DAMON'S INTERNATIONAL, INC. et al v. DAMON'S RESTAURANTS (UK), LTD. et al
Filing
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MEMORANDUM ORDER denying re 1 Motion to Withdraw the Reference, filed by DAMON'S (NO. 3), LTD, DAMON'S (DERBY) LTD., DAMON'S RESTAURANTS (UK), LTD., DAMON'S (DEVELOPMENTS), LTD., DAMON'S (HOLDINGS), LTD. without prejudice to refile the motion when, and if, the case becomes trial ready. The Clerk shall mark this case closed. Signed by Judge David S. Cercone on 7/22/13. (jmc)
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IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
IN RE:
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DAMON’S INTERNATIONAL, INC.,
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DAMON’S RESTAURANTS, INC.
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________________________________
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DAMON’S INTERNATIONAL, INC.
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DAMON’S RESTAURANTS, INC.,
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Plaintiffs,
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v.
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DAMON’S RESTAURANTS (UK),
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LTD., DAMON’S (HOLDINGS), LTD., )
DAMON’S (DEVELOPMENTS), LTD., )
DAMON’S (NO.3), LTD., and
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DAMON’S (DERBY) LTD.
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Defendants.
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2:12cv00001
(Bankruptcy No. 09-27920-JAD)
(Adversary Proceeding No. 11-02393-JAD)
Electronic Filing
MEMORANDUM ORDER
July 22, 2013
Before the Court is a Motion to Withdraw the Reference to the District Court filed on
behalf of Defendants, Damon’s Restaurants (UK), Ltd. (“DRL”), Damon’s (Holdings), Ltd.
(“DHL”), Damon’s (Developments), Ltd. (“DDL”), Damon’s (No. 3), Ltd. (“D3”), and Damon’s
(Derby), Ltd. (“DBY”) (collectively “Damon’s UK” or “Defendants”). On or about October 28,
2009, Damon’s International, Inc. (“DII”), filed a voluntary petition for relief under Chapter 11
of the United States Bankruptcy Code. Damon’s Restaurants, Inc. (“DRI”)(collectively
“Damon’s” or Plaintiffs”) filed a voluntary petition for relief under Chapter 11 of the Bankruptcy
Code on January 29, 2010.
Plaintiffs commenced an adversary proceeding on July 28, 2011, by filing a Complaint
against Damon’s UK alleging causes of action for (1) Breach of License Agreement, and (2)
Injunctive Relief, arising out of the parties’ 2004 license agreement. Damon’s UK now seeks to
withdraw the reference to the United States District Court for the Western District of
Pennsylvania. Once a Title 11 proceeding has been referred to the bankruptcy court, the district
court’s authority to withdraw the reference is governed by 28 U.S.C.A. § 157, 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.
28 U.S.C.A. § 157(d)1.
A district court considers a number of factors to determine whether the reference to the
bankruptcy court should be permissively withdrawn, including “the goals of promoting
uniformity in bankruptcy administration, reducing forum shopping and confusion, fostering the
economical use of the debtors’ and creditors’ resources, and expediting the bankruptcy process.”
Velocita Corp. v. Construction Mgmt. & Inspection, Inc., 169 F. App’x 712, 716 (3d Cir. 2006)
(unreported) (quoting In re Pruitt, 910 F.2d 1160, 1168 (3d Cir. 1990)). As a threshold matter,
however, a court must first evaluate whether the action sought to be withdrawn is a core or noncore proceeding. See Certain Underwriters at Lloyd’s of London v. Otlowski, 2009 U.S. Dist.
LEXIS 6408 at *5 (D.N.J. Jan. 23, 2009) (citations omitted).
It is the role of the bankruptcy court to make the core or non-core determination in the
first instance, either by its own motion or by motion of a party. See 28 U.S.C. § 157(b)(3);
Doctors Assocs. v. Desai, 2010 U.S. Dist. LEXIS 86454, 14-15 (D.N.J. Aug. 23, 2010); see also
Katz v. Karagjozi (In re Kara Homes, Inc.), 2009 U.S. Dist. LEXIS 63215, at *3 (D.N.J. 2009)
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Section 157 provides for both mandatory and permissive withdrawal. None of the parties in
the instant matter argue that mandatory withdrawal applies here.
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(concluding that the motion to withdraw the reference was premature because a core/non-core
determination was not yet made whether a matter is a “core” proceeding in bankruptcy). But see
Harley Hotels, Inc. v. Rain’s Int’l, Ltd., 57 B.R. 773, 776 (M.D. Pa. Nov. 15, 1985) (finding that
concerns of judicial economy dictated that the district court render a decision in the first instance
on whether a proceeding was core or non-core). Defendants’ motion and Plaintiffs’ response
indicate that the Bankruptcy Court was never given an opportunity to determine whether the
proceedings in this case constitute core or non-core proceedings. Based upon concerns for
judicial efficiency, this Court shall render a decision on whether a proceeding is core or noncore.
