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May 27, 2004.

In re ENRON CORP., et al, Debtors ENRON NORTH AMERICA CORP., Plaintiff, -against- MEDIA GENERAL INC., Defendant

The opinion of the court was delivered by: SIDNEY STEIN, District Judge


Defendant Media General Inc. moves pursuant to 28 U.S.C. § 157(d) for an order withdrawing the reference of the above-captioned adversary proceeding from the Bankruptcy Court of the Southern District of New York. Plaintiff Enron North America Corp. opposes this motion. For the reasons set forth below, Media General's motion to withdraw the reference is denied without prejudice.

A. Facts Relating to This Action
  In July of 2000, Media General and Enron entered into a financial swap for newsprint. The parties executed a Master Agreement from the International Swap Dealers Association (the "ISDA Agreement"). That contract was designated to remain in effect until August 31, 2007.

  On November 28, 2001, Media General sent Enron a notice stating that it was terminating the swap agreement. According to that notice, Media General asserted two bases for its right of early termination: (1) Enron's announcement of accounting fraud on November 8, 2001 constituted an event of default under the ISDA Agreement and (2) a downgrade of Enron's debt by Standard & Poor also constituted an event of default under the ISDA Agreement. (November 28, 2001 Notice at 1-2, attached at Exhibit A to Media General's Reply Memorandum) That notice further stated that "in accordance with Section 6 of [the ISDA Agreement], Media General has determined that no payment is required to be made by the parties." (Id. at 1) Four days later, Enron petitioned for Chapter 11 bankruptcy protection.

  Enron subsequently sent Media General a notice that, by Enron's calculation, Media General owed Enron an early termination payment of more than $26 million. (Compl. at ¶ 25-26). Media General responded that it intended to reject that notice as "well beyond `late.'" (August 13, 2002 Letter, attached at Exhibit B to Media General's Reply Memorandum) Media General also took exception to Enron's calculation, affirmed its position that a termination payment was not owed by either party, and reiterated that Enron had made a misrepresentation in connection with the financial swaps. Separately, Media General filed a Notice of Claim against Enron in the bankruptcy court in this district, seeking $7 million due to losses resulting from its earlier sale of a company to Enron.

  In late December of 2003, Enron commenced this adversary proceeding, seeking an early termination payment from Media General under the terms of the ISDA Agreement as well as a declaratory judgment. Enron alleges, among other matters, 1) that Media General never prepared the required calculation of the early termination payment and 2) that it is entitled to a payment of more than $26 million from Media General for either a breach of contract or as an equitable remedy for Media General's unjust enrichment. (Compl. at ¶ 22-24, ¶ 32-36, ¶ 51-54) Enron also seeks declaratory relief that (1) Media General's claim of rescission for fraudulent inducement be deemed a "core" issue involving the property of the estate (Compl. at ¶ 37-40); (2) Media General is not entitled to rescission (Compl. at ¶ 41-44); and (3) the ISDA Agreement's arbitration provision is unenforceable. (Compl. at ¶ 45-50) Separately, Enron objects to Media General's proof of claim relating to the corporate sale referred to above. (Compl. at ¶ 31)

  Media General then moved in the bankruptcy court to dismiss this action on the basis of a mandatory arbitration provision in the ISDA Agreement or, in the alternative, to compel arbitration. See Memorandum of Law in Support of Defendant Media General's Motion to Dismiss (Attached at Exhibit B to Memorandum of Law in Support of Defendant Media General's Motion to Withdraw Reference).

  B. Proceedings in the Bankruptcy Court

  In March of 2003, Bankruptcy Judge Gonzalez issued an order referring all pending and future adversary proceedings between Enron and its counterparties in wholesale trading and retail agreements to mediation under the supervision of a Special Master, Bankruptcy Judge Alan Gropper (the "Mediation Order"). In that Mediation Order, Judge Gonzalez noted that certain common issues, including "the enforceability and applicability of setoff, recoupment, arbitration, and termination provisions, the calculation and payment of termination payments, alleged grounds for rescission," are present in numerous adversary proceedings between Enron and its trading partners. See First Amended Order Governing Mediation of Trading Cases dated March 20, 2003 at 1 (Attached at Exhibit H to Declaration of Theodore E. Tsekerides). The Mediation Order further provided that Judge Gropper "shall have the broadest discretion as mediator." Id. In conjunction with that mediation referral, the Mediation Order stayed all pending motions seeking to arbitrate or to modify the existing automatic stay in order to seek arbitration. Id. at 2. The Mediation Order permitted, however, the parties to file motions to compel arbitration and to seek withdrawal of reference. Id. at 2-4.

  At the time Judge Gonzalez issued that Mediation Order, there were 25 adversary proceedings, such as this action, relating to wholesale trading. Currently, there are more than 45 such adversary proceedings.


  A. Legal Standards

  28 U.S.C. § 157(d) provides that "[a] 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."*fn1 That statute does not provide a definition of what constitutes "for cause," In In re Orion Pictures Corp., 4 F.3d 1095 (2d Cir. 1993), the Court of Appeals for the Second Circuit identified the analytical framework for evaluating a motion to withdraw the reference and enumerated a list of relevant factors to be considered. See id. at 1101. Those factors are: "(1) whether the proceeding is core or non-core; (2) judicial economy; (3) uniformity in bankruptcy administration; (4) economical use of debtors' and creditors' resources; (5) reduction of forum shopping and confusion; (6) expediting the bankruptcy process and (7) the presence of a jury demand." See In re Enron Corp., 295 B.R. 21, 25 (S.D.N.Y. 2003); see also In re Burger Boys, 94 F.3d 755, 762 (2d Cir. 1996). The decision to grant or deny a motion for withdrawal of the reference is within the discretion of the district court. See In re Chateaugay Corp., 193 B.R. 669, 673 (S.D.N.Y. 1996).

  Because a bankruptcy court lacks jurisdiction to conduct a jury trial over a non-core claim except by consent of the parties, see In re Orion Pictures, 4 F.3d at 1101; see also 28 U.S.C. § 157(e) (permitting trial before bankruptcy judge if there is designation by a district court and consent by the parties), the threshold core/non-core evaluation is of critical importance if the commencement of trial is approaching in an adversary proceeding. Interests of efficiency and uniformity also bear significantly on this Court's determination. See In re Ames Department Stores, Inc., 190 B.R. 157, 162-163 (S.D.N.Y. 1995) ("timing of the withdrawal of the reference . . . depends on particular circumstances of each case, including [its likelihood] to reach trial, whether it involves lengthy discovery or careful pretrial guidance by the court, or whether the jury demand is without merit"); In re Kenai Corp., 136 B.R. 59, 61 ...

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