Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

In re Rite Way Electric Inc.

United States District Court, E.D. Pennsylvania

February 17, 2017

IN RE RITE WAY ELECTRIC, INC., Debtor,
v.
Albert A. Ciardi, III, Defendant. TERRY P. DERSHAW, TRUSTEE, by SILVERANG, DONOHOE, ROSENZWEIG & HALTZMAN, LLC, Special Counsel to Trustee, Plaintiff, TERRY P. DERSHAW, TRUSTEE, by SILVERANG, DONOHOE, ROSENZWEIG & HALTZMAN, LLC, Special Counsel to Trustee, Plaintiff,
v.
Ciardi Ciardi & Astin, P.C., Defendant. Miscellaneous Matter Nos. 14-232, 14-231 Adv. Pro. Nos. 14-00026, 14-00027

         A Chapter 7 bankruptcy trustee filed adversary proceedings in Bankruptcy Court against the bankrupt corporation's attorney and against his law firm. The attorney and law firm filed motions in this court to withdraw the reference of those actions to Bankruptcy Court. They seek to have this court oversee the proceedings because they have made jury trial demands and did not consent to the jurisdiction of the Bankruptcy Court. I address their motions together because they involve the same underlying facts. I will deny their motions to withdraw a reference without prejudice.

         I. Background

         A. The Chapter 7 Petition against Rite Way Electric, Inc.[1]

         On December 20, 2011, International Brotherhood of Electrical Workers Local 654 Health & Welfare Fund, International Brotherhood of Electrical Workers Local 654 Pension Fund, and International Brotherhood of Electrical Workers Local 654 Annuity Fund filed a Chapter 7 Involuntary Bankruptcy Petition against Rite Way Electric, Inc. Shortly thereafter, three additional entities joined in the petition. Rite Way Electric, which was represented by Albert Ciardi III of Ciardi Ciardi & Astin, P.C., moved to dismiss the petition.

         On February 9, 2012, Judge Raslavich of the Bankruptcy Court entered an Order for Relief, allowing the bankruptcy to move forward. On February 14, 2012, Marvin Krasny was appointed the Chapter 7 Trustee. Marvin Krasny died while the bankruptcy was pending. On April 26, 2013, the Bankruptcy Court appointed Terry Dershaw as the new trustee.

         B. Adversary Proceedings Against Albert Ciardi and Ciardi Ciardi & Astin, P.C.[2]

         On January 22, 2014, Dershaw-as Trustee-filed a complaint against Rite Way's counsel Albert Ciardi (the Ciardi Complaint) and another complaint against counsel's law firm Ciardi Ciardi & Astin (the CCA Complaint). The complaints involved several contract arrangements and/or monetary transfers between Rite Way, its principals, Ciardi, and/or CCA around the time the bankruptcy petition was filed.

         1. Factual Basis for Adversary Proceedings

         The Ciardi Complaint alleged that Rite Way Electric had performed services for Ciardi's two personal homes. Ciardi allegedly never paid for those services in full before the petition was filed. At the time the petition was filed, Ciardi allegedly owed Rite Way money for the services rendered.[3] The Schedules and Statement of Financial Affairs did not disclose this debt nor any setoff, forgiveness of a loan, or transfer of assets to satisfy the debt.

         The actions against Ciardi and CCA (“the defendants, ” collectively) were based on documents and receipts the Trustee had found amongst Rite Way's financial documents. The Trustee had found a receipt for services performed for Ciardi between August 26, 2010 through September 27, 2011. These services were valued at $67, 705.33.[4] Upon finding the receipt, the Trustee requested payment by Ciardi. He indicated that no amount was owed or due. The Trustee has not been provided evidence that these services were ever paid for by Ciardi.

