Opinion
22-31180 Adversary Proceeding 23-3007
04-16-2024
In the Matter of: Carlos Dion Wheeler, Debtor. v. Carlos Dion Wheeler, Defendant. Cheryl Wheeler, Stephen G. Drendall, & Mary Kohn, Plaintiffs,
Chapter 7
REPORT AND RECOMMENDATION UNDER N.D. IND. L.R. 200-1(B)(1)(C)
PAUL E. SINGLETON, U.S. BANKRUPTCY JUDGE
The parties are at the preliminary stages of an adversary proceeding - a separate lawsuit related to Debtor Carlos Dion Wheeler's chapter 7 bankruptcy case. This court received a document titled, "Objection to Retention by Bankruptcy Court" and interprets it as a motion for withdrawal of the reference from the bankruptcy court. Rule 200-1(b)(1)(C) of the Northern District of Indiana Local Rules state a bankruptcy judge may submit a written report:
(A) addressing the motion;
(B) explaining the effect of the motion on the underlying bankruptcy case; and
(C) suggesting whether the motion should be handled expeditiously.
This recommendation addresses those three prongs and respectfully suggests the following:
(A) Ruling on the Motion to Withdraw: The District Court should deny the motion to withdraw. This case is precisely the type of case that the bankruptcy court should handle.
(B) How the Motion Affects the Bankruptcy Case: Disposing of the motion will not affect Mr. Wheeler's bankruptcy case because the case has already concluded.
(C) Whether the Disposition of the Motion Should be Expedited: There is no need for the District Court to address this motion expeditiously. The bankruptcy court, consistent with the Federal Rules of Bankruptcy Procedure, is continuing to handle the "administration of the case."
I. Background
A. Mr. Wheeler files his chapter 7 petition, and the 341 notice sets the deadline to object to dischargeability as February 27, 2023.
Mr. Wheeler, a resident of St. Joseph County, Indiana, filed his pro se (without an attorney) chapter 7 petition on November 21, 2022. [Case No. 22-31180, hereafter "Bankruptcy Case," Doc 1.] The next day, the Bankruptcy Clerk of Court issued a 341 notice. [Id. at Doc 6.] The notice informed creditors that the last day to object to dischargeability was February 27, 2023. [Id.; see also Doc. 2.] A screenshot depicting the deadline portion of the notice is below:
Venue is not at issue. Mr. Wheeler resides in South Bend, Indiana. The bankruptcy court takes judicial notice that South Bend is in St. Joseph County, Indiana. Fed.R.Evid. 201(b) and (c) (permitting courts, on their own accord, to take judicial notice of subjects generally known within their territorial jurisdiction). The South Bend Division of the Northern District of Indiana includes St. Joseph County. 28 U.S.C. § 94(a)(2).
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B. Mr. Wheeler receives his discharge, and his case is closed.
The Chapter 7 Trustee issued a no asset report. [Id. at Doc Entry Dec. 29, 2022.] Mr. Wheeler received his discharge. [Id. at Doc. 29.] The court closed his case. [Id. at Doc. 30.]
C. Plaintiffs filed their first complaint on February 28, 2023.
Plaintiffs Stephen G. Drendall, Cheryl Wheeler, and Mary Kohn filed a complaint on February 28, 2023. [Case No. 23-3007, hereafter "Adversary Proceeding," Doc 1.] Stephen Drendall represents himself and the other Plaintiffs. [Id. at p. 3.] Among other allegations, they stated Mr. Wheeler owes them, and his debt should not be discharged under 11 U.S.C. § 523(a)(2). [Id. ¶ 9.] They alleged this case is a core proceeding, and they consent to the bankruptcy court entering a final judgment. [Id. ¶¶ 2, 11]
Both Drendall and Kohn signed the complaint. Drendall filed an appearance. Kohn did not. Rule B-9010-2(a)(1) of the Northern District of Indiana Local Bankruptcy Rules states, "Each attorney representing a party in interest, except an attorney signing a voluntary petition for relief or a complaint in an adversary proceeding, shall first file a separate formal written appearance…" Here, Kohn signed the complaint. But the Clerk did not enter her appearance. This practice follows Local Rule B-9010-2(a)(1). At the pretrial conference on January 17, 2024, Drendall confirmed that Kohn did not desire to have her appearance entered at that time.
