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Finley Group v. 222 South Church Street, LLC

United States District Court, W.D. North Carolina, Charlotte Division

March 6, 2015

THE FINLEY GROUP, LIQUIDATING AGENT FOR REDF MARKETING, LLC, Plaintiff,
v.
222 SOUTH CHURCH STREET, LLC, and NOVARE GROUP HOLDINGS, LLC, Defendants.

ORDER

FRANK D. WHITNEY, Chief District Judge.

THIS MATTER is before the Court on Defendants' Motion to Withdraw the Reference (Doc. No. 1) timely filed on January 14, 2015. Plaintiff responded with an Objection to the Motion to Withdraw the Reference (Doc. No. 2) timely filed on February 2, 2015.

Having reviewed and considered the written arguments and applicable authority, for the reasons set forth below, Defendants' Motion to Withdraw the Reference is DENIED without prejudice. The bankruptcy court will oversee all pre-trial matters, including issuing findings of fact and conclusions of law on any dispositive motions. The reference will be withdrawn once the case is ready for trial.

I. BACKGROUND

On October 9, 2014, Plaintiff Finley Group ("Plaintiff"), representing the Estate of RedF Marketing, LLC, filed a complaint against Defendants 222 South Church Street, LLC ("South Church") and Novare Holdings Group, LLC ("Novare"). (Bankr. W.D. N.C. 14-03263, Doc. No. 1). Plaintiff alleges claims for fraudulent transfers under 11 U.S.C. §§ 548-50 and N.C. G.S. § 39-23.1 et seq arising out of the purchase of real property and improvements located at 222 South Church Street ("Packard Place"). At the same time, Plaintiff filed four other adversary actions in bankruptcy court based in whole or in part on the Packard Place closing.[1] (Doc. No. 2). On December 5, 2015, South Church filed its answer, third-party complaint, and jury demand, requesting, among other things, that this adversary proceeding be tried by jury in district court. (Bankr. W.D. N.C. 14-03263, Doc. No. 11). Novare filed its answer, affirmative defenses, third-party complaint, and jury demand, also requesting that this proceeding by tried by jury. (Id., Doc. No. 13). None of the defendants in the four other actions sought to withdraw reference to this Court. (Doc. No. 2). In addition, there are motions to dismiss pending in bankruptcy court for three of the actions, which will be heard before Judge Whitley on April 20, 2015. (Bankr. W.D. N.C. 14-03263, Doc. No. 46). Plaintiff allegedly plans to file a motion to consolidate the Packard Place proceedings to streamline discovery and other pre-trial matters before the bankruptcy court. (Doc. No. 2).

II. DISCUSSION

Pursuant to 28 U.S.C. § 1334, United States District Courts have original jurisdiction over all bankruptcy matters and related proceedings. Nevertheless, 28 U.S.C. § 157(a) permits district courts to refer bankruptcy matters to bankruptcy courts, which this district does. See In re: Standing Order of Reference Re: Title 11, 3:14-mc-44 (2014). Under 28 U.S.C. § 157(d), a district court is permitted to withdraw-in whole or in part-any case or proceeding that is referred to bankruptcy court pursuant to 28 U.S.C. § 157(a) by motion of a party or sua sponte . 28 U.S.C. § 157(d). The district court's withdrawal is either mandatory or permissive. Id. Mandatory withdrawal occurs when "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. Permissive withdrawal of reference "should be determined on a case-by-case basis by weighing all of the factors presented in a particular case, including the core/non-core distinction.'" Blue Cross & Blue Shield of N.C. v. Jemsek Clinic, P.A., 506 B.R. 694, 697 (W.D. N.C. 2014) (quoting In re QSM, LLC v. McLane Foodservice, Inc., 453 B.R. 807 (E.D. Va. 2011)).

A. Authority of the Bankruptcy Court to issue findings and recommendations

Statutorily, bankruptcy courts can hear all core proceedings arising under Title 11, including fraudulent transfer proceedings. 28 U.S.C. § 157(b)(1), (b)(2)(H). However, not all core proceedings can constitutionally be heard in bankruptcy court. Stern v. Marshall, 131 S.Ct. 2594 (2011). In Stern, the Supreme Court held that bankruptcy courts lack the constitutional authority to issue final judgment on fraudulent transfer proceedings. 131 S.Ct. at 2609-10. Still, nothing in Stern prohibits the bankruptcy court from handling pre-trial proceedings, including ruling on dispositive motions. Id; see also Jemsek Clinic, 506 B.R. at 694.

The issue then becomes whether a bankruptcy court possesses the authority to issue findings and recommendations subject to de novo review by this Court. While the Fourth Circuit has yet to answer this question, other courts in this district, as well as other circuit courts, have found no prohibition to a bankruptcy court's issuance of pre-trial findings and recommendations in core matters. See Schafer v. Nexitraone Fed., LLC, 2012 WL 2281828, *1 (M.D. N.C. 2012) (holding that the motion to withdraw reference was premature because "even assuming the bankruptcy court lacks jurisdiction to enter final rulings, it may still conduct pretrial proceedings and make recommendations"); ACC Retail Prop. Devl'p & Acq. Fund, LLC, v. Bank of Am., N.A., 2012 WL 8667572, *4 (E.D. N.C. 2012) (denying the motion to withdraw reference and holding that the bankruptcy court must submit proposed findings of fact and conclusions of law as to any claims or issues over which it does not have constitutional authority to enter final judgment to the district court for de novo review); In re El-Atari, 2011 WL 5828013, *7 (E.D. Va. 2011) (holding that "the bankruptcy court retains jurisdiction to hear, but not decide, fraudulent conveyances actions"); Executive Benefits Ins. Agency v. Arkison, 702 F.3d 553, 565 (9th Cir. 2012) ("[s]ection 157(b)(1) empowers bankruptcy courts to hear and determine' fraudulent conveyance claims in a manner consistent with the strictures of Article III-and that includes the more modest power to submit findings of fact and conclusions of law to the district courts.").

Further, in a recent case out of this district, the court discussed the implications of Stern when determining the procedure for bankruptcy cases where the bankruptcy court cannot issue final judgment. Jemsek Clinic, 506 B.R. 694. After careful dissection of the limited case law in this area, the court agreed with other courts in this district-and with other circuit courts-in holding that "the authority to issue findings and recommendations can remain with the bankruptcy court regardless of whether the matter is deemed core or non-core under Stern analysis." Id. at 701. The court ordered, "[t]he Bankruptcy Judge shall conduct discovery and issue findings and recommendations on dispositive motions subject to de novo review by this court." Id.

Having considered the forgoing authority, this Court holds that the bankruptcy court has the authority to consider pretrial proceedings even where it cannot issue final judgment. Therefore, bankruptcy court shall conduct discovery and issue findings and recommendations on dispositive motions, subject to de novo review by this Court.

B. Permissive withdrawal of reference

Though the bankruptcy court has the authority to retain this case, this Court must still determine whether it should exercise its ability to permissively withdraw the case. Permissive withdrawal of reference should be decided on a case-by-case basis by determining whether cause exists for the court to grant withdrawal. 28 U.S.C. § 157(d). While neither statute nor the Fourth Circuit have explicitly defined ...


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