In re American Community Services, Inc.
| Decision Date | 29 April 1988 |
| Docket Number | Bankruptcy No. 86C-01947,Misc. No. 88-M-55W.,Adv. No. 86PC-0996 |
| Citation | 86 BR 681 |
| Parties | In re AMERICAN COMMUNITY SERVICES, INC., Debtor. AMERICAN COMMUNITY SERVICES, INC., and Commonwealth Financial Corporation, Plaintiffs, v. WRIGHT MARKETING, INC., Defendant. |
| Court | U.S. District Court — District of Utah |
M. Catherine Caldwell, Danny C. Kelly, Salt Lake City, Utah, for plaintiff Commonwealth Financial Corp.
William Thomas Thurman, Joel T. Marker, Salt Lake City, Utah, for plaintiff American Community Services, Inc.
Gainer M. Waldbillig, Salt Lake City, Utah, Steven P. Carponelli, Chicago, Ill., for defendant Wright Marketing, Inc.
This matter is before the court on its own motion to withdraw the reference of an adversary proceeding in the bankruptcy case of American Community Services, Inc. The plaintiffs in the adversary proceeding are American Community Services, Inc. ("ACSI") and Commonwealth Financial Corporation ("Commonwealth"). ACSI is represented by William Taft Thurman, William Thomas Thurman and Joel T. Marker. Commonwealth is represented by M. Catherine Caldwell and Danny C. Kelly. Wright Marketing, Inc. ("Wright") is the defendant in this action and is represented by Gainer M. Waldbillig and Stephen P. Carponelli.
Plaintiff ACSI filed a motion to withdraw the reference pertaining to Adversary Proceeding No. 86PC-0996 and filed a memorandum in support of its motion on January 28, 1988. On March 10, 1988, Commonwealth joined in that motion. The defendant did not file a memorandum in opposition to the plaintiffs' motion, and no party requested oral argument on the motion.
The court has carefully reviewed the files relating to the adversary proceeding and the plaintiffs' motion and memorandum filed therewith. Although the court concludes that the plaintiffs' motion to withdraw the reference is untimely under Local Rule B-106(2) of the District Court Rules of Bankruptcy Practice and Procedure, section 157(d) of title 28 permits a district court to withdraw an adversary proceeding from the bankruptcy court on its own motion if cause for withdrawal is shown. On its own motion, this court withdraws the reference regarding this adversary proceeding from the bankruptcy court in accordance with this memorandum decision and order.
On April 20, 1986, ACSI and Wright entered into an Asset Acquisition Agreement (the "Agreement") wherein Wright agreed to purchase certain assets owned by ACSI, including contracts with various social services agencies in Illinois and Missouri. Commonwealth is a secured creditor of ACSI and holds a security interest in the contract obligation owing from Wright to ACSI.
On May 7, 1986, ACSI filed for relief under Chapter 11 of the Bankruptcy Code and is currently acting as a debtor in possession. On November 25, 1986, plaintiffs ACSI and Commonwealth jointly filed a complaint against Wright and commenced the adversary proceeding which is the subject of the present motion. The complaint concerns a breach of contract dispute and seeks recovery of damages in the amount of payments due and owing under the Asset Acquisition Agreement.
On January 28, 1987, Wright filed its answer and made a timely jury demand. Thereafter, the parties commenced discovery. On November 19, 1987, Wright made a motion requesting the bankruptcy court to determine that the proceeding was a non-core proceeding. At a hearing held on December 11, 1987, the bankruptcy court determined that the adversary proceeding was a non-core proceeding pursuant to 28 U.S.C. § 157(b)(3). Subsequent to this determination, the ACSI filed a motion to withdraw the reference of the proceeding on January 28, 1988. Commonwealth joined in ACSI's motion on March 10, 1988. To this date, Wright has not consented to a final determination and entry of final judgment by the bankruptcy court.
Congress redefined the jurisdictional scheme of the federal bankruptcy system in the Bankruptcy Amendments and Federal Judgeship Act of 1984 ("the 1984 Amendments") in response to the Supreme Court's plurality opinion in Northern Pipeline Const. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982).1 In Marathon, the Supreme Court held that the broad jurisdictional grant given the bankruptcy judges under 28 U.S.C. § 1471 of the 1978 Bankruptcy Reform Act was in violation of Article III of the Constitution. Noting that the bankruptcy judges could exercise all the ordinary powers of the district courts, including the power to preside over jury trials, under 28 U.S.C. § 1471, Justice Brennan concluded that bankruptcy courts had been impermissively granted "the essential attributes of the judicial power" constitutionally belonging to only Article III courts. Marathon, 458 U.S. at 87, 102 S.Ct. at 2880. Central to the Marathon decision is the Court's view that non-Article III bankruptcy judges do not have the authority to enter final decisions in matters outside the core of federal bankruptcy power.
