Federal Deposit Insurance Corporation as Receiver for Tampalpais Bank v. Green, No. 3:2011cv00076 - Document 12 (N.D. Cal. 2011)
Court Description: ORDER GRANTING MOTION TO WITHDRAW REFERENCE TO BANKRUPTCY COURT. Signed by Judge Jeffrey S. White on 3/21/11. (jjoS, COURT STAFF) (Filed on 3/21/2011)
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Federal Deposit Insurance Corporation as Receiver for Tampalpais Bank v. Green Doc. 12 1 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE NORTHERN DISTRICT OF CALIFORNIA 8 In re 9 TAMALPAIS BANCORP, f/k/a EPIC BANCORP, 11 For the Northern District of California United States District Court 10 No. C 11-00076 JSW Debtor. 12 _____________________________________/ 13 LINDA S. GREEN, in her capacity as Chapter 7 trustee for TAMALPAIS BANCORP, f/k/a EPIC BANCORP, 14 15 Plaintiff, 16 17 18 ORDER GRANTING MOTION TO WITHDRAW REFERENCE TO BANKRUPTCY COURT v. FEDERAL DEPOSIT INSURANCE CORPORATION, in its capacity as receiver for Tamalpais Bank, 19 Defendant. / 20 Now before the Court is the motion to withdraw the reference to the bankruptcy court 21 22 pursuant to 28 U.S.C. § 157(d) filed by defendant Federal Deposit Insurance Corporation 23 (“FDIC”). This motion is fully briefed and ripe for decision. The Court finds this motion is 24 suitable for disposition without oral argument. See N.D. Civ. L.R. 7-1(b). Having carefully 25 considered the parties’ papers and the relevant legal authority, the Court hereby GRANTS 26 FDIC’s motion to withdraw the reference. 27 // 28 // Dockets.Justia.com 1 BACKGROUND 2 Two related entities stand at the core of this motion: Tamalpais Bancorp, f/k/a Epic 3 Bancorp (“Debtor”), and its subsidiary, Tamalpais Bank (“Bank”). The relevant facts are 4 undisputed. On April 16, 2010 the California Department of Financial Institutions closed Bank 5 and appointed FDIC as its receiver. On September 24, 2010 Debtor filed a Chapter 7 6 bankruptcy proceeding, and Linda S. Green (“Trustee”) was subsequently appointed as trustee 7 for the Debtor’s bankruptcy estate. 8 9 The present motion relates to an adversary proceeding, brought in the bankruptcy court by Trustee against FDIC on November 30, 2010, seeking a declaratory judgment regarding ownership of certain tax refunds (“Refunds”). From 1997 to 2009, Debtor filed consolidated 11 For the Northern District of California United States District Court 10 tax returns on behalf of itself, Bank, and another subsidiary which is not a party to this action. 12 Due to changes made to the Internal Revenue Code in 2009, FDIC was able to file an amended 13 2009 tax return on behalf of Bank and secure Refunds in the amount of $9.7 million. In the 14 adversary proceeding that is the focus of this motion, Trustee asserts that the Refunds belong to 15 Debtor’s bankruptcy estate rather than Bank’s receivership pursuant to a 2005 Tax Sharing 16 Agreement (“TSA”) between Debtor and Bank. FDIC now argues that, because its defense in 17 the adversary proceeding will involve federal non-bankruptcy law, this Court should withdraw 18 the reference to the bankruptcy court as to the adversary proceeding. 19 20 21 ANALYSIS A. Standard of Review. District courts, rather than bankruptcy courts, have original jurisdiction over all 22 bankruptcy matters. 28 U.S.C. § 1334(b). However, district courts may refer all bankruptcy 23 matters to a bankruptcy court. 28 U.S.C. § 157(a). 28 U.S.C. § 157(d) provides that, in certain 24 circumstances, a referred case may be transferred from the bankruptcy court back to the district 25 court by withdrawing the reference. Withdrawal can be mandatory or permissive. 28 U.S.C. 26 § 157(d). The burden of persuasion is on the party seeking withdrawal. Hawaiian Airlines, Inc. 27 v. Mesa Air Group, Inc., 355 B.R. 214, 218 (D. Haw. 2006). 28 2 1 2 B. Mandatory Withdrawal. Mandatory withdrawal of a reference is governed by the second sentence of Section 3 157(d): “The district court shall, on timely motion of a party, so withdraw a proceeding if the 4 court determines that resolution of the proceeding requires consideration of both title 11 and 5 other laws of the United States regulating organizations or activities affecting interstate 6 commerce.” 