In re Empire Land LLC et al, No. 2:2012cv00193 - Document 46 (C.D. Cal. 2016)

Court Description: ORDER DENYING DEFENDANTS MOTION TO WITHDRAW THE REFERENCE 36 by Judge Dean D. Pregerson. (MD JS-6, Case Terminated). (lc). Modified on 10/7/2016 (lc).

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In re Empire Land LLC et al Doc. 46 1 2 O 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 12 IN RE EMPIRE LAND, LLC [Debtors] RICHARD K. DIAMOND, Chapter 7 Trustee, 13 Plaintiff, 14 v. 15 16 17 18 EMPIRE PARTNERS, INC., a California corporation, JAMES PREVITI, LARRY R. DAY, NEIL MILLER, PAUL ROMAN, O'MELVEY & MYERS, LLP, a limited liability partnership, PETER HEALY, 19 Defendants. 20 21 ___________________________ ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Case No. CV 12-00193 DDP [Bankruptcy Case No.: 6:08-14592-MJ / Adversary No. 6:10-ap-01319-CB] ORDER DENYING DEFENDANTS’ MOTION TO WITHDRAW THE REFERENCE [Dkt. 36] 22 23 Presently before the court is Defendants Empire Partners, 24 Inc., James P. Previti, Larry R. Day, and Neil Miller 25 (collectively, “Defendants”)’ Motion to Withdraw the Reference of 26 an adversary proceeding to the bankruptcy court. 27 the submissions of the parties, the court denies the motion. 28 Having considered Bankruptcy proceedings fall into three categories: those that Dockets.Justia.com 1 arise under Title 11, those that arise in a Title 11 case, and 2 those that are merely “related to” a Title 11 proceeding. 3 Marhsall, 564 U.S. 462, 473 (2011). 4 two categories are known as “core” proceedings, while cases that 5 are only related to a Title 11 proceeding are “non-core.” 6 Executive Benefits Ins. Agency v. Arkison, 134 S.Ct. 2165, 2170 7 (2014); 28 U.S.C. § 157(b). 8 bankruptcy proceedings, whether core or non-core, to the Bankruptcy 9 Court. Stern v. Cases falling under the former District courts may refer any 28 U.S.C. § 157(a); Stern, 564 U.S. at 474. 10 Generally, a bankruptcy judge may hear and enter final 11 judgments in core proceedings, but in a non-core proceeding, may 12 only submit proposed findings and conclusions of law to the 13 district court, which then enters final judgment. 14 at 474-75; 28 U.S.C. § 157(c)(1). 15 “with the consent of all the parties to the proceeding, . . . hear 16 and determine and . . . enter appropriate orders and judgments . . 17 . .” 18 The Stern court held that although certain particular claims may be 19 labeled by Congress as “core” bankruptcy proceedings under 28 20 U.S.C. § 157(b), the Constitution nevertheless does not permit a 21 bankruptcy judge to adjudicate those claims. 22 at 503. 23 core “Stern claims” as she would a non-core claim. 24 Benefits, 1324 S.Ct. at 2172-73. 25 Stern, 564 U.S. A bankruptcy judge may, however, 28 U.S.C. § 157(c)(2); Executive Benefits, 134 S.Ct. at 2172. Id.; Stern, 564 U.S. Instead, the bankruptcy judge must treat these ostensibly Executive In Wellness Int’l Network, Ltd. v. Sharif, 135 S.Ct. 1932 26 (2015), the Supreme Court addressed the question whether parties 27 can consent to a bankruptcy judge’s adjudication of a Stern claim 28 in the same manner as parties can consent to adjudication of a 2 1 traditional non-core claim. Wellness, 135 S.Ct. at 1939. The 2 Court answered the question in the affirmative, holding that 3 “allowing bankruptcy litigants to waive the right to Article III 4 adjudication of Stern claims does not usurp the constitutional 5 prerogatives of Article III courts.” Id. at 1944-45. 6 More importantly, for purposes of the instant motion, the 7 Wellness court went on to clarify that neither the Constitution nor 8 28 U.S.C. § 157 mandates that a party expressly consent to 9 bankruptcy court adjudication. Wellness, 135 S.Ct. at 1947. “The 10 implied consent standard . . . supplies the appropriate rule for 11 adjudications by bankruptcy courts under § 157.” 12 “[T]he key inquiry is whether the litigant or counsel was made 13 aware of the need for consent and the right to refuse it, and still 14 voluntarily appeared to try the case before the non-Article III 15 adjudicator.” 16 see also In re Bellingham Ins. Agency, Inc., 702 F.3d. 553, 567 17 (9th Cir. 2012) (discussing party’s implied consent to permit a 18 bankruptcy judge “to decide finally”). 