In re H & W Motor Express Co.

• Decision Date: 01 May 2006
• Docket Number: No. 05-CV-1029-LRR.,Bankruptcy No. 04-9106.,Bankruptcy No. 02-2017D.,05-CV-1029-LRR.
• Citation: 343 B.R. 208
• Parties: In re H & W MOTOR EXPRESS COMPANY Larry S. Eide, Chapter 7 Trustee, Plaintiff, v. Urban R. Haas and Patricia M. Haas, Individually and as Trustees of the Marie C. Haas Trusts, f/b/o Urban Andrew Haas, Christopher James Haas, Aimee Marie Haas, n/k/a Aimee Marie Haas Walsh and Catherine Anthoine Haas, Defendants and Third-Party Plaintiffs, v. Roger Waldner, Third-Party Defendant.
• Court: U.S. District Court — Northern District of Iowa

343 B.R. 208

In re H & W MOTOR EXPRESS COMPANY

Larry S. Eide, Chapter 7 Trustee, Plaintiff, v. Urban R. Haas and Patricia M. Haas, Individually and as Trustees of the Marie C. Haas Trusts, f/b/o Urban Andrew Haas, Christopher James Haas, Aimee Marie Haas, n/k/a Aimee Marie Haas Walsh and Catherine Anthoine Haas, Defendants and Third-Party Plaintiffs, v. Roger Waldner, Third-Party Defendant.

Bankruptcy No. 02-2017D.

Bankruptcy No. 04-9106.

No. 05-CV-1029-LRR.

United States District Court, N.D. Iowa, Eastern Division.

May 1, 2006.

COPYRIGHT MATERIAL OMITTED

Larry S Eide, Pappajohn, Shriver, Eide & Nicholas, PC, Mason City, IA, for Plaintiff.

William T. McCartan, Bradley & Riley, Cedar Rapids, IA, for Defendant.

David J. Dutton, James R. Hellman, Dutton Braun Staack Hellman Iversen, Waterloo, IA, for Third-party Defendant.

Office of the U.S. Trustee, Cedar Rapids, IA, for Trustee.

ORDER ON MOTION TO WITHDRAW REFERENCE OF CASE OR PROCEEDING WITHIN CASE

READE, District Judge.

                TABLE OF CONTENTS
                I. INTRODUCTION .......................................................... 211
                 II. PRIOR PROCEEDINGS ..................................................... 211
                III. THE MERITS ............................................................ 212
                     A. Untimely ........................................................... 213
                     B. Cause Not Shown .................................................... 214
                

                IV. CONCLUSION ............................................................ 217
                

I. INTRODUCTION

Before the court is Third-Party Defendant Roger Waldner's Motion to Withdraw Reference of Case or Proceeding within Case ("Motion") (docket no. 6).

II. PRIOR PROCEEDINGS

On July 11, 2004, Larry S. Eide filed a Complaint in the United States Bankruptcy Court for the Northern District of Iowa ("the Bankruptcy Court") against Urban Haas and Patricia Haas. Eide was a Chapter 7 Trustee in In re H & W Motor Express Company, Case No. 02-2017D, another case pending in the Bankruptcy Court.¹ By filing the Complaint, Eide initiated an adversary proceeding against the Haases and sought to recover property of the bankruptcy estate. See 11 U.S.C. § 542(a) (requiring individuals in possession of property of the bankrupt estate to deliver it to the trustee); see also id. § 323 (appointing trustee representative of the bankrupt estate, with the capacity to sue).

Eide proceeded in the Bankruptcy Court for nearly a year, and numerous filings and orders were docketed. On November 8, 2004, the Haases filed a Third-Party Claim against Waldner. On April 29, 2005, more than five months after he filed his Answer to the Haases's Third-Party Claim, Waldner filed the instant Motion in the Bankruptcy Court. Waldner represented to the Bankruptcy Court that: Cause exists for the withdrawal of this matter, to wit: this matter is a non-core proceeding, as to which the Bankruptcy Judge, under 28 U.S.C. § 157(c), may only hear and report, and in light of the likelihood that de novo review will be sought under 28 U.S.C. 157(c)(1), it is in the interest of judicial economy for the District Court to hear the matter in the first instance. Withdrawal of the reference is particularly appropriate in this case since there is currently pending before the District Court a civil action involving the same parties and the same Memorandums of Understanding. See Case No. C04-1014[-]EMJ.

Roger D. Waldner is the Plaintiff in another case, Waldner v. Carr, et al., No. C04-1014-EMJ. Waldner is currently pending in the district court. The Haases are two of more than a dozen defendants in Waldner.

On May 5, 2005, Chief Bankruptcy Judge Paul J. Kilburg stayed all action in Eide pending the district court's ruling on the Motion. On May 24, 2005, Sean F. McAvoy, Clerk of the Bankruptcy Court for the Northern District of Iowa, electronically transmitted a certified record of Eide to the Clerk of Court for the Northern District of Iowa. Included in the record was Waldner's Motion.² Neither Eide nor the Haases resisted or joined in Waldner's Motion.

