Opinion ID: 3050148
Heading Depth: 3
Heading Rank: 2

Heading: A.P.] to be persuasive and adopt it.”).

Text: IN RE: HEALTHCENTRAL.COM 12837 Congress set forth the procedure for withdrawing a jurisdictional reference under the Bankruptcy Code in 28 U.S.C. § 157(d). This act states: [A] 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. Id. § 157(d) (emphasis added); accord 9 Collier on Bankruptcy ¶ 5011.01[1], 5011-3 (rev. 15th ed. 2006) (“28 U.S.C. § 157(d) provides the authority . . . to withdraw the reference of the case or proceeding.”). In keeping with this procedure, the Supreme Court promulgated Federal Rule of Bankruptcy Procedure 5011(a), which states in its entirety: A motion for withdrawal of a case or proceeding shall be heard by a district judge. Id. (emphasis added); see also id. advisory committee note (“[5011(a)] makes it clear that the bankruptcy judge will not conduct hearings on a withdrawal motion. The withdrawal decision is committed exclusively to the district court.”). By contrast, Local Rule 9015-2(b) establishes a very different procedure for withdrawing the district court’s jurisdictional reference. Under this rule: If [a] Bankruptcy Judge determines that [a] demand was timely made and the party has a right to a jury trial, and if all parties have not filed written consent 12838 IN RE: HEALTHCENTRAL.COM to a jury trial before the Bankruptcy Judge, the Bank- ruptcy Judge shall certify to the District Court that the proceeding is to be tried by a jury and that the parties have not consented to a jury trial in the Bankruptcy Court. Upon such certification, [the] reference of the proceeding shall be automatically withdrawn, and the proceeding assigned to a Judge of the District Court . . . . Local Fed. R. Bankr. P. 9015-2(b) (emphasis added). [4] After careful review we find the procedure established by Local Rule 9105-2(b) cannot be squared with the procedure established by 28 U.S.C.§ 157(d), an “Act of Congress,” and Rule 5011(a), a “Federal Rule of Bankruptcy Procedure.” Fed. R. Bankr. Proc. 9029. At least two inconsistencies bear mentioning. First, Local Rule 9015-2(b) allows for the bankruptcy court to “withdraw[ ]” the jurisdictional reference, whereas 28 U.S.C. § 157(d) and Rule 5011(a) make it explicit that only a district court may “withdraw” the jurisdictional reference. See FTC v. First Alliance Mortg. Co. (In re First Alliance Mortg. Co.), 282 B.R. 894, 901 (C.D. Cal. 2001) (holding that “a motion [to withdrawal] is heard by the district court”) (emphasis added). Second, Local Rule 9015-2(b) permits a party to obtain a withdrawal of the reference upon a “Motion for Certification,” while 28 U.S.C. § 157(d) and Rule 5011(a) make it clear that a party may only obtain a withdrawal of the reference upon a “Motion for Withdrawal.” See Hawaiian Airlines, Inc. v. Mesa Air Group, Inc., 355 B.R. 214, 218 (D. Hi. 2006) (holding that “a litigant who believes that a certain [action] or portion of a [action] pending in the bankruptcy court should be litigated in the district court may make a motion to withdraw the reference”) (emphasis added). [5] We find no error then in the bankruptcy court’s decision not to adhere to this invalid rule and withdraw the reference, IN RE: HEALTHCENTRAL.COM 12839 but instead to retain jurisdiction over the debtor’s action for all pre-trial proceedings.4 Moreover, Sigma’s citation notwithstanding, we can discern nothing in Dunmore v. United States, the only other case to address Local Rule 9015-2(b), which requires a different result. 358 F.3d at 1116-17. Dunmore was limited to discussing the basic procedure established by Rule 9015-2(b). See id. In other words, in that case we merely stated that if a party (1) has a right to a jury trial in the district court, (2) makes a timely demand for a jury trial in the district court, and (3) refuses to consent to a jury trial elsewhere, Local Rule 9015- 2(b) requires the bankruptcy court to “automatic[ally]” “certif[y] the withdrawal of the district court’s reference for ‘cause shown’ and sen[d] the case back to the district court.” Id. Dunmore, however, is simply unavailing to the issue we confront here: whether the procedure set forth in Local Rule 9015-2(b) is valid. This issue has never been addressed. See Dunmore, 358 F.3d at 