Opinion
No. 02 Civ. 4417 (WK), (01 B 41853 (AJG)), (Adv. Pro. No. 02-02058)
September 27, 2002
Joshua L. Mallin, Esq., Weg Myers, P.C., New York, NY, for Plaintiff/Debtor.
Bruce W. Farquharson, Esq., Feldman, Rudy, Kirby Farquharson, P.C., Westbury, NY, for Defendant.
ORDER
Rancho 1 Metro, Inc. ("Debtor") is a debtor in a Chapter 11 bankruptcy proceeding currently pending in the Bankruptcy Court for the Southern District of New York. The Debtor is also the plaintiff in a related adversary proceeding therein. In that adversary proceeding, the Debtor apparently alleges that Defendant State National Insurance Company, Inc. ("Defendant") breached a contract of insurance between the parties when it failed to reimburse the Debtor for damages sustained by its restaurant in a fire on February 13, 2000. The Defendant now moves this Court to withdraw the reference to the Bankruptcy Court with respect to that proceeding pursuant to 28 U.S.C. § 157(d). The Debtor does not oppose that motion.
"Under a standing order issued in July 1984 by Acting Chief Judge Ward pursuant to 28 U.S.C. § 157(c), all bankruptcy cases in the Southern District of New York are referred to the bankruptcy court for this district. Section 157(d) permits district courts to withdraw this reference."
In re Kensai Corp. (S.D.N.Y. 1992) 136 B.R. 59, 60 (citations omitted). Section 157(d) provides in pertinent part that "[t]he district court may withdraw, in whole or in part, any case or proceeding referred under this section [to the bankruptcy judges for the district], on its own motion or on timely motion of any party, for cause shown." 28 U.S.C. § 157(d). Although § 157(d) does not define the term "cause," district courts in this circuit consider a number of factors in evaluating "cause." Orion Pictures Corp. v. Showtime Networks, Inc. (In re Orion Pictures Corp.) (2d Cir. 1993) 4 F.3d 1095, 1101, cert. dismissed (1994) 511 U.S. 1026. These factors include: "(i) whether the proceeding is core or non-core; (ii) judicial economy; (iii) uniformity of bankruptcy administration; (iv) economical use of debtors' and creditors` resources; (v) reduction of forum shopping; (vi) expediting the bankruptcy process; and (vii) the presence of a jury demand." In re County Seat Stores, Inc. (S.D.N.Y. Jan. 31, 2002) No. 01 Civ. 2966 (JGK), 2002 WL 141875, at *4.
In this instance, the Defendant has sought the withdrawal of the reference for the adversary proceeding in question on the grounds that this proceeding is non-core. Section 157 categorizes all proceedings as core or non-core. Upon referral by the district court, the bankruptcy court "may hear and determine all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11 . . . and may enter appropriate order and judgments. . . ." 28 U.S.C. § 157(b)(2). "It is generally accepted that a core proceeding is one which `invokes a substantive right provided by Title 11 or is a proceeding that, by its nature, could arise only in the context of a bankruptcy case.'" In re CIS Corp. (S.D.N.Y. 1994) 172 B.R. 748, 755 (quoting In re Wood (5th Cir. 1987) 825 F.2d 90, 97)). "Non-core proceedings, on the other hand, are those which are `otherwise related to a case under title 11.'" Gulf States Exploration Co. v. Manville Forest Products Corp. (In re Manville Forest Products Corp.) (2d Cir. 1990) 896 F.2d 1384, 1389 (quoting 28 U.S.C. § 157(b)(3)). The relevant inquiry, then, "is whether the nature of this adversary proceeding, rather than the state or federal basis for the claim, falls within the core of federal bankruptcy power." Id. See also Interconnect Telephone Services, Inc. v. Farren (S.D.N.Y. 1986) 59 B.R. 397, 400 ("Non- core proceedings consist of those `claims arising under traditional state law which must be determined by state law . . . They are `those civil proceedings that, in the absence of a petition in bankruptcy, could have been brought in a district court or state court.'") If a proceeding is found to be non-core, "a bankruptcy court may hear such proceedings, [but] absent consent of the parties, it cannot enter a final order or judgment but must `submit proposed findings of fact and conclusions of law to the district court,' which reviews de novo `those matters to which any party has timely and specifically objected.'" In re Manville Forest Products Corp., 896 F.2d at 1389 (quoting 28 U.S.C. § 157(b)(3)) (alteration added).
"A district court considering whether to withdraw the reference should first evaluate whether the claim is core or non-core, since it is upon this issue that questions of efficiency and uniformity will turn." Orion Pictures Corp., 4 F.3d at 1101. See also In re County Seat Stores, Inc., 2002 WL 141875, at *4 ("The threshold inquiry is whether a claim is core or non-core because that determination can effect the remainder of the analysis.") "For example, the fact that a bankruptcy court's determination on non-core matters is subject to de novo review by the district court could lead the latter to conclude that in a given case unnecessary costs could be avoided by a single proceeding in the district court." See Orion Pictures Corp., 4 F.3d at 1101. Moreover, "[i]f a case is non-core and a jury demand has been filed, a district court might find that the inability of the bankruptcy court to hold the trial constitutes cause to withdraw the reference." Id.
