United States District Court, S.D. Indiana, Indianapolis Division
DEBORAH CARUSO the Trustee for ITT Educational Services Inc., ESI Service Corp., and Daniel Webster College, Inc., Plaintiff,
KEVIN MODANY, JOHN E. DEAN, C. DAVID BROWN II, JOANNA T. LAU, THOMAS I. MORGAN, JOHN VINCENT WEBER, JOHN F. COZZI, SAMUEL L. ODLE, JERRY M. COHEN, Defendants.
ORDER GRANTING MOTION TO WITHDRAW REFERENCE
Patrick Hanlon United States District Judge
cause is before the Court on Defendants' Motion to
Withdraw the Reference (“Defendants' Motion”)
(dkts. 1 and 7). For the reasons set forth below,
Defendants' Motion is GRANTED.
case arises from the financial collapse of ITT Educational
Services, Inc. (“ITT”), a publicly traded,
for-profit education provider. See Case No.
1:16-bk-7207. Plaintiff has filed an adversary proceeding
against Defendants for breach of fiduciary duty and equitable
subordination. Adversary Proceeding No. 18-50100, dkt. 3.
seek to withdraw the reference on the basis that not all
parties have consented to a jury trial in the bankruptcy
court, the bankruptcy court cannot issue a final judgment on
the breach-of-fiduciary-duty claim and judicial efficiency.
Dkt. 1 at 3-8. Plaintiff does not oppose Defendants'
Motion for withdrawal of the reference. Dkt. 2 at 2.
Court agrees that withdrawal of the reference is appropriate.
The district court has original jurisdiction over all
bankruptcy proceedings, 28 U.S.C. § 1334(b) and may
withdraw any proceeding from the bankruptcy court “for
cause shown.” 28 U.S.C. § 157(d); see also In
re Dorner, 343 F.3d 910, 914 (7th Cir. 2003). While the
statute does not provide specific factors to consider when
evaluating whether there is cause for withdrawal, other
courts have considered “(1) judicial economy,
convenience, and the particular court's knowledge of the
facts; (2) the promotion of uniformity and efficiency of
bankruptcy administration; (3) the reduction of forum
shopping and confusion; (4) conservation of debtor and
creditor resources; (5) whether the proceeding is core or
non-core; and (6) whether the parties have requested a jury
trial.” Levin v. FDIC, No. 1:11-cv-704, 2012
WL 177392, at *2 (S.D. Ind. Jan. 19, 2012).
the final factor, a bankruptcy judge may conduct a jury trial
only “with the express consent of all the
parties.” 28 U.S.C. § 157(e). Thus, “[i]f
one of the parties files a jury demand, and all parties do
not consent to a jury trial in the bankruptcy court, cause
for withdrawal is established.” Laura B. Bartell,
Motions to Withdraw the Reference - An Empirical
Study, 89 Am. Bankr. L.J. 397, 410 (2015) (collecting
cases); see also Wellman Thermal Sys. Corp. v. Columbia
Cas. Co., No. 1:05-cv-1191, 2005 WL 4880619 at *3 (S.D.
Ind. Oct. 5, 2005) (“[T]he right to a jury trial is
sufficient cause to withdraw the reference to the bankruptcy
court.”) (citing Matter of Grabill Corp., 967
F.2d 1152, 1156 (7th Cir. 1992)). Here, Defendants do not
consent to a jury trial before a bankruptcy judge so there is
cause to withdraw the reference. Since Plaintiff does not
oppose the withdrawal on this ground, evaluation of otherwise
potentially relevant factors is unnecessary.
Plaintiff agrees that withdrawal of the reference is
appropriate, she asks for the bankruptcy court to retain
jurisdiction over certain pretrial proceedings. Dkt. 2 at 2.
In support of this request, Plaintiff points out that the
bankruptcy court is already familiar with the
equitable-subordination claim, which is a core bankruptcy
claim. Defendants object to Plaintiff's request, arguing
that the withdrawal and effective transfer to the district
court should be complete to include all pretrial matters.
Dkt. 6. In support of their position, Defendants argue that
judicial economy will be best served if the Court presides
over pretrial matters because it will ultimately preside over
the trial and issue the final judgment on the
equitable-subordination claim. The Court concludes that its
taking responsibility for all pretrial matters is the best
course of action.
the case in this manner promotes judicial economy, a relevant
consideration when deciding whether to withdraw a reference
and related issues. Levin, 2012 WL 177392, at *2.
Allowing the Court to hear all pretrial matters would provide
the Court with “valuable familiarity with the case that
could assist it leading up to and through trial.”
Wellman, 2005 WL 4880619 at *3. Asking the
bankruptcy court to familiarize itself with the issues for
all pretrial motions, only to handoff the case when it comes
to final adjudication, would result in duplication of work
and thus would be an inefficient allocation of judicial
resources. Moreover, the bankruptcy court would be required
to submit proposed findings of fact and conclusions of law to
the district court for final judgment on any proceedings on
the equitable-subordination claim. 28 U.S.C. 157(C)(1).
Further, partial withdrawal would place the District Court in
the position of simultaneously serving as the appellate and
trial court over different parts of the same case.
See 9 Collier on Bankruptcy ¶ 5011.01 (16th
2018) (noting that the practice of “remanding” a
case to the bankruptcy court for pretrial matters after
withdrawal “should not be countenanced” for this
while the equitable-subordination claim is a core claim, that
alone is not a compelling reason for the District Court to
limit the scope of the withdrawal. The Court has jurisdiction
over both core and non-core claims, 28 U.S.C. § 1334(b),
and, as Plaintiff acknowledges, the equitable-subordination
claim is “intertwined with her breach-of-fiduciary-duty
claim” and “based on the same facts.” Dkt.
2 at 2. Because the Court “will already be
familiarizing itself with the facts, issues, and parties,
” in order to adjudicate the breach-of-fiduciary-duty
claims, judicial economy is best served by the District Court
taking a holistic approach to the entire case, including the
equitable- subordination claims. See Levin, 2012 WL
177392, at *3. Accordingly, Plaintiff's request for the
bankruptcy court to retain jurisdiction over pretrial matters
the reasons stated above, the Former Directors' motion to
withdraw the reference of Adversary Proceeding No. 18-50100
(dkt. 1) is GRANTED. The Clerks of the
respective courts are directed to effectuate this withdrawal
and process this case in the district court under this cause