Opinion
For Arturo M Cisneros, as Chapter 7 Trustee for the Estate of Debtor Park Wholesale Electric Inc, Plaintiff: Pamela Jean Scholefield, LEAD ATTORNEY, Scholefield PC, San Diego, CA.
For Jerome Bown, an individual and Trustee of the Bown Family Trust, an intervivos trust, also known as Skip Bown, Rosemary Bown, an individual and Trustee of the Bown Family Trust, an intervivos trust, Alicia Nash, an individual, Defendants: Tumy Nhi Nguyen, LEAD ATTORNEY, M Candice Bryner, M Candice Bryner Law Offices, Irvine, CA.
For Pacific Utility Products Inc, a California corporation, Myers Power Products Inc, a Delaware corporation, Defendants: Franklin C Adams, Thomas J Eastmond, LEAD ATTORNEYS, Best Best & Krieger, Riverside, CA.
For Myers Power Products Inc, a Delaware corporation, Cross Claimant: Franklin C Adams, Thomas J Eastmond, LEAD ATTORNEYS, Best Best & Krieger, Riverside, CA.
For Jerome Bown, an individual and Trustee of the Bown Family Trust, an intervivos trust, also known as Skip Bown, Alicia Nash, an individual, Rosemary Bown, Cross Defendants: Tumy Nhi Nguyen, LEAD ATTORNEY, M Candice Bryner, M Candice Bryner Law Offices, Irvine, CA.
PROCEEDINGS: (IN CHAMBERS) ORDER RE: MOTION TO WITHDRAW REFERENCE
Fernando M. Olguin, United States District Judge.
Having reviewed and considered all the briefing filed with respect to the Motion to Withdraw Reference to Adversary Proceeding (" Motion, " Dkt. No. 1), the court concludes that oral argument is not necessary to resolve the Motion. See Fed.R.Civ.P. 78; Local Rule 7-15; Willis v. Pac. Mar. Ass'n, 244 F.3d 675, 684 n. 2 (9th Cir. 2001).
INTRODUCTION
On March 8, 2013, Park Wholesale Electric, Inc. (" debtor") filed for Chapter 7 bankruptcy in the Bankruptcy Court for the Central District of California, Case No. BK 13-14146 SC. (See Motion at 1). Jerome Bown, Rosemary Bown, and Alicia Nash, f.k.a. Alicia Bown (collectively, the " Bowns") are " sole shareholders and directors[, ]" and " former officers" of debtor, which is characterized as a " family-owned business." (See id.; Scholefield Declaration in Support of Opposition of Plaintiff, Arturo M. Cisneros, as Chapter 7 Trustee, to Motion to Withdraw Reference (" Scholefield Decl., " Dkt. No. 11) at P 4).
On March 4, 2015, the Chapter 7 trustee (" trustee") filed a complaint against the Bowns, Case No. AP 15-1069 (" adversary proceeding"), asserting claims for (1) avoidance and recovery of fraudulent transfers, 11 U.S.C. § § 544, 548(a)(1)(A), 550 & 551; Cal. Civ. Code § § 3439, et seq. (see Motion, Exhibit D (" Adversary Complaint") at PP 37-48); (2) substantive consolidation, 11 U.S.C. § 105(a) (see id. at ¶ ¶ 49-54); (3) conversion (see id. at ¶ ¶ 55-58); (4) breach of fiduciary duty (see id. at ¶ ¶ 59-65); (5) breach of contract (see id. at ¶ ¶ 66-67); (6) avoidance of preferential transfers, 11 U.S.C. § 547 (see id. at ¶ ¶ 68-76); and (7) recovery of unauthorized distributions to shareholders. (See id. at ¶ ¶ 77-81).
In their Motion, the Bowns seek the district court's withdrawal of the reference to the adversary proceeding on the ground that they have " demanded a jury trial and do not consent to a jury trial before the Bankruptcy Court." (Motion at 1). Because of their demand for a jury trial, the Bowns contend that having all pre-trial and trial proceedings before the district court " would promote judicial economy." (Id.). The trustee filed an opposition, and the Bowns filed a reply. (See Opposition of Plaintiff, Arturo M. Cisneros, as Chapter 7 Trustee, to Motion to Withdraw Reference (" Opp'n, " Dkt. No. 10); [Defendants'] Reply in Support of Motion to Withdraw Reference to Adversary Proceeding (" Reply, " Dkt. No. 15)).
