• Four Non-Core Matters and A RICO Claim Don’t Justify Immediate Withdrawal of Reference, USDC Rules
  • March 24, 2015 | Author: Carl "Chuck" N. Kunz
  • Law Firm: Morris James LLP - Wilmington Office
  • On March 12, 2015, Judge Leonard P. Stark, of the United States District Court for the District of Delaware denied a defendant’s motion to withdraw the reference from the Bankruptcy Court.

    In the case of Richard W. Barry, as Chapter 11 Trustee v. Santander Bank, N.A., Civ. No. 14-677-LPS, Adv. Pro. No. 14-50020, (In re Liberty State Benefits of Delaware, Inc., Case. No. 11-12404), the Defendant had moved to withdraw the reference from the Bankruptcy Court to the District Court. The Defendant argued that withdrawal was appropriate under either the mandatory or permissive tests of 28 U.S.C. §157(d). The Complaint asserted violations of federal and state RICO acts, claims under the New Jersey Consumer Fraud Act, and common law claims for negligence, aiding and abetting breaches of fiduciary duty, and unjust enrichment.

    In making a determination of what causes of action were core and which were non-core, the Bankruptcy Court found that 4 of the causes of action were non-core, and only one action was core. In the District Court, the Defendant argued that withdrawal of the reference was mandatory because it required “substantial and material consideration of federal non-bankruptcy law.” The Defendant also argued that permissive withdrawal was appropriate for “cause shown.”

    In ruling on the Defendant’s motion, Judge Stark held that the alleged violations of “federal non-bankruptcy law”, i.e. RICO, were but a “minor portion of the Trustee’s overall complaint.” Moreover, the Court found that even if the RICO count was the primary allegation, Defendant had not met its burden of showing that a decision would require “substantial and material consideration of non-bankruptcy law.” Indeed, the Court found that the Motion to Withdraw was “devoid of any analysis regarding how the facts of the Trustee’s RICO claim will require more than a straightforward application of that law . . . .” Accordingly, the Court found that mandatory withdrawal was not warranted.

    Turning to permissive withdraw, the Defendant argued that it would threaten judicial uniformity to permit the Bankruptcy Court to handle issues not involving bankruptcy law. The District Court was again unpersuaded, finding that, while 4 of the 5 matters were non-core (and therefore limiting the Bankruptcy Court to issuing findings of fact and conclusions of law, and no a final judgment), Judge Stark noted that “a Bankruptcy Court is capable of serving in a role similar to that of a magistrate for pre-trial issues in non-core proceedings.” Judge Stark also underscored that the Bankruptcy Court would have a better handle of the matters and issues in the case for addressing the pre-trial issues, given the court’s day to day administration of the bankruptcy case.

    The District Court was also not swayed by the Defendant’s argument that withdrawing the reference would reduce forum shopping. The Trustee merely filed the case in the court where the bankruptcy case was pending. “Without more,” Judge Stark noted, “the Court cannot agree with [Defendant] that the Trustee’s actions constitute forum shopping.”