         A month before the petition was filed, Rite Way wrote a check to CCA on November 17, 2011. That check was then voided. It was replaced on November 18, 2011 by a cashier's check to CCA in the amount of $50, 000.[5] On November 18, 2011, another check (#36107) in the amount of $50, 000 was written from Rite Way to Donn Kirk-a Principal of Rite Way-and marked as a travel expense.[6] Just before this-on November 15, 2011-John and Lucille Parks (John Parks is another Principal of Rite Way) wrote a check (#681) to Rite Way from their joint account in the amount of $50, 000.[7] On November 17, 2011, John and Lucille Parks also wrote a check to CCA for $50, 000 from their joint account.[8]

         On February 3, 2012-after the bankruptcy petition had been filed but before Krasny was appointed as Trustee-Rite Way wired CCA two payments in the amounts of $20, 000 and $26, 000, leaving little money in Rite Way's Bank Account.[9] On February 3, 2012-post-petition and after the appointment of Krasny as Trustee-Ciardi wrote a check to Local 654 in the amount of $28, 672 from CCA's IOLTA Account in order to settle a debt of Rite Way with the Union.[10] These transfers were not disclosed on the Schedule and Statement of Financial Affairs.

         2. Initial Complaints against Ciardi and CCA

         On the basis of these allegations, the Ciardi Complaint asserted claims for: (1) explanation of undisclosed transfers pursuant to 11 U.S.C. § 329 (Debtor's transactions with attorneys); (2) turnover of property of the estate and accounting pursuant to 11 U.S.C. § 542 (Turnover of property to the estate); (3) disallowance of Ciardi's claim or future claim pursuant to 11 U.S.C. § 502(d) and (j) (Allowance of claims or interests); (4) avoidance of preferential transfers pursuant to 11 U.S.C. § 547 (Preferences); (5) fraud; (6) unjust enrichment; (7) avoidance and recovery of actual and/or constructive fraudulent transfers pursuant to 11 U.S.C. §§ 548(A)(1)(A) & (B), 550(A), and 551. The CCA Complaint asserted claims for: (1) demand for explanation of undisclosed transfers pursuant to 11 U.S.C. § 329 (Debtor's transactions with attorneys); (2) avoidance of preferential transfers pursuant to 11 U.S.C. § 547 (Preferences); (3) avoidance of post-petition transfers pursuant to 11 U.S.C. § 549 (Postpetition transactions); (4) avoidance and recovery of actual or constructive transfers avoided pursuant to 11 U.S.C. §§ 548(A)(1)(A) & (B), 550, and 551; (5) disallowance of claims pursuant to 11 U.S.C. § 502 (Allowance of claims or interests); and (6) breach of fiduciary duty.

         On February 24, 2014, Ciardi and CCA moved to dismiss the complaints against them, as unsubstantiated and legally insufficient under Rule 12(b)(6).[11] The motions to dismiss did not raise the issue of whether jurisdiction was appropriate.

         On May 1, 2014, the Bankruptcy Court granted Ciardi's motion without prejudice and ordered CCA to file a Statement outlining their compensation for legal services under Rule 2016(b).[12]

         3. Amended Complaints against Ciardi and CCA

         On May 14, 2014, the Trustee filed Motions for Clarification, requesting that the court grant him leave to amend the complaints. Ciardi and CCA opposed the motions. The Bankruptcy Court held oral argument on June 18, 2014 on the Motions for Clarification. At the end of the hearing, Judge Raslavich ruled from the bench that he would not grant the Motions for Clarification but would allow the Trustee to file motions for leave to amend the complaints. On July 29, 2014, the Trustee filed Motions for Leave to Amend, attaching the proposed amended complaints. Ciardi and CCA opposed these motions. Judge Raslavich granted these motions on August 27, 2014.

         The Trustee filed Amended Complaints against Ciardi and CCA on September 3, 2014. The Amended Complaints provided further evidence of the Trustee's initial allegations.[13] The Trustee narrowed the claims asserted against Ciardi and CCA in the Amended Complaints. The Amended Complaint against Ciardi only included the following claims: (1) unjust enrichment/quantum merit; (2) breach of contract; (3) avoidance of post-petition transfers pursuant to 11 U.S.C. § 549 (Postpetition transactions);[14] and (4) recovery of transfers avoided pursuant to 11 U.S.C. § 550 (Liability of transferee of avoided transfer).[15] The Amended Complaint against CCA only included claims under the Bankruptcy Code for: (1) avoidance of preferential transfers pursuant to 11 U.S.C. § 547;[16] (2) avoidance of post-petition transfers pursuant to 11 U.S.C. § 549 (Postpetition transactions); and (3) recovery of transfers avoided pursuant to 11 U.S.C. § 550 (Liability of transferee of avoided transfer).

