In re Northwestern Institute of Psychiatry, Inc.
| Decision Date | 29 August 2001 |
| Docket Number | 00-33365DWS,Bankruptcy No. 00-33364DWS,00-33369DWS. Adversary No. 01-0656. |
| Citation | 268 BR 79 |
| Parties | In re NORTHWESTERN INSTITUTE OF PSYCHIATRY, INC., Progressions Group, Inc., Malvern Institute for Psychiatric and Alcoholic Studies, Debtors. Northwestern Institute of Psychiatry, Inc., Plaintiff, v. The Travelers Indemnity Company, Defendant. |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
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Albert A. Ciardi, III, Philadelphia, PA, for Debtor/Plaintiff.
Louis J. Brown, White & Williams, LLP, Philadelphia, PA, for Defendant.
Ronald S. Gellert, Klerh, Harrison, Harvey, Branzburg & Ellers, LLP, Philadelphia, PA, for the Committee.
William R. Kane, Kane, Willner & Hollman, P.C., Philadelphia, PA, for State Street Bank & Connecticut General Life Ins. Co.
Dave P. Adams, Office of the U.S. Trustee, Philadelphia, PA, United States Trustee.
Before the Court is Travelers Indemnity Company's ("Travelers") Motion Pursuant to Fed.R.Bankr.P. 9024 and Fed. R.Civ.P. 60(b)(6) for Reconsideration of the Court's Scheduling Order of August 2, 2001 ("Reconsideration Motion") and to Stay the Adversary Proceedings Against the Travelers Indemnity Company (the "Stay Motion") (together, the "Motion"). An expedited hearing was held on Travelers' request on August 15, 2001 after which a briefing schedule was agreed upon. All briefs now having been received, this matter is ripe for decision.
The Debtor owns and operates a psychiatric hospital in Fort Washington, Pennsylvania. It and two affiliated companies filed for reorganization under Chapter 11 on October 27, 2000.1 The Debtor has been granted several extensions of time to file its plan of reorganization based on its need to secure financing which was ultimately obtained. On August 21, 2001, I entered an order granting a further unopposed extension of the exclusive period for plan filing based on the Debtor's motion which stated as cause, inter alia, that a flood of its premises had impaired Debtor's efforts to operate profitably and meet its reorganization agreements with creditors. Doc. No. 336. This event is the subject of the instant adversary proceeding.
The adversary proceeding against Travelers seeks a declaratory judgment that the insurance policy issued post-petition to the debtor-in-possession covers the aforementioned flood damage (the "Coverage Issue"). Travelers refused coverage based on its conclusion that the property was located in a flood zone for which coverage was excluded under the policy. According to the Debtor, it is unable to utilize 32 of its 146 beds as a result of the casualty. Because of the economic impact of the reduced census and the lack of funds to repair the damage, the Debtor filed a preliminary injunction and a request for expedited trial on the Coverage Issue, contending that it was in precarious financial condition and its reorganization was in jeopardy. Also framed by the Complaint are counts for breach of contract and bad faith which the Debtor agrees may be heard in the ordinary course after appropriate discovery and pretrial process. These latter counts greatly expand the scope of discovery and may require the joinder of third parties.
On August 2, 2001, after a conference call with counsel for the parties, I entered a Scheduling Order requiring responses to the Motion and Count I of the Complaint by August 14, 2001 and set a discovery and motions deadline of August 29, 2001. Trial of the Motion and Count I of the Complaint "insofar as they seek a declaratory judgment that Travelers is required to cover Plaintiff's flood loss under the policy issued to Plaintiff, Exhibit A to the Complaint, and an injunction compelling payment of the claim" was scheduled for September 5, 2001. My Order expressly provides that other than as to Count I, the Complaint may be answered in the ordinary course pursuant to the Summons issued. Pursuant to the Scheduling Order, Travelers filed a Motion to Dismiss the Complaint ("Dismissal Motion") on August 14, 2001. Contemporaneously therewith, Travelers filed the Reconsideration Motion contending, inter alia, that the calendar established in the Scheduling Order does not afford it adequate time to do needed discovery prior to trial.2
Moreover, it is Travelers' position that the district court, not this court, is the proper forum for the Coverage Issue dispute that animates this adversary proceeding. To that end, it has filed a motion to withdraw the reference of this adversary case ("Withdrawal Motion")3 with the district court and the Stay Motion with this court to stay all proceedings until the district court decides the Withdrawal Motion. I turn to the Stay Motion first as its outcome obviously impacts the scheduling at issue in the Reconsideration Motion.
