Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_11-cv-02065/USCOURTS-casd-3_11-cv-02065-0/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

Federal Deposit Insurance Corporation,

Plaintiff,

CASE NO. 11-CV-2065-LAB-WMC

ORDER DENYING MOTION TO

vs. STAY

Imperial Capital Bancorp, Inc. and the

Official Committee of Unsecured

Creditors of Imperial Capital,

Defendants.

The FDIC initiated this action on September 6, 2011 to withdraw from the bankruptcy

court the reference of two matters: (1) ICB’s objection to a proof of claim filed by the FDIC

in ICB’s underlying bankruptcy proceeding; and (2) a motion by the Committee of Unsecured

Creditors for permission to investigate and bring claims against ICB’s former directors and

officers on behalf of the bankruptcy estate. 

The motion to withdraw the reference was previously filed with the bankruptcy court

on August 12, 2011. At the same time, the FDIC moved to stay the bankruptcy court’s

consideration of the two matters pending resolution of the withdrawal motion. The

bankruptcy court denied the FDIC’s stay motion on September 20, 2011. It also issued

tentative substantive rulings on the matters at issue; those rulings were favorable to ICB and

the Committee of Unsecured Creditors. The bankruptcy court confirmed its tentative rulings

in a minute order issued on September 22, 2011, and it issued more formal rulings on the
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stay denial and the Committee of Unsecured Creditors’ motion on October 6, 2011.

 On October 5, 2011, after the bankruptcy court had denied the FDIC’s request for

a stay and issued substantive rulings on the matters, the FDIC moved to stay the bankruptcy

court’s rulings. It is this motion that is now before the Court. To avoid a lengthy submission

period, the Court calendared the motion for a hearing on Monday, November 21. Having

reviewed the pleadings and considered the arguments of the parties, the Court is confident

that it can rule on the motion without oral argument. The motion is DENIED.

The FDIC’s stay motion rests on Federal Rule of Bankruptcy Procedure 5011(c),

which provides that a court — either the bankruptcy court or the district court — may stay

bankruptcy proceedings pending a motion to withdraw their reference to the bankruptcy

court. The parties agree on the standard for granting a stay. The FDIC must show that: (1)

it is likely to prevail on the merits of the withdrawal motion; (2) it is likely to suffer irreparable

harm if the motion is denied; (3) the debtor and the Committee of Unsecured Creditors will

not be harmed by a stay; and (4) the public interest will be served by granting a stay.

It is the first prong of this analysis — the likelihood of success on the merits — that

is fatal to the FDIC’s stay motion. The Court is familiar with the standards for withdrawal,

having previously ruled on the earlier withdrawal motion filed by the FDIC. See 10-CV-1991,

Dkt. No. 22. Permissive withdrawal requires a district court to 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.” Sec. Farms v. Int’l Bhd. of

Teamsters, Chauffers, Warehousemen, 124 F.3d 999, 1008 (9th Cir. 1997). Mandatory

withdrawal, on the other hand, is appropriate when the matter before the bankruptcy court

presents “substantial and material questions of federal law.” Id. at 1008 n.4. See also

Hawaiian Airlines, Inc. v. Mesa Air Group, 355 B.R. 214, 222 (D. Hawaii 2006); Holmes v.

Grubman, 315 F.Supp.2d 1376, 1379 (M.D. Ga. 2004) (holding that “withdrawal is only

mandatory when complicated, interpretive issues are involved, especially with matters of first

impression or where there is a conflict between bankruptcy and other laws”). It is really

mandatory withdrawal that is at issue here; the Court would rarely be inclined to grant a stay
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on the ground that it is likely to invoke permissive withdrawal to remove a matter from the

bankruptcy court. 

The FDIC has not shown that the Court is likely to grant its motion to withdraw the

reference of the debtor’s claim objection. A resolution of the claim objection may well require

some consideration of the Banking Code, but it’s simply not clear that this consideration will

rise to such a level that the objection must be withdrawn. The FDIC argues in its withdrawal

motion that the claim objection is subject to the exclusive jurisdiction of this Court pursuant

to 12 U.S.C. § 1821(d)(13)(D), but that provision, on its face, applies to actions against the

assets of a bank for which the FDIC is a receiver, not claim objections filed by the debtor in

an underlying bankruptcy. 

Likewise, the premise of the FDIC’s motion to withdraw the Committee’s request for

permission to investigate and bring claims against ICB’s former directors and officers is that

those claims belong to the FDIC. (See Dkt. No. 1 at 2–3.) But, as the Committee argues,

that’s more of an argument that goes to the merits of the Committee’s request than it is an

argument for mandatory withdrawal. If the claims do belong to the FDIC, then of course that

triggers FIRREA’s jurisdictional provisions, but the preliminary question of who the claims

belong to is not one that necessarily involves “substantial and material questions of federal

law” such that this Court must answer it. Indeed, the Committee makes a plausible argument

that state law (here, the law of Delaware) determines whether the claims against the

directors and officers belong to the FDIC or the debtor’s estate. 

The Court also notes that the bankruptcy court, intimately familiar with the facts and

very competent in the relevant law, gave thorough consideration to the FDIC’s stay motion

and denied it. That denial does not lose any of its force simply because the court noted that

the FDIC could seek a stay from the district court. (Dkt. No. 7-2 at Ex. C.) The Court does

not intend by this Order to actually rule on the FDIC’s withdrawal motion, or to suggest how

it might ultimately rule. It only recognizes the potential merits of ICB’s and the Committee’s

arguments against withdrawal insofar as it finds that the FDIC has not shown it is likely to

prevail on the merits of the withdrawal motion, and that a stay of the bankruptcy court’s
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rulings is therefore warranted. The Court will make every effort to rule on the pending

withdrawal motion in a timely manner.

IT IS SO ORDERED.

DATED: November 17, 2011

HONORABLE LARRY ALAN BURNS

United States District Judge