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remarking that there must be a significant interpretation of non-bankruptcy federal issues
Summary of this case from Case Energy Servs., LLC v. Padco Energy Servs., LLCOpinion
No. 00-579
May 30, 2000
ORDER AND REASONS
Before the Court is Roman Holding Corporation of Indiana's Motion for Withdrawal of Reference. For the following reasons, Roman's Motion is DENIED.
A. BACKGROUND
This matter arises out of the bankruptcy of Service Maxine Industries, Inc. ("Service Marine"). The trustee of Service Marine's bankruptcy estate initiated an adversary proceeding against several of Service Marine's creditors. One of those creditors, Roman Holding Corporation of Indiana ("Roman"), now moves for withdrawal of reference of the adversary proceeding. The trustee and two creditors, Jamestown Metal Marine Sales, Inc. ("Jamestown") and Specialized Services of Louisiana, Inc. ("SSL"), have filed formal opposition to Roman's motion. Service Marine contracted to build a gaming vessel for Roman. Under the terms of the contract, Service Marine was to build the vessel at its facility in Louisiana. Initial construction took place in Louisiana, but the vessel was moved to Indiana before it was completed. Once launched, the vessel was named the GLORY OF ROME.
After the GLORY OF ROME's move to Indiana, Service Marine entered bankruptcy. Several creditors, including Roman and several subcontractors, such as Jamestown, which had performed work on the GLORY OF ROME, filed proofs of claim in the bankruptcy proceeding. In addition to these claims, the creditors asserted state law liens against the GLORY OF ROME. Worried about the possibility of double recovery, Service Marine's trustee filed the adversary proceeding at issue, requesting that the bankruptcy court disallow the creditors' bankruptcy claims and determine the validity of the liens. The trustee also asserted counterclaims against Roman. Roman now moves for mandatory or permissive withdrawal of the adversary proceeding, which the trustee, Jamestown and SSL oppose.
B. LAW AND ANALYSIS
Federal district courts have original and exclusive jurisdiction of all bankruptcy cases under title 11 and original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11. See 28 U.S.C. § 1334(a)-(b). In this district, all such cases are automatically referred to the bankruptcy judges. See Local Civ. R. 83.4. This practice is authorized by 28 U.S.C. § 157, which permits referral and empowers bankruptcy judges to "hear and determine all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11," and to hear non-core proceedings that are "otherwise related to a case under title 11." 28 U.S.C. § 157(a), (b)(1) and (c)(1).
In a non-core proceeding, the bankruptcy judge does not have the power to "determine" the case. Instead, the bankruptcy judge must submit proposed findings of fact and conclusions of law to the district court, and any final order or judgment must 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. See 28 U.S.C. § 157(c)(1).
Not all cases referred to the bankruptcy judges remain in bankruptcy court, however. Under certain circumstances, a district court may withdraw reference of a proceeding. These circumstances are set forth in 28 U.S.C. § 157(d), which 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.
Thus, § 157(d) provides for both mandatory and permissive withdrawal. In the instant motion, Roman moves for both.
1. Mandatory Withdrawal
Pursuant to the second sentence of § 157(d), withdrawal of reference is mandatory upon timely motion of a party when 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." Considerable debate has arisen over the meaning and purpose of this proviso, and courts have been called upon repeatedly to interpret its vague terms. See In re Vicars Ins. Agency. Inc., 96 F.3d 949, 952 (7th Cir. 1996) ("[T]he . . . mandatory withdrawal provision . . . has spawned several cases and generated a variety of readings", which is "perhaps not surprising considering its several ambiguous phrases, which combine lower court discretion with flexible terms such as `resolution,' `consideration,' and `affecting.'"). Courts in this district have developed the following test for mandatory withdrawal: a court must withdraw reference when (1) the proceeding in the bankruptcy court involves a substantial and material question of both title 11 and non-Bankruptcy Code federal law, (2) the non-Bankruptcy Code federal law has more than a de minimis effect on interstate commerce, and (3) the motion for withdrawal was timely filed. See Lifemark Hosps. of Louisiana. Inc. v. Liljeberg Enters. (In re Lilieberg Enters., Inc.), 161 B.R. 21, 24 (E.D. La. 1993). In addition, consideration of the non-bankruptcy federal issues must require "significant interpretation," not mere application, of federal law. Id. See also In re Vicars, 96 F.3d 949 at 954; United States Gypsum Co. v. National Gypsum Co. (In re National Gypsum Co.), 145 B.R. 539, 541 (N.D. Tex. 1992); Sibarium v. NCNB Texas Nat'l Bank, 107 B.R. 108, 111 (N.D. Tex. 1989); In re Johns-Manville Corp., 63 B.R. 600, 602 (S.D.N.Y. 1986).
