Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_20-cv-00788/USCOURTS-azd-2_20-cv-00788-0/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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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Before the Court is Defendants Dual Fuel, LLC (“Dual Fuel”), Kenneth and Lori 

Losch (the “Losches”), and Cochise Investment, LLC’s (“Cochise,” and collectively with 

Dual Fuel and the Losches, the “Defendants”) Motion for Withdrawal of Reference of 

Adversary Proceeding 2:20-ap-00068-MCW to Proceed in District Court (the “Motion”), 

which is fully briefed. For the reasons that follow, the Motion will be denied.

I. Background

On September 16, 2019, Advanced Green Innovations, LLC (“AGI”), ZHRO 

Solutions, LLC, and ZHRO Power, LLC (together with ZHRO Solutions, LLC, “ZHRO,” 

IN THE MATTER OF

 

Advanced Green Innovations LLC, 

ZHRO Solutions, LLC, and ZHRO 

Power, LLC,

Debtors.

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No. CV-20-00788-PHX-SPL

BK No. 2:19-bk-11766-MCW

BK No. 2:19-bk-11771-MCW

BK No. 2:19-bk-11768-MCW

ADV. No. 2:20-ap-00068-MCW

ORDER

Advanced Green Innovations, LLC, et 

al., 

Plaintiffs, 

vs. 

Dual Fuel, LLC, et al., 

Defendants.

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Case 2:20-cv-00788-SPL Document 7 Filed 05/22/20 Page 1 of 9
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and collectively with AGI, the “Debtor Plaintiffs”) filed for bankruptcy relief under 

Chapter 11 of the Bankruptcy Code.1(Docs. 2 at 4; 4 at 2) The parties involved in the 

bankruptcy cases and the adversary proceeding are numerous and it is crucial to properly 

identify them at the outset of this order. In addition to the above-named entities, where the 

two ZHRO entities are wholly-owned subsidiaries of AGI, the parties are: Green Engine 

Conversions, LLC, Green Tech Diesel Conversions, LLC, Dual Fuel AZ II, LLC, Conway 

Feed, LLC, Jeff Beach, Lomar Holdings, LLC, DF Empower, LLC, Beach Corp. 

(collectively, the “Non-Debtor Plaintiffs,” and jointly with the Debtor Plaintiffs, the 

“Plaintiffs”), and the Defendants.2 While the three consolidated bankruptcy proceedings 

were taking place, Plaintiffs filed a complaint and a Motion for Temporary Restraining 

Order on March 10, 2020 which gave rise to adversary proceeding 2:20-ap-00068-MCW

(the “Adversary Proceeding”) and subsequently the Motion. 

In the complaint giving rise to the Adversary Proceeding, the Plaintiffs bring nine 

causes of actions against various Defendants. It is important to list the causes of action here 

because their respective nature dictates whether they are core or non-core claims under the 

Bankruptcy Code. The nine causes of action are: (1) usurpation of corporate opportunity, 

(2) fraudulent transfer under Bankruptcy Code §§ 544, 548, and 550, as well as Arizona 

Revised Statutes (“A.R.S.”) § 44-1004, (3) fraud in the sales of securities under A.R.S. §§ 

44-1991(A), 44-2001(A), and 44-2003(A), (4) common law fraud, (5) misappropriation 

under A.R.S. §§ 44-401, et seq., (6) turnover of estate property under Bankruptcy Code § 

542(a), (7) constructive trust, (8) temporary restraining order (without notice), injunctive 

1 The three Chapter 11 cases are jointly administered. The three case numbers are 

set forth in the caption of this Order and any reference by the Court to the “Bankruptcy 

Cases” throughout this Order refers to such three jointly administered cases.

2 The Court notes that the original Defendants included R. Craig Coppola and Tracy 

Coppola (the “Coppolas”). However, it appears that the claims involving the Plaintiffs and 

the Coppolas in the Adversary Proceeding might be resolved. Defendants allege that the 

Debtors filed a stipulation with the Coppolas to dismiss all claims against them. (Doc. 6, 

Ex. A) Based on the Court’s own review of the various dockets in the Bankruptcy Court 

associated with this case, the Court further notes that, at the time it is writing this Order, 

the Bankruptcy Court has not yet ruled on the stipulation.

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relief, and (9) avoidance of post-petition transfer under Bankruptcy Code § 549. United 

States Bankruptcy Court, District of Arizona, case No. 2:20-ap-00068-MCW, doc. 1. 

II. Standard of Review

A bankruptcy court has jurisdiction to “hear and determine all cases under title 11 

and all core proceedings arising under title 11, or arising in a case under title 11.” 28 U.S.C. 

