Source: https://www.justice.gov/jm/civil-resource-manual-186-reference-proceedings-bankruptcy-judges
Timestamp: 2019-04-21 22:42:36+00:00

Document:
Bankruptcy judges "constitute a unit of the district court to be known as the bankruptcy court" for each district. 28 U.S.C. § 151.
District courts are authorized, but not required, to refer to bankruptcy judges cases under title 11, and proceedings arising under title 11, or arising in or related to cases under title 11. 28 U.S.C. § 157(a). Schulman v. Cal. Water Res. Control Bd. (In re Lazar), 200 B.R. 358, 366 (Bankr. C.D. Cal. 1996) (each district court is authorized to adopt general order of reference for bankruptcy cases). See Walls v. Wells Fargo Bank, N.A., 255 B.R. 38 (E.D. Cal. 2000) (district court exercising discretion not to refer claims involving FDCPA which might require jury trial).
b. all "core proceedings" arising under title 11 or arising in a case under title 11.
Absent consent of the parties, a bankruptcy judge may only "hear" (but not determine) a proceeding that is not a core proceeding but that is otherwise related to a bankruptcy case. 28 U.S.C. § 157(c)(1).
28 U.S.C. § 157 does not confer jurisdiction separate and apart from 28 U.S.C. § 1334. Bass v. Denney (In re Bass), 171 F.3d 1016, 1025-26 (5th Cir. 1999) (holding that § 1334 does not confer jurisdiction over action to enforce a non-dischargeable money judgment against a bankruptcy debtor, and thus, § 157 cannot confer jurisdiction independently).
(O) other proceedings affecting the liquidation of the assets of the estate or the adjustment of the debtor-creditor or the equity security holder relationship, except personal injury tort or wrongful death claims; see St. Clare's Hosp. & Health Ctr. v. Ins. Co. of N. Am. (In re St. Clare's Hosp. & Health Care Ctr.), 934 F.2d 15 (2d Cir. 1991) (action for declaratory judgment that insurer was obligated to defend medical malpractice action); Kirk v. Hendon (In re Heinsohn), 247 B.R. 237 (E.D. Tenn. 2000) (proceeding is "core" if it invokes substantive right provided by title 11 or if it is a proceeding that, by its nature, could arise only in the context of bankruptcy); Artra Group, Inc. v. Salomon Bros. Holding Co. (In re Emerald Acquisition Corp.), 170 B.R. 632 (Bankr. N.D. Ill. 1994) ("core" matters are ones with which bankruptcy court has greater familiarity and expertise than the district court); New Magma Irrigation & Drainage Dist. v. Bd. of Supervisors (In re New Magma Irrigation & Drainage Dist.), 193 B.R. 528 (Bankr. D. Ariz. 1994) ("catch-all" definitions of core proceedings should be relied on with great care and caution).
A non-core proceeding has a "life of its own in either state or federal common law or statute independent of the federal bankruptcy laws." Salomon v. Kaiser (In re Kaiser), 722 F.2d 1574, 1582 (2d Cir. 1983); Wechsler v. Squadron, Ellenoff, Plesent & Sheinfeld L.L.P., 201 B.R. 635 (S.D.N.Y. 1996) (non-core matters are those in which the district court is more proficient than the bankruptcy court); Bethlahmy, IRA v. Kuhlman (In re ACI-HDT Supply Co.), 205 B.R. 231 (B.A.P. 9th Cir. 1997); Scotland Guard Servs. v. Autoridad de Energia Electrica (In re Scotland Guard Servs., Inc.), 179 B.R. 764 (Bankr. D.P.R. 1993) (non-core proceedings, where the action "would survive outside of bankruptcy," include causes of action by the debtor against a third-party based on non-bankruptcy law).
In non-core proceedings, absent consent, the bankruptcy judge is limited to submitting proposed findings of fact and conclusions of law to the district court. 28 U.S.C. § 157(c)(1). A final order or judgment is entered by the district judge after considering the proposed findings and conclusions and reviewing de novo those matters to which any party has timely (i.e., within 10 days of service of proposed findings and conclusions) and specifically objected. 28 U.S.C. § 157(c)(1); Fed. R. Bankr. P. 9033; see McFarland v. Leyh (In re Tex. Gen. Petroleum Corp.), 52 F.3d 1330, 1337 (5th Cir. 1995) (district court must review bankruptcy court's judgment de novo); Moody v. Amoco Oil Co., 734 F.2d 1200 (7th Cir. 1984) (new trial not required; record should be examined without giving deference to proposed factual findings).
