Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_07-cv-00584/USCOURTS-caed-1_07-cv-00584-1/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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28 Ms. Bellardita appears in this action as trustee for the Rosario Bellardita Family Trust. 1

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IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

BETH MAXWELL STRATTON, CASE NO. CV F 07-0584 LJO

as Chapter 7 Trustee for the Estate of

Josephine Bellardita, ORDER ON DEFENDANT’S MOTION TO

WITHDRAW BANKRUPTCY REFERENCE

Plaintiff, (Doc. 1.)

vs.

VITA BELLA GROUP HOMES, INC.,

et al.,

Defendants.

 /

INTRODUCTION

Defendants Vita Bella Group Homes, Inc. (“Vita Bella”) and Josephine Bellardita (“Ms.

Bellardita”) seek to withdraw referral to the bankruptcy court of and to transfer to this Court the plaintiff 1

bankruptcy trustee’s adversaryproceeding alleging fraudulent conveyance claims against Vita Bella and

Ms. Bellardita. This Court considered Vita Bella and Ms. Bellardita’s motion to withdraw bankruptcy

reference on the record and VACATES the May 30, 2007 hearing, pursuant to this Court’s Local Rule

78-230(h). Forthe reasons discussed below, this Court DENIES Vita Bella and Ms. Bellardita’s motion

to withdraw bankruptcy reference of the bankruptcy trustee’s adversary proceeding. 

Case 1:07-cv-00584-LJO Document 4 Filed 05/25/07 Page 1 of 7
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BACKGROUND

Bankruptcy Court Proceedings

On October 14, 2005, Ms. Bellardita filed her voluntary Chapter 7 petition in the bankruptcy

court for this district. On March 9, 2006, plaintiff Beth Maxwell Stratton (“bankruptcy trustee”), trustee

of Ms. Bellardita’s bankruptcy estate, filed an adversary proceeding in Ms. Bellardita’s bankruptcy

against Vita Bella and Ms. Bellardita to seek to avoid several real property transfers. On April 19, 2006,

Vita Bella and Ms. Bellardita filed a request for a jury trial. On June 19, 2006, the bankruptcy trustee

filed her first amended complaint to clarify that the bankruptcy trustee proceeded against Ms. Bellardita

as trustee for the Rosario Bellardita Family Trust. On January 10, 2007, the bankruptcy trustee filed her

operative second amended complaint to add a nature and extent cause of action.

Similar to the prior complaints, the second amended complaint alleges that Ms. Bellardita

transferred three Merced County real property parcels to Vita Bella, which less than five months later

transferred the parcels to Ms. Bellardita as trustee of the Rosario Bellardita Family Trust. Like the prior

complaints, the second amended complaint alleges four causes of action under 11 U.S.C. § 548(a)(1)(A),

(B) to avoid the transfers as made with intent to hinder, delay or defraud creditors and for less than

reasonably equivalent consideration. Like the prior complaints, the second amended complaint alleges

a fifth cause of action that Ms. Bellardita, in her individual capacity, on behalf of Vita Vella, and as

trustee for the Rosario Bellardita Family Trust “were alter egos of one another.” The second amended

complaint adds a sixth cause of action that to determine whether the real property parcels may be sold

or abandoned under 11 U.S.C. § 554, the bankruptcy trustee must determine the nature, extent and

validity of Vita Bella and Ms. Bellardita’s assertions that they have an interest in the parcels.

Motion To Withdraw Bankruptcy Reference

On March 19, 2007, Vita Bella and Ms. Bellardita filed their motion to withdraw the bankruptcy

reference and to transfer the adversary proceeding to a district judge on grounds that their motion is

timely, the adversary proceedings addresses a non-core bankruptcy matter, the bankruptcy trustee’s

requested relief mandates a jury trial, substantive non-bankruptcy issues warrant withdrawal of the

bankruptcy reference, and this Court has discretion to withdraw the bankruptcy reference. The

bankruptcy trustee objects to withdrawal of the bankruptcy reference and desires to proceed in

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By contrast, permissive withdrawal does not hinge on the presence of substantial and material questions

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of federal law. Security Farms, 124 F.3d at 1008, n. 4. 

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bankruptcy court.

DISCUSSION

Bankruptcy Withdrawal Standards

A district court may refer bankruptcy cases to “bankruptcy judges for the district.” 28 U.S.C.

