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L.P. v. 4Th Walnut Associates, L.P.

United States District Court, E.D. Pennsylvania

January 28, 2015

400 WALNUT ASSOCIATES, L.P., et al., Plaintiffs,
v.
4TH WALNUT ASSOCIATES, L.P., et al., Defendants.

MEMORANDUM

GERALD AUSTIN McHUGH, District Judge.

Defendants 4th Walnut Associates, L.P. ("4th Walnut"), Ivy Realty LII, LLC ("Ivy Realty") and Ivy Realty Services, LLC ("Ivy Services") move for withdrawal of the bankruptcy reference in the above-captioned adversary proceeding pursuant to 28 U.S.C. § 157(d) and Rule 5011(a) of the Federal Rules of Bankruptcy Procedure. Having reviewed the extensive history of core and non-core proceedings adjudicated by Bankruptcy Judge Stephen Raslavich and upon consideration of the relevant factors recognized in this Circuit, I conclude that Defendants have not met their burden for establishing cause to withdraw the underlying bankruptcy proceedings to district court. Accordingly, I will deny the Motion.

I. Background

The underlying bankruptcy case dates back to July 23, 2010, when 400 Walnut Associates, L.P. ("Debtor") filed a petition for relief under Chapter 11 of the United States Bankruptcy Code. The main asset involved was Debtor's building located at 4th and Walnut Street in Philadelphia. 4th Walnut filed a proof of claim against the Debtor's bankruptcy estate on October 15, 2010 (the "4th Walnut Claim"). Judge Raslavich has presided over this case since its inception in Bankruptcy Court, including administering Debtor's bankruptcy case, confirming its Chapter 11 Plan, and issuing five substantive written opinions, dated February 22, 2011, [1] March 31, 2011, [2] October 20, 2011, [3] July 11, 2012, [4] and March 12, 2014, [5] respectively. These opinions are noteworthy for their detail and careful analysis.

Despite the lengthy history of this case, the parties agree that it is still in its early stages of litigation, as discovery has yet to be completed. Debtor maintains that considerable pretrial work will need to be undertaken, which the Bankruptcy Court "is more than capable of overseeing." Plaintiffs' Opposition Brief at 2.

Debtor and John Turchi (together, "Plaintiffs") seek more than $6.8 million in the underlying proceeding from 4th Walnut and Ivy Services (collectively, "Defendants") and Sovereign Bank ("Sovereign"), [6] 4th Walnut's predecessor-in-interest. Plaintiffs allege that Defendants and Sovereign engaged in tortious conduct and repudiated a forbearance agreement that was reached between Debtor and Sovereign on January 29, 2010. Plaintiffs further claim that Sovereign "fraudulently induced Plaintiffs to enter into the Forbearance Agreement, in reliance upon which Plaintiffs performed for more than five months, materially changing their business operations and banking relationships, and delaying filing for bankruptcy for the Bank's benefit." Plaintiffs' Opposition Brief at 3.

The underlying adversary proceeding commenced in late 2010. Debtor originally filed an eight count complaint, which was largely dismissed by the Bankruptcy Court for failure to state a claim. However, the Bankruptcy Court later sanctioned Sovereign for discovery misconduct, as it wrongfully withheld key documents in response to Debtor's subpoenas, which were belatedly produced via Court Order. Using these key "smoking gun' type documents, "[7] Plaintiffs filed an Amended Complaint against Defendants and Sovereign, asserting eight causes of action, predominantly consisting of state law claims, including breach of contract, conspiracy, tortious interference with contractual relations, fraudulent and negligent misrepresentation, aiding and abetting fraud, as well as an objection to the 4th Walnut Claim in the bankruptcy case. Defendants and Sovereign initially responded to the Amended Complaint by filing motions to dismiss in Bankruptcy Court. On March 12, 2014, Judge Raslavich denied both motions in a comprehensive opinion. See In re 400 Walnut Associates, L.P., 506 B.R. at 653-671. Defendants answered the Amended Complaint on May 5, 2014 and filed the instant Motion for Withdrawal of Reference on June 9, 2014. Notably, Defendants have not demanded a jury trial.

II. Discussion

a. Legal Framework

Pursuant to 28 U.S.C. § 157(d), "[t]he district court may withdraw, in whole or in part, any case or proceeding referred under this section [to the Bankruptcy Court]... for cause shown." Although there is a presumption that bankruptcy proceedings should be heard by bankruptcy judges, "the presumption may be overcome by an overriding interest based on a finding by the Court that the withdrawal of reference is essential to preserve a higher interest than that recognized by Congress." In re Ramex Int'l, Inc., 91 B.R. 313, 315 (E.D. Pa. 1988) (internal citations and quotations omitted). The movant bears the burden to establish "cause." In re Am. Capital Equip., LLC, 325 B.R. 372, 375 (W.D. Pa. 2005).

The Third Circuit has explained that although there are no clear requirements set out via statute to establish cause for withdrawal, certain factors have developed through federal case law. In re Pruitt, 910 F.2d 1160, 1168 (3d Cir. 1990). Relevant goals and factors include, but are not limited to: promoting uniformity in bankruptcy administration; utilizing the expertise of bankruptcy judges; reducing forum shopping and confusion; fostering the economical use of resources; the extent of a particular court's knowledge of the facts; the timing of the request for withdrawal; whether a proceeding is core or non-core; and whether a jury trial has been requested. See id.; In re Velocita Corp., 169 F.Appx. 712, 716-17 (3d Cir. 2006); Feldman v. ABN AMRO Mortgage Grp. Inc., 515 B.R. 443, 446 (E.D. Pa. 2014); In re Am. Capital Equip., LLC, 325 B.R. at 375; In re Ramex Int'l, Inc., 91 B.R. at 315.

Bankruptcy judges are vested with authority to enter final judgments on matters within their core jurisdiction, as set out in 28 U.S.C. § 157. For non-core matters that are otherwise related to core proceedings, bankruptcy judges are limited to issuing proposed findings of fact and conclusions of law to a district court for consideration.[8] Feldman, 515 B.R. at 446 (discussing 28 U.S.C. § 157). "[A]ny 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." 28 U.S.C. § 157(c)(1). In addition, "a bankruptcy court cannot conduct a jury trial in a non-core proceeding, " which may weigh in favor of withdrawing the reference in cases where a jury trial has been demanded. Beard v. Braunstein, 914 F.2d 434, 443 (3d Cir. 1990).

Plaintiffs stress the importance of Debtor's Amended Plan of Reorganization in the underlying bankruptcy matter, as it includes "detailed provisions" about the instant adversary proceeding. The Plan "specifically provides that the Bankruptcy Court retains exclusive jurisdiction over any and all adversary proceedings... pending on the Effective Date or that may be instituted after the Effective Date.'" Plaintiffs' Opposition Brief at 2. Defendants, however, counter that minimal legal significance should be attributed to this language, as "it is well-settled that a Plan may not delegate unlimited authority to a bankruptcy ...


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