4. Core v. Non-Core Jurisdiction.
Parties may consent to trial and entry of final orders by bankruptcy judge, whether proceeding is core or non-core. In an adversary proceeding, the complaint, counterclaim, cross-claim, or third party complaint must state whether the proceeding is core or non-core and, if non-core, whether party consents to entry of final order by bankruptcy judge. Fed. R. Bankr. P. 7008(a). Responsive pleading must do likewise. Fed. R. Bankr. P. 7012(b). See generally McFarland v. Leyh (In re Tex. Gen. Petroleum Corp.), 52 F.3d at 1337 ("A party who fails to object to bankruptcy court's assumption of core jurisdiction consents to that court's entry of final judgment."); Plaza at Latham Assocs. v. Citicorp N. Am., Inc., 150 B.R. 507 (N.D.N.Y. 1993).
The distinction between core and non-core is often difficult to discern. See In re United States Brass Corp., 110 F.3d 1261, 1268-69 (7th Cir. 1997) (impact of claim on estate showed it was "related to" the case and, thus, a non-core proceeding, rather than core). See generally Houbigant, Inc. v. ACB Mercantile, Inc. (In re Houbigant, Inc.), 185 B.R. 680 (S.D.N.Y. 1995) (proceeding is core`if it invokes a substantive right provided by the Bankruptcy Code or by nature could arise only in the context of a bankruptcy case); Chiang v. Barclays Bank, PLC (In re Caledonia Springs, Inc.), 185 B.R. 712 (D.V.I. 1995) (proceedings integral to restructuring debtor-creditor rights and postpetition activities are core proceedings); Hudgins v. Shah (In re Sys. Eng'g & Energy Mgmt. Assocs., Inc., 252 B.R. 635 (Bankr. E.D. Va. 2000) (among factors that court may consider in deciding whether claim is "core" or "non-core" matter are the following: (1) whether claim is not specifically identified as "core" matter in jurisdictional provision; (2) whether claim existed prepetition; (3) whether claim would continue to exist independent of provisions of title 11; and (4) whether parties' rights, obligations, or both are significantly affected as result of debtor's bankruptcy filing). Compare Beard v. Braunstein, 914 F.2d 434, 443-45 (3d Cir. 1990) (proceeding based on claims of pre- and postpetition breaches of prepetition contract non-core), Ralls v. Docktor Pet Ctrs., Inc., 177 B.R. 420 (D. Mass. 1995) (debtor's suit to recover claims on a prepetition breach of contract is "entirely non-core matter"), Aristera C. v. Chaney (In re Aristera Co.), 65 B.R. 928 (Bankr. N.D. Tex. 1986), and Atlas Automation, Inc. v. Jensen, Inc. (In re Atlas Automation, Inc.), 42 B.R. 246 (Bankr. E.D. Mich. 1984) (collection of prepetition accounts receivable found not to be core proceeding) with Sacred Heart Hosp. of Norristown v. Independence Blue Cross (In re Sacred Heart Hosp. of Norristown), 181 B.R. 195, 202 (Bankr. E.D. Pa. 1995) (proceedings raising claims of postpetition breaches of prepetition contracts are core). See generally "Action for Breach of Contract As Core Proceeding in Bankruptcy Under 28 U.S.C. § 157(b)," 123 A.L.R. Fed. 103 (1995 and Supp. 2000).
The determination of whether a case is core or non-core is made by the bankruptcy judge. In re Treco, 205 B.R. 358 (S.D.N.Y. 1997).
Where a proceeding presents a mix of core and non-core claims, the bankruptcy court must perform a claim-by-claim analysis to determine the extent of its jurisdiction. Halper v. Halper, 164 F.3d 830, 838-40 (3d Cir. 1999). However, some courts would hold that an entire proceeding is core if its core aspects heavily predominate. Id. at 839 (citing cases).
