Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_05-cv-04471/USCOURTS-cand-5_05-cv-04471-0/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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28 1 This disposition is not designated for publication and may not be cited.

Case No. C 05-447 JF

ORDER GRANTING MOTION FOR WITHDRAWAL OF REFERENCE 

(JFEX2)

**E-Filed 1/31/06**

NOT FOR CITATION

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

In re:

BRIDGESPAN CORPORATION,

Debtor.

 

MOHAMED POONJA, Chapter 7 Trustee,

 Plaintiff,

 v.

BRIDGESPAN TITLE COMPANY, a California

corporation, et al.,

 Defendants.

Case No. C 05-4471 JF

ORDER1 GRANTING MOTION FOR

WITHDRAWAL OF REFERENCE

I. BACKGROUND

On January 12, 2005, Plaintiff Mohamed Poonja, Chapter 7 Trustee of BridgeSpan

Corporation (“BSC”), filed a complaint against BSC’s parent corporation, BridgeSpan Inc.

(“BSI”); BSC’s sister corporation, BridgeSpan Title Company (“BST”); National Union Fire

Insurance Company of Pittsburgh, PA (“National Union”); and twenty-six officers and directors

(“Individual Defendants”) of BSI, BST, and BSC. Plaintiff alleges eight claims for relief: (1)

Case 5:05-cv-04471-JF Document 12 Filed 01/31/06 Page 1 of 8
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Case No. C 05-4471 JF 

ORDER GRANTING MOTION FOR WITHDRAWAL OF REFERENCE

(JFEX2)

Breach of Fiduciary Duty; (2) Negligent Misrepresentation; (3) Breach of Contract; (4)

Negligence; (5) Claim on Financial Institution Bond; (6) Declaratory Relief; (7) Deepening

Insolvency; and (8) Violation of Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C.

§ 1961, et seq. (“RICO”). Plaintiff requests compensatory and exemplary damages, including

treble damages pursuant to 18 U.S.C. § 1964(c), declaratory relief, and reasonable attorneys fees. 

Plaintiff alleges the following facts: Defendant BSI developed and marketed a web-based

software platform, eMortageAxis (“eMA”), to provide an automated system for lenders, title

companies, and real estate professionals to manage the processing of real estate purchases and

loan closings. (First Amended Complaint (“FAC”) ¶ 4, 7, 35). BSC and BST are title insurance

agents who used eMA to perform title, escrow, and settlement services. (FAC ¶ 35). As

independent title agencies, the duties of BSC and BST include (1) researching title for

underwriters to determine the condition for issuance of title insurance; and (2) perfecting

interests in title to real property by recording mortgages, property deeds, deeds of trust, and

releases of liens and judgments in the county property records. (FAC ¶ 44). 

Before BSC commenced its bankruptcy case, a number of title companies learned that

BSC failed to record a large number of mortgages for a significant lender. BSC and its officers

and directors assured the title companies that BSC would solve this problem promptly. (FAC ¶

46). However, by early January 2004, one of the title companies discovered that hundreds of

mortgages were still unrecorded and that BSC’s files and records were extremely disorganized. 

(FAC ¶ 48). On or about January 9, 2004, BSC declared itself operationally insolvent. (FAC ¶

49). Plaintiff Trustee was appointed and, after conducting an investigation of Defendants,

allegedly discovered the following: (1) Defendants’ failure to record mortgages, deeds of trust,

and releases of liens in conformance with industry standards and/or the title companies’ policies

and procedures; (2) failure to properly issue title insurance in conformance with industry

standards and the title companies’ policies; (3) failure to adequately perform property title

searches; (4) failure to comply with all statutes and governmental rules; (5) failure to maintain

adequate records regarding escrow and closing funds; (6) improperly retained and failure to

disburse millions of dollars in escrowed funds to the appropriate lenders and property sellers; and

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Case No. C 05-4471 JF 

ORDER GRANTING MOTION FOR WITHDRAWAL OF REFERENCE

(JFEX2)

(7) improperly transferred millions of dollars to BSI and BST by BSC. (FAC ¶ 51). 

After Plaintiff filed his original adversary complaint in the Bankruptcy Court on January

12, 2005, nineteen of the Individual Defendants filed a joint motion for a determination of the

parties’ right to a jury trial (the “Jury Trial Motion”) in the Bankruptcy Court on April 5, 2005. 

