Commercial Litigation and Arbitration

Standards for Withdrawal of the Reference to the Bankruptcy Court — Permissive and Mandatory (11th Circuit)

From Smith v. Regions Bank, 2009 U.S. Dist. LEXIS 103586 (S.D. Ga. Nov. 6, 2009):

Withdrawal of the reference to the bankruptcy court may be either permissive or mandatory. The statute provides:

The district court may withdraw, in whole or in part, any case or proceeding referred under this section, on its own motion or on timely motion of any party, for cause shown. The district court shall, on timely motion of any party, so withdraw a proceeding if the court determines that resolution of the proceeding requires consideration of both title 11 and other laws of the United States regulating organizations or activities affecting interstate commerce.

28 U.S.C. § 157(d).

I. Permissive Withdrawal

I>n the case of permissive withdrawal, "[o]nce a bankruptcy court has assumed jurisdiction . . . a district court may withdraw the reference only 'for cause shown.'" In re Parklane/Atlanta Joint Venture, 927 F.2d 532, 536 (11th Cir. 1991) (quoting 28 U.S.C. § 157(d)). While the statute does not define the word "cause," courts have made it clear that this is not an empty requirement.... In determining whether cause exists, a district court should consider the advancement of uniformity in bankruptcy administration, decreasing forum shopping and confusion, promoting the economical use of the parties' resources, and facilitating the bankruptcy process. See In re Simmons, 200 F.3d 738, 742 (11th Cir. 2000). ***

II. Mandatory Withdrawal

Withdrawal is mandatory "if resolution of the issues requires 'substantial and material consideration' of non-bankruptcy code statutes." In re Am. Body Armor & Equip., Inc., 155 B.R. 588, 590 (M.D. Fla. 1993); see also In re Hvide Marine Inc. , 248 B.R. 841, 843-844 (M.D.Fla. 2000) (adopting the analytical framework of American Body Armor & Equipment, Inc., and employing the "substantial and material" test); In re TPI International Airways, Inc., 222 B.R. 663, 667-68 (S.D. Ga. 1998) (same). Substantial and material consideration involves "resolution of cases of first impression or 'substantial and material conflicts' between non-title 11 federal law and the Bankruptcy code." In re Numed Healthcare, Inc., Case No. 8:01-CV-1224, 2001 WL 1572376, at *1 (M.D. Fla. 2001)(internal citations omitted).

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