Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_09-cv-01578/USCOURTS-casd-3_09-cv-01578-0/pdf.json

Nature of Suit Code: 423
Nature of Suit: Bankruptcy Withdrawal 28 USC 157
Cause of Action: 28:0157 Motion for Withdrawal of Reference

---

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

1 09cv1578 BTM (RBB)

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

FRANCHISE MANAGEMENT

SERVICES, INC.,

Plaintiff,

CASE NO. 09cv1578 BTM (RBB)

ORDER DENYING THE MOTION TO

WITHDRAW THE REFERENCE

vs.

RIGHETTI LAW FIRM, P.C.

Defendant.

Before the Court is Defendant Righetti Law Firm, P.C.’s Motion to Withdraw the

Reference to Bankruptcy Court. For the reasons set forth below, the Court DENIES

Defendant’s Motion to Withdraw the Reference without prejudice.

I. BACKGROUND

On March 4, 2009, Franchise Management Services, Inc., (“Plaintiff” or “Debtor-inPossession”) filed a voluntary petition for relief under Chapter 11 of Title 11 of the United

States Code. (Def.’s Request for Judicial Notice (“RJN”), Ex. A at 3.)

On April 8, 2009, Plaintiff filed a Complaint in bankruptcy court against Defendant the

Righetti Law Firm, P.C. (“Defendant” or “Righetti”). (Def.’s RJN, Ex. A.) The Complaint

arises out of alleged transfers to Defendant during the preference period in an amount not

less than $501,511.75. (Def.’s RJN, Ex. A at 3.) Plaintiff brought five causes of action

including claims: (1) to avoid a transfer of an interest of the debtor property under 11 U.S.C.

Case 3:09-cv-01578-BTM-RBB Document 4 Filed 09/30/09 Page 1 of 6
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

2 09cv1578 BTM (RBB)

§ 547; (2) to avoid a fraudulent conveyance under 11 U.S.C. § 548(a)(1)(B); (3) to recover

a post-petition transfer under 11 U.S.C. § 549; (4) to recover an avoided transfer under 11

U.S.C. § 550; and (5) to disallow all claims by Defendant under 11 U.S.C. § 502(d) and (j).

(Id.) 

On July 21, 2009, Defendant filed a Motion to Withdraw the Reference.

II. DISCUSSION

Defendant argues that the Court should withdraw the reference in this case because

it wishes to exercise its right to a jury trial by the district court in this action. Plaintiff opposes

Defendant’s Motion on the grounds that Defendant waived its right to a jury trial. In the

alternative, Plaintiff contends that Defendant’s motion is premature. 

A. Did Defendant waive its right to a jury trial?

Although district courts have original jurisdiction over cases arising under the

Bankruptcy Code, 28 U.S.C. § 1334(b), they may refer these cases to the bankruptcy judges

for the district pursuant to 28 U.S.C. § 157(a). District courts also have the authority to

withdraw the reference to bankruptcy court. 28 U.S.C. § 157(d). Withdrawal may be

mandatory if “resolution of the proceeding requires consideration of both title 11 and other

laws of the United States regulating organization or activities affecting interstate commerce,”

or permissive upon “timely motion of any party, for cause shown.” Id. Defendants do not

contend that withdrawal is mandatory here. Rather, Defendants argue that good cause

exists to withdraw the reference.

In determining whether cause exists to withdraw the reference, district courts consider

(1) the efficient use of judicial resources, (2) delay and costs to the parties, (3) uniformity of

bankruptcy administration, (4) the prevention of forum shopping, and other related factors.

Security Farms v. Int’l Brotherhood of Teamsters, Chauffers, Warehousemen & Helpers, 124

F.3d 999, 1008 (9th Cir. 1997). Courts should also determine whether “core” or “non-core”

issues predominate. Withdrawing the reference typically enhances efficiency where nonCase 3:09-cv-01578-BTM-RBB Document 4 Filed 09/30/09 Page 2 of 6
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

3 09cv1578 BTM (RBB)

core issues predominate. Id. There is no dispute that core issues predominate here. See

28 U.S.C. § 157(b)(2) (listing core proceedings). One related factor that courts must

consider, however, is the parties’ entitlement to a jury trial. If a party to a proceeding in

bankruptcy court has the right to a jury trial, the bankruptcy court may only conduct the trial

if all parties expressly consent. 28 U.S.C.§ 157(e). Without the parties’ express consent,

therefore, the district court must withdraw the reference in a case where a party has the right

to a jury trial and the case proceeds to trial.

In an action by a bankruptcy trustee to recover allegedly preferential transfers, a

defendant that has not filed a claim against the estate preserves its right to a jury trial under

the Seventh Amendment to the United States Constitution. See Langenkamp v. C.A. Culp,

498 U.S. 42, 45 (1991) (per curiam); see also Granfinanciera, S.A. v. Nordberg, 492 U.S. 33,

58–59. Thus, “a creditor’s right to a jury trial on a bankruptcy trustee’s preference claim

depends upon whether the creditor has submitted a claim against the estate.”

Granfinanciera, 492 U.S. at 58. 

Plaintiff alleges that Defendant has filed claims against the estate, thereby waiving its

right to a jury trial. Defendant contends, however, that it only filed claims by and on behalf

of clients it successfully represented in a pre-petition state court class action suit against

Plaintiff. Defendant argues that the Court should not construe its clients’ claims for attorney’s

fees as its own claims against Plaintiff’s bankruptcy estate. The Court agrees with

Defendant.

It appears that Defendant filed claims against the estate only on behalf of its clients

and acting as their attorney, to recover unpaid wages, the amount of the state court judgment

in their favor, and attorney’s fees, costs, and interest. (See, e.g., Pl.’s RJN, Ex. 2.)

