Opinion
CIVIL ACTION 00-2448 SECTION "T" (2).
December 13, 2000.
Before the Court is a Motion to Withdraw the Reference pursuant to 28 U.S.C. § 157(d) filed on behalf of the plaintiff, Josephine Dimitri. Oral argument was entertained by the Court on October 11, 2000, and the matter was taken under submission for further consideration. The Court, having considered the arguments of counsel, the evidence submitted, the law and applicable jurisprudence, is fully advised in the premises and ready to rule.
ORDER AND REASONS
I. BACKGROUND:
In April 2000, the Succession of William Garrctt was opened in St. Tammany Parish. In conjunction with this succession proceeding, a petition for executory process seeking foreclosure of several parcels of real estate owned by Josephine Dimitri and her late husband Frank Dimitri. was filed along with an ordinary proceeding and request for writ of sequestration on movable property which served as collateral for the Dimitri loan. Dimitri in turn filed suit in Civil District Court for the Parish of Orleans ("CDC") for emotional distress following the seizure of the property. On May 30, 2000, Dimitri filed a Chapter 11 Bankruptcy in the Eastern District of Louisiana in her individual capacity and as the administratrix of her husband's succession, which was allotted to Judge Brahney. Subsequently on June 27, 2000, two things occurred, Dimitri voluntarily dismissed the Chapter 11 proceeding filed on May 30th and filed a new Chapter 11 proceeding in the Eastern District of Louisiana in her individual capacity only which was allotted to Judge Brown. On June 30th", the CDC suit was transferred to the 24th Judicial District Court ("JDC"). On August 10, 2000, Dimitri filed a Motion to Dismiss the action in the 24th JDC stating that she intended to bring an adversary action pursuant to 28 U.S.C. § 1334 in that her claims are "related to" her bankruptcy and constitute core proceedings. On August 18, 2000, suit was filed in the Eastern District. Josephine Dimitri sets forth seven counts in her federal suit. The first three counts allege that the contracts entered into are void based upon unconscionability, vitiated by duress, and the adhesion contract principle. The fourth count is for wrongful and excessive seizure. Count five of the complaint is for abuse of right and the sixth count alleges intentional infliction of emotional distress. Finally, count seven asserts a claim for negligent acts on the part of the executrices of the Garrett Succession. On August 22, 2000, this Court entered an order referring this matter to the bankruptcy court as it was related to a matter in bankruptcy. Dimitri now requests that this Court withdraw that reference.
II. ARGUMENTS IN SUPPORT:
Dimitri contends first that this suit is a "non-core" proceeding. It is argued that none of the categories delineated as "core" proceedings in subparts (A) through (O) in § 157(b)(2) apply to this claim for damages arising prior to the filing of the bankruptcy. Plaintiff contends that this is a "private" claim upon which the bankruptcy court does not have Article III jurisdiction to decide it, or to oversee a jury trial. For this reason alone, plaintiff contends the reference should be withdrawn.
Next, Dimitri concedes that this case does not involve a situation where mandatory withdrawal is required, but instead argues that permissive withdrawal is appropriate. It is argued that the case is a non-core proceeding, the bankruptcy court cannot enter judgment, state law predominates the issues, and withdrawal would serve judicial economy; as such, withdrawal should be granted.
III. ARGUMENTS IN OPPOSITION:
First, defendants argue that the motion to withdraw is not timely. It is submitted that the present motion was filed only after Garrett had filed its Answer and Counterclaim, Dimitri filed an Answer to the Counterclaim, and after discovery has been taken. As such, defendants contend that Dimitri has been on notice as to the existence of a basis for the withdrawal and failed to file the motion within a reasonable time.
