SJS Mechanical Services LLC v. Walsh Construction Company II LLC et al

Filing 6

ORDER denying Defendant's 1 Motion to Withdraw Reference without prejudice to re-filing when (and if) the case is ready to proceed to trial. Signed by District Judge Kymberly K. Evanson. (SB)

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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
AT SEATTLE

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SJS MECHANICAL SERVICES LLC,

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v.

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CASE NO. C24-00462-KKE

Plaintiff,

BANKRUPTCY NO. 24-01010

WALSH CONSTRUCTION COMPANY II
LLC et al.,

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ORDER DENYING MOTION TO
WITHDRAW THE REFERENCE

Defendants.

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Under 28 U.S.C. § 157(d), Walsh Construction Company II LLC (“Walsh”) asks this Court

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to withdraw the reference of the adversary proceeding from the bankruptcy court. Dkt. No. 1-1 at

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6. Pivot Apartment Lender LLC (“Pivot”) opposes Walsh’s motion. Id. at 15. For the reasons

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below, Walsh’s motion is denied without prejudice as premature, and Walsh may refile this motion

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when (and if) the case is ready to proceed to trial.
I.

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BACKGROUND

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This matter involves parties who were previously engaged in business together for the

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purpose of constructing an apartment complex. Walsh served as general contractor on the project.

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See Bankruptcy Dkt. No. 1 at 157. 1 Walsh filed a lawsuit in King County Superior Court against

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By “Bankruptcy Docket,” this order refers to the docket of Case Number 24-01010 pending in United States
Bankruptcy Court for the Western District of Washington.
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ORDER DENYINGMOTION TO WITHDRAW THE REFERENCE - 1

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B-1208 Pine, LLC (“Debtor”), Pine Esker, LLC (“Pine Esker”), and Pivot, among others, seeking

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to recover for unpaid work on the apartment complex. Id. at 8–15. SJS Mechanical Services, LLC

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(“SJS”) served as a subcontractor on the project. Id. at 172–78. SJS also filed a lawsuit against

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Walsh in King County Superior Court, seeking to recover for unpaid work on the apartment

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complex. Id. King County Superior Court consolidated both cases upon stipulation of the parties.

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Id. at 182–85.

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Debtor subsequently filed a voluntary petition under chapter 11 of title 11 of the United

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States Bankruptcy Code, triggering an automatic stay of the King County proceedings.

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Bankruptcy Dkt. No. 29-1 at 183–87. On January 23, 2024, Pivot filed a notice of removal of the

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King County lawsuit to the United States Bankruptcy Court for the Western District of

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Washington. Bankruptcy Dkt. No. 1.

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On March 7, 2024, Walsh filed a motion for withdrawal of reference (Dkt. No. 1-1 at 6),

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which this Court now considers, while noting that on May 22, 2024, Pine Esker and Debtor filed

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motions for partial summary judgment in the bankruptcy court (Bankruptcy Dkt. Nos. 48, 51) that

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are not yet ripe for resolution.
II.

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LEGAL STANDARDS

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In general, district courts have original and exclusive jurisdiction over all bankruptcy cases.

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28 U.S.C. § 1334(a). The district courts are authorized to refer to the United States Bankruptcy

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Courts jurisdiction over cases under the Bankruptcy Code and all proceedings arising in or related

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to a case under the Bankruptcy Code. 28 U.S.C. § 157(a). 2 Section 157 also explains the limits

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of the bankruptcy court’s jurisdiction over referred matters, depending on whether the proceeding

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is “core” or “non-core”: in “core proceedings,” the bankruptcy court “may enter appropriate orders

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The United States District Court for the Western District of Washington has exercised this authority. Local Rules
W.D. Wash. LCR 87(a).

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and judgements,” but in “non-core proceedings,” the bankruptcy court “shall submit proposed

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findings of facts and conclusions of law to the district court” for consideration and review. 28

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U.S.C. §§ 157(b)(1), (c)(1). “Actions that do not depend on bankruptcy laws for their existence

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and that could proceed in another court are considered ‘non-core.’” In re uCast, LLC, No.