III. THE MERITS

Federal district courts have original jurisdiction over bankruptcy cases. 28 U.S.C. § 1334. "District courts, however, need not adjudicate these cases; they may refer them to bankruptcy courts...." United States v. Gurley, 434 F.3d 1064, 1067 (8th Cir.2006) (citing 28 U.S.C. § 157(a)). Title 28, United States Code, Section 157(a) permits a district court to "provide that any or all cases under title 11 and any or all proceedings arising under title 11 or arising in or related to a case under title 11 shall be referred to the bankruptcy judges for the district." 28 U.S.C. § 157(a). In the Northern District of Iowa, bankruptcy actions are routinely referred to bankruptcy judges pursuant to a standing administrative order. See N.D. Iowa Administrative Order No. 927 (May 5, 1986) (ordering the referral of all cases arising under title 11 to the Bankruptcy Court). On the basis of Section 157(a) and the standing administrative order, Eide was automatically referred by this court to the Bankruptcy Court.

Title 28, United States Code, Section 157(d) permits a district court to withdraw its prior reference of a case to a bankruptcy court. 28 U.S.C. § 157(d); see Vreugdenhil v. Hoekstra, 773 F.2d 213, 215 (8th Cir.1985) (noting that "the district court could have withdrawn this case from the bankruptcy court, despite the earlier general order of referral"). Section 157(d) 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).

Section 157(d) contains two provisions by which the district court may withdraw its earlier reference of a case to bankruptcy court: a discretionary provision and a mandatory provision. Under the discretionary provision, withdrawal of the reference may be accomplished "for cause shown" upon "timely motion of any party" or upon the court's own motion. 28 U.S.C. § 157(d); see also Morgan v. Rabun, 128 F.3d 694, 699 (8th Cir.1997) (holding that the use of the word "may" in a statute grants discretion). Under the mandatory provision, withdrawal of the reference is required "on timely motion of a party" if the court determines that, in order to resolve the bankruptcy case, the court would also have to consider "other laws of the United States regulating organizations or activities affecting interstate commerce." 28 U.S.C. § 157(d); see also Hewitt v. Helms, 459 U.S. 460, 471, 103 S.Ct. 864, 74 L.Ed.2d 675 (1983) (remarking that the word "shall" is "language of an unmistakably mandatory character"), overruled on other grounds by Sandin v. Conner, 515 U.S. 472, 115 S.Ct. 2293, 132 L.Ed.2d 418 (1995).

Waldner's Motion invokes only the discretionary provision of Section 157(d). There are no claims in the case that would require the court to consider "other laws of the United States regulating organizations or activities affecting interstate commerce." 28 U.S.C. § 157(d). Thus, the court shall only consider the discretionary provision of Section 157(d). "Where, as here, the only federal law at issue is the Bankruptcy Code itself, withdrawal is generally discretionary." Vreugdenhil, 773 F.2d at 215 (citing Carlton v. Baww, Inc., 751 F.2d 781, 788 (5th Cir.1985) and In re White Motor Corp., 42 B.R. 693 (N.D.Ohio 1984)).

To grant a party's motion to withdraw the reference under the discretionary provision of Section 157(d), the court must find (1) the motion was "timely" and (2) the party has shown "cause" for withdrawal. Id.; see also United States v. Kaplan, 146 B.R. 500, 503 (D.Mass.1992) ("Consistent with the plain language of the statute, this court will apply a two prong test ... (1) the motion must be timely filed, and (2) the movant must demonstrate cause for the withdrawal.") (Emphasis in original.). Waldner, as the moving party, bears the burden of proof on both elements. Kaplan, 146 B.R. at 503; see also In re Ponce Marine Farm, Inc., 172 B.R. 722, 725 (D.P.R.1994) (similar); In re Mich. Real Estate Ins. Trust, 87 B.R. 447, 459 (E.D.Mich.1988) (similar). The court shall now consider each of these two requirements, in turn.

A. Untimely

Section 157(d) does not set forth a specific deadline before which parties must file motions to withdraw reference. In re N.Y. Trap Rock Corp., 158 B.R. 574, 577 (S.D.N.Y.1993); see also In re Lars, Inc., 290 B.R. 467, 470 (D.P.R.2003) (same). Neither the Supreme Court nor the Eighth Circuit Court of Appeals has considered what constitutes a "timely" filed motion to withdraw the reference. Other district courts have issued varying and somewhat inconsistent rulings. Compare Burger King Corp. v. B-K of Kan., Inc., 64 B.R. 728, 730-31 (D.Kan.1986) (holding that a ten-month delay in filing a motion to withdraw reference was "timely," albeit at "the outer limit"), with Laine v. Gross, 128 B.R. 588, 589 (D.Me.1991) (holding a motion to withdraw the reference that was filed six months after the time from which "it was clear that grounds for withdrawal existed" was not timely filed).

The court holds that the test for timeliness is ultimately one of reasonableness under the circumstances. See Kaplan, 146 B.R. at 503 ("Timeliness is determined based on a review of the facts of the specific situation."). The party seeking withdrawal must file its motion as soon as practicable. See, e.g., In re Sevko, Inc., 143 B.R. 114, 116 (N.D.Ill.1992) ("[T]he test for timeliness of a motion to withdraw reference is either as soon as possible, or at the first reasonable opportunity after the moving party has notice of the grounds for withdrawal, depending on the...