PHL_A #1635942 v2

UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

Miscellaneous Matter No. _____________

In Re: CLAUDIA A. NESMITH : Chapter 13

7000 N. 12TH Street :

Philadelphia, PA 19126 :

:

Debtor : Bankruptcy Court No. 99-35258DWS

:

CLAUDIA A. NESMITH, on behalf : Bankruptcy Court Adv. Proc. No. 02-590

of herself and all other persons :

similarly situated, :

:

Plaintiff, :

:

v. :

:

CHASE MANHATTAN MORTGAGE :

CORPORATION, :

:

Defendant. :

O R D E R

AND NOW, this ___ day of _______, 2002, upon consideration of the 

Unopposed Motion of Defendant, Chase Manhattan Mortgage Corporation, to Withdraw the 

Reference, IT IS HEREBY ORDERED that the motion is GRANTED, and that the reference of

the above-captioned adversary proceeding is WITHDRAWN.

__________________________________

 U.S.D.J.

Case 2:02-mc-00179-RB Document 1 Filed 07/02/2002 Page 1 of 12
PHL_A#1635942v2

UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

Miscellaneous Matter No. _____________

In Re: CLAUDIA A. NESMITH : Chapter 13

7000 N. 12TH Street :

Philadelphia, PA 19126 :

:

Debtor : Bankruptcy Court No. 99-35258DWS

:

CLAUDIA A. NESMITH, on behalf : Bankruptcy Court Adv. Proc. No. 02-590

of herself and all other persons :

similarly situated, :

:

Plaintiff, :

:

v. :

:

CHASE MANHATTAN MORTGAGE :

CORPORATION, :

:

Defendant. :

UNOPPOSED MOTION OF DEFENDANT, CHASE MANHATTAN

MORTGAGE CORPORATION, FOR WITHDRAWAL OF REFERENCE

Defendant, Chase Manhattan Mortgage Corporation (“Chase”), hereby moves 

pursuant to 28 U.S.C. § 157(d) for an Order withdrawing the reference of the above-captioned 

Case 2:02-mc-00179-RB Document 1 Filed 07/02/2002 Page 2 of 12
2

adversary proceeding. The grounds for this motion are set forth in the accompanying 

memorandum of law. 1

Chase has been authorized by counsel for Plaintiff to inform the Court that the 

relief sought in the motion (withdrawal of the reference) is UNOPPOSED.

______________________________

Darryl J. May

Vincent J. Marriott, III

Tara M. Sell

BALLARD SPAHR ANDREWS &

 INGERSOLL, LLP

1735 Market Street, 51st Floor

Philadelphia, PA 19103-7599

(215) 864-8103

(215) 864-9167

Attorneys for Defendant 

Chase Manhattan Mortgage Corporation

 

1 Chase respectfully informs this Court that it has also filed a motion to dismiss the 

complaint commencing this adversary proceeding. The motion was filed on June 24, 

2002. A copy is attached to the accompanying Memorandum of Law as Exhibit 2.

Case 2:02-mc-00179-RB Document 1 Filed 07/02/2002 Page 3 of 12
PHL_A #1635942 v2

UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

Miscellaneous Matter No. _____________

In Re: CLAUDIA A. NESMITH : Chapter 13

7000 N. 12TH Street :

Philadelphia, PA 19126 :

:

Debtor : Bankruptcy Court No. 99-35258DWS

:

CLAUDIA A. NESMITH, on behalf : Bankruptcy Court Adv. Proc. No. 02-590

of herself and all other persons :

similarly situated, :

:

Plaintiff, :

:

v. :

:

CHASE MANHATTAN MORTGAGE :

CORPORATION, :

:

Defendant. :

MEMORANDUM OF LAW OF DEFENDANT

CHASE MANHATTAN MORTGAGE CORPORATION IN SUPPORT

OF ITS UNOPPOSED MOTION TO WITHDRAWAL THE REFERENCE

I. INTRODUCTION

Plaintiff, Claudia A. Nesmith, has filed an adversary complaint against defendant, 

Chase Manhattan Mortgage Corporation (“Chase”), that seeks certification of a nationwide class 

action. The claims asserted do not arise under the Bankruptcy Code, and the putative class is not 

limited to debtors in bankruptcy. In essence, the Complaint claims that Chase did not properly 

credit to plaintiff’s account mortgage payments made on her behalf by her employer, Verizon. 