5. Withdrawal of the Reference.
a. Mandatory Withdrawal. District courts are required to withdraw the reference upon timely motion "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); see Educ. Credit Mgmt. Corp. v. Barnes, 259 B.R. 328 (S.D. Ind. 2001) (district court was compelled to withdraw reference where trustee's objection to student loan creditor's claim challenged the constitutionality of 34 C.F.R. § 682.410(b)(2), pursuant to which disputed collection costs in the claim were imposed); S. Pac. Transp. Co. v. Voluntary Purchasing Group, Inc., 252 B.R. 373 (E.D. Tex. 2000) (bankruptcy court lacked jurisdiction, as part of chapter 11 plan confirmation process, to approve and then issue mandatory injunctions implementing the debtor's settlement with State of CERCLA claims because such a decision necessarily involved the substantial and material consideration of Federal law regulating interstate commerce within the meaning of 28 U.S.C. § 157(d)); In re E & S Facilities, Inc., 181 B.R. 369, 372 (S.D. Ind. 1995) (withdrawal requires either (1) complicated issues of first impression requiring significant interpretation of Federal law, or (2) substantial and material conflicts between the Bankruptcy Code and non-title 11 laws), aff'd, 96 F.3d 949 (7th Cir. 1996); In re Horizon Air, Inc., 156 B.R. 369 (N.D.N.Y. 1993); Contemporary Lithographers, Inc. v. Hibbert (In re Contemporary Lithographers, Inc.), 127 B.R. 122 (M.D.N.C. 1991) (withdrawal mandatory if proceeding presents non-bankruptcy Federal question (here, alleged violations of Federal securities laws) which will affect outcome of bankruptcy proceeding); Block v. Anthony Tammaro, Inc. (In re Anthony Tammaro, Inc.), 56 B.R. 999 (D.N.J. 1986) (legislative history). But see PBGC v. Cont'l Airlines, Inc. (In re Cont'l Airlines, Inc.), 138 B.R. 442 (D. Del. 1992) (where court could decide case without reaching non-bankruptcy ERISA issue, withdrawal was not mandatory).
(1) Most courts hold that withdrawal is mandatory only if "substantial and material consideration" of non-Code Federal statute is necessary to resolve proceeding. See, e.g., United Nat'l Ins. Co. v. Vicars Ins. Agency (In re Vicars Ins. Agency), 96 F.3d 949 (7th Cir. 1996); LTV Steel Co. v. Union Carbide Corp. (In re Chateaugay Corp.), 193 B.R. 669 (S.D.N.Y. 1996) (withdrawal of reference not required if consideration of non-Code law entails straightforward application of settled law to facts of particular case, but is required when the court will be called upon to make significant interpretation of non-Code statute, when non-Code issues dominate Code issues, or when the non-bankruptcy Federal law that governs the case significantly and materially conflicts with the relevant bankruptcy provisions); C-TC 9th Ave. P'ship v. Norton Co. (In re C-TC 9th Ave. P'ship), 177 B.R. 760 (N.D.N.Y. 1995) (withdrawal mandatory only where the resolution of the claims will require substantial and material consideration of non-Code statutes which have more than a de minimis impact on interstate commerce.); In re Philadelphia Training Ctr. Corp., 155 B.R. 109 (E.D. Pa. 1993) (mandatory withdrawal not required by mere assertion that claim may arise under nonbankruptcy Federal statute, by incidental need to consider nonbankruptcy law, where only routine application of established legal standards is required, or where need to apply and interpret nonbankruptcy law to resolve proceeding is unclear); Am. Body Armor & Equip., Inc. v. Clark (In re Am. Body Armor & Equip., Inc.), 155 B.R. 588 (M.D. Fla. 1993) (mandatory withdrawal only for cases of first impression or where "substantial and material conflicts" exist between Bankruptcy Code and other Federal law); Wittes v. Interco, Inc., 137 B.R. 328 (E.D. Mo. 1992) (where issues required no more than "straightforward application," and not significant interpretation of ADEA, reference not withdrawn).
(2) Some courts have declined to interpret § 157(d) literally and have withdrawn the reference even though only consideration of non-Code Federal statute was required. See Contemporary Lithographers, Inc. v. Hibbert (In re Contemporary Lithographers, Inc.), 127 B.R. 122 (M.D.N.C. 1991). But see Brizendine v. Montgomery Ward & Co., 143 B.R. 877 (N.D. Ill. 1992) (where adversary proceeding to collect freight undercharges required consideration of Interstate Commerce Act but not of Bankruptcy Code, withdrawal of reference not required).
