Opinion
Case No. 2:06-cv-556, Adv. Proc. No. 05-2289.
March 6, 2007
ORDER
This matter is before the Court on the motion of Defendants Drydock Coal Company, Mark Oakley, Gregg Oakley, Timothy Oakley, John Oakley, and Margaret Galvin to withdraw the reference to the Bankruptcy Court. Defendants are seeking to withdraw an adversary proceeding filed by the trustee of the bankruptcy estate under the United States Bankruptcy Code for avoidance of a fraudulent conveyance.
For the reasons stated below, the motion to withdraw the reference is denied.
I. Background
In 1981, the Jack V. Oakley Trust purchased 337.5 shares of stock of the Drydock Coal Company. The only other shareholders of Drydock Coal stock were Defendants Mark Oakley, Gregg Oakley, Timothy Oakley, John Oakley, and Margaret Galvin. The stock purchase was accompanied by a written agreement that has since been lost. Drydock and "the shareholders cannot find that agreement, and they cannot precisely remember its exact terms."See Compl., Ex. B.
On April 14, 2000, Jack V. Oakley, both personally and as trustee of the Jack V. Oakley Trust, borrowed $1 million from the Citizens Bank of Logan, Ohio. To secure the $1 million loan, Jack V. Oakley granted Citizens Bank a security interest in the 337.5 shares of Drydock.
On April 10, 2003, Drydock and its shareholders, including the Jack V. Oakley Trust, executed a restatement of the lost stock purchase agreement. The Restatement purports to replicate the terms of the original agreement as closely as possible. Among its provisions, the Restatement prohibits a shareholder from transferring, assigning, or encumbering any shares of Drydock during his lifetime. See Restatement ¶¶ 1-2.
Two months later, Jack V. Oakley filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code on June 20, 2003. The bankruptcy court later converted it to a Chapter 7 proceeding.
On June 10, 2005, the trustee of the bankruptcy estate, along with Citizens Bank, filed an adversary proceeding against Drydock and its shareholders. In the complaint, Plaintiffs ask for declaratory judgment that the Restatement's purported restrictions on transfer are of no effect and do not replace the original stock purchase agreement. The complaint also asserts four claims under the Bankruptcy Code for avoidance of a fraudulent conveyance. See 11 U.S.C. § 544(b)(1), §§ 548(a)(1)(A) (B). The complaint alleges that the Bankruptcy Code prohibits Jack V. Oakley's attempt, two months before filing for bankruptcy, to enter into a contract that would render void the security interest granted to Citizens Bank three years earlier.
II. Discussion
Under 28 U.S.C. § 157(d), "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." While Congress did not define "cause," courts have identified a number of factors to consider when deciding whether cause exists: whether the claim or proceeding is core or non-core; judicial economy; promoting uniformity in the administration of bankruptcy law; the delay and costs to the parties; preventing forum shopping; and the presence of a jury demand. See In re Orion Pictures Corp., 4 F.3d 1095, 1101 (2d Cir. 1993); In re Parklane/Atlanta Joint Venture, 927 F.2d 532, 536 (11th Cir. 1991); In re Pruitt, 910 F.2d 1160, 1168 (3rd Cir. 1990); Holland America Ins. Co. v. Succession of Roy, 777 F.2d 992, 999 (5th Cir. 1985); CNH America, LLC v. Venture Indus. Corp., 344 B.R. 526, 528-29 (E.D. Mich. 2006); Holland v. LTV Steel Company, Inc., 288 B.R. 770, 774 (N.D. Ohio 2002).
The mandatory withdrawal provision of 28 U.S.C. § 157(d), which is triggered when the district court must consider federal law "regulating organizations and activities affecting interstate commerce," is not at issue here.
The party moving to withdraw has the burden of proving that the reference should be withdrawn. Holland, 288 B.R. at 773. Here, Defendants offer two reasons for why the reference in this case should be withdrawn. First, they argue that the predominant issues in this case are non-core questions of contract interpretation. Second, they argue that they are entitled to a jury trial. See 28 U.S.C. § 157(e) ("If the right to a jury trial applies in a proceeding that may be heard under this section by a bankruptcy judge, the bankruptcy judge may conduct the jury trial if specially designated to exercise such jurisdiction by the district court and with the express consent of all the parties.").