1116-17. Accordingly, while Dunmore may be relevant for determining what procedure Local Rule 9015-2(b) sets forth, it is irrelevant for determining whether Local Rule 9015-2(b)’s procedure is valid. B. Seventh Amendment Jury Trial Right In addition to Local Rule 9015-2(b) Sigma also seeks support for its jurisdictional argument by pointing to its right to a Seventh Amendment jury trial in the district court. Sigma argues it is has been “held” that once a jury right is found, the bankruptcy court may no longer maintain “jurisdiction” and the action must be instantly transferred to an “Article III court.” Sigma specifically claims this was the holding of 4 Because we find Local Rule 9015-2(b) to be invalid, we express no opinion as to whether the bankruptcy court could have properly “stayed” the effective date of the Local Rule 9015-2(b) certification. 12840 IN RE: HEALTHCENTRAL.COM Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989), one of the Court’s preeminent bankruptcy cases. We agree with Sigma that it is entitled to a Seventh Amendment jury trial in the district court. Growe v. Bilodard Inc., 325 B.R. 490, 491-92 (D. Me. 2005). We disagree, however, that Granfinanciera holds that in light of this jury trial right the bankruptcy court may no longer retain jurisdiction, and the action must be instantly transferred to an “Article III court.” See 492 U.S. at 50, 64. [6] Granfinanciera involved a debtor’s action under § 548 of the Bankruptcy Code to recover certain allegedly “fraudulent transfers” made to two creditors. 492 U.S. at 36. In response to the action the creditors “requested a ‘trial by jury.’ ” Id. at 37. The bankruptcy court, however, denied the creditors’ request and held a “bench trial,” which resulted in a judgment for the debtor. Id. The creditors filed an appeal and the Supreme Court granted cert “sole[ly]” to decide “whether [the creditors had been] entitled to a jury trial” under the Seventh Amendment. Id. at 38, 50. After a lengthy discussion, the Court held, these creditors, who had filed no claim of their own, had been entitled to a Seventh Amendment jury trial. Id. at 64 (“[We hold] . . . the Seventh Amendment entitles petitioners to the jury trial they requested.”). That the creditors had been “entitl[ed]” to a jury trial under the Seventh Amendment, however, was the exclusive holding of Granfinanciera. Id. at 64-65. In fact, the Granfinanciera Court explicitly stated it would hold no more. Id. at 50 (“We are not obliged to decide today [anything more than] . . . whether the Seventh Amendment confers on petitioners a right to a jury trial . . . .”). Granfinanciera does not support Sigma’s argument that once a jury right is found the bankruptcy court must instantly give up jurisdiction and the case must be transferred to an Article III court. See id. at 64 (stating no view as to whether action may remain in bankruptcy in light of Seventh Amendment right to a jury trial). IN RE: HEALTHCENTRAL.COM 12841 [7] Instead, we find Sigma’s argument to this effect is an open issue, and one of novel impression in this circuit. E.g., City Fire Equip. Co., Inc. v. Ansul Fire Prot. Wormald U.S., Inc., 125 B.R. 645, 646-50 (N.D. Ala. 1989) (en banc) (finding that Granfinanciera did not settle whether a bankruptcy court could retain jurisdiction if there was a jury right and thus it was a novel issue). For guidance on how to address Sigma’s argument we have canvassed the numerous courts outside this circuit who have already addressed the issue. See, e.g., In re Stansbury Place, Inc., 13 F.3d 122, 128 (4th Cir. 1993); Orion Pictures Corp. v. Showtime Networks (In re Orion Pictures Corp.), 4 F.3d 1095, 1101-02 (2nd Cir. 1993); King v. Fidelity Nat’l Bank, 712 F.2d 188, 192 (5th Cir. 1983); Growe v. Bilodard Inc., 325 B.R. 490, 492 (D. Me. 2005); Plan Adm’r v. Lone Star RV Sales, Inc. (In re Conseco Fin. Corp.), 324 B.R. 50, 55-56 (N.D. Ill. 2005); Travelers Cas. & Sur. Co. v. Skinner Engine Co. (In re Am. Capital Equip., LLC), 325 B.R. 372, 375 (W.D. Pa. 2005); Hayes v. Royala, Inc., 180 B.R. 476, 477 (E.D. Tex. 1995); Wittes v. Interco Inc., 137 B.R. 328, 329 n.2 (E.D. Mo. 1992); Douglas, Inc. v. Watrous & Ehlers, P.C., 170 B.R. 169, 170 (D. Colo. 1994). [8] Universally these courts have all reached the same holding, that is, a Seventh