§ 157(b)(1). A bankruptcy court may also hear “a proceeding that is not a core proceeding 

but that is otherwise related to a case under title 11.” 28 U.S.C. § 157(c)(1). However, 

bankruptcy courts have more limited authority in non-core proceedings; they may “hear 

and determine” such proceedings, and “enter appropriate orders and judgments,” only 

“with the consent of all the parties to the proceeding.” § 157(c)(2); Wellness Int’l Network, 

Ltd. v. Sharif, 135 S. Ct. 1932, 1940 (2015). Absent consent, bankruptcy courts in non-core 

proceedings may only “submit proposed findings of fact and conclusions of law,” which 

the district courts review de novo. § 157(c)(1); Id.

A district court may withdraw, in whole or in part, any case or proceeding referred 

under 28 U.S.C. § 157 on its own motion or on timely motion of any party for cause shown. 

28 U.S.C. § 157(d). In determining whether cause exists, the Ninth Circuit considers “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.” In re Canter, 

299 F.3d 1150, 1154 (9th Cir.2002) (quoting Sec. Farms v. Int’l Bhd. of Teamsters, 

Chauffers, Warehousemen & Helpers, 124 F.3d 999, 1008 (9th Cir. 1997)). A court may 

also consider that judicial efficiency is best served by allowing necessary pretrial issues, 

some of which may obviate the need for a jury trial altogether, to proceed in bankruptcy 

court. The majority of courts in this District addressing this issue have held that bankruptcy 

courts generally are best equipped to manage all pretrial issues and that the ultimate need 

for district court adjudication is speculative. Nat’l Hockey League v. Moyes, 2010 WL 

3719289, at 1–2 (D. Ariz. Sept. 15, 2010) (citing In re Gorilla Cos., LLC, 2009 WL 

3241759, at 4 (D. Ariz. Oct. 2, 2009)). 

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III. Analysis

The Defendants argue that each of the In re Canter factors weigh in favor of a 

withdrawal of the reference to the Bankruptcy Court to allow the Adversary Proceeding to 

move forward exclusively in District Court. (Docs. 2 at 5–6; 6 at 2) The Court analyzes 

each factor in turn.

As a threshold matter, the Defendants argue that the predominant non-core nature 

of the claims in the Adversary Proceeding provide the foundation for withdrawal because 

a bankruptcy court cannot enter final judgment on non-core claims. (Doc. 2 at 6–9)

Defendants argue that at least five of the nine causes of action arise purely under state 

law—usurpation of corporate opportunity, securities fraud, fraud, misappropriation, and 

constructive trust. (Doc. 2 at 5) Defendants argue that only two causes of action are related 

to the bankruptcy Code: fraudulent transfer, also brought under Arizona state law, and 

turnover. (Doc. 2 at 5) Furthermore, Defendants argue that one of those two core claims, 

the fraudulent transfer claim against the Coppolas, will be dismissed because Plaintiffs 

have entered into a stipulation with the Coppolas, proposing to dismiss all claims against 

them. (Doc. 6 at 2) Defendants argue that it would leave the turnover cause of action as the 

only cause of action in the Adversary proceeding which would be considered a core claim 

under the Bankruptcy Code. (Doc. 6 at 2) Additionally, Defendants argue that the turnover 

claim itself will likely be dismissed because it “aims to duplicate [the] fraudulent transfer 

claim.” (Doc. 6 at 5, fn. 2) 

It is well settled that a bankruptcy court may only submit proposed findings of fact 

and conclusions of law on non-core claims. Exec. Benefits Ins. Agency v. Arkison, 573 U.S. 

25 (2014). However, it is also well settled that the non-core nature of the claims in a 

proceeding do not require the immediate withdrawal of a case referred to the bankruptcy 

court. Flores v. Gray Servs. LLC, 2014 WL 4179888, at *2 (D. Ariz. Aug. 18, 2014) 

(stating that the existence of non-core claims in a case does not divest the bankruptcy court 

of its ability to carry out this duty to issue findings of fact and conclusions of law). It is 

true that this is not a typical case where there is a fairly balanced mix of core and non-core 

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claims. Absent a specific reference designating a type of claim in the Bankruptcy Code as 

core, the Ninth Circuit tests the core/non-core nature of a claim by asking whether the 

action could be brought in a different court; “actions that do not depend on bankruptcy 

laws for their existence and that could proceed in another court are considered ‘non-core.’” 

Sec. Farms v. Int’l Bhd. of Teamsters, Chauffers, Warehousemen & Helpers, 124 F.3d 999, 

1008 (9th Cir. 1997). Additionally, a claim whose outcome could conceivably have any 

effect on the bankruptcy estate has “related to” jurisdiction in bankruptcy court. See, e.g., 

Gillespie v. 100% Nat. Gourmet, Inc. ̧2015 WL 736926, at *2. Furthermore, claims 

involving a “common nucleus of operative facts” would ordinarily be expected to be 

resolved in one proceeding. See In re Pegasus Gold Corp., 394 F.3d 1189, 1195 (9th Cir. 

