United States District Court, S.D. Texas, Houston Division
MEMORANDUM & ORDER DENYING THE DEFENDANT'S
MOTION TO WITHDRAW REFERENCE
Rosenthal, Chief United States District Judge.
September 2017, the court denied John Speer's emergency
motion to declare the trustee, Rodney Tow, in civil contempt
for violating the parties' settlement agreement by
seeking to recover assets from the defendant, Park Lake.
(See Civil Action No. H-11-3700, Docket Entry No.
491). The parties returned to bankruptcy court to address the
motion pending in Tow's adversary action, (No. 17-03322),
to recover assets from Park Lake. Tow asserts a claim under
11 U.S.C. § 542(b), requesting the court to order Park
Lake to pay down its debt by remitting proceeds from the
Montgomery County Municipal Utility District Reimbursement it
Lake asked the bankruptcy court to recommend that the
district court withdraw the reference. The trustee
“vigorously” opposed withdrawing the reference.
(Docket Entry No. 1). The bankruptcy court held a hearing on
October 18, 2017 and issued a Report and Recommendation
recommending against withdrawal. Park Lake moved this court
to withdraw and filed objections to the Report and
Recommendation on November 3, 2017. Tow did not respond.
may be either mandatory or permissive. “Courts
generally interpret the mandatory withdrawal provision
restrictively, granting withdrawal of the reference when the
claim and defense entail material and substantial
consideration of non-Bankruptcy Code federal law.”
Levine v. M&A Custom Home Builder & Developer,
LLC, 400 B.R. 200, 203 (S.D. Tex. 2008) (citing
Lifemark Hosps. of La., Inc. v. Liljeberg Enters.,
Inc., 161 B.R. 21, 24 (E.D. La.1993) (withdrawing
reference when the case necessarily involved determining
antitrust claims); U.S. Gypsum Co. v. Nat'l Gypsum
Co., 145 B.R. 539, 541 (N.D. Tex.1992) (withdrawing
reference when the case necessarily involved determining
patent claims); In re Johns-Manville Corp., 63 B.R.
600, 603 (S.D.N.Y.1986) (withdrawing reference when the case
necessarily involved determining CERCLA claims); In re
White Motor Corp., 42 B. R. 693, 704 (N.D. Ohio 1984)
(no withdrawal of reference based on speculation about issues
under ERISA and Internal Revenue Code that might or might not
be germane to the core proceeding)).
are no causes of action in this case based in federal law
other than the Bankruptcy Code. The only claim is based on
§ 524(b). Mandatory withdrawal is inapplicable.
permissive withdrawal provision of § 157(d) 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.'” In re Morrison, 409 B.R. 384
(S.D. Tex. 2009) (citing 28 U.S.C. § 157(d)). “The
party seeking withdrawal of the reference bears the burden of
establishing grounds for permissive withdrawal.”
Id. “Cause for withdrawal can exist only if
premised upon a sound articulated foundation.”
Id. (citing Vela v. Enron Oil & Gas
Co., 2007 U.S. Dist. LEXIS 38997, 2007 WL 1564562 at * 2
(S.D. Tex. May 29, 2007)). “Permissive withdrawal for
cause shown requires a court to examine the following
factors: is the matter core or noncore? Do the proceedings
involve a jury demand? Would withdrawal further uniformity in
bankruptcy administration? Would withdrawal reduce
forum-shopping and confusion? Would withdrawal foster
economical use of resources? Would withdrawal expedite the
bankruptcy process?” Levine, 400 B.R. at 203
(citing Holland America Ins. Co. v. Succession of
Roy, 777 F.2d 992, 999 (5th Cir.1985)). The Bankruptcy
Court analyzed the permissive-withdrawal factors and
concluded that withdrawal was inappropriate. The court
factor is discussed below.
28 U.S.C. § 157(b)(2)(E) provides that “[c]ore
proceedings include, but are not limited to-(E) orders to
turn over property of the estate.” Park Lake argues
that this case is a non-core proceeding because it is based
on state collection law. The Bankruptcy Court acknowledged a
line of trial-court cases supporting this argument. These
cases hold “that an action by a trustee to recover an
account receivable based on state contract law does not fall
within the scope of turnover actions contemplated by §
542(b) and 28 U.S.C. § 157(b)(2)(E), and therefore such
an action is a non-core proceeding.” (Docket Entry No.
1 at 12); see, e.g., In re Satelco, Inc.,
58 B.R. 781, 789 Bankr. N.D. Tex. 1986) (“[T]his Court
holds that actions to collect accounts receivable based upon
state law contract principles do not fall within the scope of
turnover actions as contemplated by § 542 and §
157(b)(2)(E), absent a final judgment from a court of
competent jurisdiction, a stipulation, or some other binding
determination of liability.”). But the Bankruptcy Court
correctly identified a second line of cases, including
circuit-court precedent, standing for the opposite
proposition. See, e.g., In re Willington
Convalescent Home, Inc., 850 F.2d 50, 52 n.2 (2d Cir.
1988) (“Although ‘actions on account and debt and
contract generally arise under state law, ' § 542(b)
‘sufficient[ly] . . . arrogate[s] the general law
concepts and transform[s] them into bankruptcy law.'
‘The mere fact that' Connecticut denies that it
owes the matured debt for Willington's services because
of a recoupment right ‘does not take the trustee's
action outside the scope of section 542(b).'”).
account receivable at issue is property owed to the estate
that the trustee seeks to collect through this turnover suit.
This claim is expressly covered by § 157(b)(2)(E) of the
Bankruptcy Code, making this a core proceeding.
the Bankruptcy Court explained, this result is consistent
with Stern v. Marshall, 564 U.S. 462 (2011). In
Stern, the Court held that certain
“core” claims may not be adjudicated in
bankruptcy court when they are “in no way derived from
or dependent upon bankruptcy law.” Id. at 499.
The claim at issue in Stern was a counterclaim based
solely on state law. The Court determined that it could not
be adjudicated by the bankruptcy court, despite the fact that
it was otherwise a “core claim” under §
157(b)(2)(C). Here, by contrast, Tow's only claim is
under a specific Code provision, not state law. Unlike in
Stern, this claim has a sufficient nexus to the resolution of
the Chapter 7 case and therefore can be adjudicated fully by
the Bankruptcy Court.
first factor-that this is a core proceeding-weighs against
Uniform Administration of the Bankruptcy Code
Bankruptcy Court explained that because it has already spent
substantial time reviewing the pleadings and holding hearings
in this case, it is very familiar with the facts, legal
arguments, and applicable law. The Bankruptcy Court is in the
best position to quickly and efficiently adjudicate the case,
which will promote ...