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In re GTS 900 F

November 23, 2010


The opinion of the court was delivered by: S. James Otero United States District Judge

Bankruptcy Case No. 2:09-bk-35127-VZ

Chapter 11


This matter is before the Court on Debtor and Plaintiff GTS 900 F, LLC ("Plaintiff") Motion to Withdraw Reference of Its Complaint in Adversary Bankruptcy Proceedings, Determine that Plaintiff Is Entitled to a Jury Trial, and Consolidate Cases ("Motion"), filed September 9, 2010. Defendant Corus Construction Venture, LLC ("Defendant") did not oppose the Motion. Instead, on October 8, 2010, Defendant and Plaintiff filed a Stipulation Regarding the Motion ("Stipulation"), where the parties agreed to have "[t]he reference of the Complaint... be withdrawn as proposed in the... Motion...."*fn1 (Stipulation Regarding GTS 900 F, LLC's Motion ¶ 1.) The parties also stipulated to consolidating Plaintiff's Complaint against Defendant with Plaintiff's separate Complaint against the Federal Deposit Insurance Corporation ("FDIC") for discovery and trial purposes. (Id. at ¶¶ 1, 2.) Defendant, however, filed an Objection to Plaintiff's request for a jury trial on October 19, 2010. (Docket No. 8.) The Court found this matter suitable for disposition without oral argument and vacated the hearing set for October 18, 2010. See Fed. R. Civ. P. 78(b). For the following reasons, Plaintiff's Motion is DENIED.


Plaintiff and Corus Bank, N.A. ("Bank") entered into a construction loan agreement in 2007, whereby the Bank agreed to lend Plaintiff up to $190,000,000 to allow Plaintiff to construct a project in Los Angeles. (Mot. 2:2-10.) On September 4, 2009, Plaintiff filed suit against the Bank. (Id. at 2:12-14.) On September 11, 2009, the FDIC was appointed receiver for the Bank. (Id. at 2:21-23.) On September 17, 2009, Plaintiff filed a voluntary petition under Chapter 11 of the Bankruptcy Code ("Bankruptcy Case") and removed the FDIC action to federal court ("FDIC Lawsuit"). (Id. at 2:24-28.) On December 7, 2009, the FDIC replaced the Bank as the defendant in the FDIC Lawsuit. (Id. at 3:3-4.) Then, on May 17, 2010, the Court withdrew the reference of the FDIC Lawsuit to the Bankruptcy Court. (Id. at 3:7-8.)

On October 16, 2009, the FDIC created Defendant, a Delaware entity created by the FDIC that acquired the Bank's assets and liabilities, including those relating to the loan agreement with Plaintiff. (Id. at 3:13-15.) Defendant filed a Proof of Claim in the Bankruptcy Case for the amount of $162,662,216.26 on October 29, 2009. (Id. at 3:17-18.) In response, Plaintiff filed a Complaint and Objection to Proof of Claim on December 29, 2009 and initiated an adversary proceeding before the Bankruptcy Court. (Mot. 3:19-24.) In the Complaint, Plaintiff asserted five claims for relief: (1) declaratory relief as to the amount of the Defendant's claim; (2) offset against the Proof of Claim amount; (3) equitable subordination under 11 U.S.C. § 510(c); (4) breach of contract; and (5) breach of the covenant of good faith and fair dealing. (Id. at 3:25-4:2.) Defendant subsequently filed an Answer to Plaintiff's Complaint on April 30, 2010. (Id. at 4:7.) Since then, the Bankruptcy Court has heard Plaintiff's Motion for Approval on Debtor's Second Amended Plan of Reorganization and denied that motion on August 27, 2010. (Id. at 4:13-14.) Defendant also filed a First Amended Disclosure Statement and Plan for Reorganization. (Id. at 4:15-16.) After close to a year from when Defendant filed its Proof of Claim, Plaintiff filed the instant Motion, praying the Court to withdraw the reference to the Bankruptcy Court, declare that Plaintiff is entitled to a jury trial for the breach of contract and breach of the covenant of good faith and fair dealing claims, and consolidate the FDIC Lawsuit with the instant action. (Id. at 1:20-27.)


