Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_07-cv-01232/USCOURTS-casd-3_07-cv-01232-0/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

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

PAUL HUPP,

Plaintiff,

CASE NO. 07CV1232 WQH (NLS) 

ORDER DENYING PLAINTIFF’S

MOTION TO WITHDRAW THE

REFERENCE OF THE

BANKRUPTCY COURT

vs.

EDUCATIONAL CREDIT MANAGEMENT

CORPORATION, UNITED STATES,

Defendants.

HAYES, Judge:

Pending before the court is Plaintiff’s motion to withdraw the reference of the United States

Bankruptcy Court for the Southern District of California. (District Court Case No. 07cv1232, Doc.

# 1) (Bankruptcy Court Case No. 06-90127, Docs. # 123, 144). On August 17, 2007, the parties

appeared for oral argument before the Honorable William Q. Hayes, United States District Judge. 

BACKGROUND

On February 8, 2006, Plaintiff Paul Hupp initiated an adversarial proceeding in the United

States Bankruptcy Court to discharge his student loan debt. (Bankruptcy Case No. 06-90127, Doc.

# 1). On July 24, 2006, the Bankruptcy Court substituted Defendant Educational Credit

Management Corporation as the real party in interest. (Bankruptcy Case No. 06-90127, Doc. #

23). 

On October 18, 2006, Plaintiff filed a notice of his intent to argue that 11 U.S.C. §

Case 3:07-cv-01232-WQH-NLS Document 17 Filed 09/13/07 Page 1 of 6
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523(a)(8) was unconstitutional as applied to Plaintiff. (Bankruptcy Case No. 06-90127, Doc. #

44). On December 14, 2006, certification that the constitutionality of an Act of Congress affecting

the public interest had been drawn into question was provided to the Attorney General of the

United States pursuant to 28 U.S.C. § 2403(a). (Bankruptcy Case No. 06-90127, Doc. # 64). On

April 17, 2007, the United States of America moved to intervene pursuant to 28 U.S.C. § 2403(a). 

(Bankruptcy Case No. 06-90127, Doc. # 110). On April 24, 2007, the Bankruptcy Court granted

the motion to intervene. (Bankruptcy Case No. 06-90127, Doc. # 112).

On November 27, 2006, Plaintiff moved for summary judgment in the Bankruptcy Court. 

(Bankruptcy Case No. 06-90127, Doc. # 49). On April 27, 2007, Educational Credit Management

Corp. filed its opposition to Plaintiff’s motion for summary judgment. (Bankruptcy Case No. 06-

90127, Doc. # 115). On May 11, 2007, Plaintiff filed a reply in support of summary judgment. 

(Bankruptcy Case No. 06-90127, Doc. # 120). The Bankruptcy Court calendared Plaintiff’s

motion for summary judgment for hearing and oral argument on June 22, 2007. (Bankruptcy Case

No. 06-90127, Doc. # 124). 

On May 18, 2007, Plaintiff moved to withdraw the reference of the Bankruptcy Court. 

(Bankruptcy Case No. 06-90127, Docs. # 123, 144). On May 30, 2007, Defendants Educational

Credit Management Corp. and the United States filed oppositions to Plaintiff’s motion to withdraw

the reference. (Bankruptcy Case No. 06-90127, Docs. # 129, 130, 146). On July 3, 2007, the

Bankruptcy Court transmitted the motion to withdraw the reference to the United States District

Court for the Southern District of California. (Bankruptcy Case No. 06-90127, Doc. # 145)

(District Court Case No. 07cv1232, Doc. # 1). 

STANDARD OF REVIEW

28 U.S.C. § 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. The district court shall, on timely motion of a party, so withdraw

a proceeding if the court determines that resolution of the proceeding requires

consideration of both title 11 and other laws of the United States regulating

organizations or activities affecting interstate commerce.

The first sentence of 28 U.S.C. § 157(d) provides a district court with permissive authority to

withdraw the reference of a bankruptcy court on timely motion of any party and for cause shown. 