"A district court considering whether to withdraw the reference should first evaluate whether the claim is core or non-core, since it is upon this issue that questions of efficiency and uniformity will turn." Orion Pictures, 4 F.3d at 1101. The Court finds that, contrary to Defendants' argument, core issues predominate the case. Core proceedings include "proceedings to determine, avoid, or recover fraudulent conveyances." 28 U.S.C. § 157(b)(2)(H). The Trustee's complaint asserts causes of action under 11 U.S.C. § 544(b)(1) and §§ 548(a)(1)(A) (B) to avoid the Restatement's restrictions on transfer of the stock as a fraudulent conveyance. These claims squarely fit the definition of a core proceeding under § 157(b), and Defendants do not argue otherwise. Defendants contend that the issue of contract interpretation posed by the complaint predominates the case. This is an exaggeration. It is true that the complaint seeks declaratory relief that the Restatement's terms are unenforceable, but fundamentally the case is about who gets property (the shares of Drydock stock) that is part of the Debtor's estate. This issue will be governed by the Bankruptcy Code. The bankruptcy court is certainly capable of resolving the contract issue presented by the complaint.
That the adversary proceeding is predominantly core favors denying the motion to withdraw. See In re Conseco Finance Corp., 324 B.R. 50, 53 (N.D. Ill. 2005) ("[T]he fact that the Adversary Proceeding is a core proceeding cuts strongly against permissive withdrawal."); Valley Forge Plaza Associates v. Fireman's Fund Ins. Companies, 107 B.R. 514, 516 (E.D. Pa. 1989) ("The reference is much more likely to be withdrawn if the proceeding is characterized as non-core."); see also In re Burger Boys, Inc., 94 F.3d 755, 762 (2d Cir. 1996); In re U.S. Airways Group, Inc., 296 B.R. 673, 682 n. 21 (E.D. Va. 2003). "[H]earing core matters in a district court [is] an inefficient allocation of judicial resources given that the bankruptcy court generally will be more familiar with the facts and issues." Orion Pictures, 4 F.3d at 1101. Here, the bankruptcy court has handled all proceedings related to the Debtor's bankruptcy since 2003. See Conseco, 324 B.R. at 54 ("[B]ankruptcy courts can adjudicate core matters to final binding judgment and [core matters] often involve facts with which the bankruptcy court is already familiar as well as legal issues within the bankruptcy court's expertise.").
Turning to the Defendants' other argument, even assuming they have a right to a jury trial, "the appropriateness of removal of the case to a district court for trial by jury, on asserted Seventh Amendment grounds, will become a question ripe for determination if and when the case becomes trial ready." In re Adelphi Institute, Inc., 112 B.R. 534, 538 (S.D.N.Y. 1990). Many courts have held that the assertion of a right to a jury trial is not sufficient cause for permissive withdrawal when, as here, the motion is made early in the case and dispositive motions may resolve the matter. See, e.g., Spaeth v. Heckenkamp, No. 3:07-mc-02, 2007 WL 188570, at *1 (S.D. Ohio Jan. 22, 2007); Venture Holdings Co., LLC v. Millard Design Australia Pty., Ltd., No. Civ. 05-73621, 2006 WL 800806, at *1 (E.D. Mich. March 6, 2006); Shubert v. Julius Kraft Co., 321 B.R. 761, 764 (D. Del. 2005); In re Enron Corp., 317 B.R. 232 (S.D.N.Y. 2004). "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 governing the relationship between the district courts and bankruptcy courts." In re Kenai Corp., 136 B.R. 59, 61 (S.D.N.Y. 1992). The Court finds that judicial economy will be served by keeping the matter in the bankruptcy court for the resolution of pre-trial matters, even if the action is ultimately transferred to the district court for jury trial.
III. Conclusion
Accordingly, the Defendants' motion to withdraw the reference (doc. 1) is DENIED.