28 U.S.C. § 157(d). The Ninth Circuit has not squarely addressed mandatory 7 withdrawal, but other circuits have held that “mandatory withdrawal is required only when 8 [non-title 11] issues require the interpretation, as opposed to mere application, of the non-title 9 11 statute, or when the court must undertake analysis of significant open and unresolved issues regarding the non-title 11 law.” In re Vicars Ins. Agency, Inc., 96 F.3d 949, 954 (7th Cir. 11 For the Northern District of California United States District Court 10 1996); see also In re Ionosphere Clubs, Inc., 922 F.2d 984, 995 (2d Cir. 1990). Courts within 12 the Ninth Circuit have largely adopted this approach. See, e.g., In re Upp, Nos. C 10-01934 SI, 13 3:10-cv-00204-SI, 3:10-cv-01149-SI, 3:10-cv-02559-SI, 2010 WL 5387609, at *1 (N.D. Cal. 14 Dec. 21, 2010); Siegel v. Caldera, No. CV 10-00179-RGK, 2010 WL 1136220, at *1 (C.D. Cal. 15 Mar. 19, 2010); In re Creekside Vineyards, Inc., No. CIV. 2:09-2273 WBS EFB, 2009 WL 16 3378989, at *4 (E.D. Cal. Oct. 19, 2009); In re Roman Catholic Bishop of San Diego, No. 17 07cv1355-IEG (RBB), 2007 WL 2406899, at *1-2 (S.D. Cal. Aug. 20, 2007). Under this 18 approach, a movant must do more than merely suggest that novel issues of law could possibly 19 arise in a bankruptcy proceeding. Vicars Ins., 96 F.3d at 954-55. 20 At least two additional requirements have been identified by courts in the Ninth Circuit. 21 First, mandatory withdrawal is inappropriate where the asserted non-bankruptcy laws do not 22 relate to interstate commerce. In re Roman Catholic Bishop of San Diego, 2007 WL 2406899 at 23 *2. Second, only federal law, rather than non-binding policy, can trigger mandatory 24 withdrawal. Siegel, 2010 WL 1136220 at *3. 25 FDIC first contends that mandatory withdrawal is required here because its affirmative 26 defenses implicate the Financial Institutions Reform, Recovery and Enforcement Act of 1989 27 (“FIRREA”), Pub. L. No. 101-73, 103 Stat. 183 (1989). FDIC cites one particular decision by a 28 district court within the Ninth Circuit in support of this proposition: “cases involving FIRREA 3 1 require mandatory withdrawal of the reference.” CM Capital Servs. LLC v. Stewart Title of 2 Nevada, No. 2:10-CV-317 JCM (LRL), 2010 WL 4606523, at *2 (D. Nev. Nov. 5, 2010) (citing 3 In re Lubin, 411 B.R. 801, 804 (N.D.Ga.2009)). However, the weight of authority places 4 emphasis on what issues are to be addressed rather than what statutes are involved. To the 5 extent that the CM Capital Services court granted mandatory withdrawal simply because a 6 particular federal statute was to be applied, albeit mechanically, to the facts of the case, that 7 court represents the minority position. The mere presence of FIRREA-based defenses does not 8 satisfy FDIC’s burden of identifying novel issues of law that are likely to arise in the adversary 9 proceeding. See, e.g., Siegel, 2010 WL 1136220 at *2-4 (holding that mandatory withdrawal 11 For the Northern District of California United States District Court 10 was inappropriate despite the assertion of FIRREA-based claims). FDIC next argues that it is entitled to mandatory withdrawal because it intends to assert 12 no fewer than seven affirmative defenses based on federal non-bankruptcy law. There is no 13 authority for FDIC’s assertion that “the sheer number of non-bankruptcy federal laws at issue in 14 this case satisfies the requirement that consideration of other federal law be ‘substantial.’” 15 (Reply in Further Support of Motion to Withdraw the Reference (“Reply”) at 7.) Rather, FDIC 16 must show that at least one of the asserted defenses will “require the interpretation, as opposed 17 to mere application, of [a] non-title 11 statute.” Vicars Ins., 96 F.3d at 954. 18 FDIC fails to demonstrate that any particular defense would require interpretation or 19 analysis of unresolved issues of federal non-bankruptcy laws in the adversary proceeding. 20 Indeed, it characterizes its primary defense, i.e., that the bankruptcy court lacks jurisdiction to 21 hear Trustee’s claims under 18 U.S.C. § 1821(d), as based on “well-settled case law” that 22 renders the outcome “absolutely clear.” (Motion to Withdraw the Reference (“Mot.”) at 2; see 23 also Mem. of Law in Support of Motion to Withdraw the Reference (“Mem.”) at 7 (asserting 24 that the circuits are unanimous on the issue).) Moreover, FDIC represents that almost all of its 25 asserted defenses are dictated by existing, established law. (See, e.g., Mem. at 9, 12.) The lone 26 exception is its defense based on 12 U.S.C. § 1821(j), as to which FDIC identifies numerous 27 cases holding in its favor and never suggests that a court would need to do more than 28 4 1 mechanically apply those cases here. (Mem. at 10-11.) FDIC thus fails to demonstrate that 2 novel issues of federal bankruptcy law are likely to arise. See Vicars Ins., 96 F.3d at 954-55. 