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In re Layfield & Barrett, APC

United States District Court, C.D. California

November 22, 2017

In re Layfield & Barrett, APC

          Present: The Honorable Fernando M. Olguin, United States District Judge.

          CIVIL MINUTES - GENERAL

         Proceedings: (In Chambers) Order Re: Motion to Withdraw Reference

Having reviewed and considered all the briefing filed with respect to the Motion to Withdraw Reference of Adversary Proceeding (Dkt. 16, “Motion”), the court concludes that oral argument is not necessary to resolve the Motion. See Fed.R.Civ.P. 78; Local Rule 7-15; Willis v. Pac. Mar. Ass'n, 244 F.3d 675, 684 n. 2 (9th Cir. 2001).

         INTRODUCTION

         On August 3, 2017, the relevant bankruptcy proceeding was initiated as an involuntary petition under Chapter 7, but later converted to a Chapter 11 proceeding. (See Dkt. 16, Motion at 2). The debtor in that action is Layfield & Barrett, APC (“LB” or “debtor”). (See id.).

         From February 15, 2017 to February 15, 2018, Evanston Insurance Company (“Evanston”) provided professional liability insurance to LB. (See Dkt. 16, Motion at 2). On August 22, 2017, Evanston filed a complaint in the bankruptcy court, against LB, Philip J. Layfield (“Layfield”), Joseph Barrett, Todd D. Wakefield, and Terry Bailey, asserting claims for: (1) rescission of the policy, based on a materially false application that failed to disclose facts, circumstances, situations, and client complaints regarding Layfield's alleged wrongful withholding and misappropriation of client funds; and (2) a declaration that the policy does not provide coverage for another matter. (See Dkt. 16, Motion at 2-3).

         LEGAL STANDARD

         The district court may broadly refer matters to the bankruptcy court, including “any or all cases under title 11[, ]” “any or all proceedings arising under title 11 or arising in or related to a case under title 11[.]” 28 U.S.C. §157(a). The bankruptcy court's jurisdiction depends on whether the referenced matters are “core, ” “Stern claims, ”[1] or “non-core” to the bankruptcy.

         A non-exhaustive list of “core proceedings” are enumerated in 28 U.S.C. § 157(b)(2). A bankruptcy judge may “hear and determine” core proceedings, and subject to district court review, “enter appropriate orders and judgments[.]” 28 U.S.C. §157(b)(1). “In Stern v. Marshall, 131 S.Ct. 2594 (2011), th[e Supreme] Court held that even though bankruptcy courts are statutorily authorized to enter final judgment on [core] claims, Article III of the Constitution prohibits bankruptcy courts from finally adjudicating certain of those [core] claims.” Exec. Benefits Ins. Agency v. Arkison, 134 S.Ct. 2165, 2168 (2014). “[W]hen a bankruptcy court is presented with such a [Stern] claim, the proper course is to issue proposed findings of fact and conclusions of law.” Id. at 2170. “The district court will then review the claim de novo and enter judgment.” Id.

         “Non-core proceedings” are those which “do not depend on bankruptcy law for their existence and that could proceed in another court[.]” Security Farms v. Int'l Bhd. of Teamsters, Chauffeurs, Warehousemen & Helpers, 124 F.3d 999, 1008 (9th Cir. 1997). A “bankruptcy judge may hear a [non-core] proceeding” and “submit proposed findings of fact and conclusions of law to the district court[.]” 28 U.S.C. § 157(c)(1). “[A]ny final order or judgment shall be entered by the district judge after considering the bankruptcy judge's proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected.” Id.

         A district court may also withdraw some or all of its reference of matters to the bankruptcy court. See 28 U.S.C. § 157(d); Fed. R. Bankr. Proc. 5011(a) (“A motion for withdrawal of a case or proceeding shall be heard by a district judge.”). Section 157(d) “contains two distinct provisions: the first sentence allows permissive withdrawal, while the second sentence requires mandatory withdrawal in certain situations.” In re Temecula Valley Bancorp, Inc., 523 B.R. 210, 214 (C.D. Cal. 2014) (internal quotation marks omitted). Whether mandatory or permissive, the burden of persuasion is on the party seeking withdrawal, which in this case would be Evanston. See In re First Alliance Mortg. Co., 282 B.R. 894, 902 (C.D. Cal. 2001).

         “In determining whether cause exists, a district court should consider the efficient use of judicial resources, delay and costs to the parties, uniformity of bankruptcy administration, the prevention of forum shopping, and other related factors.” Security Farms, 124 F.3d at 1008.

         DISCUSSION

         Evanston contends that the court should withdraw reference of the adversary proceeding because of its right to a jury trial. (See Dkt. 16, Motion at ...


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