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In re Portnoy

United States District Court, E.D. Pennsylvania

July 24, 2017

IN RE BARRY PORTNOY
v.
BARRY PORTNOY, Defendants. ROBERT H. HOLBER As Trustee of the Estate of Barry Portnoy, Plaintiff, REPUBLIC FIRST BANK d/b/a REPUBLIC BANK Plaintiff,
v.
ALTCHEM ENVIRONMENTAL SERVICES, INC., Defendants. REPUBLIC FIRST BANK d/b/a REPUBLIC BANK Plaintiff,
v.
BARRY PORTNOY, Defendant. Bankruptcy No. 14-16081 Adversary Proceeding Nos. 16-248, 16-409, 15-37

          MEMORANDUM

          GENE E.K. PRATTER United States District Judge.

         Danielle Portnoy; Samantha Portnoy; Zachary Portnoy; Altchem Environmental Services, Inc.; Samzach Partners, L.P.; Sam-Zachary Partners, LLC; BF Services, L.P.; Maxis Construction Group;[1] Danielle Portnoy as co-trustee of the Revocable Deed of Trust of Danielle M. Portnoy; Danielle Portnoy as custodian for Zachary Portnoy and Samantha Portnoy; and Danielle Portnoy as Trustee of the SamZach Irrevocable Trust (“Movants”)[2] move for withdrawal of the above-captioned consolidated adversary proceeding reference, Adv. Pro. No. 16-248, pursuant to 28 U.S.C. § 157(d) and Local Bankruptcy Rule 5011-1. The Court will deny Movants' Motion without prejudice because Movants have not met their burden to show cause why this Court should withdraw the consolidated adversary proceeding at this stage of the litigation.

         I. Factual and Procedural History

         The consolidated adversary proceeding at issue consists of three adversary proceedings filed in, or removed to, the United States Bankruptcy Court for the Eastern District of Pennsylvania in connection with Debtor Barry Portnoy's July 30, 2014 Chapter 7 bankruptcy petition. The three proceedings are each premised on a similar set of facts.

         Republic First Bank (“Republic Bank”) and Robert Holber, Chapter 7 Trustee of the Estate of Barry Portnoy (the “Trustee, ” and together with Republic Bank, “Plaintiffs”) allege that Mr. Portnoy fraudulently transferred real estate and other assets, facilitated sham mortgages, took deliberate actions to cloud title to his assets, and used companies he controlled to hide personal assets so that he could appear, on paper, to be insolvent. Plaintiffs allege Mr. Portnoy took these actions in order to avoid repaying over $2 million of loans extended to him (or companies controlled by him) by Republic Bank on which he had defaulted. The allegations concern alleged pre-petition conduct.

         The first adversary proceeding involves two state court complaints (“Republic Bank's First Proceeding”). Republic Bank first filed suit on October 30, 2014 against Danielle Portnoy; Samantha Portnoy; Zachary Portnoy; Danielle Portnoy as co-trustee of the Revocable Deed of Trust of Danielle M. Portnoy; Danielle Portnoy as custodian for Zachary Portnoy and Samantha Portnoy; Danielle Portnoy as Trustee of the SamZach Irrevocable Trust; Altchem Environmental Services, Inc.; Samzach Partners, L.P.; Sam-Zachary Partners, LLC; BF Services, L.P.; and Maxis, Inc. alleging: (i) fraudulent transfer, (ii) unjust enrichment, (iii) civil conspiracy, and (iv) equitable relief to impose a constructive trust and attach assets. Republic Bank next filed suit on August 18, 2015 against Maxis Construction Group, Inc. alleging: (i) fraudulent transfer, (ii) unjust enrichment, and (iii) equitable relief to impose a constructive trust and attach assets. The Defendants' answers to both state court complaints included jury trial demands. On November 16, 2016, Plaintiffs removed the Bank's First Proceeding to bankruptcy court. See Republic First Bank d/b/a Republic Bank v. Altchem Environmental Servs., Inc., Adv. Pro. No. 16-409.

         The second adversary proceeding involves Republic Bank's adversary complaint filed in bankruptcy court on January 30, 2015 against Mr. Portnoy containing four denial of discharge claims pursuant to 11 U.S.C. § 727(a)(2)-(5) (“Republic Bank's Second Proceeding”). See Republic First Bank d/b/a Republic Bank v. Portnoy, Adv. Pro. No. 15-37. There is a pending motion for summary judgment in Republic Bank's Second Proceeding.

         The third adversary proceeding involves the Trustee's adversary complaint filed in bankruptcy court on July 29, 2016 against Movants, Mr. Portnoy, Frederick Robinson, and Linda Robinson alleging: (i) fraudulent transfer pursuant to the Pennsylvania Uniform Fraudulent Transfer Act (“PUFTA”), 12 Pa. C.S. § 5104, (ii) fraudulent transfer pursuant to PUFTA, Pa. C.S. § 5105, (iii) avoidance of fraudulent conveyances pursuant to 11 U.S.C. § 548(A)(1)(A), (iv) avoidance of fraudulent conveyances pursuant to 11 U.S.C. § 548(A)(1)(B), (v) recovery of avoided transfers pursuant to 11 U.S.C § 550, (vi) disallowance of all claims pursuant to 11 U.S.C § 502(D), (J), (vii) turnover of property of estate pursuant to 11 U.S.C § 542, (viii) unjust enrichment, and (ix) conspiracy (“Trustee's Proceeding”). See Holber v. Portnoy, Adv. Pro. No. 16-248. While Movants did not assert their right to a jury trial when answering the Trustee's adversary complaint, the bankruptcy court entered a stipulation in January 2017 by which the court deemed Movants (and Mr. Portnoy) to have requested a jury trial.

         The bankruptcy court consolidated these three adversary proceedings into Adv. Pro. No. 16-248 on December 20, 2016. Movants moved on March 27, 2017 for withdrawal of the thus consolidated adversary proceeding reference to this Court.

         II. Legal Standards

         Section 157(d) of 28 U.S.C. authorizes district courts to “withdraw, in whole or in part, any case or proceeding referred under this section [to the Bankruptcy Court], on its own motion or on timely motion . . . for cause shown.” 28 U.S.C. § 157(d). Withdrawal of a reference is at the discretion of the district court unless “resolution of the proceeding requires consideration of both title 11 and other laws of the United States regulating organizations or activities affecting interstate commerce, ” in which case withdrawal is mandatory. 28 U.S.C. § 157(d); Nw. Inst. of Psychiatry, Inc. v. Travelers Indem. Co., 272 B.R. 104, 107 (E.D. Pa. 2001).

         A court's exercise of discretion to withdraw is guided by whether (i) the underlying proceeding involves “core” or “non-core” claims, and (ii) any party has asserted a right to a jury trial to which it is constitutionally entitled. Shubert v. Law Offices of Paul J. Winterhalter, 531 B.R. 546, 550 (E.D. Pa. 2015); Feldman v. ABN AMRO Mortg. Grp. Inc., 515 B.R. 443, 446 (E.D. Pa. 2014).

         The Third Circuit Court of Appeal has also identified five factors for courts to consider when determining whether cause exists to withdraw a reference: (i) the promotion of uniformity in bankruptcy administration, (ii) the reduction of forum shopping and confusion, (iii) the economical use of the parties' resources, (iv) expediting the bankruptcy process, and (v) the timing of the motion for withdrawal. In re Pruitt, 910 F.2d 1160, 1168 (3d Cir. 1990). The party seeking to withdraw the reference bears the burden to show cause. Feldman, 515 B.R. at 452.

         III. ...


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