Whether a proceeding is a “core” proceeding that “arises under” Title 11 depends upon
whether the Bankruptcy Code creates the cause of action or provides the substantive right
invoked. Stoe v. Flaherty, 436 F.3d 209, 217 (3d Cir. Pa. 2006) (citing Halper v. Halper, 164
F.3d 830, 836, 836-37 n.7 (3d Cir. 1999)). A core proceeding “must have as its foundation the
creation, recognition, or adjudication of rights which would not exist independent of a
bankruptcy environment although of necessity there may be peripheral state law involvement.”
Travelers Cas. & Sur. Co. v. Skinner Engine Co. (In re Am. Capital Equip., LLC), 325 B.R. 372,
375 (W.D. Pa. 2005) (quoting Hatzel & Buehler, Inc. v. Orange & Rockland Utils., Inc., 107
B.R. 34, 39 (D. Del. 1989)).
In this instance, Plaintiffs claims arise out of a licensing agreement entered into by the
parties in 2004. With regard to a contract claim based on a pre-petition contract, the Third
Circuit noted:
[a] party who contracts with an apparently healthy company -- a
company that has not filed a petition in bankruptcy -- may find it
unpleasantly surprising to have to defend its pre-petition contract
in a bankruptcy court, without a jury or Article III protections. But
it is difficult to see any unfair surprise in bringing a post-petition
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contract action before a bankruptcy court. Parties who contract
with a bankrupt company's trustee or with a debtor-in-possession
know that they are dealing with an agent responsible to a
bankruptcy court; that the bankruptcy court would resolve
subsequent disputes should therefore come as no surprise.
Beard v. Braunstein, 914 F.2d 434, 445 (3d Cir. Pa. 1990) (quoting In re Arnold Print Works,
Inc., 815 F.2d 165, 170 (1st Cir. Mass. 1987)). The court concluded that an action involving prepetition contracts breached both before and after the filing of the petition, was “entirely a noncore matter related to a case arising under title 11.” Id. at 445. Further, Damon’s UK has not
filed a proof of claim in Plaintiffs’ bankruptcy cases. If a creditor does not file a proof of claim
with the bankruptcy court, courts categorize pre-petition state law claims as non-core
proceedings. See e.g., Stoe v. Flaherty, 436 F.3d at 217 (holding that when no proof of claim was
filed, a state law action for unpaid severance benefits did not “arise under” or “arise in” a
bankruptcy case and, consequently, was a non-core proceeding); In re DHP Holdings II Corp.,
435 B.R. 264, 271 (Bankr. D. Del. 2010) (concluding that when no proof of claim was filed, a
dispute over a pre-petition contract was merely a breach of contract claim and, therefore, a noncore proceeding). The Court finds that the Complaint against Damon’s UK alleging causes of
action for (1) Breach of License Agreement, and (2) Injunctive Relief, arising out of the parties’
2004 license agreement is non-core proceeding2.
Another factor that should be considered is whether the parties have requested a jury trial.
Bankruptcy courts cannot conduct jury trials unless the parties consent. 28 U.S.C.A. § 157(e).
However, the assertion of a Seventh Amendment right to a jury trial in and of itself does not
warrant immediate withdrawal of the reference. This Court has previously found that “[i]t is
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Plaintiffs do not argue that the proceeding the Defendants seek to withdraw is a core
proceeding.
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appropriate, efficient, and logical that withdrawal of the reference in such circumstances can be
deferred until the case is trial ready.” See In re GGC, LLC, 2006 U.S. Dist. LEXIS 69163 *3 n. 2
(W.D. Pa. Sept. 26, 2006); In re American Capital Equip., LLC, 325 B.R. 372, 378 (W.D. Pa.
2005) (citing In re Northwestern Institute of Psychiatry, Inc., 268 B.R. 79, 84 (Bky. E.D. Pa.
2001). The Court finds such logic applicable here. Therefore, there is no need to address the
remaining factors applicable to determine whether the reference to the bankruptcy court should
be permissively withdrawn. The Court finds that the motion to withdraw reference is not
warranted until the case is ready for trial
Accordingly,
ORDER OF COURT
And now this 22nd day of July, 2013, upon consideration of the Motion to Withdraw the
Reference to the District Court (Document No. 1) filed on behalf of Defendants, Damon’s
Restaurants (UK), Ltd., Damon’s (Holdings), Ltd., Damon’s (Developments), Ltd., Damon’s
(No. 3), Ltd., and Damon’s (Derby), Ltd., and Plaintiffs response thereto, in accordance with the
accompanying Memorandum,
IT IS HEREBY ORDERED that the motion to withdraw is DENIED without prejudice
to refile the motion when, and if, the case becomes trial ready. The Clerk shall mark this case
closed.
s/ David Stewart Cercone
David Stewart Cercone
United States District Judge
cc:
Michael Kaminski, Esquire
Jordan S. Blask, Esquire
Michael A. Shiner, Esquire
(Via CM/ECF Electronic Mail)
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