         4. Ciardi and CCA's Motions for Withdrawal of a Reference

         Ciardi and CCA filed answers on September 17, 2014 in Bankruptcy Court. In their answers, Ciardi and CCA “did not consent” to the jurisdiction of the Bankruptcy Court and included jury demands.[17] In addition to offering affirmative defenses, CCA filed a counterclaim “for a determination under 11 U.S.C. §§ 105 and 506 that all property transferred by the Debtor within ninety (90) days of the Petition Date were not transfers of property of the estate and, therefore, are not preferential payments under 11 U.S.C. § 547.” Neither Ciardi nor CCA have filed a proof of claim in bankruptcy court, asserting a right to property owed them by Rite Way.[18] However, CCA is listed as a creditor on the Schedules and Statement of Financial Affairs filed by Rite Way in Bankruptcy Court.[19]

         On September 18, 2014, the defendants also filed motions in this court to withdraw a reference to Bankruptcy Court of the complaints against them.

         II. Standard for Withdrawal of a Reference to Bankruptcy Court

         District courts may refer certain cases to bankruptcy judges: (1) “any or all cases” under the Bankruptcy Code and “any or all proceedings arising under” the Bankruptcy Code, or (2) proceedings related to a case under the Bankruptcy Code. 28 U.S.C. § 157(a). The bankruptcy judge may oversee those proceedings and enter judgments or orders subject to review of the district court. 28 U.S.C. § 157(b)(1). See also 28 U.S.C. § 158. This reference is typically made automatically when a case relates to a bankruptcy.

         Once a case is “referred, ” the district court may “withdraw a reference” of a case in whole or part “on its own motion or on timely motion of any party, for cause shown.” 28 U.S.C. § 157(d). This is a permissive withdrawal. See, e.g., Northwestern Institute of Psychiatry, Inc. v. Travelers Indem. Co., 272 B.R. 104, 107 (E.D. Pa. 2001); In re Winstar Communications, Inc., No. 01-01430, 01-01063, Civ.A.04-928-JJF, 2004 WL 2713101, at *1, *3 (D. Del. Nov. 16, 2004).

         The district court must withdraw a reference on timely motion of a party if the “resolution of the proceeding requires consideration of both title 11 [the Bankruptcy Code] and other laws of the United States regulating organizations or activities affecting interstate commerce.” 28 U.S.C. § 157(d). This would be a mandatory withdrawal. See, e.g., S.V. v. Kratz, Nos. 12-C-705, 10-C-919, 2012 WL 3070979, at *1 (E.D. Wis. Jul. 26, 2012); In re U.S. Airways Group, Inc., 296 B.R. 673, 676-77 (E.D. Va. 2003).

         III. Discussion

         The defendants provide two legal bases for withdrawal: (1) “cause shown” under § 157(d), and (2) their jury demand coupled with their lack of consent to the bankruptcy court's jurisdiction.[20]

         A. Permissive Withdrawal of a Reference

         Ciardi and CCA request a permissive withdrawal based on “cause” shown.[21] See 28 U.S.C. § 157(d). The burden to show “cause” is on Ciardi and CCA. See, e.g., Feldman v. ABN AMRO Mortg. Group Inc., 515 B.R. 443, 452 (E.D. Pa. 2014) (citing In re NDEP Corp., 203 B.R. 905, 907 (D. Del. 1996)).

         The bankruptcy statute does not define “cause.”[22] The Third Circuit's decision In re Pruitt provides factors for a district court to consider whether “cause” exists:

(1) the promotion of uniformity in bankruptcy administration,
(2) the reduction of forum shopping and confusion,
(3) the economical use of the debtors' and creditors' resources,
(4) expediency of the bankruptcy process, and
(5) the timing of the request for withdrawal.

In re Pruitt, 910 F.2d 1160, 1168 (3d Cir. 1990) (adopting Holland America Ins. Co. v. Succession of Roy, 777 F.2d 992, 999 (5th Cir. 1985)).

         The Pruitt factors do not warrant withdrawal of a reference at this time. The first and third factors weigh against withdrawal. Allowing these actions to remain in Bankruptcy Court would promote uniformity in bankruptcy administration. After several years of overseeing the bankruptcy estate and several months litigating the specific adversary proceedings in this case, Judge Raslavich is much more familiar with the relationships between Rite Way, Ciardi, CCA, and the principals of Rite Way. Given that he is administering the bankruptcy action, he has a better frame with which to view how the money transfers in question relate to the estate's assets. This information may be important to understanding the nature of the claims asserted in the adversary proceedings.