D. Mr. Wheeler's Debts are ordered discharged.
Mr. Wheeler's bankruptcy case concluded. [See generally, Bankruptcy Case at Doc 34.] On May 23, 2023, the bankruptcy court entered an order discharging his debts. [Id. at Doc 29.]
E. Mr. Wheeler answers the first complaint.
Mr. Wheeler again, pro se, responded to the Complaint. [Adversary proceeding, Doc 22.] But he did not address all the paragraphs, including whether this case is a core proceeding.
Northern District of Indiana Local Bankruptcy Rule B-7008-1(c) addresses responsive pleadings and is like N.D. Ind. L.R. 10-1(b). Neither rule requires pro se litigants to restate verbatim paragraphs in the complaint.
F. The court holds a pretrial conference.
The court conducted a pretrial conference in accordance with Rules 16 and 26(f) of the Federal Rules of Civil Procedure; Rule 200-1(a)(3)(C) of the Northern District of Indiana Local Rules; and Rule B-7016-1 of the Local Rules of the Bankruptcy Court for the Northern District of Indiana. [Id. at Doc 25.] The court established deadlines, including a deadline for the parties to amend their pleadings and a deadline for the parties to consent to the bankruptcy court entering judgments. [Id. at Doc 26.]
Rules 16 and 26 of the Federal Rules of Civil Procedure apply to adversary proceedings. Fed. R. Bank. P. 7016 and 7026.
The court ordered, among other things: (1) Attorney Drendall, on behalf of both parties, to report whether the parties consented to this court entering final judgment and (2) the parties to amend their pleadings by February 29, 2024.
See generally N.D. Ind. L.R. 200-1(a)(3)(C) (parties may state whether there is an agreement as to "whether a proceeding is core or non-core" and whether at least one party refuses to consent to the bankruptcy court entering a final judgment for a non-core proceeding).
G. Mr. Wheeler moves to withdraw the reference of the case from the bankruptcy court.
Attorney Drendall reported that one or more of the parties "object to retention of this cause by the Bankruptcy Court and request transfer to the U.S. District Court sitting at South Bend." [Id. at Doc 28.]
Considering Plaintiffs' consent to the bankruptcy court entering a final judgment, the court concluded Mr. Wheeler objected to the bankruptcy court handling the case. [Id. at Doc 29.] The court interpreted the objection as a motion to withdraw the reference from the bankruptcy court to the District Court and ordered Mr. Wheeler to file a supporting brief by March 5, 2024. [Id.] He did not file one.
H. Mr. Wheeler does not respond to the First Amended Complaint.
Shortly after the report was filed, Plaintiffs filed their First Amended Complaint on February 15, 2024. [Id. at Doc 31.] Again, Plaintiffs consented to the bankruptcy court entering a final judgment. [Id. ¶ 24.] The amended complaint lists, among other new allegations, Mr. Wheeler's debts should not be discharged under 11 U.S.C. § 727(a)(2). [Id. ¶¶ 32-33.] More than 30 days have lapsed since Plaintiffs filed their second complaint, and Mr. Wheeler has not responded.
Defendants must answer adversary complaints within 30 days. Fed. R. Bank. P. 7012(a).
I. The bankruptcy court continues administration of the case.
Consistent with Rule 5011(c) of the Federal Rules of Bankruptcy Procedure, the bankruptcy court ordered that it will continue administration of this case while the motion to withdraw is pending. [Adversary Proceeding, Doc 29.]
II. Applicable Laws
A. District courts refer title 11 cases, and specifically core proceedings, to bankruptcy courts.
District courts "have original and exclusive jurisdiction of all cases under title 11," which is the Bankruptcy Code. 28 U.S.C. § 1334(b); see generally, Stern v. Marshall, 564 U.S. 462, 473 (2011). Bankruptcy courts are units of district courts. 28 U.S.C. § 151; Matter of Hipp, Inc., 895 F.2d 1503, 1514 (5th Cir. 1990). District courts refer title 11 cases to bankruptcy judges. 28 U.S.C. § 157(a). Bankruptcy judges "may hear and determine all cases under title 11 and all core proceedings arising under title 11…" Id. § 157(b)(1).