3 FDIC further contends that mandatory withdrawal is appropriate because a court will be However, FDIC previously indicated that Trustee’s failure to exhaust administrative remedies 6 under FIRREA deprives a court of jurisdiction to hear claims against FDIC. (Mem. at 8.) By 7 arguing that the Court lacks jurisdiction to hear Trustee’s claims, FDIC has failed to 8 demonstrate the likelihood that unresolved issues of whether FIRREA controls over the 9 Bankruptcy Code will arise in the adversary proceeding. See Vicars Ins., 96 F.3d at 954-55 10 (“speculative” concerns that RICO claims “might involve novel issues” were insufficient to 11 For the Northern District of California required to decide “whether FIRREA controls over the Bankruptcy Code.” (Reply at 1.) 5 United States District Court 4 trigger mandatory withdrawal). 12 Because FDIC has failed to identify any novel issues of federal non-bankruptcy law that 13 are likely to arise in the adversary proceeding, the Court concludes that mandatory withdrawal 14 is not appropriate in this case. 15 C. Permissive Withdrawal. 16 Permissive withdrawal of a reference is governed by the first sentence of Section 157(d): 17 “The district court may withdraw, in whole or in part, any case or proceeding referred under this 18 section, on its own motion or on timely motion of any party, for cause shown.” 28 U.S.C. 19 § 157(d). “In determining whether cause exists, a district court should consider the efficient use 20 of judicial resources, delay and costs to the parties, uniformity of bankruptcy administration, the 21 prevention of forum shopping, and other related factors.” Sec. Farms v. Int’l Bhd. of Teamsters, 22 Chauffers, Warehousemen & Helpers, 124 F.3d 999, 1008 (9th Cir. 1997) (citing In re Orion 23 Pictures Corp., 4 F.3d 1095, 1101 (2d Cir.1993)). 24 “[C]haracterization of the claims as core or non-core [under 28 U.S.C. § 157(b)] is 25 useful before considering the [Sec. Farms] factors.” Hawaiian Airlines, 355 B.R. at 223. 26 “Actions that do not depend on bankruptcy laws for their existence and that could proceed in 27 another court are considered ‘non-core.’” Sec. Farms, 124 F.3d at 1008 (citing In re Castlerock 28 Props., 781 F.2d 159, 162 (9th Cir. 1986)). While the list of core proceedings provided in 28 5 1 U.S.C. § 157(b)(2) is nonexhaustive, those provisions must be read narrowly so as to avoid 2 “constitutional problems arising from having Article I judges issue final orders in cases 3 requiring an Article III judge, without a party’s consent.” Dunmore v. United States, 358 F.3d 4 1107, 1115 (9th Cir. 2004); see also Castlerock Props., 781 F.2d at 162 (“[A] court should 5 avoid characterizing a proceeding as ‘core’ if to do so would raise constitutional problems.”). 6 “Congress may not vest in a non-Article III court the power to adjudicate, render final 7 judgment, and issue binding orders in a traditional contract action arising under state law . . . .” 8 Thomas v. Union Carbide Agric. Prods. Co., 473 U.S. 568, 584 (1985) (characterizing the 9 holding of Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982)). Thus, while a claim arising from a post-petition contract regarding the property of the 11 For the Northern District of California United States District Court 10 bankruptcy estate is a core proceeding, a claim arising from a pre-petition contract is a non-core 12 proceeding even if the debtor is a party to the contract at issue. Compare In re Harris, 590 F.3d 13 730, 740-41 (9th Cir. 2009) with In re Ray, 624 F.3d 1124, 1131-33 (9th Cir. 2010). 