Plaintiff avers that, as a result, the IRS Form 1098 (Mortgage Interest Statement) for plaintiff for 

the 2001 tax year was incorrect, and that various other unspecified Chase account records were 

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2

inaccurate or indecipherable. Based on these allegations, plaintiff asserts a claim for breach of 

contract; a Truth in Lending Act (“TILA”) violation; and a claim for breach of fiduciary duty.

The TILA claim of plaintiff arises under a federal law “regulating organiza tions 

or activities affecting interstate commerce.” 28 U.S.C. § 157(d). The relief sought by plaintiff 

would, if granted, result (in Chase’s view, as set forth in its Motion to Dismiss) in a substantial 

expansion of the circumstances requiring TILA disclosures. Moreover, neither the TILA claim 

nor the state law breach of contract and breach of fiduciary duty claims constitutes a “core” 

proceeding under 28 U.S.C. § 157(b), and the purported class nature of this proceeding will, if in 

fact a class were to be certified, entail complicated jurisdictional issues and potentially complex 

pretrial proceedings. Accordingly, under both the mandatory and permissive withdrawal 

provisions of 28 U.S.C. § 157(d), the reference of this adversary proceeding should be 

withdrawn.

Plaintiff, through her counsel, has authorized Chase to inform the Court that she 

does not oppose the withdrawal of the reference.

II. STATEMENT OF FACTS2

On or about May 28, 1998, plaintiff entered into a mortgage loan with Chase for 

purchase of her home at 7000 N. 12th St., Philadelphia. Both the Mortgage and Note are attached 

to the Complaint as Exhibit A. (Compl. ¶ 5.) On December 6, 1999, plaintiff filed a petition for 

relief under Chapter 13 of the United States Bankruptcy Code (the “Bankruptcy Code”). 

(Compl. ¶ 6.) On July 5, 2000, plaintiff applied to the Bankruptcy Court for an Order directing 

her employer, Verizon, to deduct $586 from plaintiff’s wages on a semi-monthly basis to be 

 

2

For purposes of this motion alone, the allegations of the Complaint will be taken as true. 

A copy of the Complaint is attached hereto as Exhibit 1.

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3

remitted by Verizon to Chase (plaintiff’s monthly payment was $1,172); by Order dated July 11, 

2000, this request was granted. (Compl. ¶ 8.)

At first Verizon failed to remit semi-monthly mortgage payments deducted from 

plaintiff’s wages, but it is alleged that on October 1, 2000, it started to do so. (Compl. ¶ 9.) In 

April 2001, however, plaintiff discovered that Chase “had consistently failed to cash one of the 

two monthly payments sent by Verizon to Chase on plaintiff’s behalf.” (Compl. ¶ ¶ 11-12.) 

Although this last averment is not clear, Chase presumes that plaintiff avers that, since December 

2000, Chase failed to cash one of the two semi-monthly payments Verizon sent each month to 

Chase.

The reason for Chase’s alleged failure to cash these checks is, according to the 

Complaint, disputed. Chase returned a number of checks with the notation that Verizon failed to 

put the proper identifying information on them, but plaintiff disputes that this is so. (Compl. 

¶ 13.)

As a result of the foregoing, plaintiff complains that the Form 1098 tax-reporting 

form Chase provided plaintiff and the IRS for tax year 2001 was inaccurate. The form allegedly 

mis-reported the escrow balance, the amount of interest paid during 2001, and the “pre-payment 

amount.” (Compl. ¶ 16.) Plaintiff further alleges that “various payment data and account 

information” documents Chase has supplied to plaintiff, on plaintiff’s request, are inconsistent, 

incomplete and confusing. (Compl. ¶ ¶ 15, 17.)

III. ARGUMENT

A. This Proceeding Involves a Substantial and Material Consideration of NonBankruptcy Federal Law and Withdrawal of the Reference is Mandatory. 

Under 28 U.S.C. § 157(a), the District Courts are authorized to refer to the 

Bankruptcy Courts “any and all cases under [the Bankruptcy Code] and any or all proceedings 

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4

arising under or arising in or related to a case under” the Bankruptcy Code. The United States 

District Court for the Eastern District of Pennsylvania has, by Standing Order of Reference, 

dated November 8, 1990, made such a referral in this district.