19 Id. at 1948. Id. (internal quotation and citation omitted). Id.; Here, the parties do not dispute that the only remaining 20 issues in the adversary proceeding are non-core. 21 dispute, however, whether Defendants have impliedly consented to 22 bankruptcy court jurisdiction over this matter. 23 court observed, determinations whether a party in fact consented to 24 bankruptcy court jurisdiction may “require a deeply factbound 25 analysis of the procedural history” of a particular case. 26 Wellness, 135 S.Ct. at 1949. 27 28 The parties do As the Wellness The procedural history of this case is long and complex. The underlying adversary proceeding is one of three related adversary 3 1 proceedings in bankruptcy court, and involves claims for breach of 2 fiduciary duty related to several allegedly fraudulent transfers 3 also at issue in the other two adversary proceedings. 4 argue that they have consistently stated in their filings that they 5 do not consent to the entry of final orders or judgments by the 6 bankruptcy judge, and have requested a jury trial. 7 17.) 8 the expense, delay, and inconvenience of de novo proceedings 9 [before a district court], or for any other reasons.” Defendants (Motion at 16- Parties do, however “sometimes change such positions to avoid In re AWRT 10 Liquidation Inc., 547 B.R. 831, 840 (Bankr. C.D. Cal. 2016). 11 Although Plaintiff does not ask that this Court make a finding that 12 Defendants impliedly consented to bankruptcy court jurisdiction, 13 Plaintiff argues that consent may be inferred from Defendants’ 14 filing of numerous motions before the Bankruptcy Court, including a 15 motion to dismiss and a dispositive motion for summary judgment, 16 which were both denied, as well as a motion to exclude an expert 17 witness, a discovery motion, and a motion barring Plaintiff from 18 seeking damages. 19 (Opposition at 15.) A showing of “sandbagging,” i.e. belatedly raising an 20 objection to jurisdiction only if and when a matter is not decided 21 in a party’s favor, is sufficient to show implied consent, but is 22 not necessary. 23 2013). 24 object and purposeful participation in the bankruptcy court 25 proceeding does constitute consent to bankruptcy court 26 jurisdiction. 27 B.R. 393, 409-410 (B.A.P. Ninth Cir. 2012). 28 more complicated. In re Pringle, 495 B.R. 447, 458 (B.A.P. Ninth Cir. In such straightforward cases, a party’s knowing failure to Id.; see also In re. Washington Coast I, L.L.C., 485 This case, however, is Although Defendants do appear to have sought to 4 1 withdraw the reference after the Bankruptcy Court ruled against 2 them on certain matters, Defendants also repeatedly and expressly 3 indicated their lack of consent to bankruptcy court jurisdiction. 4 At the same time, Defendants knowingly continued to participate in 5 the bankruptcy court proceedings. 6 this case and its connection to other, related adversary 7 proceedings, the Bankruptcy Court is in the best position to 8 conduct the “deeply factbound analysis of the procedural history” 9 and determine evaluate whether Defendants’ litigation conduct Given the complex history of 10 constitutes consent to bankruptcy court jurisdiction. Wellness, 11 135 S.Ct. at 1949; see also Pringle, 495 B.R. at 461 (“[O]nce a 12 party is alerted . . . to the potential risks of failing to raise 13 the issue of the tribunal’s authority, there is a rebuttable 14 presumption that such failure to act was intentional, and that 15 further purposeful proceeding in the forum indicates consent.”); In 16 re Daniels-Head $ Assocs., 819 F.2d 914, 919 (9th Cir. 1987) 17 (“[C]onsent may be implied . . . from any act indicating a 18 willingness to have the bankruptcy court determine a claim.”), 19 citing In re Baldwin-United Corp., 48 B.R. 49, 54 (Bankr. S.D. Ohio 20 1985). 21 adjudication can . . . invite litigation hijinks. 22 confronted with the thorny issue of implied consent to enter final 23 judgment are finely attuned to the concerns of litigation 24 misconduct . . . . 25 here, a party seeks affirmative relief from the bankruptcy court 26 believing it might win and then cries foul . . . when it loses.” 