Blue Cross & Blue Shield Carolina v. Jemsek Clinic, P.A.

• Decision Date: 11 March 2014
• Docket Number: No. 3:13–cv–674–RJC.,3:13–cv–674–RJC.
• Citation: 506 B.R. 694
• Parties: BLUE CROSS AND BLUE SHIELD OF NORTH CAROLINA, Plaintiff, Counterclaim Defendant, and Counterclaim Plaintiff, v. JEMSEK CLINIC, P.A. and Joseph G. Jemsek, M.D., an individual, Defendants, Counterclaim Plaintiffs, Counterclaim Defendants.
• Court: U.S. District Court — Western District of North Carolina

506 B.R. 694

BLUE CROSS AND BLUE SHIELD OF NORTH CAROLINA, Plaintiff, Counterclaim Defendant, and Counterclaim Plaintiff,

v.JEMSEK CLINIC, P.A. and Joseph G. Jemsek, M.D., an individual, Defendants, Counterclaim Plaintiffs, Counterclaim Defendants.

No. 3:13–cv–674–RJC.

United States District Court,

W.D. North Carolina,

Charlotte Division.

Filed March 11, 2014.

Alan D. McInnes, Kilpatrick Townsend & Stockton LLP, Raleigh, NC, Deborah L. Fletcher, FSB Fisher Broyles LLP, L.D. Simmons, II, Mark W. Kinghorn, McGuirewoods LLP, Charlotte, NC, Chad Dwight Hansen, Daniel R. Taylor, Jr., Thurston Holderness Webb, Kilpatrick Townsend, Winston–Salem, NC, for Plaintiff, Counterclaim Defendant, and Counterclaim Plaintiff.

Milton Shipman Winter, IV, Polsinelli PC, Kansas City, MO, Travis Waterbury Moon, Moon Wright & Houston, PLLC, Charlotte, NC, William D. Blakely, Polsinelli Shughart PC, Washington, DC, for Defendants, Counterclaim Plaintiffs, Counterclaim Defendants.

ORDER

ROBERT J. CONRAD, Jr., District Judge.

THIS MATTER comes before the Court on Plaintiff Blue Cross and Blue Shield of North Carolina's (BCBSNC) Motion to Withdraw Reference from the Bankruptcy Court, (Doc. 1), the Jemsek Defendants' (Jemsek) Response, (Doc. No. 4), and Plaintiff's Reply. (Doc. 5).

It is ripe for review by this Court.

I. BACKGROUND

This peripatetic case has a convoluted history summarized here in barest form. In 2006, Plaintiff BCBSNC filed a series of state law complaints against the Jemsek Defendants related to insurance claims submitted to Plaintiff by Defendants. Shortly thereafter, Jemsek removed the cases to Bankruptcy Court where they were consolidated into Case No. 07–3006. In 2007, BCBSNC asserted its state claims as proofs of claim against the estates of the Jemsek Defendants, who, in turn, filed nine counterclaims against BCBSNC.

The litigation has taken twists and turns since then. In 2008, a nationwide class action lawsuit involving parallel claims was settled in the Southern District of Florida. Unaware of the settlement, Jemsek failed to opt out, resulting in the dismissal of seven of Defendants' nine counterclaims. On appeal, the dismissal was affirmed by the Eleventh Circuit Court of Appeals. In 2010, Jemsek moved for—and the Bankruptcy Court granted—sanctions against BCBSNC for failing to inform Defendants of the existence or settlement of the parallel case. As sanctions, the Bankruptcy Court dismissed all of BCBSNC's claims and ordered the payment of attorney's fees and costs in the amount of $1,291,415.60. Thereafter, BCBSNC's interlocutory appeal was denied.

As it stands now, the sole claims remaining in this litigation belong to the Jemsek Defendants, who bear that caption in form only. They are claims under North Carolina law for defamation and tortious interference with a business relationship, and BCBSNC seeks to withdraw them from Bankruptcy Court.

II. DISCUSSION

The Jemsek Defendants have requested a jury trial on their counterclaims; likewise, BCBSNC has declined to consent to the Bankruptcy Court entering a final order in this matter. Given these postures, the parties concede that, following the Supreme Court's decision in Stern v. Marshall, the Bankruptcy Court lacks the constitutional authority to enter a final order with respect to the two remaining claims in this case. ––– U.S. ––––, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). At issue here is whether the Bankruptcy Court should handle pre-trial matters to include the issuance of findings and recommendations, or whether the case should be withdrawn to this Court.

A. 28 U.S.C. § 157

Federal district courts have original jurisdiction over all bankruptcy matters and related proceedings. 28 U.S.C. § 1334(a), (b). Section 157(a) allows district courts to refer bankruptcy cases to the bankruptcy court, which by standing order, this district has done.

