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ROI Properties LLC v. Gray Phoenix Desert Ridge I LLC

United States District Court, D. Arizona

February 25, 2019

ROI Properties LLC, Plaintiff,
v.
Gray Phoenix Desert Ridge I LLC, Gray Phoenix Desert Ridge III LLC, Gray Phoenix Desert Ridge IV LLC, LKY Real Estate Fund V LLC, Bruce Gray, Barbara Gray, and Unknown Parties, Defendants.

          ORDER

          Honorable Susan M. Brnovich, United States District Judge.

         Pending before the Court is Defendant LKY Real Estate Fund V, LLC's Motion for Immediate Withdrawal of Reference of Adversary Proceeding (No. 2:18-ap-00209-MCW) from the bankruptcy court. (Doc. 2, “Mot.”). Plaintiff R.O.I. Properties, LLC opposes the Motion (Doc. 14, “Resp.”), and LKY filed a Reply (Doc. 18, “Reply”). LKY requested oral argument, but the Court declines to schedule this matter for argument. For the reasons set forth below, the Motion is DENIED.

         I. BACKGROUND

         On May 15, 2018, R.O.I Properties, LLC (“ROI”), as Liquidating Trustee of the May Liquidating Trust and trustee of the estates of EPICENTER PARTNERS, L.L.C. and GRAY MEYER FANNIN, L.L.C., brought adversary proceeding No. 2:18-ap-00209-MCW (the “Adversary Proceeding”) in the United States Bankruptcy Court for the District of Arizona (the “Bankruptcy Court”) against multiple defendants, including LKY Real Estate Fund V, LLC (“LKY”), who is not a creditor to the estates in the underlying bankruptcy cases. (Mot. at 2, 7). The Adversary Proceeding concerns the Complaint to avoid and recover fraudulent transfers pursuant to 11 U.S.C. §§ 544, 548, 549, 550 and Arizona Law and to disallow claims pursuant to 11 U.S.C. § 502. (Mot. at 2). LKY now moves for an order withdrawing the Adversary Proceeding from the Bankruptcy Court in order to resolve LKY's impending motion to dismiss.

         II. LEGAL STANDARD

         Under 28 U.S.C. § 157(a), a “district court may provide that any or all cases under title 11 and any or all proceedings arising under title 11 or arising in or related to a case under title 11 shall be referred to the bankruptcy judges for the district.” Accordingly, this District refers such matters to the Bankruptcy Court. See General Order 01-15 (June 29, 2001). A bankruptcy court has jurisdiction 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 . . . and may enter appropriate orders and judgments[.]” 28 U.S.C. § 157(b)(1) (emphasis added). The statute distinguishes between core and non-core proceedings and provides a non-exhaustive list of various proceedings deemed to be core. See 28 U.S.C. § 157(b)(2). A bankruptcy court may also hear a proceeding that is “non-core, ” but in such a proceeding, the bankruptcy judge may only submit proposed findings of fact and conclusions of law to the District Court, which in turn enters any final order of judgment “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).

         However, after a referral has been made to a bankruptcy court, the district court “may withdraw, in whole or in part, any case or proceeding referred [to the bankruptcy court] under this section, on its own motion or on timely motion of any party, for cause shown.” 28 U.S.C. § 157(d). In determining whether “cause” exists, the Ninth Circuit has considered the following factors: “[1] the efficient use of judicial resources, [2] delay and costs to the parties, [3] uniformity of bankruptcy administration, [4] the prevention of forum shopping, and [5] other related factors.” In re Canter, 299 F.3d 1150, 1154 (9th Cir. 2002) (citing Sec. Farms v. Int'l Bhd. of Teamsters, Chauffers, Warehousemen, & Helpers, 124 F.3d 999, 1008 (9th Cir. 1997)). “[T]he party seeking withdrawal bears the burden of establishing that withdrawal is appropriate.” In re N'Genuity Enters. Co., No. CV-12-0351-PHX-JAT, 2012 WL 3095002, at *2 (D. Ariz. July 30, 2012) (citing In re Homeland Stores, Inc., 204 B.R. 427, 430 (D. Del. 1997)).

         III. DISCUSSION

         a. Stern Claims

         As a preliminary matter, LKY contends that “ROI's claims are properly treated as though they are non-core for the purpose of demonstrating the existence of ‘good cause[.]'” (Mot at 5). ROI's response does not directly address this issue yet refers generally to the “allegedly non-core claims.” (Resp. at 6).

         The Ninth Circuit has recognized that fraudulent conveyance claims are defined as “core” under § 157(b), but nonetheless “cannot be adjudicated by non-Article III judges.” In Re Bellingham Ins. Agency, Inc., 702 F.3d 553, 561 (9th Cir. 2012). This determination followed the Supreme Court's holding in Stern v. Marshall, 564 U.S. 462 (2011), which “made clear that some claims labeled by Congress as ‘core' may not be adjudicated by a bankruptcy court in the manner designated by § 157(b).” Exec. Benefits Ins. Agency v. Arkison, 573 U.S. 25, 35 (2014). Following the decision in Stern, the Supreme Court held in Arkison that these so-called Stern claims are permitted “to proceed as non-core within the meaning of § 157(c).” Id. at 36. Therefore, when Stern claims are involved, bankruptcy judges may only submit proposed findings of fact and conclusions of law to the district court. See 28 U.S.C. § 157(c)(1) (in a non-core proceeding, “the bankruptcy judge shall submit proposed findings of fact and conclusions of law to the district court, and any final order or judgment shall be entered by the district judge”). Furthermore, the Supreme Court has confirmed that (1) “Article III permits bankruptcy courts to decide Stern claims submitted to them by consent, ” (2) bankruptcy litigants may “waive the right to Article III adjudication of Stern claims, ” and (3) such waiver need not be express. Wellness Int'l Network, Ltd. v. Sharif, 135 S.Ct. 1932, 1944-45, 1947, 1949 (2015).

         As such, the Court will treat ROI's claims as Sterns claims-claims on which LKY asserts that it has not given consent to the Bankruptcy Court to render a final judgment. (Mot. at 2).

         b. Jury Demand

         LKY contends that withdrawal is required because LKY is entitled to a jury trial on ROI's fraudulent transfer claims. (Mot at 6-7). In response, ROI relies heavily on In re Healthcentral.com, 504 F.3d 775 (9th Cir. 2007), asserting that “[e]ven in cases where a jury demand has been made . . . withdrawal of the reference generally should be delayed until discovery is complete, all dispositive motions have been ruled upon, and the case is ready for trial.” (Resp. at 3). In Reply, LKY acknowledges that “where the Seventh Amendment is the basis for possible withdrawal, it is premature for a district court to withdraw the reference prior to a case being set for trial because the bankruptcy court can address pretrial matters including dispositive motions, ” and asserts that it “does not seek immediate withdrawal of the reference based on its Seventh Amendment right to a jury trial, ” but rather “on LKY's ...


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