Opinion
02 Civ. 0711 (LAK), Chapter 11 Case Nos. 99B 45399 (BRL) through 99B 45401 (BRL), (Jointly administered), Adv. Proc. No. 01-03571
February 25, 2001
ORDER
This matter is before the Court on the motion of defendant Bankers Trust Company ("Bankers"), pursuant to 28 U.S.C. § 157, to withdraw the reference to the Bankruptcy Court of this adversary proceeding.
The plaintiff in this matter is an entity formed under the plan of liquidation of Semi-Tech Group. It is the assignee of certain claims of former holders of Senior Secured Discount Notes (the "Notes") of Semi-Tech ("Noteholders") and other unsecured creditors as well as of claims of the debtors and the bankrupt estates. The complaint in the adversary proceeding asserts a claim as assignee of the Noteholders against Bankers for alleged breach of its duties as trustee under the indenture for the Notes. It asserts a second as assignee of the debtors and the estates against the former directors for, among other things, breach of fiduciary duty.
The standards governing withdrawal of the reference are well established. Insofar as is relevant here, withdrawal of the reference is mandatory under 28 U.S.C. § 157(d) for "cases or issues that would otherwise require a bankruptcy court judge to engage in significant interpretation, as opposed to simple application, of federal laws apart from the bankruptcy statutes." City of New York v. Exxon Corp., 932 F.2d 1020, 1026 (2d Cir. 1991). Even where withdrawal is not mandatory, the district court may withdraw the reference as a matter of discretion upon consideration of the so-called Orion factors. See generally Orion Pictures Corp. v. Showtime Networks, 4 F.3d 1095, 1101 (2d Cir. 1993); see also South Street Seaport Ltd. Partnership v. Burger Boys, Inc., 94 F.3d 755, 762 (2d Cir. 1996).
Here, the Court is inclined to the view that resolution of the claims against Bankers would require significant interpretation of the Trust Indenture Act, 15 U.S.C. § 77aaa et seq. But that question need not now be resolved in light of the Court's conclusion that withdrawal of the reference would be warranted in any case as a matter of discretion.
To begin with, the plaintiff's claims are not core proceedings. A proceeding is core only if it invokes a substantive right under the Bankruptcy Code or is the type of proceeding that could arise only in the context of a bankruptcy case. 1800Postcards, Inc. v. Morel, 153 F. Supp.2d 359, 366 (S.D.N.Y. 2001); In re Green, 200 B.R. 296, 298 (S.D.N.Y. 1996); Houbigant v. ACB Mercantile, Inc., 185 B.R. 680, 685 (S.D.N.Y. 1995). Here, the plaintiff's claims all are pre-petition claims of alleged breaches of contract, fiduciary duty, and the Trust Indenture Act. They could have been brought outside the Bankruptcy Court and involve no questions under the Code. The debtors have no interest in any recovery in this action. The facts that (i) these claims have been assigned to an entity created under a plan of liquidation and (ii) the Bankruptcy Court, notwithstanding the consummation of the plan, purportedly reserved jurisdiction over adversary proceedings brought by that entity are immaterial.
Judicial economy would be served better withdrawing the reference as not. While the Bankruptcy Judge no doubt is familiar with the bankruptcy case, there is no reason to suppose that he has any advantage over this Court in respect of the claims asserted here against Bankers. In view of the conclusion that the matter is non-core, moreover, the Bankruptcy Court's rulings would be subject to review in this Court whereas hearing the matter here in the first instance would avoid those duplicative proceedings.
Nor is there any basis for characterizing Bankers' motion here as forum shopping. The fact that Bankers filed a proof of claim against the estates in the Bankruptcy Court does not undermine such rights as it may have to seek a district court forum for a claim against it which, for all practical purposes, is a claim by the Noteholders, not the estates.
Finally, Bankers has claimed a jury trial. Its submission of the proof of claim with respect to its right to indemnification under the note indenture, since disposed of, did not waive its right to a jury, such as it may be, on the Noteholders' claim against it for breach of contract, breach of trust, and breach of its duties under the Trust Indenture Act. See, e.g., Germain v. Connecticut National Bank, 988 F.2d 1323, 1329-30 (2d Cir. 1993). Leaving the matter in the Bankruptcy Court, in view of the conclusion that this is a non-core matter, would deprive Bankers of its Seventh Amendment right to a jury. See, e.g., 1800Postcards, Inc., 153 F. Supp.2d at 367. Further, the plaintiff's suggestion that pretrial proceedings be left in the Bankruptcy Court with the reference withdrawn only for the purpose of trial would create the worst of both worlds by ensuring that all pretrial rulings of any substance would be considered in both courts — the Bankruptcy Court in the first instance and this Court on appeal.
Having weighed all of the Orion factors, discretionary withdrawal of the reference is appropriate. Accordingly, the motion is granted insofar as the reference is withdrawn with respect to so much of the adversary proceeding as involves plaintiff's claim against and any counterclaim and cross-claim as might be asserted by or against Bankers.
SO ORDERED.