Price v. Craddock
Decision Date | 27 April 1988 |
Docket Number | Civ. A. No. 88-C-309. |
Citation | 85 BR 570 |
Parties | Maurice PRICE, Jr., Plaintiff, v. James Berry CRADDOCK, Defendant. |
Court | U.S. District Court — District of Colorado |
Glenn Merrick, Denver, Colo., Jay Gueck, Dallas, Tex., for plaintiff.
J. Lawrence Hamil, Denver, Colo., for defendant.
This matter is before the court on a motion for withdrawal of reference filed pursuant to 28 U.S.C. § 157(d) by the plaintiff in an adversary action filed in the United States Bankruptcy Court for the District of Colorado.
On June 18, 1987, an involuntary bankruptcy case was commenced against the debtor/defendant James Berry Craddock in the bankruptcy court. On June 30, 1987, Craddock converted the case to a voluntary proceeding under Chapter 11 of the Bankruptcy Code.
Subsequently, Plaintiff Maurice Price commenced an adversary proceeding against Craddock arising out of a dispute between Price and Craddock concerning their common ownership of Price Distributing Company ("PDC"), a Texas corporation. (Bankruptcy Court Case No. 87-E-705.) In his First Amended Complaint, Price asserts claims against Craddock for the latter's alleged breach of an oral option contract to purchase Craddock's shares of PDC stock and for fraudulent misrepresentation. Price additionally seeks specific performance of the option contract and a declaratory judgment that Price's dealings with PDC did not breach any fiduciary duty owed to Craddock. The amended complaint also contains a demand for a jury trial.
Defendant filed an answer and counterclaim on October 30, 1987. In it, he denied the existence of the oral option contract and alleged various counterclaims including fraud, waste, breach of trust, breach of fiduciary duty, breach of contract, promissory estoppel and violations of § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Securities and Exchange Commission Rule 10b-5. In addition to damages, the defendant seeks imposition of a constructive trust, and a mandatory injunction ordering Price to take certain corporate acts to ensure that the plaintiff's conduct will not imperil a successful plan of reorganization.
On February 5, 1988, the plaintiff filed a motion for mandatory withdrawal of the adversary proceeding. Defendant opposes the motion. The parties have briefed the issues and oral argument would not materially assist my decision.
The Supreme Court, in Northern Pipeline Construction Corp. v. Marathon Pipeline Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), recognized limitations on the power of Congress to assign certain adjudicative authority to non-Article III judges, such as federal bankruptcy judges. That decision held the then existing bankruptcy court powers laws unconstitutional. Burger King Corp. v. B-K of Kansas, Inc., 64 B.R. 728, 730 (D.Kan. 1986). In 1984 Congress responded to Marathon by conferring on the federal district courts original jurisdiction over all cases arising under title 11 of the Bankruptcy Code. See 28 U.S.C. § 1334(b). District courts are permitted, however, to refer bankruptcy cases to the bankruptcy court. 28 U.S.C. § 157(a).
Section 157(d) permits the district court to "withdraw" its "reference" of the case (i.e., revoke its earlier automatic referral to the bankruptcy court), if the matter involves law that should or must be adjudicated by an Article III court. Burger King, at 730. Specifically, § 157(d) states:
Section 157(d) provides for both permissive and mandatory withdrawal. The district court may withdraw the entire case before the bankruptcy court for "cause shown." Alternatively, the district court must withdraw a proceeding if resolution of the proceeding will require consideration of both Title 11 and other federal law other than the Bankruptcy Code. Burger King, supra, 64 B.R. at 731.
With respect to permissive withdrawal, the "cause shown" test DeLorean Motor Co. v. Allard, 49 B.R. 900, 912 (Bankr.E.D. Mich.1985). In DeLorean, the court observed that use of the phrase "cause shown" in § 157(d):
49 B.R. at 912 (emphasis in original) (citation omitted).
Much dispute has arisen around the interpretation of the § 157(d) mandatory withdrawal clause:
Burger King, supra, at 731 (emphasis in original, citations omitted).
In In re White Motor Corp., 42 B.R. 693, 705 (N.D.Ohio 1984), the court held that mandatory withdrawal of reference is required "only if the district court can make an affirmative determination that resolution of the claims will require substantial and material considerations of those non-Code statutes." (Emphasis added.)
Plaintiff contends that mandatory withdrawal is necessary because resolution of the adversary proceeding will require consideration of both Title 11 and § 10(b) of the Securities and Exchange Act of 1934, along with Rule 10b-5. Alternatively, the plaintiff argues that his request for a jury trial constitutes "cause shown" for purposes of permissive withdrawal.
In response, the defendant contends that mandatory withdrawal is not appropriate because the court need not consider both Title 11 and the relevant securities laws. Rather, the defendant argues, "only the securities laws need be considered." (Opp. brief, at 3, emphasis in original). Yet the defendant's sixth counterclaim expressly alleges that if the plaintiff's misconduct is not enjoined, the defendant's Chapter 11 reorganization plan may be imperiled.
Additionally, the plaintiff argues that his amended complaint implicitly raises issues under 11 U.S.C. §§ 502(b), 541, 542, and 553. Specifically, he contends that: (1) his damage claims raise issues under § 502(b) concerning the amount of allowance of such claims ("Price's request that Craddock be compelled to transfer the 490 shares is in essence a request that the bankruptcy court exclude the shares from the debtor's estate pursuant to § 541"); (2) the defendant's demand for the imposition of a constructive trust raises issues under § 542 concerning turning over property to the estate; and (3) in...
To continue reading
Request your trial-
In re Contemporary Lithographers, Inc.
...by district courts and lacking in bankruptcy courts; and the holding of at least one other court in a similar case, Price v. Craddock, 85 B.R. 570 (D.Colo.1988), favoring mandatory withdrawal. Id. at 210-11. The court concluded, "Withdrawal is mandatory." Id. at Price v. Craddock, mentioned......