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In re Sheldrake Lofts LLC

United States District Court, S.D. New York

November 15, 2014



NELSON S. ROMN, District Judge.

Plaintiff Sheldrake Lofts, LLC, ("Plaintiff, " or "Sheldrake") filed a Petition under Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. §§ 1101 et seq., on August 10, 2010.

On December 14, 2010, Plaintiff commenced an adversary proceeding in the Bankruptcy Court against Remediation Capital Funding, LLC ("RCF"); RD Management, LLC ("RD Mgmt."); L&M Development Group, LLC ("L&M"); Erik Ekstein; Jay Furman; Ron Moelis; Cozen O'Connor, P.C. ("Cozen"); Kenneth Roberts, Esq.; Tannenbaum, Helpern, Syracus & Hirschtritt LLP; David Pellegrino, Esq.; Christie Derrico, Esq.; the Village of Mamaroneck; and unnamed John Does 1-10.

Defendants Cozen O'Connor, P.C., and Kenneth Roberts ("Defendants" or "Cozen Defendants") now move pursuant to 28 U.S.C. § 157(d) for withdrawal of the reference of this action to the Bankruptcy Court. Defendants filed the present motion to withdraw the reference to the Bankruptcy Court on June 13, 2014. For the reasons that follow, Defendants' motion is DENIED.


On August 10, 2010, Sheldrake filed a Chapter 11 petition for reorganization. Sheldrake commenced an adversary proceeding against the Cozen Defendants and others[2] on December 14, 2010, and filed its Second Amended Complaint on May 25, 2012, which the Cozen Defendants answered on June 18, 2012. In its Complaint, Sheldrake alleges the Cozen Defendants committed fraud, breached their fiduciary duties, and violated New York Judiciary Law § 487. In addition, Sheldrake alleged that Defendant Roberts's wrongdoing caused RCF to notice the foreclosure sale that caused Plaintiff to file its Chapter 11 bankruptcy petition. Plaintiff seeks damages for fees and expenses related to the bankruptcy filing.

The Bankruptcy Court has approved settlement agreements between Sheldrake and the various other Defendants in this adversary proceeding. The Cozen Defendants filed a motion for summary judgment; a hearing on the motion took place on May 14, 2014, in the Bankruptcy Court and the motion was denied from the bench. The case is now set for trial in the Bankruptcy Court and Defendants filed the instant motion seeking to withdraw the reference to the Bankruptcy Court.


In relevant part, 28 U.S.C. § 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." While the statute does not define the term "cause, " courts in the Second Circuit have generally focused on factors such as judicial economy, uniformity in the administration of bankruptcy law, reduction of forum shopping, and jury trial considerations. See Orion Pictures Corp. v. Showtime Networks, Inc. (In re Orion Pictures Corp.), 4 F.3d 1095, 1101 (2d Cir. 1993). The framework established by the Court of Appeals for the Second Circuit begins with the threshold question of whether the case involves a core or non-core proceeding, "since it is upon this issue that questions of efficiency and uniformity will turn." Id. at 1101. Once the District Court "makes the core/non-core determination, it should weigh questions of efficient use of judicial resources, delay and costs to the parties, uniformity of bankruptcy administration, the prevention of forum shopping, and other related factors." Id .; see also Schneider v. Riddick (In re Formica Corp.), 305 B.R. 147, 149-50 (S.D.N.Y. 2004). "Whether a dispute is legal or equitable in nature and consequently whether the litigants are afforded the right to a jury trial is another consideration in determining whether the reference should be withdrawn." McHale v. Citibank, N.A., No. 09 Civ. 6064, 2009 WL 2599749, at *4 (S.D.N.Y. Aug. 24, 2009). In cases where withdrawal is not mandatory, "[t]he moving party bears the burden of demonstrating that permissive withdrawal of the reference is warranted." Lehman Brothers Holdings Inc. v. Intel Corp. (In re Lehman Bros. Holdings Inc.), No. 14 Civ. 293, ___ F.Supp.2d ___, 2014 WL 1877937, at *6 (S.D.N.Y. May 10, 2014); see also Nisselson v. Salim (In re Big Apple Volkswagen, LLC), No. 12 Civ. 92, 2013 WL 1245548, at *3 (S.D.N.Y. Mar. 25, 2013).

In 2011, the Supreme Court held in Stern v. Marshall that a Bankruptcy Court could not enter final judgment on some claims otherwise characterized as core by § 157(d). Stern v. Marshall, ___ U.S. ___, 131 S.Ct. 2594, 2611-18, 2620 (2011). "Under Stern, it is not the core/non-core distinction but Article III that determines the bankruptcy court's adjudicative authority." In re Lyondell Chemical Co., 467 B.R. 712, 719 (S.D.N.Y. 2012). This case involves a non-core proceeding, however, and thus the Court need not decide the effect of the Supreme Court's decision in Stern on the application of the Orion factors in this case. See In re Lehman Bros. Holdings Inc., 2014 WL 1877937, at *6 (stating Court need not decide effect of Stern on Orion factors because proceeding was non-core and no dispute existed that Bankruptcy Court lacked authority to enter final judgment).

A determination that the Bankruptcy Court does not have final adjudicative authority over a claim does not mean that the reference must be withdrawn. The Bankruptcy Court "may hear a proceeding that is not a core proceeding but that it otherwise related to a case under title 11, " and "submit proposed findings of fact and conclusions of law to the district court." 11 U.S.C. § 157(c)(1); see also Executive Benefits Ins. Agency v. Arkison, ___ U.S. ___, 134 S.Ct. 2165, 2172 (2014). "The district court must then review these proposed findings and conclusions de novo and enter any final orders or judgments." Id. at 2172; see also 11 U.S.C. § 157(c)(1). In addition, the Supreme Court clarified in Arkison that Stern claims - those proceedings classified by § 157(b)(2) as core, but over which the Bankruptcy Court lacks final adjudicative authority - may also proceed in the same manner. Arkison, 134 S.Ct. at 2173 ("[Section] 157(c) may be applied naturally to Stern claims.").


This Court has considered the Orion factors and finds that they weigh against withdrawal of the reference to the Bankruptcy Court, given the complexity of the bankruptcy, the litigation that has already occurred in the Bankruptcy Court, the Bankruptcy Court's ongoing experience, and other considerations.

The claims asserted in this adversary proceeding are non-core claims, and thus the Court looks to the other Orion factors in order to determine whether withdrawal of the reference is warranted. Some of the factors can be easily and quickly addressed. First, the claim is legal in nature, which can weigh in favor of withdrawal as it often implicates the right to a jury trial. Second, there is no evidence before the Court that Defendants have filed the instant motion as a means of ...

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