(3) What qualifies as non-bankruptcy Federal statute regulating interstate commerce? See Camden Ordnance Mfg. Co. of Ark. v. United States Trustee (In re Camden Ordnance Mfg. Co.), 245 B.R. 794, 806 (E.D. Pa. 2000) (consideration of U.S. Constitution could mandate withdrawal); see also S. Pac. Transp. Co. v. Voluntary Purchasing Groups, Inc., 252 B.R. 373 (E.D. Tex. 2000) (CERCLA is statute regulating interstate commerce); In re Coe-Truman Techs, Inc., 214 B.R. 183 (N.D. Ill. 1997) (Tucker Act not a law of the U.S. regulating organizations or activities affecting interstate commerce; however, discretionary withdrawal was appropriate because proceeding was non-core).
(1) The district court may, but is not required to withdraw partially or totally a case referred to the bankruptcy court, upon its own motion or upon timely motion of a party, for cause shown. 28 U.S.C. § 157(d).
(2) Considerations include: (1) uniformity in bankruptcy administration; (2) reduction of forum shopping and confusion; (3) fostering economical use of debtors' and creditors' resources; and (4) expediting the bankruptcy process. See In re Pruitt, 910 F.2d 1160 (3d Cir. 1990); see also Keystone Oncology, LLC v. Cohen (In re Equimed, Inc.), 259 B.R. 269, 273 (D. Md. 2001) (additional factor: equitable issues are posed, not requiring a jury trial, but falling within the traditional equitable powers of a bankruptcy judge); compare Hassett v. BancOhio Nat'l Bank (In re CIS Corp.), 172 B.R. 748 (S.D.N.Y. 1994) (comprehensive discussion of standards for deciding motion to withdraw the reference; cause established for permissive withdrawal where the matter is not core and creditor demands jury trial), Carmel v. Galam (In re Larry's Apartment, L.L.C.), 210 B.R. 469 (D. Ariz. 1997) (withdrawal not warranted where no showing of right to jury trial), Wechsler v. Squadron, Ellenoff, Plesent & Sheinfeld L.L.P., 201 B.R. 635 (S.D.N.Y. 1996), Zahn v. Yucaipa Capital Fund (In re Almac's Inc.), 202 B.R. 648 (D.R.I. 1996), and Big Rivers Elec. Corp. v. Green River Coal Co., 182 B.R. 751 (W.D. Ky. 1995) (concerns of judicial economy warranted withdrawing the reference of an adversary proceeding against the debtor-coal company, regarding the validity of a coal supply contract, where the bankruptcy proceeding involved common issues of law and fact with another case pending in the district court) with Ponce Marine Farm, Inc. v. Browner (In re Ponce Marine Farm, Inc.), 172 B.R. 722 (D.P.R. 1994) (court denies EPA's motion to withdraw the reference in matter concerning the Clean Water Act where EPA waited over a year to bring motion, court was familiar with the issues, and withdrawal would place an "unnecessary burden" on the debtor), and United States v. Kaplan, 146 B.R. 500 (D. Mass. 1992) (discretionary withdrawal requires truly exceptional and compelling circumstances).
