Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_19-cv-01007/USCOURTS-casd-3_19-cv-01007-0/pdf.json

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

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

In re WE INSURANCE SERVICES, 

INC.,

Debtor.

LESLIE T. GLADSTONE, Chapter 7 

Trustee

Plaintiff,

v.

GRANT MOSELEY INSURANCE 

AGENCY, INC. et al.

Defendants.

Case No.: 3:19-CV-1007-CAB-NLS

ORDER ON MOTION TO 

WITHDRAW THE REFERENCE

BK Case No.: 17-00099-LA7

Adversary Pro. No.: 19-900009-LA

[Doc. No. 1]

This matter is before the Court on Defendants motion to withdraw the reference of 

the first, second, sixth, seventh, and eighth claims asserted in the above-captioned 

adversary proceeding. [Doc. No. 1.]

Background

On January 10, 2017, chapter 7 bankruptcy proceedings were commenced

in the In re We Insurance Services, Inc. (BK Case No.: 17-00099-LA7) matter

(“Chapter 7 Case”). Plaintiff, Leslie T. Gladstone, was appointed as the Chapter 7 trustee.

At the time that the Chapter 7 Case was filed, debtor, We Insurance Services, Inc.

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(“Debtor”), had been operating as an insurance broker, selling consumer insurance

policies to the general public.

As a part of the administration of the bankruptcy estate in the Chapter 7 Case,

Plaintiff obtained court orders to operate Debtor and address the various outstanding 

issues it had as an active insurance broker. After a period of administration, Plaintiff 

filed the above-captioned Adversary Proceeding against Defendants, alleging fraudulent 

transfers, preferences, disallowance of claim, breach of contract and related theories of 

recovery. [Case No. 17-00099-LA7, Doc. No. 263.] Plaintiff has alleged that due to 

claims of $156,000.00 from a wrongful termination lawsuit, and $334,434.00 from the 

Internal Revenue Service and Franchise Tax Board against Debtor, that Debtor has

conspired with its principal Bryan Ells (“Ells”), and Defendants to defeat these creditors’

rights by way of fraudulent transfers and other improper transfers of assets and funds. Id.

Plaintiff has also filed related adversary proceedings in matter entitled, Leslie T.

Gladstone v. Bryan Ells, et al. (Adversary Case No.: 19-90011-LA)(“Related

Adversary Proceeding”). The Related Adversary Proceeding alleges that, starting in or

about September 2012, Debtor’s principal, Ells, and defendant Grant Moseley

(“Moseley”) were negligent and breached their fiduciary duty with respect to their

management and control of Debtor. [Case No. 19-90011-LA, Doc. No. 1.] It is alleged 

that Ells and Moseley failed to adequately keep track of accounts receivable, that they 

failed to maintain corporate formalities, and that they were negligent in other aspects of 

Debtor’s operation, and that they improperly used their corporations as instrumentalities 

as a way to avoid lawful obligations to various creditors. Id.

Legal Standard

District courts have “original but not exclusive jurisdiction” over all bankruptcy 

proceedings. See 28 U.S.C. § 1334(b). Such proceedings fall into one of two categories: 

“core proceedings, in which the bankruptcy court may enter appropriate orders and 

judgment,” and “non-core proceedings, which the bankruptcy court may hear but for which 

it may only submit proposed findings of fact and conclusions of law to the district court 

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for de novo review.” Sec. Farms v. Int'l Bhd. of Teamsters, Chauffers, Warehousemen & 

Helpers, 124 F.3d 999, 1008 (9th Cir. 1997) (quoting 28 U.S.C. § 157) (internal quotation 

marks omitted).

In the Southern District of California, all bankruptcy cases are automatically referred 

to the bankruptcy court. On a timely motion, however, any party may seek to withdraw that 

reference, which is governed by 28 U.S.C. § 157(d). Under Section 157(d):

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 statute creates two bases for withdrawal: mandatory and permissive. Under 

either, “[t]he party seeking withdrawal of the reference bears the burden of showing that 

the reference should be withdrawn.” In re Heller Ehrman LLP, 464 B.R. 348, 351–32 (N.D. 

Cal. 2011) (citing In re Larry's Apartment, LLC, 210 B.R. 469, 472 (Bankr. D. Ariz. 1997)).

