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In re Residential Capital, LLC

United States District Court, S.D. New York

September 10, 2014

In re RESIDENTIAL CAPITAL, LLC, Debtor.
v.
CMG MORTGAGE, INC., Defendant. RESCAP LIQUIDATING TRUST, Plaintiff,

Isaac Nesser, Esq., Alex J.B. Rossmiller, Esq., John P. Sullivan, Esq., Peter E. Calamari, Esq., Quinn Emanuel Urquhart & Sullivan LLP, New York, NY, Counsel for Plaintiff.

Greg Chambers, Esq., James W. Brody, Esq., American Mortgage Law Group, PC, Novato, CA.

Richard J. Bernard, Esq., Foley & Lardner, LLP, New York, NY, Counsel for Defendant.

MEMORANDUM & ORDER

WILLIAM H. PAULEY, III, District Judge.

Defendant CMG Mortgage moves to withdraw the reference to the bankruptcy court in this adversary action and transfer the case to the District of Minnesota. For the following reasons, those motions are granted.

BACKGROUND

Plaintiff Rescap Liquidating Trust is the successor to Residential Funding Corp., LLC (RFC).[1] RFC bought and securitized residential mortgage loans. Defendant CMG is one of several mortgage lenders who sold loans to RFC. Confounded by a surge of lawsuits regarding the quality of loans in its securitizations, RFC filed a Chapter 11 bankruptcy petition in May 2012. In December 2013, Bankruptcy Judge Glenn of the Southern District of New York approved a settlement of RFC's residential mortgage-backed securities liabilities. CMG did not file a proof of claim in the RFC bankruptcy.

After the settlement, RFC brought at least 66 lawsuits in the District of Minnesota against various lenders it purchased loans from, alleging the loans breached the lenders' representations and warranties. RFC moved to transfer most of those suits to this district, where they would be referred to the bankruptcy court. After seven of these transfer motions were denied, RFC withdrew the rest of them. See Residential Funding Co. v. Cherry Creek Mortg. Co., 2014 WL 1686516, at *4-5 (D. Minn. April 29, 2014); Residential Funding Co. v. First Citizens Bank & Trust Co., 13-cv-03514-RHK-TNL (D. Minn. May 13, 2014) (ECF #33) (same order issued in five cases).[2] All of those suits remain pending in the District of Minnesota.

On May 13, 2014, RFC filed this adversary proceeding in the bankruptcy court, alleging solely state law claims for breach of contract and indemnification. The contract in question has a mandatory forum selection clause requiring suits be brought in Minnesota. CMG now moves to withdraw the reference and transfer this adversary proceeding to the District of Minnesota.

DISCUSSION

I. Motion to Withdraw the Reference

a. Legal Standard

A "district court may withdraw... any case or proceeding referred [to the bankruptcy court] on its own motion or on a timely motion of any party, for cause shown." 28 U.S.C. § 157(d). Bankruptcy judges may enter final judgments in "all core proceedings arising under title 11, or arising in a case under title 11." 28 U.S.C. § 157(b)(1). Final judgments in core proceedings are appealed to the district court. If a referred proceeding is not "core" but is "otherwise related to a case under title 11, " the bankruptcy judge may only "submit proposed findings of fact and conclusions of law to the district court, " and the district court enters final judgment after reviewing the proposals de novo. § 157(c)(1).

Before the Supreme Court's decision in Stern v. Marshall , 131 S.Ct. 2594 (2011), the Second Circuit held that "[a] district court considering whether to withdraw the reference should first evaluate whether the claim is core or non-core, since it is upon this issue that questions of efficiency and uniformity will turn." Orion Pictures Corp. v. Showtime Networks, Inc. (In re Orion Pictures Corp.) , 4 F.3d 1095, 1101 (2d Cir. 1993). "[O]nce a district court makes the core/non-core determination, it should weigh questions of efficient use of judicial resources, delay and ...


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