LEGAL STANDARD
The district court may broadly refer matters to the bankruptcy court, including " any or all cases under title 11[, ]" " any or all proceedings arising under title 11 or arising in or related to a case under title 11[.]" 28 U.S.C. § 157(a). The bankruptcy court's jurisdiction to enter orders and judgments depends on whether the referenced matters are " core" or " non-core" to the bankruptcy. A non-exhaustive list of " core proceedings" are enumerated in 28 U.S.C. § 157(b)(2). A bankruptcy judge may " hear and determine" core proceedings, and subject to district court review, " enter appropriate orders and judgments[.]" 28 U.S.C. § 157(b)(1).
" Non-core proceedings" are those which " do not depend on bankruptcy law for their existence and that could proceed in another court[.]" Security Farms v. Int'l Bhd. of Teamsters, Chauffeurs, Warehousemen & Helpers, 124 F.3d 999, 1008 (9th Cir. 1997). A " bankruptcy judge may hear a [non-core] proceeding" and " submit proposed findings of fact and conclusions of law to the district court[.]" 28 U.S.C. § 157(c)(1). " [A]ny final order or judgment shall be entered by the district judge after considering the bankruptcy judge's proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected." Id.
A district court may also, if it chooses, withdraw some or all of its reference of matters to the bankruptcy court. See 28 U.S.C. § 157(d); Fed. R. Bankr. Proc. 5011(a) (" A motion for withdrawal of a case or proceeding shall be heard by a district judge."). The court's authority for permissive withdrawal is governed by the first sentence of 28 U.S.C. § 157(d), see Security Farms, 124 F.3d at 1008, which provides " [t]he 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." 28 U.S.C. § 157(d).
" In determining whether cause exists, a district court should consider the efficient use of judicial resources, delay and costs to the parties, uniformity of bankruptcy administration, the prevention of forum shopping, and other related factors." Security Farms, 124 F.3d at 1008. The burden of persuasion is on the party seeking withdrawal, which in this case would be the Bowns. See FTC v. First Alliance Mortg. Co. (In re First Alliance Mortg. Co.), 282 B.R. 894, 902 (C.D. Cal. 2001).
DISCUSSION
I. EFFICIENT USE OF JUDICIAL RESOURCES AND DELAY AND COSTS TO PARTIES.
The Bowns contend that the existence of at least some non-core claims leads to inefficient use of judicial resources and concomitant delay and costs to the parties. (See Motion at 7-8; Reply at 2 & 6) (the " compulsory duplication of judicial effort, " in which the Bankruptcy Court and District Court " each apply[] the same de novo standard is inefficient."). The court is not persuaded.
Fundamentally, the Bowns' argument is based on the faulty premise that they or the trustee will object to each and every proposed finding and conclusion submitted by the bankruptcy judge to the district court. See 28 U.S.C. § 157(c)(1) (" any final order or judgment shall be entered by the district judge after considering the bankruptcy judge's proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected."). Such " compulsory duplication of judicial effort, " which would effectively result in the simultaneous adjudication of one matter by two courts, does not normally occur.
Rather, the adversary proceeding has progressed before the bankruptcy court, and the bankruptcy court is more familiar with the facts of the Adversary Complaint, than is the district court. If the district court withdrew the reference, it would expend substantial resources catching up to the bankruptcy court judge, resulting in the inefficient use of judicial resources as well as concomitant delay and cost to the parties. In the four months since the adversary proceeding has been before the bankruptcy court, the Bowns answered the Adversary Complaint, the parties conducted a meet and confer in accordance with Rule 26 of the Federal Rules of Civil Procedure, submitted a joint status report to the bankruptcy court, and the bankruptcy court accordingly set discovery deadlines and set a trial date. (See Scholefield Decl. at ¶ 7; Motion at 1; Reply at 5). Significantly, the bankruptcy court also reviewed briefing (including the Bowns' opposition), heard oral argument, and made a ruling on trustee's motion for preliminary injunction regarding the Adversary Complaint. (See Scholefield Decl. at ¶ 8; Reply at 4).