Notwithstanding a general referral under Section 157(a), a District Court may, 

and under certain circumstances must, withdraw the reference of a case or proceeding that is 

pending in the Bankruptcy Court. 28 U.S.C. § 157(d). Section 157(d) mandates withdrawal of 

the reference if:

the [district] court determines that resolution of the proceeding 

requires consideration of both [the Bankruptcy Code] and other 

laws of the United States regulating organizations or activities 

affecting interstate commerce.

28 U.S.C. § 157(d). The majority of courts interpreting this provision do not require that the 

matter requires the consideration of bankruptcy law issues, so long as the consideration of “other 

laws” – here, TILA – is “substantial and material,” and the federal statute has more than a de

minimis impact on interstate commerce. In re St. Mary Hospital v. Hiser, 115 B.R. 495, 497 

(E.D. Pa. 1990)(citing to In re White Motor Corp., 42 B.R. 693 (N.D. Ohio 1984), and surveying 

cases).

Here, an alleged cause of action under TILA, a federal statute that regulates 

“organizations or activities affecting interstate commerce,” is the touchstone of plaintiff’s 

Complaint. Moreover, as argued by Chase in its Memorandum of Law in Support of Its Motion 

to Dismiss the Complaint, a copy of which is attached hereto as Exhibit 2, Plaintiff seeks a 

significant expansion of the circumstances requiring TILA disclosure. See Memorandum of Law 

in Support of Motion to Dismiss, at 3-6. Thus, this case will necessitate the substantial and 

material consideration of TILA, which triggers the mandatory withdrawal provision of Section 

157(d). 

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In re Schlein, 188 B.R. 13 (E.D. Pa. 1995), is instructive. There, the District 

Court considered a motion to withdraw the reference in connection with an adversary proceeding 

alleging contract and tort claims, but also asserting a violation of the Racketeer Influenced and 

Corrupt Organizations Act (“RICO”). Id. at 14. In granting the motion, the court, per Judge 

Joyner, observed that:

the court will be called upon to determine whether the acts 

complained of constitute RICO violations and whether the 

elements of a RICO violation have been satisfied in each instance. 

These inquiries necessitate the substantial and material 

consideration of RICO, which triggers the mandatory withdrawal 

provision of § 157(d).

Id. See also St. Mary Hospital, 115 B.R. at 498 (“When the bankruptcy court must engage in a 

complex search for the appropriate interpretation of a non-bankruptcy federal statute involving 

an issue of first impression, section 157(d) withdrawal is required”). In light of the 

circumstances set forth above, mandatory withdrawal of the reference is appropriate.

B. Cause Exists for the Permissive Withdrawal of this Proceeding.

In addition to mandating withdrawal under certain circumstances, 28 U.S.C. 

§ 157(d) also contemplates permissive withdrawal for “cause:”

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.

Aside from being subject to mandatory withdrawal under Section 157(d), this proceeding meets 

the criteria for permissive withdrawal.

Although not made explicit by the statute, the threshold inquiry into whether a 

showing of cause for withdrawal can be made is whether or not a proceeding is a “core” 

proceeding within the meaning of 28 U.S.C. § 157(b), with permissive withdrawal of core 

proceedings less amenable to withdrawal of non-core proceedings. Times Mirror Magazines, 

Case 2:02-mc-00179-RB Document 1 Filed 07/02/2002 Page 8 of 12
6

Inc. v. Las Vegas Sports News, L.L.C., 1999 U.S. Dist. LEXIS 3166 at *3-5 (E.D. Pa. Mar. 16, 

1999). 3 A “core” proceeding is one which invokes a substantive right created by the Bankruptcy 

Code or is a proceeding that could only arise in the context of a bankruptcy case. In re Eagle 

Enter., Inc., 259 B.R. 83, 86 (Bankr. E.D. Pa. 2001) (citing Torkelson v. Maggio, 72 F.3d 1171, 

1178 (3rd Cir. 1996)). If the claims asserted in a proceeding depend solely on state law or could 

proceed outside the bankruptcy court, then the proceeding is non-core. In re Eagle Enterprises, 

Inc., 259 B.R. at 86. See Pozzi v. Merchants & Business Men’s Mut. Ins. Co., 1992 U.S. Dist. 

LEXIS 7540, *3 (E.D. Pa. 1992)(“Where a debtor asserts a common law cause of action that 

could have been brought independently of federal bankruptcy law, the proceeding is noncore.”)(citations omitted).

