In re TAC Financial, Inc.

          ORDER GRANTING DEFENDANTS REMAR'S AND FRAGER'S MOTIONS TO WITHDRAW THE REFERENCE 3:15-cv-02681-GPC-NLS [ECF No. 2], 3:16-cv-00139-GPC-NLS [ECF No. 1]

          HON. GONZALO P. CURIEL UNITED STATES DISTRICT JUDGE.

         Defendants Remar Investments, L.P. ("Remar") and Michael Frager and FSA Integrated LLC [erroneously sued as Fraser Sisson Associates] (collectively "Frager" or "Frager Defendants") filed separate motions to withdraw the reference. Defendants Remar and Frager seek to withdraw the reference to the bankruptcy court with respect to an adversary proceeding commenced by Plaintiff Christopher R. Barclay, as Chapter 7 Trustee for TAC Financial, Inc. (the "Trustee") against Remar and others for claims arising out of the allegedly fraudulent conveyance of a life insurance policy from TAC Financial, Inc. (the "Debtor") to Defendant Roy H. Eder and subsequent transferees, including Remar. Any party wishing to oppose the motion had until February 19, 2016 with respect to Remar's motion and February 26, 2016 with respect to Frager's motion to respond. On February 26, 2016, Trustee filed a statement of non-opposition to both motions. The Court deems Defendants' motions suitable for disposition without oral argument pursuant to Civil Local Rule 7.1(d)(1). Having reviewed Defendants' motions and the applicable law, and for the reasons set forth below, the Court GRANTS Defendants' motions to withdraw the reference.

         FACTUAL BACKGROUND

         On or about February 8, 2013, the Debtor submitted an application to ReliaStar Life Insurance Company ("ReliaStar") for a "key man" life insurance policy in the face amount of $5 million insuring the life of Eder^[1], designating that the owner of the policy would be Debtor and that the source of funds to pay the policy premiums would be the Debtor. (AP Compl. ¶ 22.) The application was signed by and listed the Debtor's insurance agents/brokers as Michael Frager and Michael Sisson. (Id. ¶ 23) On or about June 6, 2013, ReliaStar issued its Policy No. AD20577953 ("the Policy") to the Debtor. (Id. ¶ 25.) The Policy listed "TAC Financial Services" the owner of the policy (id ¶ 27), insured the life of Roy Eder and provided for a death benefit of $5 million (id ¶ 26).

         On or about June 14, 2013, the Debtor faxed to ReliaStar an Electronic Funds Transfer ("EFT") authorization, signed by Steve Hong on behalf of the Debtor, which authorized ReliaStar to debit the Debtor's bank account to pay the premiums of the Debtor's Policy. (Id. ¶ 28.) Thereafter the monthly premium payments were made by the Debtor through direct debit of the Debtor's bank account. (Id.)

         On December 27, 2013, ReliaStar sent a notice to the Debtor that the EFT payment for the payment of the monthly premium had been returned by the Debtor's bank as unpaid due to insufficient funds. (Id. ¶ 29.) By a letter dated February 13, 2014, ReliaStar informed the Debtor that the Policy had lapsed effective February 13, 2014. (Id.) On or about March 24, 2014, the Debtor submitted to ReliaStar an application to reinstate the Debtor's Policy, which was signed by the Debtor through Eder as the Debtor's CEO and Michael Frager as the Debtor's agent. (Id. ¶ 31.) By a letter dated April 3, 2014, ReliaStar informed the Debtor the application to reinstate had been approved and that a premium payment was due June 14, 2014. (Id. ¶ 32.)

         On or about June 9, 2014, Eder was diagnosed with brain cancer. (Id. ¶ 33.) On or about June 9, 2014, the Debtor made a premium payment to ReliaStar. (Id. ¶ 34.) On June 24, 2014, the Debtor submitted to ReliaStar a new EFT authorization to debit the Debtor's bank account to pay the premiums, which was signed by Steve Hong on behalf of the Debtor. (Id. ¶ 35.) Thereafter, the monthly premiums were made by the Debtor through direct debit of the Debtor's bank account. (Id.)

         On July 1, 2014, Michael Frager sent a fax to ReliaStar instructing ReliaStar to change the beneficiaries under the Debtor's Policy according to an attached Beneficiary Designation Form, which was signed by Eder on behalf of Debtor and changed the beneficiaries of the policy from the Debtor to members of Eder's family. (Id. ¶¶ 37-38.)

         On or about July 8, 2014, the Division of Neurosurgery at Scripps Clinic Torrey Pines issued a letter stating that Eder has been diagnosed with cancer for which prognosis is terminal. (Id. ¶ 40.) On July 11, 2014, Frager faxed to ReliaStar a Transfer of Ownership form dated June 27, 2014, which provided for the transfer of ownership of the Debtor's Policy from the Debtor to Eder. (Id. ¶ 41.) The Transfer of Ownership form was . (Id. ¶ 42.) The Debtor continued to pay the premiums on the Policy after the transfer of ownership. (Id. ¶ 43.)

         On October 2, 2014, ReliaStar made a distribution under the Policy to Eder in the amount of $250, 000.00. (Id. ¶ 44.) On or about December 11, 2014, Eder sold the Policy to Remar for a purchase price of $1, 950, 000.00. (Id. ¶ 45.) By a letter from ReliaStar to Remar dated December 15, 2014, ReliaStar confirmed the change in ownership of the Policy from Eder to Remar, effective December 10, 2014. (Id. ¶ 46.)

         PROCEDURAL HISTORY

         The Debtor filed a voluntary bankruptcy petition on January 15, 2015. (Id. ¶ 15.) On August 11, 2015, the Trustee filed this adversary proceeding pursuant to Federal Rule of Bankruptcy Procedure 7069 against Eder, Remar and others to recover the Debtor's Key Man Life Insurance Policy or the value of the Debtor's Policy from Remar as a fraudulent transfer under 11 U.S.C. §§ 548, 550, and the value of all transfers by Eder to subsequent transferees of the $1.9 million received by Eder from Remar for the Policy and the $250, 000 advance received by Eder from ReliaStar under 11 U.S.C. § 550. (See In re TAC Financial, Inc., Adv. No. 15-AP-90145-CL7 ("AP").) Defendants Remar, Frager and others filed Answers and timely demands for jury trials.^[2] Neither consent to having the bankruptcy court conduct the jury trial.

         On December 1, 2015, Remar filed a motion to withdraw the reference on the basis that Remar is entitled to have this matter decided by an Article III judge and does not consent to have the matter decided by a bankruptcy judge and on the additional ground that other defendants (if not Remar itself) are entitled to and have preserved their right to trial by a jury. (Remar Mot., Case No. 15-cv-2681, ECF No. 1.) On January 20, 2016, Frager also filed a motion to withdraw the reference on similar grounds. (Frager Mot., Case No. 16-cv-0139, ECF No. 1.) On February 26, 2016, the Trustee filed a non-opposition to withdrawal of the reference with respect to its claims against both Remar and Frager.

         LEGAL ...