Amendment jury trial right does not mean the bankruptcy court must instantly give up jurisdiction and that the case must be transferred to the district court. E.g., City Fire Equip. Co., 125 B.R. at 646-50. Instead, the bankruptcy court is permitted to retain jurisdiction over the action for pre-trial matters. E.g., In re Stansbury Place, 13 F.3d at 128. As these courts have explained, two rationales justify this holding. First, allowing the bankruptcy court to retain jurisdiction over pre-trial matters, does not abridge a party’s Seventh Amendment right to a jury trial. See City Fire Equip. Co., 125 B.R. at 649; accord Jobin v. Kloepfer (In re M & L Bus. 12842 IN RE: HEALTHCENTRAL.COM Mach. Co.), 159 B.R. 932, 934-35 (D. Colo. 1993); Stein v. Miller, 158 B.R. 876, 879-80 (S.D. Fla. 1993). A bankruptcy court’s pre-trial management will likely include matters of “discovery,” “pre-trial conferences,” and routine “motions,” which obviously do not diminish a party’s right to a jury trial. See In re M & L Bus. Mach. Co., 159 B.R. at 934. Moreover, even if a bankruptcy court were to rule on a dispositive motion, it would not affect a party’s Seventh Amendment right to a jury trial, as these motions merely address whether trial is necessary at all. See Diamond Door Co. v. LaneStanton Lumber Co., 505 F.2d 1199, 1203 & n.6 (9th Cir. 1974) (“[S]ummary judgment is granted as a matter of law where there is no genuine issue of material fact, and, therefore, the province of the jury, fact finding, is not invaded.”) (emphasis in original); City Fire. Equip. Co., 125 B.R. at 649 (“While motions to dismiss and motions for summary judgment may be dispositive, they do not impact on the right to a jury trial. They merely involve legal issues as to whether any trial is necessary . . . . The granting of such motions does not deprive a party of a right to a jury trial.”) (last emphasis added). Second, requiring that an action be immediately transferred to district court simply because of a jury trial right would run counter to our bankruptcy system. See In re Conseco Finance Corp., 324 B.R. at 55; Eric Indus., Inc. v. Nat. Union Fire Insr. Co. (In re Kenai Corp.) 136 B.R. 59, 61 (S.D.N.Y. 1992). Under our current system Congress has empowered the bankruptcy courts to “hear” Title 11 actions, and in most cases enter relevant “orders.” § 157(b)(1), (c)(1); see also In re W. Asbestos Co., 313 B.R. 859, 862 (N.D. Cal. 2004) (§ 157(b)(1)); Hassett v. BancOhio Nat’l Bank (In re CIS Corp.), 172 B.R. 748, 763-64 (S.D.N.Y. 1994) (§ 157(c)(1)). As has been explained before, this system promotes judicial economy and efficiency by making use of the bankruptcy court’s unique knowledge of Title 11 and familiarity with the actions before them. See, e.g., City Fire Equip. Co., 125 B.R. at 649; Douglas, Inc., 170 B.R. at 170; Barlow & Peek, Inc. IN RE: HEALTHCENTRAL.COM 12843 v. Manke Truck Lines, Inc., 163 B.R. 177, 179 (D. Nev. 1993). Accordingly, if we were to require an action’s immediate transfer to district court simply because there is a jury trial right we would effectively subvert this system. In re Kenai Corp., 136 B.R. at 61 (“A rule that would require a district court to withdraw a reference simply because a party is entitled to a jury trial, regardless of how far along toward trial a case may be, runs counter to the policy favoring judicial economy that underlies the statutory scheme . . . .”). Only by allowing the bankruptcy court to retain jurisdiction over the action until trial is actually ready do we ensure that our bankruptcy system is carried out. E.g., Disbursing Agent of Murray F. Hardesty Estate v. Severson (In re Hardesty), 190 B.R. 653, 657 (D. Kan. 1995). [9] We find the holding reached by the great majority of courts to have addressed this issue convincing and adopt it here. A valid right to a Seventh Amendment jury trial in the district court does not mean the bankruptcy court must instantly give up jurisdiction and that the action must be transferred to the district court. Instead, we hold, the bankruptcy court may retain jurisdiction over the action for pre-trial matters. [10] The bankruptcy court here then did not err in retaining jurisdiction over pre-trial matters, despite Sigma’s valid claim for a Seventh Amendment jury trial in the district court.