Here, Roman contends that two "other federal statutes," the Federal Arbitration Act and the Commercial Instruments and Maritime Liens Act, "will play a key role in the determination of this adversary proceeding." Roman fails, however, to demonstrate that the bankruptcy judge will be required to significantly interpret these acts. Quite to the contrary, Roman's arguments support the opposite conclusion, i.e. that the bankruptcy judge will be required to merely apply these statutes. For example, Roman correctly notes that the "United States Court of Appeals for the Fifth Circuit . . . set forth the principles that govern whether, and to what extent, arbitration clauses are enforceable in bankruptcy . . . [in] Insurance Co. of North America v. NGC Settlement Trust (In re National Gypsum Co.), 118 F.3d 1056 (5th Cir. 1997)." Thus, all that is left for bankruptcy judges to do when confronted with an arbitration clause is to apply those principles. Far from being "a paradigmatic instance of a Court interpreting and construing a federal statute", this exercise will involve the "mere application of existing law to new facts," In re Vicars, 96 F.3d 949 at 954, and. there is no reason to believe that a bankruptcy judge would fail in such an endeavor.
9 U.S.C. § 1 et seq.
46 U.S.C. § 31301 et seq.
Roman's Memorandum in Support p. 4.
Roman's Memorandum in Support p. 5.
Roman's Reply Memorandum p. 3.
Indeed, the Fifth Circuit's opinion in Insurance Co. of North America implies just such a trust in the bankruptcy judge's ability to correctly apply the law. In that case, the bankruptcy judge denied a motion to stay an adversary proceeding in favor of arbitration. In affirming the decision, the Fifth Circuit expressly held that a bankruptcy court has discretion to deny a stay of arbitration as long as it finds that the proper standard has been met. See 118 F.3d at 1067.
Similarly, Roman has failed to persuade the Court that the bankruptcy judge will be required to "significantly interpret" the Commercial Instruments and Maritime Liens Act. The Court agrees with Roman's opponents that, although an issue under the Commercial Instruments and Maritime Liens Act might arise in the adversary proceeding, Roman "has failed to identify any issue that will require analysis of a significant unresolved issue of law under that statute." Mere speculation that such an issue will arise does not mandate withdrawal. See In re Vicars, 96 F.3d at 954 ("conjectural concern by itself . . . does not necessarily trigger `substantial and material consideration' of a non-title 11 statute"); Lifemark Hosps., 161 B.R. at 24 ("Where application of non-bankruptcy federal law is merely speculative, mandatory withdrawal is not necessary.").
Jamestown's Opposition Memorandum p. 6.
In sum, the Court finds that Roman has failed to demonstrate that the bankruptcy judge will be required to significantly interpret the Federal Arbitration Act and the Commercial Instruments and Maritime Liens Act in the adversary proceeding. Therefore, the Court finds mandatory withdrawal unwarranted.
The parties have not addressed whether either of the statutes at issue has more than a de minimis effect on interstate commerce or whether Roman's motion for withdrawal was timely filed. The Court does not reach these issues.
2. Permissive Withdrawal
The Court's decision against mandatory withdrawal does not resolve the issue entirely, however, as § 157(d) also provides for permissive withdrawal. Pursuant to the first sentence of 28 U.S.C. § 157(d), a district court may withdraw reference for "cause" shown. See In re Vicars, 96 F.3d at 954. To guide district court discretion under this provision, the Fifth Circuit has set forth several factors to consider in determining whether "cause" exists to withdraw reference: (1) whether the proceeding involves "core" bankruptcy matters; (2) considerations of judicial economy; (3) promoting uniformity in bankruptcy administration; (4) reducing forum shopping and confusion; (5) fostering the economical use of the debtors' and creditors' resources; (6) expediting the bankruptcy process; and (7) whether there has been a jury demand. See Holland Am. Ins. Co. v. Succession of Roy, 777 F.2d 992, 998-99 (5th Cir. 1985).Seemingly as an afterthought, Roman has moved for permissive withdrawal, arguing that the "issues at hand in this adversary proceeding have essentially nothing to do with the Bankruptcy Code or bankruptcy law", but instead turn on contract and other non-bankruptcy law. Therefore, Roman argues, "[i]t would be a more efficient use of judicial resources for all these claims to be heard in the district court."
Roman's Memorandum in Support p. 7. Roman fails to cite the standard for cause set forth in Holland Am. Ins. Co. or any other relevant case law.
Id.
The Court disagrees with Roman's position. As noted above, the trustee has asked the bankruptcy judge to disallow proofs of claim, determine the validity of several liens, and resolve counterclaims filed on behalf of the estate against Roman, all of which are core proceedings. See 28 U.S.C. § 157(b)(2)(B), (C) and (K). This fact militates against withdrawal, and Roman has failed to show that any of the other factors support withdrawal. Indeed, contrary to Roman's principal argument, given the number of issues raised in the adversary proceeding, their relation to core bankruptcy proceedings, and the fact that the trustee has already initiated the adversary proceeding in bankruptcy court, it would seem quite inefficient to litigate these claims in district court. Therefore, the Court finds permissive withdrawal unwarranted.
C. CONCLUSION
The Court finds withdrawal of reference of the adversary proceeding unwarranted. First, the Court finds mandatory withdrawal unwarranted because the bankruptcy court will not be required to significantly interpret non-bankruptcy federal law; the evidence before the Court suggests that the bankruptcy court will need merely to apply the Federal Arbitration Act and the Commercial Instruments and Maritime Liens Act. Second, the Court finds permissive withdrawal unwarranted because the adversary proceeding involves core proceedings and no other factor supports withdrawal.
Accordingly,
IT IS ORDERED that Roman Holding Corporation of Indiana's Motion for Withdrawal of Reference is DENIED.