2005) (holding that courts have applied 28 U.S.C. § 1367, the supplemental jurisdiction 

statute, to bankruptcy courts to allow them to resolve bankruptcy claims solely based on 

“related to” jurisdiction). Defendants admit that the Bankruptcy Court may have “related 

to” non-core jurisdiction over the Debtor Plaintiffs claims for usurpation of corporate 

opportunity, misappropriation, and constructive trust, but they argue that it is not the case 

over the fraud and securities fraud claims. (Doc. 2 at 7)

The Court finds that the presence of at least one core claim and several “related to” 

non-core claims weighs in favor of keeping the reference of the Adversary Proceeding with 

the Bankruptcy Court. Indeed, most, if not all, of the claims are related to the allegedly 

fraudulent/criminal conduct of Losch while he was the principal of several entities. 

Although the vast majority of claims are non-core, even though Plaintiffs argue that they 

are all claims related to recovering assets and those are core claims, the Court finds that 

this point weighs in favor of the Bankruptcy Court retaining jurisdiction over the adversary 

proceeding because it is most familiar with the parties and claims. The Court finds that it 

is likely the Bankruptcy Court would conclude that it has “related to” jurisdiction over the 

Debtor Plaintiffs claims for usurpation of corporate opportunity, misappropriation, and 

constructive trust. Therefore, the Court will not withdraw the reference of the Adversary 

Proceeding on this basis alone, as suggested by the Defendants.

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Next, Defendants argue that they have a right to a jury trial guaranteed by the 

Seventh Amendment of the United States Constitution, which strongly supports 

withdrawal of the reference. (Doc. 2 at 9) At the outset, the Court notes that Defendants 

seem to misconstrue the Ninth Circuit’s holding in In re Cinematronics, Inc., 916 F.2d 

1444 (9th Cir. 1990). Defendants stated that in that case, the Ninth Circuit “held that the 

failure to withdraw the reference where the moving party has the right to a jury trial on a 

non-core matter is an abuse of discretion by the District Court.” (Doc. 2 at 9) This is not 

what the Ninth Circuit held. The Ninth Circuit held that the bankruptcy court erred in 

conducting the jury trial despite a party’s failure to consent to the bankruptcy court’s 

jurisdiction. It did not hold that an error was committed by failing to withdraw the reference 

at the outset of a case because a party refused to consent to a bankruptcy court’s jurisdiction 

over a possible trial. Indeed, the Ninth Circuit reasoned that it is clear why the conflict 

between the Seventh Amendment’s right to a jury trial and 28 U.S.C. § 157(b), which 

requires a District Court to review de novo bankruptcy courts decisions on non-core 

matters, mandated its holding. In re Cinematronics, at 1451. The Seventh Amendment 

states that “no fact tried by a jury, shall be otherwise re-examined in any Court. U.S. Const. 

amend. VII. The Ninth Circuit reasoned it was obvious why a bankruptcy court, court of 

limited jurisdiction under Article I, holding a jury trial without the consent of a party on 

non-core matters would directly violate the Seventh Amendment. Id. The resulting verdict 

and findings of fact would be reviewed de novo by the District Court under its mandate 

pursuant to 28 U.S.C. § 157(b). Id. Furthermore, since that decision, the Ninth Circuit has 

consistently held that the bankruptcy court should maintain jurisdiction and handle all pretrial matters. See, e.g., In re Healthcentral.com, 504 F.3d 775, 787 (9th Cir. 2007) 

(collecting decisions from all Circuits where courts have held that the presence of a right 

to a jury trial alone does not mean the bankruptcy court must instantly give up jurisdiction 

and that the case must be transferred to the district court). Accordingly, the Court does not 

find that the fact the Defendants are entitled to a jury trial in the Adversary Proceeding 

outweighs the other factors supporting the decision to keep the reference with the 

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Bankruptcy Court.

Next, Defendants argue that withdrawing the reference will conserve judicial 

resources, prevent forum-shopping, and ensure uniformity of bankruptcy administration. 

(Doc. 2 at 10–12) Defendants argue that the Adversary Proceeding is “at the earliest stage.” 

