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In re Northwest Territorial Mint, LLC

United States District Court, W.D. Washington, Seattle

February 13, 2017

In Re NORTHWEST TERRITORIAL MINT, LLC, Debtor,
v.
MARK CALVERT, as trustee and on behalf of the estate of Northwest Territorial Mint, LLC, Defendant. MEDALLIC ART COMPANY, LLC, a Nevada limited liability company, Plaintiff,

          ORDER DENYING MOTION TO WITHDRAW THE REFERENCE

          JOHN C. COUGHENOUR UNITED STATES DISTRICT JUDGE.

         This matter comes before the Court on Plaintiff's motion to withdraw the reference (Dkt. No. 1). Having thoroughly considered the parties' briefing and the relevant record, the Court finds oral argument unnecessary and hereby DENIES the motion for the reasons explained herein.

         I. BACKGROUND

         Northwest Territorial Mint (Mint) filed for Chapter 11 bankruptcy on April 1, 2016. (Dkt. No. 10-1 at 2.) Shortly thereafter, the bankruptcy court appointed Mike Calvert (Defendant) as the bankruptcy estate's Chapter 11 trustee. (Id.) Medallic Art Company, LLC (Plaintiff) claims that Defendant wrongfully assumed exclusive control of Plaintiff's assets and property (Disputed Properties) when the estate was formed. (Id.) These assets include personal and intellectual property found on land that was shared to some extent between Plaintiff and Mint. (Id.) Mr. Hansen owns 50% of Plaintiff, and was the principal Debtor of the bankruptcy estate until Defendant replaced him. (Id.)

         Plaintiff filed an adversary proceeding in bankruptcy court on August 12, 2016. (Id. at 3.) Plaintiff brought causes of action for (1) accounting and breach of contract, (2) injunctive relief, (3) conversion and damages, and (4) declaratory relief. (Id. at 3-4.) Defendant counterclaimed for (1) substantive consolidation, (2) alter ego, (3) fraudulent transfer, and (4) unjust enrichment. (Id. at 5-6.)

         Plaintiff objects to having its claims decided in a bankruptcy court, and now brings this motion to withdraw the reference, arguing that it has a right to a jury trial on all of its causes of action and Defendant's counterclaims. (Dkt. No. 1 at 9-10.)

         II. DISCUSSION

         A. Standard of Review

         Pursuant to Local Civil Rule 87(a), “all cases under Title 11, and all proceedings arising under Title 11 or arising in or related to a case under Title 11” are automatically referred to the bankruptcy court. W.D. Wash. Local Civ. R. 87(a). A district court, sua sponte or on motion of any party, has the authority to withdraw the reference in whole or in part for cause shown. 28 U.S.C. § 157(d).

         In assessing whether cause is shown, a district court “should first evaluate whether the claim is core or non-core, since it is upon this issue that questions of efficiency and uniformity will turn.” In re Orion Pictures Corp., 4 F.3d 1095, 1101 (2d Cir. 1993). There is no exact definition of a core proceeding, although, 28 U.S.C. § 157(b)(2)(B) provides a non-exhaustive list. In re Cinematronics, Inc., 916 F.2d 1444, 1449 (9th Cir. 1990). In core proceedings, bankruptcy courts “may enter appropriate orders and judgments.” 28 U.S.C. § 157(b)(1). Actions concerning the administration of the bankruptcy estate are core proceedings. 28 U.S.C. § 157(b)(2)(A) and (O). A non-core proceeding is an “action that do[es] not depend on bankruptcy laws for [its] existence and that could proceed in another court.” Security Farms v. Int'l Bhd. of Teamsters, 124 F.3d 999, 1008 (9th Cir. 1997). Where non-core issues predominate, withdrawal may promote efficiency because a single proceeding in the district court could avoid unnecessary costs implicated by the district court's de novo review of non-core bankruptcy determinations. Id. at 1008-09.

         After determining whether the claims are core or non-core, district courts 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.” Id. The presence of a jury demand may be cause for withdrawal of the reference. “If the right to a jury trial applies . . . the bankruptcy judge may conduct the trial if specifically designated to exercise such jurisdiction by the district court and with the express consent of all the parties.” 28 U.S.C. § 157(e). Bankruptcy courts cannot conduct jury trials on non-core matters without the consent of the parties. In re Cinematronics, Inc., 916 F.2d at 1451. However, the demand for a jury trial does not necessitate automatic withdrawal of the reference. Sigma Micro Corp. v. Healthcentral.com, 504 F.3d 775, 787-88 (9th Cir. 2007). Ultimately, district courts have discretion to determine whether the moving party has shown sufficient cause to justify withdrawing the reference. In re Cinematronics, Inc., 916 F.2d at 1451.

         B. Consideration of the Factors

         1. Whether the Claims are Core or Non-core

         This factor favors denying the motion because the majority of claims and counterclaims invoke substantive rights created by federal bankruptcy law or that could not exist outside of bankruptcy proceedings. See In re Harris Pine Mills, 44 F.3d 1431, 1435 (9th Cir. 1995).

         a. Plaintiff's Causes of Action

         i. Breach of Contract

         Here, Plaintiff allegedly agreed to lease, license, and sublease different parts of the Disputed Properties to Mint prior to the bankruptcy. (Dkt. No. 2 at 13.) Plaintiff further claims Defendant breached its contract by consolidating the Disputed Properties into the bankruptcy estate. (Id.) Plaintiff essentially argues that Defendant breached a contract binding the estate and now improperly possesses the Disputed Properties.

         Plaintiff's breach of contract claim is a core proceeding because it concerns “the administration of the estate.” 28 U.S.C. § 157(b)(2)(A) and (O); In re Harris, 590 F.3d 730, 738 (9th Cir. 2009) (holding state law breach of contract claims were core proceedings under subsections (A) and (O) because the claims were inextricably intertwined with the trustee's sale of assets.). Furthermore, bankruptcy courts may evaluate rights to future payments to bankruptcy estates. In re Kincaid, 917 F.2d 1162, 1165 (9th Cir. 1990) (“determining the nature and extent of the property of the estate is also a fundamental function of a bankruptcy court . . . [and] fundamental to the administration of a bankruptcy case”). As in In re Harris, Plaintiff's breach of contract claim is inextricably intertwined with the bankruptcy proceedings and concerns the administration of the estate. Therefore, it is a core proceeding.

         ii. Injunction

         Plaintiff seeks to permanently enjoin Defendant from denying Plaintiff access to its records, its property, and Mint employees. (Dkt. No. 10-1 at 6.) In order to grant relief, the court must first determine whether the property belongs to Plaintiff or the bankruptcy estate.

         Determining the nature and extent of the property in the estate is a role reserved for bankruptcy courts. See In re Kincaid. 917 F.2d at 1165. Therefore, ...


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