Opinion
21-80029 Adversary 23-8031
05-18-2023
IN RE U.S. CONSTRUCTION SERVICES, LLC, Debtor. v. ANN SHIRLEY, Defendant. RANDY W. WILLIAMS, CHAPTER 7 TRUSTEE, Plaintiff,
CHAPTER 7
REPORT AND RECOMMENDATION
JEFFREY NORMAN, UNITED STATES BANKRUPTCY JUDGE
Before the Court is the Answer and Request for Jury Trial (ECF No. 11) filed by defendant Ann Shirly (the “Defendant” or “Shirly”). Pursuant to General Order No. 2011-12 in the United States District Court for the Southern District of Texas (“Authority of Bankruptcy Judges to Enter Final Orders”), as well as Bankruptcy Local Rule 5011- 1, this Court makes the following report and recommendation to the District Court.
Factual and Procedural Background
On February 19, 2021, U.S. Construction Services, LLC (the “Debtor”) filed the underlying bankruptcy case under Chapter 11 of the bankruptcy code. On August 17, 2021, the underlying case was converted to one under Chapter 7 of the bankruptcy code. On February 17, 2023, the chapter 7 Trustee (“Trustee” or “Plaintiff”) filed a complaint against Ann Shirley commencing this Adversary Proceeding. The essence of the Complaint is that the Defendant owes money, in the amount of $70,719.21 for construction services, materials and labor provided by the Debtor.
Based upon these allegations, the Trustee asserts claims against the Defendant for breach of contract pursuant to Texas Civil Practice & Remedies Code § 38.001(b)(1), (2), (3), and (8), and on a sworn account. The Plaintiff also sues for negligent and intentional misrepresentation. On May 9, 2023, Defendant filed her Answer to Complaint with a demand for jury trial (ECF No. 11).
Defendant has not filed a proof of claim against the estate, or otherwise been involved in the underlying bankruptcy case outside this adversary proceeding.
Discussion
The District Court for the Southern District of Texas exercises original jurisdiction over this adversary proceeding. The adversary proceeding was filed with the bankruptcy court because the district court has generally referred all cases under title 11 of the United States Code, and all proceedings “arising under” title 11 or “arising in” or “related to” a case under title 11, to the bankruptcy judges.
28 U.S.C. §1334(a) and (b)
General Order 2012-6 Order of Reference to Bankruptcy Judges, United States District Court Southern District of Texas, May 24, 2012
Under the appropriate circumstances, the automatic transfer can be withdrawn. Section 157(d) requires mandatory withdrawal of the reference “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.” Additionally, the “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.”
The Fifth Circuit has previously held that district courts should decide “cause” for permissive withdrawal of the reference by considering whether:
(1) The underlying lawsuit is a non-core proceeding;
(2) Uniformity in bankruptcy administration;
(3) Forum shopping and confusion will be reduced;
(4) Economical use of debtors' and creditors' resources will be fostered;
(5) The bankruptcy process will be expedited; and
(6) A party has demanded a jury trial.
Holland Am. Ins. Co. v. Roy, 777 F.2d 992, 999 (5th Cir. 1985).
The term “core proceeding” is not defined in the Bankruptcy Code. Title 28, United States Codes, Section 157(b) provides an illustrative list of proceedings that may be considered “core.” However, even if designated as core, if the action arises only under state law and would not necessarily be resolved in the claims allowance process, then the bankruptcy court is constitutionally prohibited from entering final judgment.
Stern v. Marshall, 564 U.S. 462, 503 (2011); BP RE, LP v. Waxahachie Dodge, LLC (In re BP RE, LP), 735 F.3d 279, 286 (5th Cir. 2013); In re Frazin, 732 F.3d 313, 317 (5th Cir. 2013).
Absent a parties' consent, bankruptcy judges hear, but do not have authority to determine non-core claims. Rather, a bankruptcy court may only recommend proposed findings of fact and conclusions of law to the district court. However, if the parties consent, Section 157(e) authorizes a bankruptcy court to conduct jury trials, if the right to a jury trial applies, if specifically designated by the district court and if all parties expressly consent.
In this proceeding, all claims asserted by the Trustee are non-core state law causes of action. The undersigned judge has not yet held any hearings in this adversary proceeding, and has only scheduled one status conference. Accordingly, this Court has not gained any in-depth familiarity with the underlying facts. The Trustee initiated this Adversary Proceeding before this Court, the Defendant did not participate in the main bankruptcy case before the Trustee initiated the adversary proceeding, and this Court has not issued any rulings against the Defendant; as such, there have been no rulings issued against the Defendant that would lead her to forum shop. She has asserted a right to a jury trial.
In re The Heritage Organization, LLC, 454 B.R. 353, 360-61 (Bankr. N.D. Tex. 2011) (“The claim under [TUFTA] does not invoke a right created by title 11, and clearly exists outside of bankruptcy. Therefore, at most, it is a ‘related to' claim under section 1334(b).”).
If a bankruptcy court is already familiar with the facts of the underlying action, then allowing that court to adjudicate the proceeding will promote uniformity in the bankruptcy administration.” Johnson v. Williamson (In re British Am. Properties III, Ltd.), 369 B.R. 322, 327 (Bankr.S.D.Tex. 2007).
Langenkamp v. Culp, 498 U.S. 42, 44-45 (1990); Granfinanciera S.A. v. Nordberg, 492 U.S. 33 (1989); Katchen v. Landy, 382 U.S. 323 (1966).
However, bankruptcy aims to maximize the efficient use of resources to administer the debtor's estate and resolve related litigation. The Trustee is litigating several similar adversary proceedings related to the underlying Debtor. As such, the interests of judicial economy and conservation of resources disfavor the withdrawal of reference.
Plan Adm'r v. Lone Star RV Sales, Inc. (In re Conseco Fin. Corp.), 324 B.R. 50, 55 (N.D. I11. 2005).
Recommendation
Under these circumstances, this Court recommends that the District Court withdraw the reference of this adversary proceeding. However, the undersigned judge requests that the District Court, if it withdraws the reference, then refer the Adversary Proceeding back to the undersigned judge for adjudication of all pretrial matters and a jury trial, if consented to by the parties.
The Status Conference scheduled for 9:30 a.m. on May 19, 2023, is canceled.