(Doc. 2 at 10) They further argue that no answers or rule 12(b) motions have been filed 

and no discovery has taken place. (Doc. 2 at 10) They argue that withdrawing the reference 

is appropriate because all scheduling matters could be addressed by the Court in a single 

order. (Doc. 2 at 10) The Court is not persuaded by those arguments. As of the date of this 

Order, Defendants have filed a Rule 12(b) motion in the Adversary Proceeding, and the 

Bankruptcy Court denied their motion to stay the bankruptcy proceedings pending 

resolution of the Motion by the Court. United States Bankruptcy Court, District of Arizona, 

case No. 2:20-ap-00068-MCW, docs. 36, 37. The Bankruptcy Court also issued a 

temporary restraining order, which it refused to lift at the May 4, 2020 hearing, and set a

pre-trial conference/status hearing on the TRO for May 28, 2020 and an evidentiary hearing 

on the preliminary injunction for June 4, 2020. United States Bankruptcy Court, District of 

Arizona, case No. 2:20-ap-00068-MCW, doc. 37. The Court finds that the Bankruptcy 

Court is already familiar with the parties and the claims enough so that keeping the 

reference of the Adversary Proceeding with the Bankruptcy Court will conserve judicial 

resources and not disturb the administration of the Bankruptcy Code. There is at least one 

proof of claim submitted in the Bankruptcy case, by Losch on behalf of Cochise, and the 

Debtors have submitted their plan for reorganization and disclosure statement on May 2, 

2020. United States Bankruptcy Court, District of Arizona, case No. 2:19-bk-11766-MCW, 

docs. 280, 281. 

Defendants also argue that withdrawing the reference will “ensure that the 

Bankruptcy Court will not attempt to enter a final judgment on non-core claims.” (Doc. 2 

at 10) This argument is unpersuasive, The Court does not see why the Bankruptcy Court 

would not be able to discern which claims it has full jurisdiction over and which claims it 

can only enter findings of facts and conclusions of law over. The Bankruptcy Court 

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routinely deals with such situations and is very familiar with the distinction between core 

and non-core claims.

Finally, both parties argue that the others are forum-shopping. Defendants argue that 

the predominance of non-core claims, sounding in state law, as well as the number of NonDebtor Plaintiffs compared to the number of Debtor Plaintiffs show that the Plaintiffs as a 

group are forum-shopping by filing the Adversary Proceeding in the Bankruptcy Court. 

(Doc. 2 at 11) Plaintiffs argue that Defendants are the ones forum-shopping by arguing that 

the District Court should take over the Adversary Proceeding because the Defendants argue 

that the Bankruptcy Court is aware of pending criminal proceedings involving Losch which 

taints its view of the case instead of conceding that it allows the Bankruptcy Court to be 

more familiar with the case. (Doc. 4 at 8) 

The Court finds neither argument persuasive. Defendants voice concerns about the 

fact that the Bankruptcy Court is aware of the pending criminal proceedings against Mr. 

Losch. (Doc. 2 at 11) Defendants specifically argued that the “Plaintiffs refer to the 

disputed criminal action only to encourage the Bankruptcy Court—the ultimate fact 

finder—to infer that the Losches must be criminals (despite no adjudication in that hotly 

disputed case). In other words, the Plaintiffs have a better opportunity to indirectly 

introduce otherwise inadmissible character evidence to the Bankruptcy Court since the 

Bankruptcy Court will be the body deciding all fact issues, including witness credibility, 

and not a jury.” (Doc. 2 at 11) This argument is not well-taken. Such argument clearly 

implies that the Bankruptcy Court might not be able to rule fairly and in accordance with 

all applicable rules of evidence. Indeed, it seems to imply that if the Bankruptcy Court 

hears about inadmissible character evidence, as trier of fact, its ruling would be colored by 

the inadmissible character evidence. This is preposterous and inappropriate. The 

Bankruptcy Court knows its duty to administer justice in cases it presides over. The Court 

could also see a possibility, if it had decided to grant the Motion, where Plaintiffs may have 

attempted to introduce evidence of the criminal proceedings in this Court. Then, 

Defendants would have probably questioned the ability of the jurors to decide the case 

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fairly, similarly arguing that they had heard inadmissible character evidence. The fact that 

Defendants question the ability of the Bankruptcy Court to carry out its duties without 

respecting the applicable rules or to rule ethically and impartially is misplaced and 

inappropriate. Defendants should not make a habit of questioning judicial integrity without 

any foundation for doing so.

Plaintiffs’ argument that Defendants are forum-shopping simply because they did 

not concede that the Bankruptcy Court’s familiarity with the facts aids in judicial efficiency 

is equally unpersuasive. Defendants are making use of a motion to withdraw the reference

which is their right. Although the Court found all their arguments unpersuasive, it does not 

find that Defendants are forum-shopping based on the argument above.

Therefore,

IT IS ORDERED that the Motion for Withdrawal of Reference of Adversary 

Proceeding 2:20-ap-00068-MCW to Proceed in District Court (Doc. 2) is denied.

Dated this 22nd day of May, 2020.

Honorable Steven P. Logan

United States District Judge

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