Although we may withdraw a reference for a proceeding referred to the Bankruptcy Court, particularly where it is found to be non-core, § 157 specifically provides that "[t]he bankruptcy judge shall determine, on the judge's own motion or on timely motion of a party, whether a proceeding is a core proceeding under this subsection. . . ." 28 U.S.C. § 157(b)(3). Given such plain and unambiguous language, courts have determined "that before a withdrawal of reference motion is presented to the District Court, the bankruptcy judge must make the determination of whether proceedings are core or non-core." Matter of Delaware Hudson Ry. Co. (D.Del. 1991) 122 B.R. 887, 892 (hereinafter "Delaware Hudson Ry. Co."). See also General Electric Capital Corp. v. Teo (D.N.J. Dec. 14, 2001) No. 01 Civ. 1686 (WGB), 2001 WL 1715777, at *6 ("Although Plaintiff essentially conceded in its complaint that this proceeding is non-core, as mandated by 28 U.S.C. § 157(b)(3) a determination should initially be made by the Bankruptcy Court"); In re C-TC 9th Avenue Partnership (N.D.N.Y. 1995) 177 B.R. 760, 766, reconsideration denied (N.D.N.Y. 1995) 182 B.R.1 ("[T]his Court will defer to the Bankruptcy judge to determine the issue of whether adversary proceedings nos. 94-91113 and 94-91114 are core or non-core proceedings. Following such a determination, this Court will then continue its present analysis of whether discretionary withdrawal is warranted in the instant case"); In re CIS Corp. (S.D.N.Y. July 17, 1992) No. 92 Civ. 2740 (JFK) 1992 WL 176482, at *2 ("[W]hether CIS's action against Indiana Bell is a core proceeding as defined in 28 U.S.C. § 157(b)(2) is a determination to be made by the bankruptcy court. Because the instant motion [to withdraw the reference for an adversary proceeding] depends on the determination of whether this is a core or non-core proceeding, it is brought prematurely in this court . . . To permit the withdrawal at this stage on the ground that the proceeding is non-core would flout section 157(b)(3) by removing from the bankruptcy court the decision as to whether an action is core"); In re 1733 Ridge Road East, Inc. (W.D. N.Y. 1991) 125 B.R. 722, 724 ("the Bankruptcy Court should determine, in the first instance, the nature of this proceeding"); Hatzel Buehler, Inc. v. Central Hudson Gas Electric Corp. (D. Del. 1989) 106 B.R. 367, 370 ("even if `cause' for withdrawal exists in all non-core proceedings, Central Hudson must look first to the bankruptcy court to make this determination. Otherwise section 157(b)(3) would be circumvented"); Dailey v. First Peoples Bank of New Jersey (D.N.J. 1987) 76 B.R. 963, 968 ("the bankruptcy code supposes that determinations of what constitutes core issues will be left to the bankruptcy court, which after all is better equipped and experienced to make such decisions . . . For these reasons, we leave to the bankruptcy court the determination of whether this matter constitutes a core issue"); In re Pied Piper Casuals, Inc. (S.D.N.Y. 1985) 48 B.R. 294, 295 ("While § 157(d) allows a district judge to withdraw a referral for `cause shown,' to permit such a withdrawal at this stage on the sole ground that the proceeding is non-core would disregard the provisions of § 157(b)(3) by removing the decision as to whether an action is a core proceeding from the Bankruptcy Court").
But see In re 610 W. 142 Owners Corp. (S.D.N.Y. June 10, 1997) Nos. 95 Civ. 3699 (JFK) and 95 Civ. 9794 (JFK), 1997 WL 317019, at *3 ("While § 157(b)(3), on its face, appears to put the decision as to whether claims are core exclusively in the hands of the Bankruptcy Court, the Court recognizes that courts in this Circuit have held that the district court may decide whether claims are core"); In re Keene Corp. (S.D.N.Y. 1995) 182 B.R. 379, 383 ("Some courts have construed the language of § 157(b)(3) as establishing a preference for the initial determination of the core/non-core issue to be made by the bankruptcy court . . . However, nothing in this or any other statute vests this power exclusively in the bankruptcy court"); Interconnect Telephone Services, Inc., 59 B.R. at 401 n. 2 ("While section 157(b)(3) permits a bankruptcy judge to determine whether a proceeding is a core or non-core proceeding, it does not prohibit the district court from doing so where, as here, there has been no prior determination").
Here, the Defendant has indicated the Bankruptcy Court has made no determination with respect to whether the instant proceeding is core or non-core and that the Defendant itself has not filed a motion with that court seeking such a determination. Since no such determination has yet been made by the Bankruptcy Court, we find that the motion at bar is premature. Accordingly, the Defendant's motion is denied with leave to renew following a determination by the Bankruptcy Court with respect to whether the proceeding in question here is core or non-core.
SO ORDERED.