United States District Court, D. Nevada
IN RE JOHN DAVIS TRUCKING COMPANY, INC., Debtor.
SUSAN DAVIS et al., Defendants. STEPHEN R. HARRIS, Plaintiff,
C. JONES United States District Judge.
an adversary proceeding, (see Adv. No.
16-ap-05033-BTB), arising out of Plaintiffs Chapter 11
bankruptcy case, (see In re John Davis Trucking
Company, Inc., No. 14-bk-51643-BTB). Defendants Susan Davis,
Hanica Insurance Agency, Inc., and Transwestem General
Agency, Inc. (hereinafter collectively
"Defendants") have asked the Court to withdraw the
reference of the adversary proceeding. (Mot. Withdraw
Reference, ECF No. 2.) For the reasons given herein, the
Court denies the motion.
Supreme Court long ago ruled that a judge not afforded the
protections of life tenure and irreducible salary given to
judges under Article HI of the Constitution, such as a
bankruptcy judge, cannot enter final judgments on matters
traditionally decided by Article III judges. See
Dunmore v. United States, 358 F.3d 1107, 1114 (9th
Cir. 2004) (citing N. Pipeline Constr. Co. v. Marathon
Pipe Line Co., 458 U.S. 50 (1982)). Congress amended the
Bankruptcy Code to conform to this ruling, distinguishing
"core" bankruptcy proceedings from
"non-core" proceedings. Id. Congress has
enumerated what it considers to be core proceedings, see
id. (citing 11 U.S.C. § 157(b)(2)), but it has not
enumerated non-core proceedings, see Id. Rather,
non-core proceedings are broadly defined as those that
"do not depend on the Bankruptcy Code for their
existence and ... could proceed in another court."
Id. (citing Sec. Farms v. Int'l Bhd. of
Teamsters, 124F.3d999, 1008 (9th Cir. 1997)).
a bankruptcy court may hear and finally determine bankruptcy
cases under Title 11, as well as any proceeding arising under
Title 11 or arising in a case under Title 11. See 11
U.S.C. § 157(b)(1). A bankruptcy court may also hear a
non-core proceeding; however, it may not make a final
determination. Rather, the court must submit proposed
findings of fact and conclusions of law to the district court
for de novo review. 11 U.S.C. § 157(c)(1). The
Ninth Circuit has adopted the Fifth Circuit's reasoning
in distinguishing between three types of proceedings: (1)
those "arising under" Title 11; (2) those
"arising in" a case under Title 11; and (3) those
"related to" a case under Title 11, which are the
three categories of cases over which district courts have
subject matter jurisdiction pursuant to 28 U.S.C. §
28 U.S.C. § 157(b) defines core proceedings as ones
"arising under title 11, or arising in a case under
title 11, " and gives a nonexhaustive list of types of
core proceedings. "Arising under" and "arising
in" are terms of art. They are two of the three
categories of cases over which district courts have
jurisdiction under 28 U.S.C. § 1334(b). The third
category includes cases "related to" a case under
title 11. As the Fifth Circuit has explained,
Congress used the phrase "arising under title 11"
to describe those proceedings that involve a cause of action
created or determined by a statutory provision of title 11. .
. . . . The meaning of "arising in" proceedings is
less clear, but seems to be a reference to those
"administrative" matters that arise only in
bankruptcy cases. In other words, "arising in"
proceedings are those that are not based on any right
expressly created by title 11, but nevertheless, would have
no existence outside of the bankruptcy.
The court concluded: "If the proceeding does not invoke
a substantive right created by the federal bankruptcy law and
is one that could exist outside of bankruptcy it is not a
core proceeding; it may be related to the bankruptcy because
of its potential effect, but... it is an 'otherwise
related' or non-core proceeding."
In re Eastport Assocs., 935 F.2d 1071, 1076-77 (9th
Cir. 1991) (citations omitted) (quoting In re Wood,
825 F.2d 90, 96-97 (5th Cir. 1987) (footnotes omitted)).
motion or sua sponte a district court may withdraw,
in whole or in part, any case or proceeding under Section
157. 11 U.S.C. § 157(d). A district court must upon
timely motion withdraw a proceeding if it 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 ." Id. The party moving for
withdrawal has the burden of persuasion. See In re First
Alliance Mortg. Co., 282 B.R. 894, 902 (CD. Cal. 2001).
a bankruptcy court may not finally determine non-Title 11
issues, the presence of such an issue alone does not mandate
withdrawal of the reference. In re Vicars Ins.
Agency, 96 F.3d 949, 953 (7th Cir. 1996). Rather,
withdrawal is mandatory only "in cases requiring
material consideration of non-bankruptcy federal law."
Sec. Farms, 124 F.3d at 1008. Put differently,
"mandatory withdrawal is required only when those issues
require the interpretation, as opposed to mere application,
of the non-title 11 statute, or when the court must undertake
analysis of significant open and unresolved issues regarding
the non-title 11 law." Id. at 954. Permissive
withdrawal is allowed, however, "for cause shown, "
11 U.S.C. § 157(d), which a district court determines by
considering "the efficient use of judicial resources
(which is enhanced when non-core issues predominate), delay
and costs to the parties, uniformity of bankruptcy
administration, the prevention of forum shopping, and other
related factors." Sec. Farms, 124 F.3d at 1008.
is mandatory if the issues in the adversary proceeding
require material consideration of non-bankruptcy federal law.
The claims in the present Adversary Complaint (professional
negligence/malpractice, negligent performance of an
undertaking, and breach of fiduciary duty) require only the
interpretation of state law. Therefore, withdrawal is not
mandatory. The Court may withdraw the reference, however,
"for cause shown, " after considering the factors
of efficiency (which is enhanced when non-core issues
predominate), delay and costs to the parties, uniformity of
bankruptcy administration, the prevention of forum shopping,
and other related factors.
their motion, Defendants make multiple arguments for the
Court's discretionary withdrawal of this adversary case.
Primarily, Defendants assert that the bankruptcy court's
lack of authority to make final determinations may lead to
the inefficiency of duplicative proceedings in the district
court. Of course, this is true. The Adversary Complaint
consists entirely of non-core, "related to" claims
over which the district court has jurisdiction under 28
U.S.C. § 1334(b) and which the bankruptcy court cannot
finally determine because they are not created or determined
by Title 11 and are not administrative bankruptcy matters.
See In re Eastport Assocs., 935 F.2d at 1076-77. If
withdrawal of the reference is denied, the Court may be
required to consider all dispositive motions anew, after the
Bankruptcy Court has already held any related proceedings,
because the Bankruptcy Court does not have the constitutional
authority to finally rule on any of the claims. See Stern
v. Marshall,131 S.Ct. 2594, 2608-20 (2011). The first
and second factors (judicial efficiency, and delay and cost
to the parties) therefore weigh in favor of withdrawal. The
third factor ...