Travelers seeks withdrawal of the reference on the grounds that the adversary proceeding is a non-core matter as to which the bankruptcy court cannot enter a final judgment. As such, it argues that it is in the interest of judicial economy for the district court which is not so restricted to hear the case.4 Additionally Travelers contends that it has the right to a jury trial which cannot be held in the bankruptcy court without its consent which it will not provide.
Federal Rule of Bankruptcy Procedure 5011 provides that the filing of a motion for withdrawal of the reference "shall not stay any proceeding before the bankruptcy judge except that the bankruptcy judge may stay, on such terms and conditions as are proper, proceedings pending disposition of the motion."5 The moving party has the burden of proof in demonstrating to this Court that a stay would be proper. Mitchell Miller, Trustee v. Vigilant Insurance Co. (In re Eagle Enterprises, Inc.), 259 B.R. 83, 86 (Bankr. E.D.Pa.2001); TJN, Inc. v. Superior Container Corp. (In re TJN, Inc.), 207 B.R. 499, 501 (Bankr.D.S.C.1996). In deciding a stay motion under Rule 5011, I will follow the lead of sister courts that have applied the same standards that are utilized to decide a motion for a stay pending judicial review even though that is not the precise nature of the request being made. Thus, the movant must demonstrate the likelihood of prevailing on the merits; that it will suffer irreparable harm if the stay is denied; that the other party will not be substantially harmed by the stay; and that the public interest will be served by granting the stay. Eagle Enterprises, supra; Priest v. Interco, Inc. (In re Interco, Inc.), 135 B.R. 359, 361 (Bankr.E.D.Mo.1991). Applying those standards, I find that a stay is not warranted for the reasons that follow.
(1) Likelihood of Prevailing on the Merits
This factor requires me to determine the likelihood of the district court granting the Withdrawal Motion. The relevant considerations were addressed at the hearing and have been thoroughly briefed by the parties. The first issue I need to address is whether withdrawal of the reference may be limited to a discrete part of this proceeding. This is significant because only the Coverage Issue is being pressed for expedited trial, and it raises narrow questions that may be capable of resolution on the Dismissal Motion filed by Travelers and answered by Debtor and Intervenors, the Official Creditors' Committee and State Street Bank and CG Life. Accordingly, if this court may adjudicate that portion of Count I that seeks a declaratory judgment as to the existence of coverage for the casualty loss and the companion motion that seeks an injunction requiring Travelers to make payment if coverage is confirmed,6 the other Counts could be withdrawn or remain here as the district court saw fit to determine at some later date when the pleadings were closed.
The statutory authority for withdrawal of the reference is contained in 28 U.S.C. § 157(d) which 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.7 (Emphasis added).
It would appear from the plain language of this section that a district court may exercise its discretion to withdraw a part of a proceeding and the cases reflect that they have done so. See, e.g., Central Illinois Savings & Loan Ass'n v. Rittenberg Company, Ltd. (In re IQ Telecommunications, Inc.), 70 B.R. 742, 746 and n. 4 (N.D.Ill. 1987) (). Moreover, it is not uncommon for district courts to defer withdrawal of the reference to allow the bankruptcy court to handle a proceeding until such time as the district court determines that the bankruptcy court may not do so. Many district courts have held that withdrawal of the reference on the ground that a party is entitled to a jury trial should be deferred until the case is "trial ready." Commercial Financial Services, Inc. v. Brady (In re Brady), 239 B.R. 586, 596 (Bankr.N.D.Okla.1999) (). See page 20-21 infra. Thus, the district court need not address the withdrawal of the entire Complaint at this juncture if some part of it should remain in the bankruptcy court. Because the non-coverage issues may require a different analysis on a motion to withdraw the reference and because those issues are not the subject of this Court's pretrial Order, it appears that withdrawal is premature at best. However, the Coverage Issue which is proceeding in this court is ripe for the district court's withdrawal determination, and it is this part of the...
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