14 Trustee frames the adversary proceeding as an action to determine the nature and extent 15 of property of the bankruptcy estate under 11 U.S.C. § 541(a), which Trustee argues is a core 16 proceeding under In re Kincaid, 917 F.2d 1162, 1165 (9th Cir. 1990). FDIC, however, 17 characterizes Trustee’s claim as one that merely seeks to determine ownership of certain funds 18 pursuant to a contract and thus fits Sec. Farms’ definition of non-core proceedings. The fact 19 that the TSA was enacted years before Debtor filed for bankruptcy demonstrates that Debtor’s 20 cause of action under the TSA exists independently of bankruptcy law. While Trustee’s claim 21 will have a profound impact on the bankruptcy proceedings, a declaratory judgment action 22 regarding ownership of the Refunds involves only a traditional contract dispute that could have 23 been brought even if Debtor had never filed for bankruptcy. Trustee’s claim is therefore non- 24 core. 25 Trustee’s reliance on Kincaid is misplaced. The underlying issue in Kincaid was 26 whether certain of the debtor’s future interests in a deferred salary plan were properly included 27 in debtor’s bankruptcy estate. 917 F.2d at 1164-65. There was no question that the interests at 28 issue belonged to the debtor; rather, the question was whether the debtor’s future interests were 6 1 part of her bankruptcy estate under 11 U.S.C. § 541(a). Id. The primary issue was considered a 2 core issue because resolution of the claim hinged on interpretation of Section 541 of the 3 Bankruptcy Code. See id. at 1165-66. By contrast, the controlling question in the present case 4 is whether the Refunds belong to Debtor under the TSA, and the bankruptcy-related question of 5 whether 11 U.S.C. § 541(a) includes the Refunds in Debtor’s bankruptcy estate is only 6 secondary to that threshold inquiry under contract law. Like the claims that the Sec. Farms 7 court held to be non-core, Trustee’s claim does “not depend on Title 11 . . . but [is] in 8 [bankruptcy] court only because of [its] potential impact on the administration of [the 9 bankruptcy] estate.” 124 F.3d at 1008. Trustee also cites numerous bankruptcy court decisions for the proposition that 11 For the Northern District of California United States District Court 10 determination of the ownership of property, when performed in the context of a bankruptcy 12 proceeding, is a core proceeding. However, the recent Ninth Circuit cases of Harris and Ray 13 control over the cases cited by Trustee. Accordingly, Trustee’s pre-petition, TSA-based claim 14 to the Refunds is a non-core claim under binding precedent. 15 While a bankruptcy court may hear certain non-core issues, its findings of fact and 16 conclusions of law on such issues are subject to de novo review by a district court absent 17 consent of both parties. 28 U.S.C. § 157(c). Because FDIC does not consent here, any findings 18 of the bankruptcy court as to ownership of the Refunds will be subject to de novo review. Such 19 concerns prompted the Sec. Farms court to note that judicial efficiency and costs were best 20 served by withdrawing the reference so that the district court could address the claims in a 21 single proceeding. 124 F.3d at 1008-09. Failure to withdraw the reference at this stage could 22 lead to a future appeal in which a district court will be tasked with reviewing the bankruptcy 23 court’s decision de novo. The Court therefore concludes that (1) judicial resources would be 24 most efficiently used by withdrawing the reference, and (2) unnecessary delay and costs to the 25 parties can be avoided by withdrawing the reference. 26 The parties each accuse one another of engaging in forum shopping. However, as in 27 Sec. Farms, neither denying nor granting FDIC’s motion will facilitate forum shopping here 28 because a district court will ultimately need to address the issues, whether initially or on de 7 1 novo review of the bankruptcy court. The prevention of forum shopping neither supports nor 2 opposes withdrawal in the present motion. See Sec. Farms, 124 F.3d at 1009. 3 Because the primary claim at issue here is non-core, the Court concludes that the Sec. 4 Farms factors render permissive withdrawal appropriate. 5 CONCLUSION 6 For the reasons set forth above, FDIC’s motion to withdraw the reference to the 7 bankruptcy court as to the adversary proceeding is GRANTED. All further proceedings in this 8 adversary action shall be held before this Court. 9 IT IS SO ORDERED. 11 For the Northern District of California United States District Court 10 Dated: March 21, 2011 JEFFREY S. WHITE UNITED STATES DISTRICT JUDGE 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8
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