§ 157(a). 28 U.S.C. § 157(d) (“section 157(d)”) governs a district court’s withdrawal of reference to a

bankruptcy court:

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. 

Section 157(d) “mandates withdrawal in cases requiring material consideration of non-bankruptcy

federal law.” Security Farms v. Int’l Brotherhood of Teamsters, Chauffers, Wharehousemen & Helpers,

124 F.3d 999, 1008 (9 Cir. 1997.) Section 157(d)’s first sentence governs permissive bankruptcy th 2

withdrawal: “The district court may withdraw . . . any case or proceeding referred [to the bankruptcy

court] on its motion or on timely motion of a party, for cause shown.” Security Farms, 124 F.3d at 1008

(quoting 28 U.S.C. § 157(d)). To determine whether cause exists, 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. Security Farms, 124 F.3d at 1008; see In

re Orion Pictures Corp., 4 F.3d 1095, 1101 (2d Cir.1993).

Timeliness

Mandatory or permissive bankruptcy withdrawal under section 157(d) requires a “timely

motion.” “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)). “In essence, the courts have established

a requirement that the motion to withdraw the reference be made at the first reasonable opportunity as

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evaluated within the specific factual context presented.” In re Chateaugay Corp., 104 B.R. 622, 624

(S.D.N.Y. 1989).

Vita Bella and Ms. Bellardita contend that their bankruptcy withdrawal motion is timely in that

such motion was not triggered until the January 10, 2007 filing of the bankruptcy trustee’s second

amended complaint. The bankruptcy trustee responds that the “nature” of her adversary proceeding

against Vita Bella and Ms. Bellardita has been the “same” since it commenced. 

Vita Bella and Ms. Bellardita point to no substantive grounds to warrant delay to seek bankruptcy

withdrawal more than a year after the bankruptcy trustee filed her adversary proceeding. Vita Bella and

Ms. Bellardita fail to explain how the second amended complaint triggered grounds for bankruptcy

withdrawal, especially given that bankruptcy trustee’s critical claims remained consistent through the

amended complaints. If sincere to seek bankruptcy withdrawal, Vita Bella and Ms. Bellardita were

compelled to proceed promptly in light of the developments in the bankruptcy. Vita Bella and Ms.

Bellardita address no developments in Ms. Bellardita’s bankruptcy proceeding to warrant a year’s delay

from the filing of the adversary proceeding to seek bankruptcy withdrawal. Vita Bella and Ms.

Bellardita’s attempt at bankruptcy withdrawal is untimely. 

Although Vita Bella and Ms. Bellardita’s untimeliness is dispositive of their motion to withdraw

bankruptcy reference, this Court will address Vita Bella and Ms. Bellardita’s other points.

Core Proceeding

Vita Bella and Ms. Bellardita acknowledge that the bankruptcy trustee pursues 11 U.S.C. § 548

claims to avoid fraudulent conveyances. Yet, Vita Bella and Ms. Bellardita suggest that the “essence”

of such claims “is grounded in State law.” Vita Bella and Ms. Bellardita incorrectly insinuate that the

bankruptcy trustee “inserted” for the first time in the second amended complaint an alter ego liability

claim “wholly originating under the common law.”

As the bankruptcy trustee notes, the heart of her claims is to avoid fraudulent conveyances.

Under 28 U.S.C. § 157(b), bankruptcy judges are assigned to “hear and determine . . . all core

proceedings arising under title 11,” including “proceedings to determine, avoid, or recover fraudulent

conveyances.” 28 U.S.C. § 157(b)(2)(H). Since its initiation, the bankruptcy trustee’s adversary

proceeding has been a core proceeding, and the second amended complaint does not transform it into

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an action based on state or common law to deprive bankruptcy referral. The alter ego liability claim has

been present since the bankruptcy trustee filed her original complaint.

Jury Trial

Vita Bella and Ms. Bellardita argue that their jury demand entitles them to a jury trial . The

bankruptcy trustee correctly notes that Vita Bella and Ms. Bellardita fail to demonstrate that the matters

at issue entitle them to a jury trial. 