28 U.S.C. § 157(d) empowers a district court to withdraw a proceeding from the bankruptcy court on its own motion or on timely motion of any party and to have the proceeding heard in the district court if there is “cause shown” for the removal. While this practice, known as “discretionary” or “permissive” withdrawal, has been seldom utilized in this district, Plaintiff contends that the sweeping implications of the Stern decision warrant withdrawal of Defendants' remaining counterclaims.¹

B. Discretionary Withdrawal

As the party seeking withdrawal, BCBSNC bears the burden of demonstrating cause for the Court to exercise its discretion and grant withdrawal. In re QSM, LLC, 453 B.R. 807, 810 (E.D.Va.2011). Here, BCBSNC contends that, having disallowed its claims and lacking the constitutional authority to enter final judgment on Defendants counterclaims, the Bankruptcy Court is no longer the proper locus for this case as there is no scenario in which it can resolve the matter.

Although “cause” is not defined by statute, courts in this circuit have consistently recognized several factors that govern whether discretionary withdrawal should be granted: (1) whether the proceeding is core or non-core; (2) the uniform administration of bankruptcy proceedings; (3) expediting the bankruptcy process and promoting judicial economy; (4) the efficient use of debtors' and creditors' resources; (5) the reduction of forum shopping; and, (6) the preservation of the right to a jury trial. Id. at 809–10 (citing In re U.S. Airways Group, Inc., 296 B.R. 673, 677 (E.D.Va.2003)). Discretionary 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.” Id. The Court examines each of these factors in turn.

1. Core v. Non–Core

The Stern decision altered the way courts distinguish between core and non-core claims. Prior to Stern, the determination of whether a matter was core or non-core was a comparatively simple one and was governed by 28 U.S.C. § 157(b)(1), which accords to bankruptcy judges the authority to “hear and determine” all core proceedings that “arise under title 11” or in a case brought under title 11. For guidance, section 157(b)(2) establishes a non-exhaustive list of sixteen core proceedings, including the type of claims brought in this suit, namely: “counterclaims by the estate against persons filing claims against the estate.” 28 U.S.C. § 157(b)(2)(C).

This analysis has become considerably more complex in the aftermath of Stern. Plaintiff, citing to cases in this district, contends that Stern added a layer of additional analysis requiring courts to consider two additional factors: (1) whether the action stems from the bankruptcy itself; and, (2) whether the issue would be “necessarily resolved” in the claims allowance process. See In re Somerset Properties SPE, LLC, 2012 WL 3877791, at *4 (Bankr.E.D.N.C. Sept. 6, 2012); In re The McAlpine Group, LLC, 2012 WL 6138195, at *4–5 (Bankr.W.D.N.C. Dec. 11, 2012).

Other courts have agreed that Stern adds another layer of analysis, but have offered different formulations of such analysis. See Dev. Specialists, Inc. v. Akin Gump Strauss Hauer & Feld LLP, 462 B.R. 457, 472 (S.D.N.Y.) (holding that the key factor determining whether a matter could be defined as core turned on “whether, under Stern, the [b]ankruptcy [c]ourt has the power to adjudicate it.”)

Regardless of the precise formulation employed by a court, this much is clear: the question of whether a proceeding is core or non-core turns, in large measure, on whether a bankruptcy court possesses the constitutional authority to enter final judgment in the matter. Here, both parties concede that the Jemsek counterclaims are “statutorily core” under 157(b)(2)(C), and the Bankruptcy Court lacks the Constitutional authority to enter a final judgment in the matter. They differ in their views of how such claims are treated in the wake of Stern.

The primary argument of the Jemsek Defendants is that, regardless of whether the matter is deemed core or non-core, the Bankruptcy Court can still enter proposed findings of fact and conclusions of law as nothing in Stern strips it of such authority. Opposing this argument, Plaintiff contends that Stern gave birth to a third classification of proceeding to account for exactly the types of claims found here, namely, ones that are “statutorily core,” but which are also deemed non-core by virtue of the fact that the bankruptcy court lacks constitutional authority to enter judgment on them.² Defying the principle of non-contradiction, these claims are, at once, core for the purposes of section 157(b)(2), and non-core for the purposes of withdrawal under section 157(d).

This Court will leave it to higher courts to define the specific parameters of claims that fall into the interstices revealed by Stern. Whether statutorily core claims such as the ones brought by Defendants are deemed core, non-core or some third category need not be settled here. What is significant is this: the bankruptcy judge cannot enter a final judgment on these claims and they cannot be resolved in the claims allowance process. On the limited question of whether to withdraw the claims, and before considering the other factors, the “core/non-core” factor favors withdrawal. Plaintiff has made a persuasive case that such claims cannot be deemed to be core for the purposes of withdrawal following Stern. “[A]fter Stern, one can still [consider the applicable factors] but not looking at whether the matter can be classified as “core” under 28 U.S.C. § 157, but rather at whether, under Stern, the [b]ankruptcy [c]ourt has the final power to adjudicate it.” ACC Retail Property Development and Acquisition Fund, LLC v. Bank of America, 12–361, 2012 WL 8667572, at *2 (E.D.N.C. Sep. 28, 2012) (citing Dev. Specialists, 462 B.R. at 467).

2. Other Factors

While the core/non-core factor favors withdrawal, the other factors strongly favor retention by the Bankruptcy Court. There exists a standing order in this district,...