Opinion
No. 8:01-cv-1224-T-23EAJ
October 12, 2001
ORDER
The United States of America moves to withdraw the reference from the United States Bankruptcy Court (Doc. 1). Defendant Heller Healthcare Finance, Inc. f/k/a HCFP Funding, Inc. ("Heller") opposes the motion (Doc. 4).
The United States originally brought an action against Heller in the United States Bankruptcy Court under Chapter 11 to determine the validity, priority, and extent of liens each party holds against the various debtors. The United States filed a motion to amend its complaint on June 11, 2001, and filed the amended complaint on June 20, 2001. On June 26, 2001, the United States filed a motion in this Court to withdraw the reference from the United States Bankruptcy Court. The United States contends that its new claims asserted under the Internal Revenue Code and under state law in its amended complaint require the withdrawal of reference.
Withdrawal of reference may be mandatory or permissive. The applicable statute provides the basis for each type of withdrawal.
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 any 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). The District Courts in this Circuit considering the issue hold consistently that withdrawal is mandatory "if resolution of the issues requires `substantial and material consideration' of non-bankruptcy code statutes." In re American Body Armor Equip., Inc., 155 B.R. 588, 590(M.D. Fla. 1993); see also In re Hvide Marine Inc., 248 B.R. 841, 843-844(M.D. Fla. 2000) (adopting the analytical framework of American Body Armor Equip., Inc., and employing the "substantial and material" test); In re TPI International Airways, Inc., 222 B.R. 663, 667-668(S.D. Ga. 1998) (same). To qualify as a substantial and material consideration, the claims must involve "resolution of cases of first impression or `substantial and material conflicts' between non-title 11 federal law and the Bankruptcy code." In re American Body Armor Equip., Inc., 155 B.R. at 590(citing In re Adelphi Institute, Inc., 112 B.R. 534, 537(S.D.N.Y. 1990)).
In this case, no substantial and material consideration of non-bankruptcy federal law is necessary. The United States' Internal Revenue Code claim requires mere application of a statute not in significant conflict with the applicable bankruptcy statute. The claim also does not present an issue of first impression. The state law conversion claim provides no basis for mandatory withdrawal. See 28 U.S.C. § 157(d). Therefore, mandatory withdrawal is not appropriate in this case.
Permissive withdrawal requires the demonstration of cause. See 28 U.S.C. § 157(d). Cause "is not an empty requirement." In re Simmons, 200 F.3d 738, 741 (11th Cir. 2000). To determine whether cause exists, the Court considers "such goals as advancing uniformity in bankruptcy administration, decreasing forum shopping and confusion, promoting the economical use of the parties' resources, and facilitating the bankruptcy process." Simmons, 200 F.3d at 741 (quoting In re Parklane/Atlanta Joint Venture, 927 F.2d 532, 536 n. 5 (11th Cir. 1991)
The United States Bankruptcy Court already possesses familiarity with this action involving numerous debtors and creditors. This action has been pending in the United States Bankruptcy Court since February 1, 2001. Extensive discovery has been conducted by the parties. The facts necessary to establish the Internal Revenue Code claim intertwine with the factual discovery in the core bankruptcy proceeding. Conducting this discovery in the context of the bankruptcy proceeding provides greater efficiency for the parties and the judicial system. Therefore, the bankruptcy process is better facilitated by allowing the entire action to be litigated in the United States Bankruptcy Court. In other words, the United States advances no argument sufficient to establish a right to withdraw the reference.
The United States' new Internal Revenue Code claim against Heller asserts that, if Heller lent money to the debtors, Heller may have tax liability. Necessary factual inquiries must be conducted as to whether loans were made to the debtors and, if so, the number and value of the loans. If no loans were given, then the claim disappears. If loans were given to the debtors, then the question of tax liability becomes prominent. In either instance, discovery related to the debtors' assets and financial records is essential to the resolution of the United States' new Internal Revenue Code claim.
Accordingly, the United States' motion to withdraw the reference (Doc. 1) is DENIED. The Clerk is directed to (1) terminate any pending motions and (2) close the file.
ORDERED