Defendant’s clients’ claims for attorney’s fees indicate that they seek this compensation

under the fee shifting provisions of the California Labor Code, § 1194, et seq. Section 1194

provides that “any employee receiving less than the legal minimum wage or the legal

overtime compensation applicable to the employee is entitled to recover in a civil action . .

. reasonable attorney’s fees, and costs of suit.” Id. (emphasis added). Thus, the employee,

Case 3:09-cv-01578-BTM-RBB Document 4 Filed 09/30/09 Page 3 of 6
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

4 09cv1578 BTM (RBB)

not his or her attorney, may state a claim for reasonable attorney’s fees under the fee shifting

provision of the California Labor Code. Defendant would not have a viable claim to assert

against Plaintiff’s bankruptcy estate under Section 1194. 

Furthermore, Plaintiff cites no legal authority to support its argument that the Court

should construe a creditor’s claim for attorney’s fees arising out of a court judgment as a

claim by the creditor’s law firm itself. Defendant additionally points out that it is not listed as

a creditor on the debtor’s schedules. (MacDonald Decl. ¶ 5.) Finally, “as the right of a jury

trial is fundamental, courts indulge every reasonable presumption against waiver.” Aetna Co.

v. Kennedy, 301 U.S. 389, 393 (1937); see also Beacon Theatres, Inc. v. Westover, 359 U.S.

500, 510 (1959) (quoting Federal Rule of Civil Procedure 38(a) to reinforce that “the right of

trial by jury as declared by the Seventh Amendment to the Constitution or as given by a

statute of the United States shall be preserved . . . inviolate.”) Therefore, the Court finds that

Plaintiff has not shown that Defendant gave up its right to a jury trial by subjecting himself

to the bankruptcy court’s equitable power. As a result, because Defendant has not

consented to trial by jury in the bankruptcy court, the district court must withdraw the

reference if it is not premature.

B. Is Defendant’s Motion premature?

Plaintiff alternatively argues that Defendant’s Motion to Withdraw the Reference is

premature. Plaintiff asserts that because the case may not proceed to trial, the Court should

delay withdrawal. The Court agrees.

Defendant correctly contends that its Motion was timely. “A motion to withdraw is

timely ‘if it was made as promptly as possible in light of the developments in the bankruptcy

proceeding.’” Security Farms, 124 F.3d at 1007 n. 3 (quoting In re Baldwin-United Corp., 57

B.R. 751, 754 (S.D. Ohio 1985)). Defendant’s Answer to Plaintiff’s Complaint demanded a

jury trial, putting Plaintiff on notice that Defendant may move to withdraw the reference.

Furthermore, Defendant filed its Motion to Withdraw within thirty days of filing its Answer.

Thus, Defendant’s Motion to Withdraw was timely made.

Case 3:09-cv-01578-BTM-RBB Document 4 Filed 09/30/09 Page 4 of 6
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

5 09cv1578 BTM (RBB)

District courts “have the option of withdrawing the entire adversary matter, or

withdrawing only the trial portion, leaving the pre-trial and discovery matters to be handled

by the bankruptcy judge.” In re Lars, Inc., 290 B.R. 467, 469 (D. Puerto Rico 2003). As

Plaintiff argues, some courts have declined to immediately withdraw a case in its early

stages, even where one party demands and has a right to a jury trial with the district court.

See, e.g., In re Orion Pictures Corp., 4 F.3d 1095, 1101–02 (2d Cir. 1993) (“A district court

might . . . decide that a case is unlikely to reach trial, that it will require protracted discovery

and court oversight before trial . . . and therefore might conclude that the case at that time

is best left in the bankruptcy court.”); Barlow & Peek, Inc. v. Manke Truck Lines, Inc., 163

B.R. 177, 179 (D. Nev. 1993) (finding withdrawal of reference premature where the case was

intertwined with bankruptcy case and bankruptcy judge was better equipped to conduct

proceedings short of jury trial); In re Enron Corp., 295 B.R. 21, 28 (S.D.N.Y. 2003) (“[I]t

serves the interests of judicial economy and efficiency to keep an action in Bankruptcy Court

for the resolution of pre-trial, managerial matters, even if the action will ultimately be

transferred to a district court for trial.”). The Fourth Circuit has noted that “[t]he decision

whether or not to withdraw the referral immediately ‘is frequently more a pragmatic question

of efficient case administration than a strictly legal decision.” In re Stansbury Poplar Place,

Inc., 13 F.3d 122, 128 (4th Cir. 1993).

The Court finds it appropriate to postpone withdrawing the reference until it becomes

clear that this case will proceed to trial. This matter remains in its early stages, and it is

possible that dispositive motions may resolve the case short of trial. Moreover, the

bankruptcy court is uniquely qualified to conduct discovery and pre-trial proceedings in this

case since core proceedings are at issue. Furthermore, if Plaintiff’s action against Defendant

succeeds, it may affect the amount of funds available for distribution in the administration of

the estate.

For all these reasons, the Court DENIES without prejudice Defendant’s Motion to

Withdraw. The Court grants Defendant leave to refile its Motion if it becomes clear that the

case will proceed to trial.

Case 3:09-cv-01578-BTM-RBB Document 4 Filed 09/30/09 Page 5 of 6
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

6 09cv1578 BTM (RBB)

III. CONCLUSION

For the reasons explained above, the Court DENIES Defendant’s Motion to Withdraw

the Reference from Bankruptcy Court without prejudice.

IT IS SO ORDERED.

DATED: September 30, 2009

Honorable Barry Ted Moskowitz

United States District Judge

Case 3:09-cv-01578-BTM-RBB Document 4 Filed 09/30/09 Page 6 of 6