Moreover, defendants assert that the factors for withdrawal are not present. The defendants argue that this is a core proceeding whereby Garrett and Dimitri are making claims and counterclaims against each other which concern the validity, priority, and extent of Garrett's security agreement and mortgages on Dimitri's property. Garrett filed a proof of claim against the bankruptcy estate based on the loan and security agreement and mortgages securing it. Dimitri has attacked the validity of the security agreement and mortgages of Garrett, while Garrett seeks enforcement of the security agreement and mortgages affecting Dimitri's property. An action to invalidate mortgages on the debtor's property is a core proceeding under 28 U.S.C. § 157 (b)(2)(K). Because this is a core proceeding, the bankruptcy court can enter a final judgment. 28 U.S.C. § 157(b)(1). Furthermore, it is argued that withdrawal would not serve judicial economy. Withdrawal would result in both the bankruptcy court and the district court determining the validity, priority and extent of Garrett's security agreement and mortgages which could result in conflicting decisions and further complicate this litigation. Additionally, defendants contend that this is an egregious case of forum shopping on the part of the plaintiff which should not be allowed. Moreover, it is argued that by availing herself of the benefits of a Chapter 11 bankruptcy filing, plaintiff waived her right to trial byjury. Case law holds that when the debtor seeks to have the reference withdrawn because the debtor wants a jury trial of an adversary proceeding that the debtor filed, the debtor is found to have waived its right to a jury trial. Finally, it is asserted that Dimitri waived its right to a jury by contract. The Forbearance Agreement entered into by the parties clearly waives the right to a jury trial. Therefore, for these reasons the defendants request that the motion to withdraw the reference be denied.
IV. LAW AND ANALYSIS:
28 U.S.C. § 157(d) provides:
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 district court shall, on timely motion of a party, so withdraw a proceeding 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.
The plaintiff has conceded that this is not a case which requires mandatory withdrawal, as such, the issue before this Court is whether or not the plaintiff has shown "good cause" for the withdrawal of this suit from the bankruptcy court. In deciding whether to grant a motion for permissive withdrawal of reference, the factors the Court should consider include: (1) whether it is a core or non-core proceeding; (2) judicial economy; (3) prevention of forum shopping; (4) economical use of debtor's and creditor's resources; (5) uniformity in administration of bankruptcy laws; and (6) presence of jury trial demand. In re C-TC 9th Ave. Partnership, 177 B.R. 760 (N.D. N.Y. 1995), reconsideration denied 182 B.R. 1 (N.D. N.Y. 1995),Holland America Ins. Co. v. Succession of Roy, 777 F.2d 992 (5th Cir. 1985).
This Court notes that there has not been an adjudication by the bankruptcy judge as to whether or not this matter is a core or non-core proceeding, pursuant to the authority granted by 28 U.S.C. § 157(b)(3). Core proceedings are those matters which arise under the Bankruptcy Code; whereas, a matter that arises under non-bankruptcy law and happens to be an issue in a bankruptcy proceeding merely because of the accidental fact that one of the parties to the dispute is a debtor in the bankruptcy case, in most instances, is a non-core proceeding. In re Sokol 60 B.R. 294 (N.D. Ill. 1986). Moreover, the Fifth Circuit has stated that a proceeding is core "if it invokes a substantive right provided by title 11 or if it is a proceeding that, by its nature, could arise only in the context of a bankruptcy case". In re Wood, 825 F.2d 90 (5th Cir. 1987). In this case, the plaintiff contests the validity and priority ofthe notes, mortgages, and related documents entered into between the parties which gave rise to the execution of the seizures of property. Counts One, Two and Three of the complaint seek to have the contracts found unenforceable as unconscionable, vitiated by duress, and based upon the theory of "contract of adhesion". Count Four ofthe complaint alleges wrongful and excessive seizure. Count Five asserts abuse of right. The Sixth Count is a claim for intentional infliction of emotional distress. While Count Seven alleges negligent acts on the part of the executrices of the Garrett Succession for breach of the duty of diligence. This suit was filed well after the Succession of William Garrett was opened, foreclosure proceedings were begun, property was seized based upon writs of sequestration, and following petitioner's filing for bankruptcy protection.