         The defendants argue that it would be more economical for this court to oversee the pre-trial and discovery matters of these actions given that this court may have to hold a jury trial on the actions.[23] As I explain below, the defendants have not provided me with enough information to determine if, in fact, they have a right to a jury trial on the claims asserted against them. Assuming that they are entitled to a jury trial, it would still be more favorable for Judge Raslavich to oversee the adversary proceedings at this stage of litigation. He is already more familiar with the facts of these proceedings and the relevant law.[24]

         The second factor weighs against withdrawal. I will not assume that the defendants' filing these motions is an attempt to “forum shop, ” as the Trustee argues. However, allowing a withdrawal at this time-just after the defendants received an unfavorable determination by the Bankruptcy Court, following several months of litigation-could create precedent that may encourage “forum shopping” by later litigants. Furthermore, denying the withdrawal at this time will streamline the handling of the claims in the adversary proceedings and prevent confusion.

         The fourth factor appears to be neutral or weigh against withdrawal. Withdrawing a reference will not necessarily expedite the bankruptcy administration process. However, there is a chance that the Bankruptcy Court may have to wait for this court to adjudicate the merits of the adversary proceedings (since this court will have to become familiar with the relevant actions). Keeping these actions in Bankruptcy Court will allow the Bankruptcy Court Judge to monitor these adversary proceedings, as they relate to the larger bankruptcy estate. The Bankruptcy Judge's knowledge of this “piece” of the bankruptcy estate may also allow him to more efficiently administer the estate.

         Lastly, the final factor-the timing of the defendants' motions-weighs against withdrawal. While it is true that the defendants filed their motions only after amended complaints were filed, these motions came after Judge Raslavich had already considered and ruled upon several motions regarding the merits of the adversary proceedings.[25] His handling of those motions better positions him to handle discovery matters and pre-trial motions for those complaints.

         I will deny the defendants' request for withdrawal under § 157(d).

         B. Ciardi and CCA's Other Arguments For Withdrawal

         Ciardi and CCA also argue that this court “must” withdraw a reference because they have not consented to the jurisdiction of the Bankruptcy Court and request a jury trial.[26] If a proceeding provides a right to a jury trial, “the bankruptcy judge may conduct the jury trial if specially designated to exercise such jurisdiction by the district court and with the express consent of all the parties.” 28 U.S.C. § 157(e). Ciardi and CCA, however, fail to address the legal analysis necessary to show that they do, in fact, have a right to a jury trial for the claims asserted against them. See Granfinanciera S.A. v. Nordberg, 492 U.S. 33, 42-56 (1989) (offering a three-step test to determine whether a bankruptcy claim provides a right to a jury trial); Billing v. Ravin, Greenberg & Zackin, P.A., 22 F.3d 1242, 1253 (3rd Cir. 1994) (Third Circuit interpretation of Granfinanciera framework pertaining to legal malpractice claim brought in bankruptcy).[27]

         This legal analysis has constitutional implications. It would be imprudent for me to make a decision as to the nature of the claims or the parties' rights without full briefing on the relevant legal questions.

         IV. Conclusion

         I will deny the motions to withdraw a reference without prejudice.[28] Given the considerations explained above, discovery and pre-trial motions on Ciardi and CCA adversary proceedings should be handled by the Bankruptcy Court.[29] See Feldman v. ABN AMRO Mortg. Group Inc., 515 B.R. 443, 448 (E.D. Pa. 2014) (“Given the resources already expended in that forum, and the possibility that the adversary proceedings will never reach the stage at which a jury trial is held in this Court, we find that economy of both the Court and the parties' resources is best served by denying the Trustee's motion.”).

         Ciardi and CCA may re-file motions to withdraw a reference after any rulings on motions for summary judgment have been made by the Bankruptcy Court on claims that have not been resolved.[30]

         An appropriate Order follows.

---------

Notes:

[1] Information from this section can be found in 14-mc-232, Doc. No. 3, Ex. C (the bankruptcy petition's docket report), unless ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.