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IN RE ENRON CORP.

United States District Court, S.D. New York


December 10, 2004.

In re: ENRON CORP., et al., Debtors, ENRON CORP. and ENRON BROADBAND SERVICES, Inc., Plaintiffs,
v.
TELPLEXUS, INC., Defendant.

The opinion of the court was delivered by: RICHARD HOLWELL, District Judge

MEMORANDUM OPINION AND ORDER

By motion dated September 27, 2004, defendant Telplexus, Inc. ("Telplexus") seeks to withdraw the reference to a matter pending in the United States Bankruptcy Court for the Southern District of New York, captioned as Enron Corp., et al. v. Telplexus, Inc., Case No. 01-16034 (AJG). Telplexus argues that withdrawal is proper under 28 U.S.C. § 157(d) because it has demanded a jury trial and has not otherwise subjected itself to the equitable powers of the bankruptcy court, but has not consented to have the jury trial conducted by the bankruptcy court, as is required by 28 U.S.C. § 157(e). Alternatively, and independent of its right to a jury trial, Telplexus argues that it is entitled to have its case heard before an Article III court. In either event, Telplexus maintains that withdrawal is inevitable, and urges the Court to act now. For the reasons that follow, Telplexus' motion to withdraw the reference to the bankruptcy court [1-1] is DENIED without prejudice to renew the application.

ANALYSIS

  With the enactment of 28 U.S.C. § 157, Congress conferred upon district courts the authority to refer cases to bankruptcy courts where the underlying action arises under Title 11 of the United States Bankruptcy Code, or is related to a case that arises thereunder. 28 U.S.C. § 157(a).*fn1 At the same time, with the inclusion of Section 157(d), Congress provided a mechanism for district courts to withdraw a reference made pursuant to 28 U.S.C. § 157(a). Section § 157(d) 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 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).

  The procedure for withdrawing a reference is provided for by Federal Rule of Bankruptcy Procedure 5011(a), which states that "[a] motion for withdrawal of a case or proceeding shall be heard by a district judge." Fed.R.Bankr.P. 5011(a). Where, as here, an application for withdrawal has been submitted by a party to an action that has been referred to bankruptcy court, Section 157(d) does not require withdrawal; as indicated by the first sentence, "the district court may withdraw . . . any case of proceeding referred under this section", withdrawal is at the discretion of the court "for cause shown." 28 U.S.C. § 157(d) (emphasis added). "Although § 157(d) does not define `cause,'" a district court's analysis of a motion to withdraw a bankruptcy reference is guided by Second Circuit law, which "set[s] forth the following factors for consideration: `whether the claim or proceeding is core or non-core,*fn2 whether it is legal or equitable, and considerations of efficiency, prevention of forum shopping, and uniformity in the administration of bankruptcy law.'" McCord v. Papantoniou, 316 B.R. 113, 119 (E.D.N.Y. 2004) (citing In re Orion Pictures Corp., 4 F.3d 1095, 1101 (2d Cir. 1993)).

  As suggested by the Second Circuit's holding in In re Orion Pictures Corp., district courts are generally unreceptive to motions to withdraw references where the underlying action is in its preliminary stages and is closely related to proceedings already pending before the bankruptcy court. Here, Telplexus argues that withdrawal is inevitable because it has a right to a jury trial, but has not consented to have the trial heard in bankruptcy court, as required by 28 U.S.C. § 157(e). Even if that is true, "a district court is not compelled to withdraw a reference simply because a party is entitled to a jury trial," especially where doing so would be inefficient. Enron Power Mktg. v. City of Santa Clara (In re Enron Power Mktg.), 2003 WL 68036 at *6 (S.D.N.Y. 2003) (internal quotations omitted). For the same reason, neither should a court be compelled to withdraw a reference where, as here, the movant asserts that it is entitled to be heard before an Article III judge. Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 53 (1989) ("[T]he question whether the Seventh Amendment permits Congress to assign . . . adjudication [of a legal cause of action] to a tribunal that does not employ juries as factfinders requires the same answer as the question whether Article III allows Congress to assign adjudication of that cause of action to a non-Article III tribunal.")

  As the court noted in In re Kenai Corp., 1992 U.S. Dist. LEXIS 826 at *6 (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 favoring judicial economy that underlies the statutory scheme governing the relationship between the district courts and bankruptcy courts. Although withdrawal is an important component of this scheme, the court must employ it judiciously in order to prevent it from becoming just another litigation tactic for parties eager to find a way out of bankruptcy court.
In re Kenai Corp., 1992 U.S. Dist. LEXIS 826 at *6 (S.D.N.Y. 1992). The point is simple: a motion for withdrawal should be denied where refusal serves the interests of judicial economy and efficiency, such as where significant pre-trial or managerial matters remain, even if the action will ultimately be transferred to a district court because the movant is entitled to a jury trial or to an Article III judge. Without reaching a conclusion on either of those issues, the Court finds that efficiency and economy will best be served in this case by refusing Telplexus' request to withdraw the reference.*fn3 CONCLUSION

  For the foregoing reasons, Telplexus' motion to withdraw the reference to bankruptcy court [1-1] in the case captioned Enron Corp., et al. v. Telplexus, Inc., Case No. 01-16034 (AJG) is DENIED without prejudice to renew.

  SO ORDERED.


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