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Security Farms v. International Broth. of Teamsters, Chauffers, Warehousemen & Helpers, 124

F.3d 999, 1008 (9th Cir. 1997). “In determining whether cause exists [for permissive withdrawal],

a district court should consider the efficient use of judicial resources, delay and costs to the parties,

uniformity of bankruptcy administration, the prevention of forum shopping, and other related

factors.” Id. The second sentence of 28 U.S.C. § 157(d) requires a district court to withdraw the

reference of a bankruptcy court upon timely motion from any party where “the [district] court

determines that resolution of the proceeding requires consideration of both title 11 and other laws

of the United States regulating organizations or activities affecting interstate commerce.” 28

U.S.C. § 157(d). In determining whether a case satisfies 28 U.S.C. § 157(d)’s mandatory

withdrawal provisions, a court should consider whether the case requires “material consideration

of non-bankruptcy federal law.” Security Farms, 124 F.3d at 1008; see also 28 U.S.C. § 157(b). 

A motion for permissive or mandatory withdrawal under section 157(d) must be timely. 28

U.S.C. § 157(d); Security Farms, 124 F.3d at 1007, fn. 3; Stratton v. Vita Bella Group Homes,

Inc., No. 07-0584, 2007 U.S. Dist. LEXIS 40562, *6-7 (E.D. Cal. May 24, 2007); In re First

Alliance Mortgage Co., 282 B.R. 894, 902 fn. 6 (C.D. Cal. 2001). “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 fn. 3 (citing In re Baldwin-United Corp., 57 B.R.

751, 754 (S.D. Ohio 1985)). “In essence, the courts have established a requirement that the motion

to withdraw the reference be made at the first reasonable opportunity as evaluated within the

specific factual context presented.” Stratton, No. 07-0584, 2007 U.S. Dist. LEXIS 40562, *6 (E.D.

Cal. May 24, 2007) (citing, In re Chateaugay Corp., 104 B.R. 622, 624 (S.D.N.Y.1989)); but see

In re: TPI International, 222 B.R. 663, 667 (S.D. Ga. 1998) (finding that a motion to withdraw the

reference can be filed at any time).

The burden of establishing the propriety of withdrawing the reference is on the party

seeking withdrawal. FTC v. First Alliance Mortgage Co., 282 B.R. 894, 902 (C.D. Cal. 2001).

DISCUSSION

Plaintiff moves to withdraw the reference of the Bankruptcy Court on the grounds that his

case requires substantial consideration of the United States Constitution. Specifically, Plaintiff

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1

 Plaintiff cites In re: TPI International, 222 B.R. 663, 667 (S.D. Ga. 1998), for the

proposition that a motion to withdraw the reference can be filed at any time. However, the law in the

Ninth Circuit is that, “[a] motion to withdraw is timely if it was made as promptly as possible in light

of the developments in the bankruptcy proceeding.” See Security Farms, 124 F.3d at 1007 fn. 3. With

respect to timeliness, the Court finds In re: TPI International inapplicable.

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challenges the constitutionality of eight federal statutes, and contends that only five percent of his

case relates to core bankruptcy matters. Plaintiff contends that United States District Judge Dana

Sabraw “expressly stated . . . that Mr. Hupp’s case was eligible to be transferred to United States

District Court, pursuant to 28 U.S.C. § 157(d).” (Bankruptcy Case No. 06-90127, Doc. # 133 at 2)

(emphasis in original).

Defendants contend that undue hardship pursuant to 11 U.S.C. § 523(a)(8) is the only

relevant issue in this adversary proceeding, and that the constitutional issues raised by Plaintiff at

later stages of this proceeding were not alleged in the Complaint. Defendant further contends that

Plaintiff’s motion to withdraw is untimely because (1) Plaintiff filed the motion more than one

year after he filed the Complaint, and (2) there is a fully briefed motion for summary judgment

pending in the Bankruptcy Court. Defendants contend that Plaintiff has cited “no new

developments and provides no justification for his delay” in filing his motion to withdraw the

reference. (Bankruptcy Case No. 06-90127, Doc. # 146 at 2). 