That motion sought to determine whether (1) a jury trial timely was demanded; (2) the parties are

entitled to a jury trial; and (3) the parties would consent to a jury trial before the Bankruptcy

Court. (Defendants’ Motion, at 2). The Bankruptcy Court held several hearings on the Jury Trial

Motion, which remains pending. Defendants filed several requests to expedite hearing on April,

5, 2005, June 7, 2005, and September 30, 2005. Plaintiff filed a First Amended Complaint on

August 5, 2005, which included a demand for a jury trial. Various defendants moved to dismiss

the First Amended Complaint, and several defendants declined to consent to the entry of any

final order or judgment by the Bankruptcy Court. (Seifert Decl. ¶2). On October 24, 2005,

Defendants Bruce Dunlevie, Nanda Kishore, Mark Stevens, Mark Evans, and Siva Kumar filed

the instant motion seeking withdrawal of the reference of the adversary proceeding to the

Bankruptcy Court. The motion was joined by BSI and BST on January 18, 2006. Plaintiff

Trustee opposes the motion. 

II. LEGAL STANDARD

The District Court’s authority for withdrawal of reference is governed by section (d) of 28

U.S.C. § 157:

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.

28 U.S.C. § 157(d) (emphasis added).

 This provision mandates withdrawal of reference from the Bankruptcy Court where

resolution of adversary proceeding involves “substantial and material consideration of nonbankruptcy federal statutes.” Burger King Corp. v. B-K of Kansas, Inc., 64 B.R. 728, 731 (D.

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Case No. C 05-4471 JF 

ORDER GRANTING MOTION FOR WITHDRAWAL OF REFERENCE

(JFEX2)

Kan. 1986) (interpreting 28 U.S.C. § 157(d)). The provision also provides for permissive

withdrawal if a good cause is shown. Determination of good cause for permissive withdrawal

depends on several factors: (1) whether the claim or proceeding is core or non-core; (2) whether

it is legal or equitable; (3) considerations of efficiency; (4) prevention of forum shopping; (5)

uniformity of bankruptcy administration; and (6) the presence of a jury demand. See Security

Farms v. Int’l Bhd. of Teamsters, Chauffers, Warehousemen & Helpers, 124 F.3d 999, 1008 (9th

Cir. 1997); In re Orion Pictures Corp., 4 F.3d 1095, 1101 (2d Cir. 1993).

III. Discussion

The Moving Defendants move to withdraw the adversary proceeding on three grounds. 

First, they assert that this motion is timely under 28 U.S.C. § 157(d), because it was made at the

“first reasonable opportunity.” Second, they suggest that ample cause exists for permissive

withdrawal, because none of the claims asserted in the adversary complaint are core to the

bankruptcy proceeding and the Moving Defendants do not consent to a jury trial or entry of final

judgments by the Bankruptcy Court. Third, the Moving Defendants assert that Plaintiff’s RICO

claim requires mandatory withdrawal. Plaintiff opposes the motion to withdraw, asserting that

the District Court should permit the Bankruptcy Court to manage the case until trial or the case is

resolved. Second, Plaintiff asserts that he has alleged a core claim, and that the Bankruptcy

Court could act as an adjunct to the District Court if an issue is non-core. Finally, Plaintiff

asserts that it has not been determined whether the RICO claim should be dismissed.

A. Timeliness

“There is no specific time limit for applications under 28 U.S.C. § 157 to withdraw a

reference to the bankruptcy court.” However, “delay for tactical reasons, prejudicial to the

adversary or to the administration of justice, can be grounds for denying such an application.” In

re New York Trap Rock Corp., 158 B.R. 574 (S.D.N.Y. 1993). Here, Plaintiff filed his original

adversary complaint on January 12, 2005. Defendants filed their Jury Trial Motion on April 5,

2005. The Bankruptcy Court denied defense’s motion to expedite hearings on their Jury Trial

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Case No. C 05-4471 JF 

ORDER GRANTING MOTION FOR WITHDRAWAL OF REFERENCE

(JFEX2)

Motion, and has continued that motion as well as motions to dismiss the adversary proceeding

until February 21, 2006. Under these circumstances, the Court concludes that the Moving

Defendants did not delay unduly in bringing the instant motion and that Plaintiff would not be

prejudiced. 

B. Permissive Withdrawal of the Reference

Assuming arguendo that mandatory withdrawal is not required, good cause supports

permissive withdrawal of the reference. A district court’s determination whether to withdraw the

reference turns on whether the claim is core or non-core. In re Orion Pictures Corp., 4 F.3d at

1101. A bankruptcy judge may issue final judgments with respect to those proceedings which

are “core” to the bankruptcy case under 28 U.S.C. § 157(b)(2). In addition, the bankruptcy judge

may hear proceedings which are not “core” but are “otherwise related to a case under title 11.” 