28 U.S.C. § 157(b)(2) provides that a matter is a core proceeding if it involves the determination of the validity, extent, or priority of liens, at section K, or in section O, other proceedings affecting the liquidation of the assets of the estate or the adjustment of the debtor creditor relationship. The claims set forth by Ms. Dimitri in Counts One, Two, and Three, relate to the claim that certain notes and mortgages are invalid and unenforceable. This clearly concerns the validity, priority and extent of Garrett's security agreement and mortgages on Dimitri's property, as well as the administration of the estate and the liquidation of assets. As such, it is the opinion of this Court that at least as to Counts One, Two, and Three, the claims are core matters for which the Bankruptcy Court has full jurisdiction. This Court further finds that Counts Four, Five, Six, and Seven, while "related to" the other counts, are state law claims that do not arise out of the bankruptcy proceeding but are merely incidental to it. As such, these claims would not be considered as core proceedings and any ruling made by the Bankruptcy Court would be subject to final disposition by the District Court. However, this Court believes that these claims are inextricably interwoven with Counts One, Two and Three, such that judicial economy would be served by the Bankruptcy Court taking up all counts of the petitioner's claim.
This ruling is supported by the case of Shell Material. Inc. v. First Bank of Pinellas County, 50 B.R. 44 (M.D. Fla. 1985), in which a very similar situation was presented. In that case, the debtor claimed that certain notes and mortgages were invalid and unenforceable. The Bankruptcy Court determined that Counts I, II, and IV which sought a determination that the notes and mortgages violated state statutes and thus were invalid and unenforceable were core matters which would affect the administration of the estate and liquidation of assets, but also the determination of the extent and validity of certain liens. The Court further found that Counts III and V of the complaint seeking treble damages based on alleged violations of federal law were not core matters while they were "related to" a Title 11 case. In that case, as here, the Court determined that, as the claims were so interrelated, judicial economy compelled one court to take up both the core and non-core matters rather than splitting the claims. Id.
The second factor to be considered by the Court is judicial economy. As there have been adversary complaints and counterclaims filed in the bankruptcy proceeding which will require a determination as to the validity of the security agreement and mortgages of Garrett affecting Dimitri's property, it is in the interest of judicial economy to have one court adjudicate this matter. This determination must be determined in connection with completing a plan of reorganization and is best left to the Bankruptcy Court for disposition. As such, the interests of judicial economy favor denying a withdrawal of the reference.
Forum shopping is the third factor to which this Court must look. While the defendants have argued that the petitioner has demonstrated a pattern of forum shopping, it is this Court's opinion that the motion for withdrawal is not an attempt to forum shop. The parties have been involved in protracted litigation surrounding this matter which have taken them to at least five different jurisdictions. It is this Court's opinion that the bankruptcy court is vested with the appropriate expertise for adjudicating the parties rights in the litigation's current posture. As such, there should be no further need to move from courthouse to courthouse.
As such, based upon the above discussion, the fourth and fifth factors for the Court's consideration, namely, economical use of debtor's and creditor's resources and uniformity in administration of bankruptcy laws, likewise show cause for withdrawal.
Finally, the last factor to be considered is the presence of a jury trial demand. In this case, the petitioner is the party who has filed the jury demand. The waiver principle developed in the case of Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989) in which it was stated that:
by submitting a claim against the bankruptcy estate, creditors subject themselves to the court's equitable power to disallow those claims, even though the debtor's opposing counterclaims are legal in nature and the Seventh Amendment would have entitled creditors to a jury trial had they not tendered claims against the estate.
The Court in Haile Company v. R.J. Reynolds Tobacco Company, 132 B.R. 979 (S.D.Ga. 1991) found that:
[t]he waiver principle logically extends to a debtor who, in addition to petitioning the court for protection under title 11, voluntarily brings an adversary proceeding seeking affirmative relief from the court.*** By voluntarily selecting the bankruptcy court rather than state court as the forum in which to assert its state-law cause of action, plaintiff consented to [the Bankruptcy] court's equitable jurisdiction and thereby waived its right to trial by jury.
Under the facts of this case, this Court finds that Dimitri voluntarily subjected herself to the jurisdiction of the bankruptcy court. This is not a situation where she was involuntarily joined as a party by another participant in the bankruptcy proceeding. As such, this Court finds that she effectively waived her right to a jury trial. However, even if this was not the case, based upon the other factors, as discussed above, this Court finds that a denial of the motion to withdraw the reference is appropriate.
Accordingly,
IT IS ORDERED that the Motion to Withdraw the Reference to the Bankruptcy Court, filed on behalf of the plaintiff, Josephine Dimitri, be and the same is hereby DENIED.
New Orleans, Louisiana, this 13th day of December, 2000.