Timeliness

Whenever a party moves to withdraw the reference of a bankruptcy court, the motion must

be timely. Security Farms, 124 F.3d at 1007-08; see also 28 U.S.C. § 157(d). “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 fn. 3; In re Don’s Making Money, LLP,

CV 07-319 PHX-MHM, 2007 U.S. Dist. LEXIS 32972, *8 (D. Ariz. May 3, 2007).1

Plaintiff filed this adversarial proceeding on February 8, 2006, to discharge his student loan

debt–a core bankruptcy proceeding under 11 U.S.C. § 157(b)(2)(I). Thereafter, the parties

conducted significant discovery which culminated in Plaintiff filing a motion for summary

judgment on November 27, 2006. The parties then conducted further discovery, whereupon

Plaintiff raised significant constitutional issues and the United States intervened. Nearly one

month after the United States intervened, and approximately 15 months after Plaintiff filed the

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adversarial Complaint, Plaintiff moved to withdraw the reference of the Bankruptcy Court. 

Plaintiff’s November 27, 2006, motion for summary judgment remains pending in the Bankruptcy

Court.

Plaintiff contends that his case should be withdrawn to the District Court because of the

constitutional issues raised, however, Plaintiff’s moving papers do not address Plaintiff’s 15 month

delay in moving to withdraw the reference. Plaintiff has not shown or argued that a new

development in his case or a recently discovered claim justifies withdrawal at this date, nor has

Plaintiff explained the relevance of the constitutional issues given that they were not raised in the

Complaint. The record in the Bankruptcy Court makes clear that Plaintiff chose to litigate this

case extensively in the Bankruptcy Court by conducting discovery and filing numerous motions,

including the pending and fully briefed motion for summary judgment.

Courts have found a motion to withdraw the reference untimely when a significant amount

of time has passed since the moving party had notice of the grounds for withdrawing the reference

or where withdrawal would have an adverse effect on judicial economy. See Laine v. Gross, 128

B.R. 588, 589 (D. Me. 1991) (finding a motion to withdraw the reference untimely when filed over

six months after the alleged necessity for withdrawal became apparent); Connolly v. Bidermann

Industries U.S.A., Inc., No. 05-1791, 1996 WL 325575, *3 (S.D.N.Y. 1996) (finding that an eight

month delay rendered a motion to withdraw the reference untimely); Stratton, No. 07-0584, 2007

U.S. Dist. LEXIS 40562 (E.D. Cal. May 24, 2007) (finding that a 1 year delay rendered a motion

to withdraw untimely); Vieira v. AGM, II, LLC, 366 B.R. 532, 439-40 (D. S.C. 2007) (finding a

motion to withdraw untimely because it came shortly before the date set for trial and the

Bankruptcy Court had already expended significant judicial resources). Here, Plaintiff filed the

motion to withdraw approximately 15 months after filing the Complaint in the Bankruptcy Court,

and at least 7 months after he first brought the constitutional issues to the Bankruptcy Court’s

attention. Based on the filing dates, the docket in Bankruptcy Case No. 06-90127, and the

substance of Plaintiff’s motion to withdraw, the Court concludes that Plaintiff did not file the

motion to withdraw the reference “as promptly as possible in light of the developments in the

bankruptcy proceeding.” Security Farms, 124 F.3d at 1007 fn. 3. Furthermore, Plaintiff filed a

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motion for summary judgment in the Bankruptcy Court, which motion is fully briefed and

currently stayed in the Bankruptcy Court pending resolution of this motion. With respect to that

motion, this Court finds that the Bankruptcy Court is “more familiar with the facts and issues of

the case,” and that it would be “an inefficient allocation of judicial resources” if this Court

withdrew the reference at this late stage. See In re Deborah M. Canter, 299 F.3d 1150, 1154 (9th

Cir. 2002).

The Court concludes that Plaintiff’s motion to withdraw the reference is untimely. 

Accordingly, the Court need not determine whether the requested withdrawal of reference would

qualify under the permissive or mandatory provisions of 28 U.S.C. § 157(d) if it had been timely

filed. 

CONCLUSION

Plaintiff’s motion to withdraw the reference is DENIED, and this case is hereby remanded

back to the Bankruptcy Court.

IT IS SO ORDERED.

DATED: September 13, 2007

WILLIAM Q. HAYES

United States District Judge

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