(3) Eleventh Circuit has held that district court may withdraw reference only for cause once bankruptcy court has assumed jurisdiction. Dionne v. Simmons (In re Simmons), 200 F.3d 738, 741 (11th Cir. 2000). However, the constitutionality of bankruptcy jurisdiction may hinge upon the district courts' ability to control bankruptcy proceedings in their discretion at any stage. See Land-O-Sun Dairies, Inc. v. Fla. Supermarkets, Inc. (In re Finevest Foods, Inc.), 143 B.R. 964, 968 (Bankr. M.D. Fla. 1992). Authority to withdraw applies to both core and non-core proceedings. See Holland Am. Ins. Co. v. Succession of Roy, 777 F.2d 992 (5th Cir. 1985); Wechsler v. Squadron, Ellenoff, Plesent & Sheinfeld L.L.P., 201 B.R. 635 (S.D.N.Y. 1996); Zahn v. Yucaipa Capital Fund (In re Almac's Inc.), 202 B.R. 648 (D.R.I. 1996); United States v. ILCO, Inc. (In re ILCO, Inc.), 48 B.R. 1016, 1020 (N.D. Ala. 1985); In re White Motor Co., 42 B.R. 693 (N.D. Ohio 1984). Which court determines core status is subject to controversy. Compare In re Orion Pictures Corp., 4 F.3d 1095, 1101 (2d Cir. 1993) (district court determines) with Mellon Bank v. Del. & Hudson Ry. (In re Del. & Hudson Ry.), 122 B.R. 887, 892 (D. Del. 1991) (bankruptcy court determines core/non-core status). Where is motion to withdraw filed? Compare Morse Elec. Co. v. Logicon, Inc. (In re Morse Elec. Co.), 47 B.R. 234, 236 (Bankr. N.D. Ind. 1985) (district court) with Fisher v. Ins. Co. of Pa. (In re Pied Piper Casuals, Inc.), 48 B.R. 294 (S.D.N.Y. 1985) (bankruptcy court). See Fed. R. Bankr. P. 5011(a) (heard by district court). Procedure may vary according to local rules. E.g., District of Kansas Rule 706 (filed in bankruptcy court, heard in district court after bankruptcy judge forwards to district court with recommendation); N.D. California Rule 700-4 (filed, heard in district court, copy filed in bankruptcy court). See Walton v. AG Credit (In re Walton), 158 B.R. 939 (Bankr. N.D. Ohio 1993) (court may consider mandatory withdrawal of reference sua sponte). When must motion to withdraw be filed: "In timely fashion" requires filing at the first reasonable opportunity as indicated by facts of the case. Zahn v. Yucaipa Capital Fund (In re Almac's Inc.), 202 B.R. 648 (D.R.I. 1996) (motion to withdraw filed 60 days after complaint deemed timely where no material event had taken place in the case); In re Chateaugay Corp., 104 B.R. 622 (S.D.N.Y. 1989); see Consol. Indus. Corp. v. Welbilt Holding Co., 254 B.R. 237 (N.D. Ind. 2000) (motion to withdraw reference untimely when filed 5 weeks after jury demand, when local rule required its filing simultaneously with jury demand); Lone Star Indus. v. Rankin County Econ. Dev. Dist. (In re N.Y. Trap Rock Corp.), 158 B.R. 574 (S.D.N.Y. 1993) (motion to withdraw reference denied where untimely and filed for forum shopping purposes); Met-Al, Inc. v. Hanson Storage Co., 157 B.R. 993 (E.D. Wis. 1993) (motion timely when filed five days after filing of amended complaint first alleging Federal statutory claim); In re Oil Co., 140 B.R. 30 (E.D.N.Y. 1992) (motion filed six weeks after proceeding commenced was timely). In some jurisdictions, local rules set specific time limits on motions to withdraw reference although the validity of such rules is questionable inasmuch as the statute permits "timely" motion. Also, the timeliness requirement does not apply to the district court's power to withdraw sua sponte. See Danning v. Lummis (In re Tom Carter Enters., Inc.), 44 B.R. 605 (C.D. Cal. 1984) (district court may withdraw reference any time up to final judgment of bankruptcy court). Order granting or denying motion to withdraw reference is not a final, appealable order. Abney v. Kissel Co. (In re Kissel Co.), 105 F.3d 1324 (9th Cir. 1997). On appeal, district court's decision is entitled to great deference. Taxel v. Elec. Sports Research (In re Cinematronics, Inc.), 916 F.2d 1444 (9th Cir. 1990); Holland Am. Ins. Co. v. Succession of Roy, 777 F.2d 992, 998 (5th Cir. 1985). A district court sitting as an appellate court cannot conduct a jury trial but can order the reference withdrawn so that it can conduct the jury trial in its original jurisdiction in bankruptcy. Glannon v. Carpenter (In re Glannon), 245 B.R. 882, 892 (D. Kan. 2000); see also E. Equip. & Servs. Corp. v. Factory Point Nat'l Bank, 236 F.3d 117, 121 (2d Cir. 2001) (sitting as appellate court, district court lacks jurisdiction to hear complaint alleging violations of automatic stay).

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