United States District Court, S.D. New York
September 22, 2004.
In re: ENRON CORPORATION, et al., Debtors, ENRON CORPORATION, Plaintiff,
THE BELO COMPANY, Defendant.
The opinion of the court was delivered by: MICHAEL MUKASEY, Chief Judge, District
OPINION AND ORDER
Pursuant to 28 U.S.C. § 157(d), defendant Belo Company ("Belo")
moves to withdraw the reference to the United States Bankruptcy
Court for this District of this adversary proceeding in which
plaintiff and bankruptcy debtor Enron Corporation ("Enron") seeks
recovery of certain payments it alleges were made to Belo as
either preferential or fraudulent. For the following reasons,
Belo's motion is denied.
According to Enron's complaint, from October 26 through
November 6, 2001, Enron paid out more than one billion dollars to
redeem certain commercial paper before its stated maturity date.
(Am. Compl. ¶ 1). Holders of this commercial paper, including
Belo, urged Enron to do this in light of announcements in October
2001 that Enron had charged one billion dollars against its third
quarter 2001 earnings, that the Securities and Exchange
Commission had commenced an investigation of Enron's accounting
practices, and that rating agencies were planning downgrades of
Enron's debt ratings. (Id. at ¶ 1-2) Enron eventually filed for
bankruptcy on December 2, 2001. (Id. at ¶ 6) Enron claims that
the above prepayments and redemptions directly contravened the
terms of the original issuing documents and by depleting Enron's
estate, unfairly preferred these commercial paper holders over other general unsecured creditors. (Id. at ¶ 3) On November 6,
2003, Enron sued over one hundred such commercial paper holders,
including Belo, in Bankruptcy Court to recover prepayments and
early redemptions. On February 10, 2004, Belo filed this motion
to withdraw the reference to the Bankruptcy Court.
This court has subject matter jurisdiction pursuant to
28 U.S.C. §§ 1334 and 157(d). Under a standing order issued in July
1984 by then-Acting Chief Judge Ward pursuant to
28 U.S.C. § 157(c), all Chapter 11 cases in the Southern District of New York
are automatically referred to this district's bankruptcy judges.
A party may move to withdraw the reference to the Bankruptcy
Court pursuant to 28 U.S.C. § 157(d), which states:
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 a 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). Belo does not argue for mandatory withdrawal
of the instant proceeding under the second sentence of Section
157(d). Instead, defendant contends that its right to a jury
trial in district court is "cause" for permissive withdrawal of the reference under the first sentence.
The Second Circuit in Orion Pictures Corp. v. Showtime
Networks (In re Orion Pictures Corp.), 4 F.3d 1095, 1100-01 (2d
Cir. 1993) created an analytical framework for determining what
constitutes "cause" to withdraw a case from bankruptcy court. The
first step of that analysis is to decide whether the claims or
proceeding are "core" or "non-core," largely because it is upon
this issue that other relevant "questions of efficiency and
uniformity will turn." Id. at 1101. Congress has codified the
core/non-core distinction in 28 U.S.C. § 157(b): "Bankruptcy
judges may hear and determine all cases under title 11 and all
core proceedings arising under title 11, or arising in a case
under title 11, . . ." 28 U.S.C. § 157(b)(1). It also set forth
a nonexhaustive list of 15 types of core proceedings.
28 U.S.C. § 157(b) (2).
In general, "core matters are ones with which the bankruptcy
court has greater familiarity and expertise, subject to appellate
review by the district court." LTV Steel Co. v. Union Carbide
Corp. (In re Chateaugay Corp.), 193 B.R. 669, 675 (S.D.N.Y.
1996). "Non-core matters are those in which the district court is
more proficient, and which the district court reviews de novo."
Id. "Courts in this Circuit construe `core' jurisdiction
broadly to honor the intent of Congress and to avoid overwhelming
the district court with bankruptcy matters." Id. (citing Ben Cooper, Inc. v. Ins. Co. of the State of
Pennsylvania (In re Ben Cooper, Inc.), 896 F.2d 1394, 1398-99
(2d Cir. 1990)).