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23CV1258-LL-AHG, 2023 WL 6131084, at *2 (S.D. Cal. Sept. 19, 2023) (quoting Sec. Farms v.

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Int’l Bhd. of Teamsters, Chauffers, Warehousemen & Helpers, 124 F.3d 999, 1008 (9th Cir.

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1997)).

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Section 157 also authorizes withdrawal of the reference of a matter to a bankruptcy court,

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on either permissive or mandatory grounds. 28 U.S.C. § 157(d). In this case, Walsh requests

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permissive withdrawal. See Dkt. No. 1-1 at 8–9; 28 U.S.C. § 157(d) (providing that district courts

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“may withdraw, in whole or in part, any case or proceeding” referred to a bankruptcy court “on its

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own motion or on timely motion of any party, for cause shown”). As the party seeking withdrawal,

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Walsh bears the burden of persuasion. In re Tamalpais Bancorp, 451 B.R. 6, 8 (N.D. Cal. 2011).

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“To determine whether cause for permissive withdrawal exists, a district court ‘should first

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evaluate whether the claim is core or non-core, since it is upon this issue that questions of

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efficiency and uniformity will turn.’” In re uCast LLC, 2023 WL 6131084, at *2 (quoting One

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Longhorn Land 1, L.P. v. Presley, 529 B.R. 755, 762 (C.D. Cal. Apr. 13, 2015)). Courts should

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also “consider the efficient use of judicial resources, delay and costs to the parties, uniformity of

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bankruptcy administration, the prevention of forum shopping, and other related factors.”

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Sec. Farms, 124 F.3d at 1008.

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“Whether ... the litigants are afforded the right to a jury trial is another consideration in

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determining whether the reference should be withdrawn.” Secs. Inv. Prot. Corp. v. Bernard L.

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Madoff Inv. Secs. LLC, No. 1:20-cv-04767-MKV, 2023 WL 6122905, at *9 (S.D.N.Y. Sept. 18,

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2023) (quoting McHale v. Citibank, N.A., No. 09 Civ. 6064(SAS), 2009 WL 2599749, at *4 (S.D.
ORDER DENYINGMOTION TO WITHDRAW THE REFERENCE - 3

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N.Y. Aug. 24, 2009)).). However, “[a] valid right to a Seventh Amendment jury trial in the district

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court does not mean the bankruptcy court must instantly give up jurisdiction and that the action

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must be transferred to the district court.” In re Healthcentral.com, 504 F.3d 775, 788 (9th Cir.

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2007). Rather, “the bankruptcy court may retain jurisdiction over the action for pre-trial matters.”

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Id.
III. ANALYSIS

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Walsh asks the Court to withdraw the reference because non-core claims in the lawsuit

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predominate and it is entitled to a jury trial on those claims. Dkt. No. 1-1 at 9–10. Pivot does not

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respond to Walsh’s arguments regarding the predominance of non-core claims, and instead argues

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the Court should deny the motion because Walsh consented to final adjudication by the bankruptcy

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court by failing to timely object. Id. at 19.

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Pivot’s argument as to timeliness is not persuasive. First, under the applicable rules and

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orders issued by the bankruptcy court, it is not clear that Walsh’s objection to adjudication by the

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bankruptcy court is untimely.

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This district’s Local Bankruptcy Rules require that, in an adversary proceeding:

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A party filing a notice of removal pursuant to Fed. R. Bankr. P. 9027, shall file with
the notice of removal a separate document entitled Notice Regarding Final
Adjudication and Consent. … Not later than 14 days after the filing of the notice of
removal and the Notice Regarding Final Adjudication and Consent, any party who
has filed a pleading in connection with the removed claim or cause of action …
shall file … a separate document entitled Notice Regarding Final Adjudication and
Consent.