The 1984 Amendments provide that the bankruptcy court functions as a non-Article III unit of the district court. 28 U.S.C. § 151. The district court is vested with original and exclusive jurisdiction over all bankruptcy cases and original and concurrent jurisdiction over all civil proceedings arising under the Bankruptcy Code. 28 U.S.C. § 1334(a)-(b). Nevertheless, the district court may refer bankruptcy cases or proceedings to the bankruptcy court in the district. 28 U.S.C. § 157(a). In the district of Utah, the district court has issued a General Order of Reference, dated July 10, 1984, which refers all bankruptcy cases and proceedings to the bankruptcy court. See Rule B-105 of the District Court Rules of Bankruptcy Practice and Procedure.2
The 1984 Amendments divided bankruptcy court jurisdiction over civil proceedings along the lines suggested by the Marathon decision. Marathon suggests that bankruptcy judges can fully adjudicate only those matters at the "core of the federal bankruptcy power." Marathon, 458 U.S. at 71, 102 S.Ct. at 2871. The matters at the core of the bankruptcy power are those directly pertaining to the administration of the debtor-creditor relationship. Id.3 Consequently, the 1984 Amendments divided civil proceedings into "core proceedings"4 and "non-core proceedings."5See 28 U.S. C. § 157(b)-(c). The amended Code permits bankruptcy courts to enter final orders and judgments in core proceedings. 28 U.S.C. § 157(b). The bankruptcy court cannot enter final orders relating to non-core proceedings, unless the parties consent, but must submit proposed findings of fact and conclusions of law to a district court judge who will enter a final order. At the district court level, the parties are entitled to a de novo review of any matters to which a party has timely and specifically objected. 28 U.S.C. § 157(c)(1).
Consistent with this jurisdictional scheme, section 157(d) of title 28 enables the district court to withdraw the reference of a bankruptcy case or proceeding from the bankruptcy court in order to exercise its original jurisdiction over the matter. Section 157(d) provides as follows:
(d) 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.
Permissive or mandatory withdrawal of the reference, as described by the statute, is available under subsection (d) of section 157. Consistent with 28 U.S.C. § 157(d), Bankruptcy Rule 5011(a) provides that a motion for withdrawal of a case or proceeding shall be heard by the district court after the motion is properly filed and transferred to the district court by the bankruptcy court.6
Generally, motions to withdraw the reference of a bankruptcy case or proceeding should be timely made in order to avoid delaying the expeditious administration of the estate. Section 157(d) of title 28 specifically requires that motions to withdraw the reference must be "timely" made by a party.7 Section 157(d) does not expressly require that the court's own motion be timely made. Conceivably, the court could withdraw the reference of a case or adversary proceeding at any time if "cause" is shown. See White Motor Corp. v. Citibank, N.A., 704 F.2d 254, 265 (6th Cir.1983). However, the court's own motion to withdraw the reference should be made as promptly as possible in light of the developments in the bankruptcy case or proceeding and when no substantial prejudice will result to any party. See e.g. Burger King Corp. v. B-K of Kansas, Inc., 64 B.R. 728 (D.Kan.1986); Interconnect Telephone Services, Inc. v. Farren, 59 B.R. 397 (S.D.N.Y.1986); In re Baldwin-United Corp., 57 B.R. 751 (S.D.Ohio 1985).
Cause for Permissive Withdrawal of the Reference:
Section 157(d) of title 28 permits a district court to permissively withdraw the reference of a bankruptcy case or proceeding "for cause shown." What constitutes "cause" for withdrawing the reference is not described in the statute, legislative history or made clear under case law.
Nevertheless, the Fifth Circuit has instructed district courts, in determining whether cause to withdraw the reference exists, to consider the goals of promoting uniformity in bankruptcy administration, reducing forum shopping and confusion, conserving the resources of debtors and creditors, and expediting the bankruptcy process. Holland America Ins. Co. v. Succession of Roy, 777 F.2d 992, 999 (5th Cir.1985). Furthermore, a district court should consider whether the bankruptcy court can hold a jury trial, keeping in mind that the Marathon decision defines the outer...
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