Opinion
Miscellaneous Action No. 04-32.
May 17, 2004
MEMORANDUM AND ORDER
Before us is debtor Carolyn Wile's motion to withdraw two adversary actions from the Bankruptcy Court and return them to this Court's docket. For the reasons provided below, we deny the motion in its entirety.
Factual and Procedural History
On November 19, 2002, Wile filed a Chapter 13 case in the United States Bankruptcy Court for the Eastern District of Pennsylvania. She owns a home valued at $55,000 that is encumbered by a first mortgage for $55,000 in favor of Fairbanks Capital Corporation ("Fairbanks") and a junior mortgage for $20,000 in favor of Conseco Finance Consumer Discount Company ("Conseco"). Wile's Chapter 13 plan dedicated ten dollars a month for thirty-six months as payment to the Chapter 13 trustee ("Trustee").
Chief Judge Diane Weiss Sigmund has described the stratagem Wile apparently applied here:
This case has taken the increasingly familiar route of certain bankruptcy cases that are ostensibly a vehicle to seek rescission of a mortgage usually secured in connection with some extension of credit for home improvements. Typically a Chapter 13 case is filed with the intention of gaining the benefit of the automatic stay against mortgage foreclosure while an adversary case is prosecuted against the mortgagee. The debtor's Chapter 13 plan fails to provide for the mortgagee's claim, relying on the pendency of the adversary case as a basis for non-payment. Pending resolution of the litigation, the debtor usually makes no payments to the mortgagee and only minimal monthly payments to the Chapter 13 trustee. These cases often have little, if anything, to do with reorganization under Chapter 13 of the Bankruptcy Code. Rather the debtor's hope is that the passage of time and the pendency of litigation without current payment will persuade the mortgagee to accept a negotiated solution with the debtor, usually in the form of a restructured and reduced loan. Where the strategy does not attain this outcome, ultimately the mortgagee seeks relief from stay or opposes confirmation for lack of plan feasibility. . . .In re Wile, 304 B.R. 198, 200-201 (Bankr. E.D. Pa. 2004).
On December 10, 2002, Wile filed an adversary action under the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 et seq., against the parties to the first mortgage ("Fairbanks action"). On December 17, 2003, Wile filed a similar adversary action under TILA against the parties to the second mortgage ("Conseco action").
This action, Adversary No. 02-1373, initially named Household Bank, F.S.B., Decision One Mortgage Company, and Viking Mortgage Services, Inc. Wile later filed an amended complaint naming Fairbanks Capital Corporation ("Fairbanks"), the current servicer of the mortgage. See In re Wile, No. 02-3653, 2004 WL 212320, at *2 (Bankr. E.D. Pa. Jan. 9, 2004) (Sigmund, C.J.).
Adversary 02-1397 named Conseco Finance Consumer Discount Company, Accelerated Mortgage Company, and American Home Concepts. In a letter dated March 25, 2004, Wile advised the Court that she had settled her dispute with these defendants.
On October 27, 2003, Fairbanks filed a motion for relief from the automatic stay, and at a hearing on the motion before Judge Sigmund, Wile's counsel sought to continue the case under Chapter 13 until the resolution of the adversary actions. Judge Sigmund told counsel that she was "disinclined to allow this bankruptcy case to continue on the grounds of the pending adversary cases with no current payments being made to the mortgagees and no funds accumulating with the Trustee to fund the alleged rescission claims." In re Wile, 304 B.R. at 203. Counsel then requested that, in the event Judge Sigmund was inclined to dismiss the Chapter 13 case, she instead convert it into a Chapter 7 case and transfer the adversary actions to the federal district court.
In an opinion filed January 9, 2004, Judge Sigmund denied the request for transfer. She also converted the case into a Chapter 7, ordered the Chapter 7 trustee to intervene in the TILA adversary cases within thirty days of appointment, and advised that the trustee's failure to intervene would constitute an abandonment of these causes of action. Id. at 208.
Wile responded by filing both a motion to reconsider with Judge Sigmund and the motion to withdraw the reference of the adversary actions that is now before us. We deferred ruling on the motion to withdraw until Judge Sigmund had an opportunity to rule on the other motion. On May 4, 2004, Judge Sigmund denied the motion to reconsider and, presumably because she was not aware of the motion pending here, she also dismissed the adversary actions because the Chapter 7 trustee had failed to intervene. In re Wile, No. 02-3658, slip op. at 2 n. 2. (Bankr. E.D. Pa. May 4, 2004) (Sigmund, C.J.).
Judge Sigmund's staff has advised that, in fact, she had no notice of the proceedings in this court.
Discussion
The law governing Wile's motion is well settled. Pursuant to 28 U.S.C. § 157(a) and 1334(b), a district court has original jurisdiction over bankruptcy proceedings but may refer cases to bankruptcy judges for disposition. Section 157(d), however, provides two mechanisms, one discretionary and one mandatory, by which the district court can withdraw referred proceedings from the bankruptcy court. Because it is not clear whether Wile is seeking mandatory or discretionary relief, we consider her request under both prongs of Section 157(d).
A. Mandatory Withdrawal
Section 157(d) provides that "[t]he district court shall, on timely motion of a party, . . . 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." A literal interpretation of this provision would compel the removal of most bankruptcy matters. Courts have therefore required the party seeking withdrawal to demonstrate that the matter involves the "substantial and material" consideration of federal law outside the Bankruptcy Code rather than the routine application of such law. In re Smith Corona Corp., 205 B.R. 712, 714 (D. Del. 1996).
Although Wile's adversary proceedings involve law outside the Bankruptcy Code, her motion is utterly silent as to why her claims involve anything other than the straightforward application of TILA. We therefore conclude that she has failed to show that her adversary actions qualify for mandatory withdrawal under Section 157(d).
B. Discretionary Withdrawal
The discretionary prong of Section 157(d) provides that "[t]he 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." Our Court of Appeals has indicated that a district court's determination of cause should take into account the timing of the request and consider whether the withdrawal would (1) promote uniformity in bankruptcy administration, (2) reduce forum shopping and confusion, (3) foster the economical use of debtor and creditor resources, and (4) expedite the bankruptcy process. In re Pruitt, 910 F.2d 1160, 1168 (3d Cir. 1990).
Here, Wile has failed to show that withdrawal would be a proper exercise of the Court's discretion. Wile filed the motion only after her creditors had answered the complaints, Chief Judge Sigmund had refused to transfer the adversary actions to the district court, and she had given the new Chapter 7 trustee thirty days to intervene or abandon them. The motion is thus a belated instance of forum shopping that has already consumed creditor resources and is certainly not calculated to expedite Wile's already-protracted bankruptcy proceedings.
It is hereby ORDERED that:
1. The debtor having settled her dispute with the Conseco defendants, the motion is DENIED AS MOOT as to Adversary No. 02-1397.
2. As to Adversary No. 02-1397, the motion is DENIED; and
3. The Clerk of Court shall CLOSE this action statistically.