Pursuant to 28 U.S.C. § 157 ("Section 157"), a district court has authority to withdraw reference to the bankruptcy court. See 28 U.S.C. § 157(d). Section 157(d) provides for both permissive and mandatory withdrawal, depending on the circumstances of the action. Id. For permissive withdrawal, Section 157(d) authorizes "[t]he district court [to] withdraw, in whole or in part, any case or proceeding referred... on its own motion or on timely motion of any party, for cause shown." Id. When a party timely moves to withdraw proceedings that requires "consideration of both [T]itle 11 [of the Bankruptcy Code] and other laws of the United States regulating organizations or activities affecting interstate commerce," the court is mandated to withdraw the reference. Id. The party seeking withdrawal carries the "burden of persuasion is on the party seeking withdrawal." FTC v. First Alliance Mortg. Co., 282 B.R. 894, 902 (C.D. Cal. 2001) (citation omitted). It is within a district court's discretion to grant or deny a motion for permissive withdrawal of reference; that decision will not be disturbed unless the court abuses its discretion. See In re Cinematronics, Inc., 916 F.2d 1444, 1451 (9th Cir. 1990).


A. Plaintiff's Motion for Withdrawal Is Untimely

The "threshold question" in evaluating a motion to withdraw the reference under 28 U.S.C. § 157(d) is whether the motion was made in a timely manner. See In re Mahlmann, 149 B.R. 866, 869 (N.D. Ill. 1993). Plaintiff does not address this threshold question in its Motion. (See generally Mot.)

A court may consider a motion for withdrawal of reference only if it is timely. See 28 U.S.C. § 157(d); see also In re Molina, No. 10-0575, 2010 WL 3516107, at *2 (N.D. Cal. Sept. 8, 2010). "A motion to withdraw is timely if it was made as promptly as possible in light of the developments in the bankruptcy proceeding." Sec. Farms v. Int'l Bhd. of Teamsters, Chauffers, Warehousemen & Helpers, 124 F.3d 999, 1007 n.3 (9th Cir. 1997) (citing In re Baldwin-United Corp., 57 B.R. 751, 754 (S.D. Ohio 1985)). Thus, a party must move for withdrawal "at the first reasonable opportunity" it has, "as evaluated within the specific factual context [of the case]." Stratton v. Vita Bella Grp. Homes, Inc., No. F07-0584, 2007 WL 1531860, at *2 (E.D. Cal. May 25, 2007) (citing In re Chateaugay Corp., 104 B.R. 622, 624 (S.D.N.Y. 1989)). Courts have found a motion to withdraw the reference untimely when a "significant amount of time has passed since the moving party had notice of the grounds for withdrawing the reference or where the withdrawal would have an adverse effect on judicial economy." Hupp v. Educ. Credit Mgt. Corp., No. 07CV1232, 2007 WL 2703151, at *3 (S.D. Cal. Sept. 13, 2007) (citation omitted).

Here, Plaintiff's Motion is untimely because Plaintiff failed to move for withdrawal of reference at the first reasonable opportunity it had. Defendant filed a Proof of Claim in Bankruptcy Court on October 29, 2009, to which Plaintiff responded by filing a Complaint and Objection to Proof of Claim against the Defendant and by initiating adversary proceedings on December 29, 2009. (Mot. 3:19-24.) In its Complaint, the Plaintiff asserted the state law claims of breach of contract and breach of the covenant of good faith and fair dealing. (Mot. 3:25-4:2; Req. for Judicial Notice ("RJN") Ex. 1 ΒΆΒΆ 48-53.) Therefore, the first reasonable opportunity Plaintiff had was no later than December 29, 2009, when Plaintiff was aware of those state law claims. Plaintiff cannot now come before the Court and assert the same state law claims as the bases for withdrawal of the reference. See Mahlmann, 149 B.R. at 870 (finding that a one month delay made the motion to withdraw reference untimely because the moving party was fully aware of the basis for withdrawal at the time the movant initiated an adversary action); Hupp, 2007 WL 2703151, at *3 (A motion filed seven months after movant had "first brought the [grounds for withdrawal] to the Bankruptcy Court's attention" was untimely.); In re Miles, No. 10-0940, 2010 WL 3719174, at *2 (N.D. Cal. Sept. 17, 2010) (denying motion to withdraw reference because movant "was well aware of each of the purported grounds for the withdrawal well before she [untimely] filed..."). Instead of filing a motion to withdraw the reference as "promptly as possible," Plaintiff waited close to a year before it filed the instant Motion on September 9, 2010. (Docket No. 1) The eight month delay renders ...

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