After making the core/non-core determination, the court must
consider "judicial economy, delay and cost to the parties,
uniformity of bankruptcy administration, forum shopping, and
other related factors to determine if permissive withdrawal is
warranted." Id. at 677 (citing Orion, 4 F.3d at 1101).
Belo concedes that Enron's claims are core claims, (Belo's Mem.
of Law Supp. Mot. Withdraw the Reference n. 1), as they fall
within at least two classes of core proceedings designated by
Congress to be within the bankruptcy courts' jurisdiction. See
28 U.S.C. § 157(b)(2)(F) ("proceedings to determine, avoid, or
cover preferences"); see id. at § 157(b)(2)(H) ("proceedings to
determine, avoid, or recover fraudulent conveyances").
However, Belo asserts that its right to a jury trial in
district court warrants withdrawing the reference. Belo stresses
that it has not filed a proof of claim in Enron's bankruptcy
proceeding and will not consent to a jury trial held by the
Several decisions in this district have recognized that a jury
demand by itself does not constitute "cause" for permissive withdrawal of the reference. In doing so, these
decisions have emphasized the efficient use of judicial
resources. See, e.g., Bianco v. Hoehn (In re Gaston &
Snow), 173 B.R. 302, 307 (S.D.N.Y. 1994); Hassett v.
Bancohio Nat'l Bank (In re CIS Corp.), 172 B.R. 748, 761-62
(S.D.N.Y. 1994); Kenai Corp. v. Nat'l Union Fire Ins. Co. (In
re Kenai Corp.), 136 B.R. 59, 61 (S.D.N.Y. 1992). "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." Kenai, 136 B.R. at 61.
Accordingly, it does not automatically follow from Belo's jury
demand that the reference must be withdrawn, at least at this
time. Rather, the important Orion factors of judicial economy
and uniform administration of Enron's bankruptcy weigh heavily in
favor of denying Belo's motion without prejudice and allowing the
Bankruptcy Court to continue managing this case. The Bankruptcy
Court's unique familiarity with the facts and law relating to
Enron's bankruptcy will allow it to resolve this dispute more
efficiently than would a court completely new to the case. See
Orion, 4 F.3d at 1101 ("[H]earing core matters in a district
court could be an inefficient allocation of judicial resources
given that the bankruptcy court generally will be more familiar with the facts and issues.").
Moreover, withdrawal at this stage of the proceeding would be
premature. See Schneider v. Riddick (In re Formica Corp.),
305 B.R. 147, 150 (S.D.N.Y. 2004) ("While the plaintiff has a
right to a jury trial, such a right does not compel withdrawing
the reference until the case is ready to proceed to trial.");
Hunnicutt Co. v. TJX Cos. (In re Ames Dep't Stores),
190 B.R. 157, 162 (S.D.N.Y. 1995) ("withdrawal of the reference . . .
still depends on the particular circumstances of each case,
including whether the case is likely to reach trial"). In
deciding whether to withdraw a case from bankruptcy court based
on a jury demand, courts must consider (1) whether the case is
likely to reach trial, see Orion, 4 F.3d at 1102; (2) whether
protracted discovery with court oversight will be required, see
id.; and (3) whether the bankruptcy court is familiar with the
issues presented. See Kenai, 136 B.R. at 61. This case is still
in the early stages and because of the large number of defendants
and unresolved pre-trial matters, especially discovery, one can
only speculate when it will proceed to trial, if at all. The
Bankruptcy Court has presided over this case for almost one year,
is already familiar with Enron's claims, and thus is best
equipped to handle discovery and other pretrial matters. Again,
judicial economy favors denial of Belo's motion to withdraw the
reference. Neither party has made allegations of forum shopping worthy of
* * *
For the reasons set forth above, Belo's motion withdraw the
reference is denied.
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