B. Determining dischargeability is a core proceeding.
Congress has enumerated 16 types of core proceedings. Id. § 157(b)(2); Stern, 564 U.S. at 477. "[D]eterminations as to the dischargeability of particular debts" is one of the enumerated core proceedings. See generally, Stern, 564 U.S. at 474, n. 3 (citing 28 U.S.C. §§ 157(b)(1)-(2)); see generally, In re Edwards, No. PROC.07-1188, 2007 WL 4893513, at *1, n. 1 (Bankr. N.D. Ind. Oct. 24, 2007).
C. In the Northern District, bankruptcy judges hear title 11 cases, including core proceedings.
In this District, all bankruptcy cases are referred to the bankruptcy judges. N.D. Ind. L.R. 200-1(a)(1) and (2). The District Court intends that "bankruptcy judges be given the broadest possible authority to administer cases properly within their jurisdiction." Id. at 200-1(a)(1).
D. District courts must hear motions to withdraw the reference while bankruptcy courts continue to administer the case.
Congress, the Federal Rules of Bankruptcy Procedure, and the Northern District of Indiana Local Rules all mandate that the District Court hear motions to withdraw the reference:
• 28 U.S.C. § 157(d) (permitting "on timely motion of any party, for cause shown," the district court to withdraw a case from the bankruptcy court);
• Fed. R. Bank. P. 5011(a) (explaining "[a] motion for withdrawal of a case or proceeding shall be heard by a district judge"); and
• N.D. Ind. L.R. 200-1(b)(1) (requiring "[t]he district judge [to] hear and determine any motion to withdraw any case, contested matter, or adversary proceeding pursuant to 28 U.S.C. § 157(d)").
While the motion to withdraw pends before the district court, under most circumstances, the bankruptcy judge must continue "administration of the case." Fed. R. Bank. P. 5011(c); Antioch Co. Litig. Tr. v. Miller (In re The Antioch Co.), 435 B.R. 493, 496 (Bankr. S.D. Ohio 2010).
E. Bankruptcy courts may aid the district court.
Seventh Circuit case law and the Northern District of Indiana's Local Rules contemplate that bankruptcy courts make a recommendation to assist district courts. See e.g., Matter of Vicars Ins. Agency, Inc., 96 F.3d 949, 954 (7th Cir. 1996) ("Some bankruptcy courts, even though they are without jurisdiction to hear a motion for withdrawal, see 28 U.S.C. § 157(d), make recommendations to the district court as to whether this should be done."); N.D. Ind. L.R. 200-1(b)(1)(C) (explaining that a bankruptcy court may make a written recommendation). In this District, after the time has lapsed for moving parties to file supporting briefs and affidavits, the bankruptcy court may file a written recommendation to the District Court. N.D. Ind. L.R. 200-1(b)(1)(B) and (C). The recommendation may:
(1) analyze the motion to withdraw the reference;
(2) explain the effect of withdrawal upon the disposition of the underlying bankruptcy case; and
(3) analyze whether the motion should be expedited.Id. at 200-1(b)(1)(C).
F. Principles and factors to consider when addressing a motion to withdraw.
In re Charmoli, a decision from a bankruptcy court in the Seventh Circuit, the court outlined principles courts should consider when examining motions to withdraw. 651 B.R. 520, 524 (Bankr. E.D. Wis. 2023). The Charmoli court recommended the district court deny a motion to withdraw reference and stated:
• the moving party bears the burden of proof;
• a district court may withdraw the reference "for cause shown";
• permissive withdrawal is the exception, rather than the rule; and
• "bankruptcy jurisdiction is 'designed to provide a single forum for dealing with all claims to the bankrupt's assets.'"(Citations omitted).
In re K & R Express Sys., Inc., is also a case from the Seventh Circuit. 382 B.R. 443 (N.D. Ill. 2007). There, the district court granted the motion to withdraw. Id. at 444. The court analyzed the following seven factors:
(1) whether the proceeding is core or non-core;
(2) considerations of judicial economy and convenience;
(3) a particular court's knowledge of the facts;
(4) promoting uniformity and efficiency of bankruptcy administration;
(5) reduction of forum-shopping and confusion;
(6) conservation of debtor and creditor resources; and
(7) whether the parties requested a jury trial.Id. at 446 (citation omitted). "However, the most important factor is whether a proceeding is core or non-core, as efficiency, uniformity and judicial economy concerns are largely subsumed within it." Id. (Citation omitted).