In addition, the debtor's Chapter 7 bankruptcy has been proceeding since March 2013. (See Motion at 1). Over that two-year period, the Bowns, who are insiders to the family-owned debtor, ( see id.; Scholefield Decl. at ¶ 4) (the Bowns are " sole shareholders and directors[, ]" and " former officers" of family-owned debtor), submitted to depositions and produced documents regarding the debtor's affairs. (See Scholefield Decl. at ¶ 5). The bankruptcy court's familiarity with the Chapter 7 bankruptcy, which inevitably will investigate the accounting between the debtor and its insiders, must have informed the bankruptcy court about the allegations in the Adversary Complaint, which allege claims of fraudulent conveyance, conversion, avoidance of preferential transfers, and unauthorized distributions between the debtor, on one hand, and the Bowns, on the other.
II. UNIFORMITY IN BANKRUPTCY ADMINISTRATION.
The Bowns next contend that because they demanded a jury trial, immediate withdrawal is warranted. (See Motion at 8-10; Reply at 1). The Bowns's contention is unpersuasive.
In In re Healthcentral.com, 504 F.3d 775 (9th Cir. 2007), a licensee of the debtor argued that the bankruptcy court did not have jurisdiction of the adversary proceeding against it because " once a jury right is found, the bankruptcy court may no longer maintain jurisdiction and the action must be instantly transferred to an Article III court." 504 F.3d at 786 (internal quotation marks omitted). Reviewing the case law of other courts, the Ninth Circuit disagreed with the licensee's contention. See id. at 787. Rather, the Ninth Circuit held, " a Seventh Amendment jury trial right does not mean the bankruptcy court must instantly give up jurisdiction and that the case must be transferred to the district court." Id. at 787-88. " Instead, the bankruptcy court is permitted to retain jurisdiction over the action for pre-trial matters." Id. " [T]wo rationales justify this holding." Id. at 787. First, a bankruptcy court's management of discovery, pre-trial conferences, and routine motions, do not diminish a party's right to a jury trial. See id. Second, immediately transferring a matter to district court because of a jury trial right " would run counter to our bankruptcy system, " which " has empowered the bankruptcy courts to hear Title 11 actions, and in most cases enter relevant orders[, ]" given " the bankruptcy court's unique knowledge of Title 11 and familiarity with the actions before them." Id. at 787-88 (internal quotation marks omitted). " [I]mmediate transfer to district court simply because there is a jury trial right . . . would effectively subvert this system." Id. at 788 (emphasis in original).
Here, contrary to what the Bowns contend, an immediate withdrawal is not warranted. The bankruptcy court's retention of the adversary proceeding for pre-trial matters does not impinge their right to a jury trial. Indeed, a rule requiring immediate withdrawal once a party asserts a jury trial right would undermine uniformity in the administration of the bankruptcy court system.
III. PREVENTION OF FORUM SHOPPING.
The Bowns contend that forum shopping is not an issue because the bankruptcy court has not made any substantive rulings on the adversary proceeding. (See Motion at 10). The court is skeptical.
The Bowns are insiders. (See Motion at 1; Scholefield Decl. at ¶ 4) (the Bowns are " sole shareholders and directors[, ]" and " former officers" of family-owned debtor). They are not creditors of the debtor and have not filed any proof of claim. (See Motion at 1). Should the debtor succeed on any of the claims alleged in the Adversary Complaint, then money will leave the Bowns' pockets, go into the debtor's estate, and will be distributed to the creditors (and none of the Bowns are creditors). Because of the insiders' knowledge of the debtor's finances in connection with the Chapter 7 bankruptcy, and because of the antagonistic nature of the debtor's adversary proceeding against its insiders, there is a possibility that the insiders are seeking to withdraw the reference so that the Bowns may, in the future, leverage the Chapter 7 bankruptcy, taking place in one forum, against the adversary proceeding, taking place in another forum. By having all proceedings before the same bankruptcy court, that possibility is reduced.
CONCLUSION
This Order is not intended for publication. Nor is it intended to be included in or submitted to any online service such as Westlaw or Lexis.
Based on the foregoing, IT IS ORDERED THAT the Bowns' Motion to Withdraw Reference to Adversary Proceeding (Document No. 1) is denied. The action is dismissed without prejudice.