Again, the essence of the bankruptcy trustee’s adversary action is to recover fraudulent real

property transfers. Since an attempt to set aside a fraudulent conveyance of real property is traditionally

recognized as equitable in nature, there is no right to a jury trial for such claims. In re Pasquariello, 16

F.3d 525, 530 (3 Cir. 1994). Courts have held that a defendant is not entitled to a jury trial as to claims rd

seeking to set aside a fraudulent conveyance of real property. Johnson v. Gardner, 179 F.2d 114 (9 Cir. th

1949), cert. denied, 339 U.S. 935 (1950); Damsky v. Zavatt, 289 F.2d 46 (2 Cir. 1961). In Johnson,

nd

179 F.2d at 117, the Ninth Circuit Court of Appeals held that a jury trial in an action to set aside a

fraudulent conveyance was not permitted because it was an action in equity. 

The bankruptcy trustee’sfraudulent conveyance and intertwined claims do not entitle Vita Bella

and Ms. Bellardita to a jury trial to upend bankruptcy referral.

Application Of Non-Bankrupty Law

Vita Bella and Ms. Bellardita appear to argue they are entitled to mandatory bankruptcy

withdrawal because resolution of the bankruptcy trustee’s claims requires consideration of laws other

than bankruptcy. The bankruptcytrustee correctlynotes that there is no cause for bankruptcy withdrawal

arising from application of non-bankruptcy law. 

“Withdrawal under 28 U.S.C. § 157(d) is not available merely whenever non-Bankruptcy Code

federal statutes will be considered in the Bankruptcy Court proceeding, but is reserved for cases where

substantial and material consideration of non-Bankruptcy Code federal statutes is necessary for the

resolution of the proceeding.” In re Ionosphere Clubs, Inc., 103 B.R. 416, 418-19 (S.D.N.Y.1989); see

also In re White Motor Corp., 42 B.R. 693, 700 (N.D.Ohio 1984) (“ ‘[t]he district court should ... not

allow a party to use this provision to require withdrawal where such laws are not material to resolution

of the proceeding’ ” (quoting legislative history)).

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As discussed above, the bankruptcy trustee pursues 11 U.S.C. 548 claims which are core

proceedings subject to bankruptcy court jurisdiction. Reference to non-bankruptcy law in connection

with such claims does not warrant bankruptcy withdrawal.

Permissive Withdrawal Factors

Vita Bella and Ms. Bellardita suggest that consideration of permissive withdrawal factors reveals

cause to withdraw bankruptcy referral. As a reminder, those factors are efficient use of judicial

resources, delay and costs to the parties, uniformity of bankruptcy administration, prevention of forum

shopping, and other related factors. Security Farms, 124 F.3d at 1008; see In re Orion Pictures Corp.,

4 F.3d at 1101. 

Vita Bella and Ms. Bellardita contend that since they have demanded a jury trial, a bankruptcy

court judgment would be defective and “of doubtful usefulness” to erode efficiency. Vita Bella and Ms.

Bellardita broadly generalize that bankruptcy withdrawal “would be far more expeditious.” The

bankruptcy trustee responds that as core proceedings, her fraudulent conveyance claims are subject to

bankruptcy court authority. “[T]he bankruptcy court may enter final judgments in so-called core cases,

which are appealable to the district court.” In re Castlerock Properties, 781 F.2d 159, 161 (9 Cir. th

1986). 

The bankruptcy trustee is correct. Her claims constitute core proceedings subject to the

bankruptcy court’s initial review and appeal to this Court. Vita Bella and Ms. Bellardita fail to

substantiate their argument to bypass the bankruptcy court. Other than court efficiency, Vita Bella and

Ms. Bellardita fail to address the other permissive withdrawal factors. The bankruptcy trustee correctly

observes that maintaining her adversary proceeding in the bankruptcy court promotes efficiency of

judicial resources and bankruptcy administration and that there are no claims of forum shopping or

increased delay or costs arising from bankruptcy referral. 

CONCLUSION AND ORDER

For the reasons discussed above, this Court:

1. DENIES defendants Vita Bella Group Homes, Inc. and Josephine Bellardita’s motion to

withdraw reference to the bankruptcy court of the bankruptcy trustee’s adversary

proceeding; 

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2. DECLINES to exercise jurisdiction over the bankruptcy trustee’s adversary proceeding;

3. ORDERS that the bankruptcy trustee’s adversary proceeding remain before the

bankruptcy court; and

4. DIRECTS this Court’s clerk to close this action.

IT IS SO ORDERED.

Dated: May 24, 2007 /s/ Lawrence J. O'Neill 

66h44d UNITED STATES DISTRICT JUDGE

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