Opinion
Case Nos. Lead Case 03-41710 (RDD), Adversary Proceeding No. 04-02955 (RDD), No. 04 Civ. 04547 (PKC).
July 14, 2004
MEMORANDUM AND ORDER
This is a motion by International Launch Services, Inc., Lockheed Martin Commercial Launch Services, Inc. and Lockheed-Khrunichev-Energia International, Inc. (collectively "ILS") to withdraw the automatic reference of the above-captioned Adversary Proceeding to the bankruptcy court.
The plaintiff in the Adversary Proceeding, Space Systems/Loral Inc. ("SS/L") is a manufacturer of advanced commercial satellites and related satellite systems, including those used for high-powered video and direct-to-home broadcast satellites, weather satellites, digital audio radio satellites and satellites for data networking applications. ILS is in the business of providing satellite launch services, including fitting satellites to a particular launch vehicle and launching the satellites into orbit. SS/L claims that its contractual relationship with ILS lasted over a decade, involved the launch of numerous satellites manufactured by SS/L and payment of in excess of $650 million to ILS. SS/L alleges in the Adversary Proceeding that ILS wrongfully terminated arrangements providing two sets of launch services (Launch Service Nos. 2 and 5) and failed to return SS/L's deposits in the amount of $37.5 million.
On June 10, 2004, ILS filed its answer asserting counterclaims alleging that SS/L and fraudulently induced ILS to enter into contracts and agreements that underlie the alleged obligations to provide launch services. ILS also asserts that it is entitled to set-off and recoupment as against the debt it owes to SS/L in an amount equal to its counterclaims.
Discussion
Under the authority of 28 U.S.C. § 157(a), all Chapter 11 cases in this District are automatically referred to the District's bankruptcy judges. An application to withdraw the reference may be granted "for cause shown." 28 U.S.C. § 157(d). The reference shall be withdrawn "if the court determines that resolution of the proceeding requires consideration of both title 11 and other laws of the United States regulating organizations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 commerce." Id. ILS does not urge that circumstances exist that mandate the withdrawal of the reference; rather, it argues that discretionary factors favor withdrawal.
A motion to withdraw the reference must be "timely" made. Id. While there is no bright line test for timeliness, the motion should be made at the earliest opportunity after it is apparent that there is a basis for such a motion. See 9 Collier on Bankruptcy at ¶ 5011.01[2]. See also In re Majhlman, 149 B.R. 866 (N.D. Ill 1993) (one month after the complaint held untimely); Brizendine v. Montgomery Ward Co., Inc., 143 B.R. 877 (N.D. 3 Ill. 1992) (seven month delay held untimely). Here, ILS filed its motion contemporaneously with its answer and, thus, its motion is timely.
In considering whether and when to withdraw the reference consideration should be given to the fact that the bankruptcy court will likely have greater familiarity with the facts and issues relating to core matters. In re Orion Pictures Corp, 4 F.3d 1095 (2d Cir. 1993), cert. dismissed, 511 U.S. 1021 (1994). SS/L argues that the basic claims and counterclaims in the Adversary Proceeding are core in nature. It notes that its contract claim seeks the return of $37.5 million in pre-petition funds that were placed on deposit with ILS. (Complaint ¶¶ 20, 45-49) It is not clear to me from the face of the pleadings whether the funds were to be separately segregated and held or, instead, were more akin to an initial payment towards the total price due. ILS asserts in its counterclaims for fraudulent inducement and rescission that SS/L misrepresented its intentions to assign launch missions to ILS and to execute a certain a term sheet agreement and induced ILS to enter into Amendments 2 and 16; without these amendments, ILS contends that SS/L would owe it $54.75 in termination charges (Answer and Counterclaims at ¶ 63-64; 68-72). ILS seeks damages against SS/L (Answer and Counterclaims at p. 23) SS/L urges that the basic claims are core in nature because, inter alia, its contract claim seeks to recover property of the estate held by others, 28 U.S.C. § 157(2)(E), and the counterclaim constitutes a claim against the estate, id. § 157(B). I need not determine whether these claims are core at this point in the proceedings. I will follow the lead of Judge Stein who recently noted that: "Judges of the bankruptcy courts have a wealth of experience in resolving questions of bankruptcy law and in adjudicating the interplay between bankruptcy and non-bankruptcy issues. Accordingly, it is generally preferable for the bankruptcy court to make the initial determination as to whether a claim should be classified as core or non-core." In re Enron Corp., 2004 WL 1197243*4 (S.D.N.Y. May 28, 2004). Cf. In re Enron Power Marketing, 2003 WL 68036 (S.D.N.Y. Jan. 8, 2003); Good v. Kvaerner US, Inc., 2003 WL 21755782 at n. 6 (S.D. Ind., July 25, 2003).
In considering whether to withdraw the reference, the court should also weigh questions of efficient use of judicial resources, delay and costs to the parties, uniformity of bankruptcy administration, the prevention of forum shopping and other related issues. In re Orion Pictures Corp., 4 F.3d at 1101-02. Here, the Chapter 11 case has been pending before the Bankruptcy Court since July 15, 2003. SS/L has represented that the Bankruptcy Judge has "already heard two motions filed by ILS to compel SS/L to assume a separate launch services contract between the parties . . ." (SS/L Mem. at 12) The Bankruptcy Judge has developed some familiarity with the industry in which these claims arise and necessarily will have an accurate sense of the pace and needs of the overall Chapter 11 proceeding. It is efficient for him to preside over this Adversary Proceeding and his doing so should reduce costs and delays to the parties because it can be coordinated with other proceedings they have pending in his court.
While the issue is always case specific, often courts in this District have found it appropriate to defer withdrawing the reference until a case is trial ready. See In re Formica Corp., 305 B.R. 147 (S.D.N.Y. Feb 2, 2004) ("While the plaintiff has a right to a jury trial, such a right does not compel withdrawing the reference until the case is ready to proceed to trial."). See also Gucci by Armstrong v. Gucci, 1997 WL 122838, at *1 (S.D.N.Y. Mar. 17, 1997) ("While there is no question that this case must return to the District Court if and when there is a jury trial, at the present infant stage of the proceeding the issue of withdrawal is discretionary and turns largely on considerations of judicial economy."); In re Ames Department Stores, 190 B.R. 157 (S.D.N.Y. 1995) (finding greater efficiency in allowing the matter to remain with the bankruptcy judge until it is trial ready); In re Kenai Corp., 136 B.R. 59, 61 (S.D.N.Y. 1992) ("A rule that would require a district court to withdraw a reference simply because a party is entitled to a jury trial, regardless of how far along toward trial a case may be, runs counter to the policy favoring judicial economy that underlies the statutory scheme. . . ."); In re CIS Corp., 172 B.R. 748, 764 (S.D.N.Y. 1994) (court must consider "whether judicial efficiency and uniformity will be promoted by allowing the bankruptcy court to manage the proceeding until the case becomes ready for trial"). Thus, even if a jury had been demanded in this case, thereby necessitating the ultimate withdrawal of the reference, it would not necessarily require the withdrawal at this point in time. Similarly, even if I were to assume that all claims were non-core and that there were no efficiencies in the Bankruptcy Court trying this case on the basis of proposed findings subject to de novo review, it would nevertheless be appropriate for the Bankruptcy Court to preside over this case until all pretrial proceedings were concluded.
The motion to withdraw the reference is DENIED without prejudice to its renewal when the Bankruptcy Court certifies that the case is trial ready.
SO ORDERED.