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Local Rules W.D. Wash. LBR 7012-1(b). “Failure by a party to file a Notice Regarding Final

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Adjudication and Consent as required by this rule or by a date certain fixed by court order shall

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constitute that party’s consent to entry of final orders or judgments by the bankruptcy judge.” LBR

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7012-1(c).

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According to Pivot, because it filed its notice of removal on January 23, 2024, Walsh had

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until February 6, 2024 to object to final adjudication by the bankruptcy court under Local

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Bankruptcy Rule 7012-1(b). Dkt. No. 1-1 at 19. Because Walsh did not object until March 7,

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2024, Pivot argues Walsh’s objection is untimely and therefore ineffective, and should be

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interpreted as consent to final adjudication. Id. Pivot claims, “[g]iven this consent, even if Walsh

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still has a right to a jury trial, that trial can be conducted by the Bankruptcy Court.” Id. at 20.

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Walsh counters that Pivot failed to file a separate Notice Regarding Final Adjudication and

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Consent, as required by Local Bankruptcy Rule 7012-1(b), meaning that Walsh’s 14-day deadline

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to file its own Notice Regarding Final Adjudication and Consent was never triggered. Dkt. No. 1-

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1 at 25. Walsh also points out that the bankruptcy judge entered an order on February 23, 2024

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(Bankruptcy Dkt. No. 9), setting a March 7, 2024 deadline by which Walsh was required to file its

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motion to withdraw the reference. Walsh complied with that deadline. In light of the deadline

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provided in the February 23, 2024 order, and Pivot’s own failure to comply with the Local

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Bankruptcy Rules, the Court finds Walsh’s filing, and the objection to final adjudication contained

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therein, timely.

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Even if the Court were to find Walsh’s objection untimely, however, such a finding would

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not necessarily support denying Walsh’s motion to withdraw the reference. The authority cited by

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Pivot underscores that consent to final adjudication is but one factor for the district court to

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consider when evaluating a motion to withdraw the reference, and in no event does consent alone

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require that matters remain before the bankruptcy court for final adjudication. See Dkt. No. 1-1 at

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20 (Pivot’s argument that “A party’s prior consent to final adjudication by the bankruptcy court

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militates even more strongly against granting a withdrawal.” (citing Szanto v. Szanto, 3:19-cv-

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2043-SI, 2022 WL 3572993, at *10 (D. Or. Aug. 19, 2022) (finding party not entitled to jury trial

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because the court had “already affirmed denial of the [appellant’s motion for] withdrawal of

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reference and found that [a]ppellant failed to provide good cause to withdraw his consent”)).

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Although the Court finds Walsh’s motion timely in a procedural sense, the motion is

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nonetheless substantively premature. Because there are dispositive motions currently pending

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before the bankruptcy court, this Court cannot yet assess what claims, if any, may advance to trial

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and whether those claims are core claims that would in fact entitle Walsh to a jury trial. In light

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of this, and because neither party objects to the bankruptcy court continuing to handle pre-trial

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proceedings (Dkt. No. 1-1 at 20, 24–25), the Court finds that judicial resources will be used most

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efficiently if this matter remains with the bankruptcy court up until the point of trial. See In re

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Lehman Bros. Holdings Inc., 532 B.R. 203, 215 (S.D.N.Y. 2015) (“Plaintiffs’ right to a jury trial,

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even if coupled with a finding that the Bankruptcy Court cannot enter final judgment, does not

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compel withdrawing the reference until the case is ready to proceed to trial.” (cleaned up)); In re

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Ne. Indus. Dev. Corp., 511 B.R. 51, 54 (S.D.N.Y. 2014) (“Courts have denied motions to withdraw

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a reference in cases involving legal claims and jury demands where they have found that it would

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be more efficient for the Bankruptcy Court to handle pre-trial matters.”).

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IV. CONCLUSION
Walsh’s motion for withdrawal of the reference is DENIED without prejudice to re-filing
when (and if) the case is ready to proceed to trial.

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Dated this 24th day of May, 2024.

A
Kymberly K. Evanson
United States District Judge

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