establishing that the Escrow Funds

belong to Anderson's bankruptcy estate and cannot indemnify SAG. Both parties assert rights to
the Escrow Funds and thus the Trustee's counterclaim falls into the counterclaims recognized as
core by § 157(b)(2)(C). In addition, the Trustee asserts a core claim over the Escrow Funds

because he alleges that Anderson's merger with SAG was a fraudulent conveyance. See 28
U.S.C. § 157(b)(2)(H).

The Trustee's counterclaims do not qualify as Stern claims because the counterclaims

would necessarily be resolved in the claims allowance process. In fact. Trustee's counterclaims

seek to establish the converse of SAG's adversary action in the bankruptcy court.

SAG's

adversary action among other issues sought a declaration that "the Escrowed funds were placed
in the Escrow Account pursuant to an arm's length purchase of the Debtor's [Anderson's]
assets." (Bankr. Comp. at 9.) Trustee's successor claim seeks to prove the exact opposite: that
the purchase was not in fact an arm's length purchase, and thus SAG is a successor to Anderson,

making indemnification inapplicable.^
The remainder of the permissive factors does not call for a detailed analysis. The Court

finds no evidence to suggest that withdrawing reference will promote the uniform administration

of bankruptcy law. Keeping the case in bankruptcy court serves judicial economy and expedites
the bankruptcy process because of the Bankruptcy Court's familiarity with the issues in this case.

In addition, keeping the case in the Bankruptcy Court promotes a more efficient use of the
Trustee's resources.

The chief factor in determining the propriety of permissive withdrawal, whether the claim
is core, and most of the other factors cut against SAG. Accordingly, the Court denies permissive
withdrawal.

^In the alternative, SAG has consented to the authority ofthe bankruptcy court to hear its claim
as well as the Trustee's counterclaims. The Supreme Court in Wellness held that the right to
have claims adjudicated in an Article III court is a personal right that can be waived both
explicitly and impliedly. Wellness InCl Network, Ltd. v. Sharif, 135 S. Ct. 1932 (2015). The
Supreme Court added that the waiver must be knowing and voluntary, the party should have
been "made aware of the need for consent and the right to refuse it," and with this knowledge
still voluntarily appear to try its case before a non-Article III court. Id. at 1948 (quoting Roell v.
Wifhrow, 538 U.S. 580, 590 (2003)). SAG initiated the proceeding in Bankruptcy Court. SAG
submitted a proof of claim asserting its rights in Bankruptcy Court a month later. SAG waived

its right to have its claims heard by an Article III court by submitting to the equitable jurisdiction
of the Bankruptcy Court.

CONCLUSION

For the foregoing reasons, the Court DENIES SAG's motion to withdraw reference. The
Court DENIES as MOOT SAG's motions to sever the counterclaims, transfer and consolidate.
The Court will enter an appropriate order.
Let the Clerk send a copy of this Opinion to all counsel of record.

Date: September ^.2015
Richmond, Virginia

/s/

Tohn A.States DistrfctJudg
,
^Inited Gibncy,