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In re Legacy Development S.C. Group, LLC

United States District Court, D. South Carolina, Florence Division

December 16, 2016

In re Legacy Development S.C. Group, LLC, Debtor,
v.
Richard L. Vice and Dinah B. Vice, Defendants. Michelle L. Vieira, Trustee for Legacy Development S.C. Group, LLC, Plaintiff,

          ORDER

          R. Bryan Harwell, United States District Judge

         This matter is before the Court for resolution of the Motion to Withdraw Reference of Adversary Proceeding filed by Defendants Richard L. Vice and Dinah B. Vice. See ECF No. 1. Defendants seek to withdraw the reference of Adversary Proceeding No. 14-80082-dd, which is currently pending in the United States Bankruptcy Court for the District of South Carolina (“the Bankruptcy Court”). Plaintiff Michelle L. Vieira-who is the Chapter 7 Trustee for Legacy Development S.C. Group, LLC (“the Debtor”)-opposes the motion. See ECF No. 2. Having reviewed the motion, the designated record, and the parties' arguments, the Court denies Defendants' motion for the reasons below.[1]

         Background

         This case arises from an adversary proceeding that Plaintiff filed in the Bankruptcy Court against Defendants for breach of contract for failure to make payments on a promissory note (“the Note”).[2] The following facts are taken from the record before the Court.

         On October 16, 2012, an involuntary petition under Chapter 7 of the United States Bankruptcy Code[3] was filed against the Debtor in the Bankruptcy Court. ECF No. 1-9 at 2. On November 13, 2012, the Bankruptcy Court entered an order for relief and appointed Plaintiff as the trustee. Id.

         On August 8, 2014, Plaintiff filed Adversary Proceeding No. 14-80082-dd against Defendants in the Bankruptcy Court seeking to enforce the Note. ECF No. 1-4. Defendants timely answered, conceding the underlying facts asserted by Plaintiff but asserting the Note was unenforceable due to the circumstances surrounding Defendants' signing of the Note and real estate purchase agreement.[4] ECF No. 1-5. On October 10, 2014, the parties jointly filed an adversary proceeding report stating, “The single cause of action in this matter is breach of contract. All parties agree that this cause of action is core but that this Court [the Bankruptcy Court] does not have constitutional authority to finally adjudicate.” ECF No. 1-6 at ¶ 3.

         On October 17, 2014, the Bankruptcy Court entered a scheduling order requiring discovery to conclude on or before January 12, 2015, and dispositive motions to be filed and served on or before January 26, 2015. See ECF No. 1-7. Plaintiff filed a timely motion for summary judgment, and on April 6, 2015, the Bankruptcy Court entered an order granting the motion, finding the Note was enforceable, and scheduling a damages hearing. See ECF No. 1-9. The Bankruptcy Court held the damages hearing on April 21, 2015, and it entered judgment in favor of Plaintiff on April 23, 2015. See ECF No. 1-10.

         On May 7, 2015, Defendants filed a timely notice of appeal with the Bankruptcy Clerk, and on May 8, 2015, the Bankruptcy Clerk transmitted the notice to the Clerk of this Court, which docketed the appeal. ECF No. 1-8; see In re Legacy Dev. S.C. Grp., LLC, No. 4:15-cv-01966-RBH. On November 18, 2015, this Court issued an order reversing the Bankruptcy Court's order granting summary judgment for Plaintiff, vacating the judgment against Defendants, and remanding the matter to the Bankruptcy Court for further proceedings. ECF No. 1-11; see In re Legacy Development S.C. Group, LLC, 551 B.R. 209, 211 (D.S.C. 2015).

         On December 15, 2015, the Bankruptcy Court held a status conference during which it confirmed that (a) Defendants had not consented to the Bankruptcy Court entering a final order in the Adversary Proceeding, and that (b) Defendants agreed to withhold filing any motion to withdraw the reference until Plaintiff's time to appeal this Court's decision expired on December 18, 2015. ECF No. 1 at 3. The Bankruptcy Court issued a scheduling order setting December 31, 2015, as the deadline for filing a motion to withdraw the reference in the absence of an appeal. ECF No. 1-12. Plaintiff did not appeal, and on December 31, 2015, Defendants filed the instant motion asking this Court to exercise its discretion to permissively withdraw the reference of the Adversary Proceeding from the Bankruptcy Court. ECF No. 1. Plaintiff filed a response opposing withdrawal on January 14, 2016. ECF No. 2.

