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Schott v. C-Squared Managment, LLC

United States District Court, M.D. Louisiana

November 13, 2019

MARTIN A. SCHOTT, TRUSTEE
v.
C-SQUARED MANAGEMENT, LLC

          RULING AND ORDER

          JOHN W. deGRAVELLES UNITED STATES DISTRICT JUDGE

         This matter comes before the Court on Defendant C-Squared's Motion to Withdraw the Reference Pursuant to 28 U.S.C. § 157(d) (“Motion”) filed by Defendant C-Squared Management, LLC (“C-Squared” or “Defendant”). (Motion, Doc. 1)[1] Plaintiff, Martin A. Schott (“Trustee” or “Plaintiff”) opposes the motion. (Doc. 2.) No reply was filed. Oral argument is not necessary. The Court has carefully considered the law, facts in the record, and arguments and submissions of the parties and is prepared to rule. For the following reasons, Defendant's motion is denied.

         RELEVANT FACTUAL BACKGROUND

         InforMD, LLC, (“Debtor”) was a Louisiana limited liability company, domiciled in East Baton Rouge Parish, and filed for Chapter 7 bankruptcy in June of 2017. (Omnibus Opposition, Doc. 25 in Adv. Pro. No. 19-01019 at 1.) C-Squared filed two proofs of claim against the Debtor on April 26, 2018, requesting compensation for indemnity owed under Debtor's Operating Agreement and the return of capital contribution. (Doc. 2-1.) Thereafter, Trustee filed an adversary proceeding against C-Squared, requesting a money judgment be awarded to Trustee to satisfy the amount alleged to have been fraudulently transferred to Defendant. (Adversary Complaint, Doc 1 in Adv. Pro. No. 19-01019 at 5.) These distributions amounted to $445, 899.00 in 2015 and $18, 712.00 in 2016. (Adversary Complaint, Doc. 1 in Adv. Pro. No. 19-01019, at 2-4.)

         In response, Defendant simultaneously filed Motion for Jury Trial, the Motion for Withdrawal of Reference, and a Motion to Dismiss Adversary Proceeding. (Motion for Jury Trial, Doc. 9 in Adv. Pro. No. 19-01019); (Motion for Withdrawal of Reference, Doc. 11 in Adv. Pro. No. 19-01019); (Motion to Dismiss Adversary Proceeding, Doc 13 in Adv. Pro. No. 19-01019.) On August 22, 2019, the Motion was transmitted to this Court. (Motion to Withdraw Reference, Doc. 1.) On September 17, 2019, Trustee filed a Memorandum in Opposition to Motion to Withdraw Reference (“Response”). (Response, Doc. 2.)

         DISCUSSION

         The parties dispute centers on whether cause exists for the Court to permissively withdraw the reference under 28 U.S.C. § 157(d).[2] Defendant argues that cause exists to withdraw the reference because: (1) it has made a jury demand; (2) it has the right to a jury trial on these issues; (3) it has not consented to a jury trial in bankruptcy court; (4) the Court is familiar with the facts at issue in the case because a related adversary proceeding was withdrawn and is pending before the Court in Case No. 18-759. (Motion, Doc. 1 at 3-5.) Trustee responds that cause does not exist because: (1) the adversary proceeding is a core proceeding; (2) Defendant filed a claim in the bankruptcy case, thereby submitting the equitable jurisdiction of the bankruptcy court and thus waived its claim to a jury trial; (3) the bankruptcy court is familiar with the law and facts of the case, having presided over the bankruptcy case and the numerous associated adversary proceedings. (Response, Doc. 2 at 3-5.)

         A. Applicable legal standard for a motion to withdraw reference

         District courts “have original but not exclusive jurisdiction of all civil proceedings arising under Title 11, or arising in or related to cases under Title 11.” 28 U.S.C. § 1334(b). A district court may refer any or all proceedings arising under Title 11 or arising in or related to a case under Title 11 to the bankruptcy judges for the district. 28 U.S.C. § 157(a). In the Middle District of Louisiana, under Local Civil Rule 83(d)(1), the District court “under the authority of 28 U.S.C. § 157. . . refers to the Bankruptcy Judges of this District all cases under Title 11 and all proceedings arising under Title 11 or arising in or related to a case under Title 11.” However, upon timely motion of any party, the district court can withdraw the reference if that party can show cause for withdrawal. 28 U.S.C. § 157(d).

         Ultimately, the decision to withdraw the reference from the bankruptcy court is “left to the discretion of the district court.” In re Mirant Corp., 197 Fed.Appx. 285, 294 (5th Cir. 2006). 28 U.S.C. § 157(d) provides two methods of withdrawal of the reference: permissive (or discretionary) and mandatory. It 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.

28 U.S.C. § 157(d). Since neither party has alleged this proceeding falls under mandatory withdrawal, a discussion of such is unnecessary. As will be discussed below, there is one main issue, whether under permissive withdrawal, cause exists to withdraw the reference.

         In Holland Am. Ins. Co v. Succession of Roy, the Fifth Circuit set out factors for the Court to consider when determining if cause exists to permissively withdraw the reference under 28 U.S.C. § 157(d). The Holland factors are:

(1) whether the nature of the proceedings are core or non-core; (2) whether withdrawal promotes the economical use of the parties' resources; (3) whether withdrawal will promote uniformity in bankruptcy administration; (4) whether withdrawal motivates forum-shopping; (5) whether withdrawal will expedite the bankruptcy process; and (6) whether a party has demanded a jury trial.

NRG New Roads Holdings LLC v. Horton, No. CV 15-421-JJB-RLB, 2015 WL 6167817, at *4 (M.D. La. Oct. 21, 2015) (citing, Holland Am. Ins. Co. v. Succession of Roy, 777 F.2d 992, 999 (5th Cir. 1985)). The initial consideration before the district court should be whether the lawsuit is a “core” proceeding that bankruptcy court has the jurisdiction to resolve. Executive Benefits Ins. Agency, 573 U.S. 25. “Withdrawal of reference, however, is intended to apply only to a limited class of proceedings and is not intended to be an ‘escape hatch through which most bankruptcy matters [could] be removed to a district court.'” Lifemark Hosps. of Louisiana, Inc. v. Liljeberg Enterprises, Inc., 161 B.R. 21, 24 (E.D. La. 1993) (citing, In re National Gypsum Co., 145 B.R. 539, 541 (N.D. Tex. 1989)).

         B. The Motion seeks to withdraw a “core” proceeding

         1. Parties& ...


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