United States District Court, D. Arizona
Honorable Susan M. Brnovich, United States District Judge.
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
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.
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. §
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: “ the
efficient use of judicial resources,  delay and costs to
the parties,  uniformity of bankruptcy administration, 
the prevention of forum shopping, and  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)).
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).
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).
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).
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 ...