         Discussion

         United States district courts have original jurisdiction over all bankruptcy cases and related proceedings. 28 U.S.C. §§ 1334(a), (b). However, the district court may decide that any or all bankruptcy cases and related proceedings should be referred to Bankruptcy Judges, see 28 U.S.C. § 157(a), and the District Court for the District of South Carolina has by local rule automatically referred “to the bankruptcy judges for this district all cases under Title 11 [the Bankruptcy Code] and all proceedings arising under Title 11 or arising in or related to a case under Title 11.” Local Civ. Rule 83.IX.01 (D.S.C.). Even so, the district court retains the discretionary authority to withdraw a reference to the Bankruptcy Court: “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.” 28 U.S.C. § 157(d).[5] This is known as a “permissive” or “discretionary” withdrawal of reference. See Houck v. Substitute Tr. Servs., Inc., 791 F.3d 473, 482 (4th Cir. 2015); In re First Nat'l Bancshares, Inc., No. 7:12-3441-TMC, 2014 WL 108372, at *2 (D.S.C. Jan. 10, 2014). The party seeking permissive withdrawal bears the burden of demonstrating cause. Vieira v. AGM, II, LLC, 366 B.R. 532, 535 (D.S.C. 2007) (citing In re U.S. Airways Grp., Inc., 296 B.R. 673, 677 (E.D. Va. 2003)). “The district court has broad discretion in deciding whether reference should be withdrawn for cause shown.” Albert v. Site Mgmt., Inc., 506 B.R. 453, 455 (D. Md. 2014).

         In this case, Defendants contend sufficient cause exists for the Court to permissively withdraw the reference of the Adversary Proceeding. ECF No. 1 at 3. “Although the Fourth Circuit has not enumerated the factors to consider when determining whether ‘cause' has been shown, other circuits are in ‘substantial agreement on the factors that should be weighed in considering a discretionary withdrawal of reference.'” Vieira, 366 B.R. at 537-38 (quoting U.S. Airways, 296 B.R. at 681). Those factors are: (1) whether the proceeding is core or non-core; (2) the uniform administration of bankruptcy proceedings; (3) expediting the bankruptcy process and promoting judicial economy; (4) the efficient use of debtors' and creditors' resources; (5) the reduction of forum shopping; and (6) the preservation of the right to a jury trial. Id. “[D]iscretionary withdrawal of reference should be determined on a case-by-case basis by weighing all the factors presented in a particular case, including the core/non-core distinction.” Id. at 538.

         The parties have briefed each of the six factors in substantial detail. See ECF No. 1 at 4-10; ECF No. 2 at 3-11. Having considered the parties arguments and independently examined each factor, the Court declines to withdraw the reference.

         1.Core Versus Non-Core

         Section 157(b)(1) gives a bankruptcy court authority to “hear and determine all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11, ” subject to appellate review by the district court under § 158.[6] 28 U.S.C. § 157(b)(1) (emphasis added). In a proceeding that is not “core” but otherwise related to a case under Title 11, the bankruptcy court can only submit proposed findings of fact and conclusions of law to the district court: “any final order or judgment shall be entered by the district judge after considering the bankruptcy judge's proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected.”[7] 28 U.S.C. § 157(c)(1).

         Two recent United States Supreme Court cases essentially modified the general rule set forth in § 157(b) regarding the power of the bankruptcy courts over core proceedings: Stern v. Marshall, 564 U.S. 462 (2011), and Executive Benefits Insurance Agency v. Arkison, 134 S.Ct. 2165 (2014). In Stern, which involved a core proceeding brought by the debtor under 28 U.S.C. § 157(b)(2)(C), the Supreme Court held bankruptcy courts do not have constitutional authority to enter final judgments in certain core proceedings, despite their statutory authority to adjudicate those matters under § 157(b). See id. at 469, 482-84, 503. This is the case when “a suit is made of the stuff of the traditional actions at common law tried by the courts at Westminster in 1789, and is brought within the bounds of federal jurisdiction, ” because “the responsibility for deciding that [type of] suit rests with Article III judges in Article III ...


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