Withdrawal is mandatory where “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). “Overwhelmingly courts and 

commentators agree that the mandatory withdrawal provision cannot be given its broadest 

literal reading, for sending every proceeding that required passing ‘consideration’ of nonbankruptcy law back to the district court would ‘eviscerate much of the work of the 

bankruptcy courts.’” In re Vicars Ins. Agency, Inc., 96 F.3d 949, 952 (7th Cir. 1996) 

(quoting In re Adelphi Inst., Inc., 112 B.R. 534, 536 (S.D.N.Y. 1990)). Courts in the Ninth 

Circuit have concluded that withdrawal is mandatory under Section 157(d) “when [nontitle 11] issues require the interpretation, as opposed to mere application, of the non-title 

11 statute, or when the court must undertake analysis of significant open and unresolved 

issues regarding the non-title 11 law.” See In re Tamalpais Bancorp, 451 B.R. 6, 8–9 (N.D. 

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Cal. 2011). Under this approach, the withdrawing party “must do more than merely suggest 

that novel issues of law could possibly arise in a bankruptcy proceeding.” Id.

Withdrawal is permissive “for cause shown.” 28 U.S.C. § 157(d). In considering 

whether a party has shown cause to withdraw the reference, “[i]t is within a district court's 

discretion to grant or deny a motion for permissive withdrawal of reference; that decision 

will not be disturbed unless the court abuses its discretion.” In re EPD Inv. Co. LLC, No. 

cv 13-05536 SJO, 2013 WL 5352953, at *2 (C.D. Cal. Sept. 24, 2013) (citing In re 

Cinematronics, Inc., 916 F.2d 1444, 1451 (9th Cir. 1990)).1

DISCUSSION

Here, Defendants argue for mandatory withdrawal of reference of the first, second, 

sixth, seventh and eighth claims for relief in the Adversary Proceeding pursuant to 29 

U.S.C. §157(d) because resolution of these claims requires consideration of both title 11 

and other laws of the United States regulating organizations or activities affecting interstate 

commerce. [Doc. No. 1 at 8.] However, while the first and second claims for fraudulent 

conveyance are brought under Bankruptcy law and California law, they still constitute core 

proceedings under 28 U.S.C. §157.2 As to the other state law claims, Defendants have made 

no showing that determination of any of these claims would require anything more than 

the “mere application” of a non-Title 11 statute, so withdrawal of reference would not be 

mandated. In re Tamlpais Bancorp., 451 B.R. at 8-9. 

 

1 Defendants have not argued for permissive withdrawal, and the Court finds no basis for it.

2 Although the Ninth Circuit in In re Bellingham Insurance Agency, Inc. held that “fraudulent 

conveyance claims ... cannot be adjudicated by non-Article III judges,” it also stated that 28 U.S.C. § 

157(b)(1) provides “bankruptcy courts the power to hear fraudulent conveyance cases and to submit 

reports and recommendations to the district courts. Such cases remain in the core, and the § 157(b)(1) 

power to ’hear and determine’ them authorizes the bankruptcy courts to issue proposed findings of fact 

and conclusions of law.” In re Bellingham Ins. Agency, Inc. 702 F.3d 553, 561, 565-66. Because 

bankruptcy courts retain the power to hear fraudulent conveyance cases, district courts have regularly 

denied motions to withdraw references of matters that involve fraudulent conveyances. In re Roger, 

5:18cv1114-SJO, 2018 WL 3853942, at *3, n. 2 ((C.D. Cal. Aug. 9, 2018)(citations omitted).

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Finally, judicial economy will be best served by denying the motion for withdrawal 

of reference, as “hearing core matters in a district court could be an inefficient allocation 

of judicial resources given that the bankruptcy court generally will be more familiar with 

the facts and issues. In re Orion Pictures Corp., 4 F.3d 1095, 1101 (2d Cir. 1993). Having 

the bankruptcy court submit proposed findings of fact and conclusions of law in fraudulent 

conveyance cases “promotes judicial economy and efficiency by making use of the 

bankruptcy court's unique knowledge of Title 11 and familiarity with the actions before 

them.” In re Healthcentral.com, 504 F.3d 775, 787-88 (9th Cir. 2007).

CONCLUSION

For the reasons set forth above, the motion to withdraw reference is DENIED. 

The Clerk of the Court shall CLOSE the case.

It is SO ORDERED.

Dated: June 10, 2019

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