III. Analysis
Consistent with N.D. Ind. L.R. 200-1(b)(1)(C), this court respectfully submits this recommendation and states the District Court should not withdraw the reference. Further, withdrawing the reference will not affect Mr. Wheeler's underlying bankruptcy case. Therefore, it is unnecessary to have an expedited hearing.
A. Neither the principles nor factors indicate the District Court should withdraw the reference.
No principle favors withdrawal. Mr. Wheeler bears the burden of proof. Yet he failed to show cause why this is an exceptional case that justifies removing the case. This case is precisely the type of case situated for dealing with the Plaintiff's claims to the bankruptcy estate's assets. The local rules contemplate this court would have the broadest possible authority to address the issues Plaintiffs raised. Therefore, the principles favor the District Court denying the motion to withdraw.
The factors also indicate the District Court should deny the motion. Factor one, the most important factor, whether this is a core-proceeding or non-core proceeding, disfavors withdrawal because this is a core proceeding. There are no non-core claims or counterclaims. The deadline for amending the pleadings has expired.
The second factor also disfavors withdrawal. Factor two has two parts, judicial economy and convenience. Judicial economy is subsumed within the first factor and as discussed above, disfavors withdrawal. The second part of the factor, convenience, refers to the convenience of parties. In re K & R Express Sys., Inc., 382 B.R. at 448-49. In K & R Express Systems, Inc., the district court withdrew the reference, in part, because the defendants demanded jury trials and it was more convenient for the district court to preside over the case. Id. at 449. Bankruptcy courts in the Seventh Circuit cannot conduct jury trials. In re Grabill Corp., 967 F.2d 1152, 1158 (7th Cir. 1992).
Here, there has not been a demand for a jury trial. The deadline for amending pleadings has lapsed. Therefore, the second factor does not favor withdrawal.
The third factor, a court's particular knowledge, and the fourth, promoting uniformity and efficiency, do not favor withdrawing the reference. This court is familiar with the facts and legal issues, including the timeliness of the original complaint. See, e.g., Vlastelica v. Novoselsky, No. 15-CV-0910, 2015 WL 6393968, at *3 (E.D. Wis. Oct. 21, 2015) (explaining that since the bankruptcy court was familiar with the details of the case and bankruptcy-related issues, the district court should not withdraw the reference); see also Kemp v. Nelson, No. 16-CV-1546-JPS, 2016 WL 7177508, at *3 (E.D. Wis. Dec. 9, 2016) (concluding the same). Although the District Court could familiarize itself with the facts and issues, it seems like a more efficient use of its time would be for the bankruptcy court to continue to address facts and issues. These factors suggest the District Court should not withdraw the reference.
The fifth factor, reduction of forum-shopping and confusion, favors Wheeler's request to withdraw. Nothing suggests he is forum-shopping. The sixth, conservation of the debtor and creditor resources, is neutral. It does not appear that the parties would conserve resources litigating in either court. The last factor, whether the parties requested a jury trial, disfavors withdrawal. No one has requested a jury trial.
Therefore, in reviewing all the factors, five disfavor withdrawal; one favors it; and one is neutral. They key factor - that this is a core-proceeding without any non-core matters, disfavors withdrawal. These factors and Mr. Wheeler's failure to show cause that this is an exceptional case indicate the District Court should deny the motion to withdraw.
B. Withdrawing the reference will not affect Mr. Wheeler's case.
Mr. Wheeler's chapter 7 case has been completed. The chapter 7 Trustee filed its no distribution report. The case is closed. The District Court's decision on the motion to withdraw the reference will have no effect on the underlying bankruptcy case.
C. The District Court does not have to decide his motion expeditiously.
Because the bankruptcy case is closed, time is not of the essence. The District Court need not hear this motion quickly.
IV. Conclusion
This is not an extraordinary case in which the District Court should withdraw the reference. Mr. Wheeler offers no reason why the reference should be withdrawn. It is a core proceeding without any non-core matters. The bankruptcy court should hear matters like this. Therefore, and accordance N.D. Ind. L.R. 200-1(b)(1)(C), this court respectfully states:
(A) The District Court should deny the motion to withdraw the reference. (B) The Court's ruling on this motion will not affect the underlying bankruptcy case because that case is closed. (C) There is no need for the District Court to expedite its ruling on this motion.