Commercial Litigation and Arbitration

Neither Jury Demand Nor Non-Core Character of Action Necessitate Withdrawal of Reference to Bankruptcy Court, At Least Not Immediately

From Tate v. CitiMortgage, Inc., 2010 U.S. Dist. LEXIS 3675 (S.D. Ala. Jan 18, 2010):

[E]ven if the Bankruptcy Court's decision to strike CitiMortgage's jury demand was erroneous, the mere presence of a jury demand would not justify withdrawal of the reference at this time. Federal courts have universally held that "a Seventh Amendment jury trial right does not mean the bankruptcy court must instantly give up jurisdiction and that the case must be transferred to the district court." In re, 504 F.3d 775, 787 (9th Cir. 2007) (collecting cases).

[Footnote 15] See also Murphy, 410 B.R. at 149 (demand for jury trial "does not compel withdrawing the reference, even in a non-core proceeding, until the case is ready to proceed to trial") (citation and internal quotation marks omitted); In re Centrix Financial, LLC, 2009 WL 1605826, *4 (D. Colo. June 8, 2009) ("allowing the bankruptcy court to supervise discovery, conduct pretrial conferences, and rule on pretrial motions — including dispositive motions — does not infringe on the right to trial by jury"); Levine, 400 B.R. at 207 ("The right to a jury trial does not preclude a bankruptcy court from resolving pre-trial dispositive motions."); American Classic, 337 B.R. at 512 ("Courts have ... recognized that it serves the interests of judicial economy and efficiency to keep an action in Bankruptcy Court for the resolution of pre-trial, managerial matters, even if the action will ultimately be transferred to a district court for trial.") (citations omitted); In re Enron Corp., 317 B.R. 232, 234-35 (S.D.N.Y. 2004) ("A rule that would require a district court to withdraw a reference simply because a party is entitled to a jury trial, regardless of how far along toward trial a case may be, runs counter to the policy of favoring judicial economy that underlies the statutory bankruptcy scheme.") (citation omitted); Stein v. Miller, 158 B.R. 876, 880 (S.D. Fla. 1993) (bankruptcy court's ruling on dispositive motions does not trammel right to a jury trial); City Fire Equipment Co. v. Ansul Fire Protection Wormald U.S., Inc., 125 B.R. 645, 649 (N.D. Ala. 1989) (en banc) ("This court concludes that the mere filing of a jury demand does not cause the Bankruptcy Court to lose 'jurisdiction' of the action(s) or mandate that the reference be withdrawn.").

Maintaining the referral to the Bankruptcy Court for adjudication of all pretrial matters does not curtail any party's Seventh Amendment right, but it does "promote[] judicial economy and efficiency by making use of the bankruptcy court's unique knowledge of Title 11 and familiarity with the actions before them." Id. at 787-88.

[Footnote 16] See also City Fire, 125 B.R. at 649 (noting that "the Bankruptcy Court is uniquely qualified and has authority, even in actions such as this in which a jury trial has been demanded, to supervise discovery and conduct pre-trial conferences and rule on motions"); Centrix, 2009 WL 1605826, at *4 (because bankruptcy system promotes judicial economy and efficiency by harnessing bankruptcy court's unique knowledge of Title 11 and familiarity with actions before it, "district courts would undermine the statutory scheme by immediately withdrawing the bankruptcy court reference in every case merely because there is a right to jury trial").

CitiMortgage fails to address why withdrawal of the reference should be effectuated now, when any jury trial remains distant on the horizon, rather than allowing the Bankruptcy Court to retain jurisdiction and manage the Adversary Proceeding through discovery, dispositive motions, and other pretrial proceedings, until such time as that action is ready for trial. Furthermore, CitiMortgage glosses over the fact that even if certain of plaintiffs' claims are subject to a Seventh Amendment right to jury trial, plaintiffs have also brought purely equitable claims as to which the referral could and should remain in place through final disposition. For example, plaintiffs have expressly requested "[s]uch other and different civil relief pursuant to § 105 and the Court's inherent powers as may be appropriate including an order declaring Defendant's practices improper, illegal and fraudulent." *** Such claims for equitable relief are appropriately adjudicated by the Bankruptcy Court, even if CitiMortgage is correct that plaintiffs are also bringing legal claims to which a right to jury trial attaches. ***

[E]ven if CitiMortgage were correct that the Adversary Proceeding is not properly characterized as core, that factor in isolation would not prompt this Court to exercise its discretion to withdraw the reference in this case, given the presence of countervailing circumstances. See H & W Motor, 343 B.R. at 215 ("The mere fact a bankruptcy proceeding is not a core proceeding is not a sufficient reason to grant a motion for the withdrawal of the reference."). In particular, this action is fundamentally about whether a bankruptcy litigant engaged in chronic, repeated misconduct, and whether civil contempt sanctions should be levied against that party. Because this Adversary Proceeding is inextricably bound to the integrity of bankruptcy proceedings (in the form of alleged abuses of bankruptcy procedures and fraud perpetrated on the Bankruptcy Court over the span of numerous cases by the same serial litigant), it is the Bankruptcy Court that should decide — at least in the first instance — whether sanctions are appropriate, and if so what those sanctions should be, pursuant to § 105 and that court's inherent powers. Simply put, the Bankruptcy Court's interest in policing attorney / litigant misconduct before it and meting out any civil sanctions that may be appropriate is both undeniable and compelling. The Bankruptcy Court should be permitted to perform those functions without preemptive interference or meddling by the District Court, absent weighty countervailing considerations not found here. The mere classification of those proceedings as non-core would not be sufficient, in the view of this Court, to justify the discretionary snatching of this matter out of the purview of the Bankruptcy Court.

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