Although, here, the Complaint conclusorily avers that this proceeding is core 

(Compl. ¶ 2), it plainly is not. The Complaint alleges state law claims of breach of contract and 

breach of fiduciary duty, and the non-bankruptcy federal law claim of a violation of TILA. And, 

although the plaintiff is in bankruptcy, the putative class definition is not limited to those persons 

who are, or have been, in bankruptcy proceedings. (Complaint, ¶ 20.) Manifestly, this 

proceeding is not one which invokes a substantive right created by the Bankruptcy Code, nor is it 

 

3 Under 28 U.S.C. § 157(b), bankruptcy judges have the power to enter final orders and 

judgments (that is, orders subject only to ordinary appellate review) in core proceedings, 

but are precluded, absent the consent of the litigants, from entering final orders or 

judgments in non-core proceedings. In non-core proceedings, unless all parties consent 

otherwise, a bankruptcy court must submit proposed findings of fact and conclusions of 

law to the district court pursuant to 28 U.S.C. § 157(c)(1). See In re Second Pine, Inc., 

107 B.R. 48, 49 (E.D. Pa. 1989). This dichotomy has implications for judicial economy, 

since if a non-core matter is tried in the first instance by the Bankruptcy Court, the 

District Court must conduct a de novo review of both the Bankruptcy Court’s proposed 

findings of fact and its conclusions of law. In re Pelullo, 1997 U.S. Dist. LEXIS 12324 

(E.D. Pa. Aug. 15, 1997). More generally, core matters constitute the basic function of 

the Bankruptcy Courts, and to withdraw such matters routinely would undermine the 

Bankruptcy Court system. Not so non-core matters, which are in Bankruptcy Court by 

happenstance rather than by design.

Case 2:02-mc-00179-RB Document 1 Filed 07/02/2002 Page 9 of 12
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a proceeding that could only arise in the context of a bankruptcy case. It is a paradigmatic noncore proceeding.

Beyond the core/non-core inquiry, the United States Court of Appeals for the 

Third Circuit has set forth four considerations integral to deciding whether to permissively 

withdraw the reference: (1) promoting uniformity in bankruptcy administration; (2) reducing 

forum shopping and confusion; (3) fostering the economical use of the debtors’ and creditors’ 

resources; and (4) expediting the bankruptcy process. See In re Pruitt, 910 F.2d 1160, 1168 (3rd 

Cir. 1990). If a class were to be certified in this case, it would not (by class definition) be limited 

to debtors in bankruptcy. Thus, it would likely be composed largely of non-debtor members 

asserting claims unrelated to bankruptcy law. Moreover, the Bankruptcy Court would not be 

able to enter a final judgment, even as to the named plaintiff. It is hard to imagine a more 

wasteful use of Bankruptcy Court judicial time and resources, or a more complete disruption to 

and delay of plaintiff’s bankruptcy proceeding. Therefore, good cause exists for the permissive 

withdrawal of this proceeding as well. 

Case 2:02-mc-00179-RB Document 1 Filed 07/02/2002 Page 10 of 12
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IV. CONCLUSION

For the foregoing reasons, Chase respectfully requests that its unopposed motion 

for the withdrawal of the reference be granted, and that the reference be withdrawn.

Respectfully submitted,

______________________________

Darryl J. May

Vincent J. Marriott, III

Tara M. Sell

BALLARD SPAHR ANDREWS &

 INGERSOLL, LLP

1735 Market Street, 51st Floor

Philadelphia, PA 19103-7599

(215) 864-8103

(215) 864-9167

Attorneys for Defendant

Chase Manhattan Mortgage Corporation

Dated: July 2, 2002

Case 2:02-mc-00179-RB Document 1 Filed 07/02/2002 Page 11 of 12
CERTIFICATE OF SERVICE

I, Darryl J. May, Esquire, do hereby certify that on this date, I caused copies of 

the foregoing Motion of Defendants, Chase Manhattan Mortgage Corporation, to Withdrawal the 

Reference and Memorandum of Law in support thereof, to be served as follows:

Ann Miller, Esquire

834 Chestnut Street, Suite 206

Philadelphia, PA 19107

(By Hand Delivery)

Richard D. Greenfield, Esquire

Greenfield & Goodman, LLC

24579 Deep Neck Road

Royal Oak, MD 21662

(REGULAR MAIL)

Dated: July 2, 2002 ________________________________

Darryl J. May 

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