An action is related to bankruptcy if the outcome could alter the debtor’s rights, liabilities,

options, or freedom of action and which in any way impacts upon the handling and

administration of the bankrupt estate. Fietz v. Great Western Savings, 852 F.2d 455, 457 (9th

Cir. 1988). The bankruptcy judge may issue final orders in such matters with the consent of the

parties. If the parties do not consent, the bankruptcy judge may submit proposed findings to the

district court for de novo review; the district court must issue the final order and judgment. 28

U.S.C. § 157(c)(1). 

The Court concludes that the adversary proceeding is a non-core related proceeding. 

Plaintiff’s state law claims, including breach of fiduciary duty, negligent misrepresentation,

breach of contract, negligence, claim on financial bond, declaratory relief, and deepening

insolvency, did not “arise under or in a case under title 11.” These claims do not fall within one

of the enumerated core proceedings in 28 U.S.C. § 157(b)(2)(B)-(N). Plaintiff Trustee asserts

that “Defendants’ failure to discharge their obligations and perform the most elemental duties”

are matters concerning the “administration of the estate.” (Plaintiff Opp., at 9). This arguably

falls under the “catch-all” provision in § 157(b)(2)(A). However, state law claims that arguably

fit within the literal wording of the catch-all provision have been held to be non-core related

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Case No. C 05-4471 JF 

ORDER GRANTING MOTION FOR WITHDRAWAL OF REFERENCE

(JFEX2)

proceedings. In re Castlerock Properties; 781 F.2d 159, 162 (9th Cir. 1986).

The Moving Defendants explicitly declined to consent to the Bankruptcy Court’s entry of

final judgment in a declaration filed on October 24, 2005. Plaintiff argues that the Bankruptcy

Court could act as an adjunct to the District Court. Because Bankruptcy Court’s determinations

in non-core proceedings are subject to de novo review, In re Daniels-Head & Associates, 819

F.2d 914, 918 (9th Cir. 1987) (“The district court ... [reviews] the bankruptcy court’s findings of

fact under the clearly erroneous standard and its conclusions of law de novo”), a single

proceeding in the District Court would promote efficiency and judicial economy. 

Similarly, the Moving Defendants explicitly declined to consent to a jury trial before the

Bankruptcy Court. “The bankruptcy court is unable to preside over a jury trial absent explicit

consent from the parties and the district court.” 28 U.S.C. § 157(e); In re Dyer, 322 F.3d 1178,

1194 (9th Cir. 2003). Accordingly, if a jury trial is required, it must be conducted in the District

Court absent the Moving Defendants’ consent. Under these circumstances, permissive

withdrawal of the reference appears to be warranted.

C. Mandatory Withdrawal of the Reference

Mandatory withdrawal is warranted if the resolution of the adversary proceeding involves

“substantial and material consideration” of both title 11 and other non-bankruptcy federal laws. 

28 U.S.C.A. § 157(d). Here, Plaintiff has alleged a RICO claim, and explicitly claimed in his

First Amended Claim that “Defendants are (or were) employed by an enterprise engaged in, or

the activities of which affect, ‘interstate or foreign commerce’” under 18 U.S.C. § 1962(a), (b),

or (c). (FAC ¶ 96). Accordingly, mandatory withdrawal appears to be required.

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Case No. C 05-4471 JF 

ORDER GRANTING MOTION FOR WITHDRAWAL OF REFERENCE

(JFEX2)

IV. ORDER

Good cause therefore appearing, IT IS HEREBY ORDERED that the motion for

withdrawal of reference to the Bankruptcy Court is GRANTED.

IT IS SO ORDERED.

DATED: 1/31/06

__________________________________

JEREMY FOGEL

United States District Judge

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Case No. C 05-4471 JF 

ORDER GRANTING MOTION FOR WITHDRAWAL OF REFERENCE

(JFEX2)

Copies of Order mailed on ___________________ to:

Christopher H. Doyle chd@msandr.com, lak@msandr.com

Patrick Edward Gibbs patrick.gibbs@lw.com, zoila.aurora@lw.com

Amy Matthew AM@MSANDR.COM, KLW@MSANDR.COM

Mark Jeremy Seifert mark.seifert@lw.com,

Stephen Chew Seto scs@msandr.com,

Michael Lloyd Smith mls@mmker.com

James A. Tiemstra jat@msandr.com,

Kirk Wagner kwagner@nheh.com, 

USBC Manager-San Jose

US Bankruptcy Court

280 South First Street

Room 3035

San Jose, CA 95113

Lisa Omori

Noland Hamerly Etienne and Hoss

333 Salinas Street

Salinas, CA 93901

Phillip K. Wang

Law Offices of Gordon and Rees

275 Battery Street #2000

San Francisco, CA 94111

Case 5:05-cv-04471-JF Document 12 Filed 01/31/06 Page 8 of 8