27 True Traditions, LC v. Wu, 552 B.R. 826, 837 (N.D. Cal. 2015). As one court has observed, “the right to seek Article III Courts This concern is particularly acute where, as 28 5 1 Defendants’ motion to withdraw the reference is therefore denied, 2 without prejudice, absent findings of fact from the Bankruptcy 3 Court regarding Defendants’ implied consent. 4 Even if Defendants have not consented to bankruptcy court 5 adjudication, withdrawal of the reference is not necessarily 6 warranted at this juncture. 7 the reference is discretionary. 8 standard for withdrawal is high and must be satisfied by the party 9 seeking withdrawal.” Defendants concede that withdrawal of See 28 U.S.C. § 157(d). “The Rock Ridge Properties, Inc. v. Greenback 10 Mortgage Fund, LLC., No. CIV. S-11-2547 KJM CKD, 2012 WL 346465 at 11 *2 (E.D. Cal. Jan. 31, 2012). 12 efficiency, costs to the parties, uniformity of bankruptcy 13 administration, and the prevention of forum shopping. 14 v. Int’l Bhd. Of Teamsters, Chauffers, Warehousemen, & Helpers, 124 15 F.3d 999, 1008 (9th Cir. 1997). 16 whether the claims at issue are core or non-core and whether the 17 claims are triable by a jury. 18 302 B.R. 308, 310 (C.D. Cal. 2003). 19 Relevant factors include judicial Sec. Farms Other courts have also looked to See In re Daewoo Motor Am., Inc., The court assumes, for the sake of argument, that Defendants 20 have not waived their right to trial by jury. 21 does not suggest that Defendant Miller, at the very least, has 22 waived any such right. 23 as does the non-core nature of the proceedings. 24 Indeed, Plaintiff That factor weighs in favor of withdrawal, Id. Those factors, however, are insufficient to tip the balance in 25 favor of immediate withdrawal. 26 acknowledge, “a Seventh Amendment jury trial right does not mean 27 the bankruptcy court must instantly give up jurisdiction and that 28 the case must be transferred to the district court. First, and as Defendants 6 Instead, the 1 bankruptcy court is permitted to retain jurisdiction over the 2 action for pre-trial matters.” 3 775, 787 (9th Cir. 2007) (internal citation omitted). 4 bankruptcy court were to rule on a dispositive motion, it would not 5 affect a party’s Seventh Amendment right to a jury trial, as these 6 motions merely address whether trial is necessary at all.” 7 (emphasis omitted). 8 9 In re Healthcentral.com, 504 F.3d “[E]ven if a Id. Second, immediate withdrawal would not help conserve judicial resources. “Indeed, many courts prefer to delay withdrawal until 10 the case is ready for trial to preserve judicial economy and 11 efficiency.” 12 74385 at *3 (C.D. Cal. Jan. 6, 2016). 13 explained, the bankruptcy court system “promotes judicial economy 14 and efficiency by making use of the bankruptcy court’s unique 15 knowledge of Title 11 and familiarity with the actions before them. 16 Accordingly, . . . to require an action’s immediate transfer to 17 district court simply because there is a jury trial right . . . 18 would effectively subvert this system. 19 bankruptcy court to retain jurisdiction over the action until trial 20 is actually ready do we ensure that our bankruptcy system is 21 carried out.” 22 citations and emphases omitted). 23 In re: KSL Media, Inc., No. CV 15-08748 AB, 2016 WL As the Ninth Circuit Only by allowing the Healthcentral.com, 504 F.3d at 787-88 (internal Lastly, the possibility of forum shopping weighs against 24 immediate withdrawal of the reference. 25 Defendants have actively litigated this matter before the 26 Bankruptcy Court, including by filing a potentially dispositive 27 motion to dismiss and motion for summary judgment before that 28 court. As alluded to above, Although this Court defers, for the time being, to the 7 1 Bankruptcy Court on the question whether that litigation activity 2 constituted consent to jurisdiction, this Court is not persuaded 3 that Defendants’ efforts to proceed in this Court are not related 4 to the Bankruptcy Court’s denial of Defendants’ motions. 5 For these reasons, Defendants’ Motion to Withdraw the 6 Reference is DENIED, without prejudice, until such time as this 7 matter is ready for trial. 8 9 IT IS SO ORDERED. 10 11 12 Dated: October 7, 2016 13 DEAN D. PREGERSON United States District Judge 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8

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