ROBERT G. JAMES, District Judge.
Before the Court is Defendant Case Energy Services, LLC's "Motion to Withdraw Reference Pursuant to 28 U.S.C. 157(d)." [Doc. No. 1]. Plaintiff Padco Energy Services, LLC opposes the motion. [Doc. No. 12]. For reasons that follow, the motion is DENIED.
On October 4, 2016, Plaintiff Padco Energy Services, LLC ("PES") filed for Chapter 11 bankruptcy in United States Bankruptcy Court, Western District of Louisiana. In re Padco Energy Servs., LLC, No. 16-51380 (Bankr. W.D. La. filed Oct. 4, 2016). On the same day and in the same court, Padco Pressure Control, LLC ("PPC"), an affiliate of PEC, filed for Chapter 11 bankruptcy. In re Padco Pressure Control, LLC, No. 16-51381 (Bankr. W.D. La. filed Oct. 4, 2016).
On January 26, 2017, PES filed an adversary case against Defendant Case Energy Services, LLC ("CES"), alleging that CES possesses its property and owes PES for both equipment it rented and for renting PES's equipment to a third party. Padco Energy Servs., LLC v. Case Energy Servs., LLC, et al. (In re Padco Energy Servs., LLC), No. 16-51380, Adv. No. 17-05002 (Bankr. W.D. La. filed Jan. 26, 2017).
On March 21, 2017, PES filed a second adversary case against CES and Jason Farnell. Padco Energy Servs., LLC v. Case Energy Servs., LLC, et al. (In re Padco Energy Servs., LLC), No. 16-51380, Adv. No. 17-05006 (Bankr. W.D. La. filed March 21, 2017). PES alleges that CES engaged in fraudulent billing practices with respect to PES's affiliate, PPC. PES also alleges that CES placed oil and gas liens on several wells even though PES does not owe CES. PES does not allege that it owns the wells; rather, PES alleges that, as a result of the liens, it has lost business relationships, opportunities, and revenue. It seeks a judgment under the Louisiana Unfair Trade Practices Act declaring that the liens are "untimely, improperly taken, and wholly without any legal effect." Id.
PPC also filed an adversary case against CES on March 21, 2017. Padco Pressure Control, LLC v. Case Energy Servs., LLC, et al. (In re Padco Pressure Control, LLC), No. 16-51381, Adv. No. 17-05007 (filed March 21, 2017). PPC's allegations mirror the allegations in PES's two adversary cases.
On August 15, 2017, CES filed the instant Motion to Withdraw Reference, seeking to withdraw the consolidated adversary cases from the bankruptcy court and adjudicate the disputes in this Court. [Doc. No. 1]. PES and PPC (collectively, "Padco") responded to the motion on September 20, 2017 [Doc. No. 12], and CES replied on September 28, 2017 [Doc. No. 13].
CES first moves for mandatory withdrawal. Under 28 U.S.C. § 157(d), "The district court shall, on timely motion of a party, [] withdraw a proceeding if the court determines that resolution of the proceeding requires consideration of both title 11 and other laws of the United States regulating organizations or activities affecting interstate commerce."
Withdrawal is mandatory when: (1) the proceeding involves a "substantial and material question of both title 11 and non-Bankruptcy Code federal law"; (2) "the non-Bankruptcy Code federal law has more than a de minimis effect on interstate commerce"; and (3) "the motion for withdrawal has been timely filed." Jones v. Walter Mortgage Co., 2009 WL 2999195, at *2 (N.D. Miss. Sept. 16, 2009); see Rodriguez v. Countrywide Home Loans, Inc., 421 B.R. 341, 347 (S.D. Tex. 2009).
It is undisputed that CES timely filed the motion. However, Padco argues that the consolidated cases do not involve substantial and material consideration of non-bankruptcy federal law.
"To find that a claim involves `substantial and material consideration' of non-bankruptcy federal law, the court must find the claim will involve an interpretation of the federal law rather than the mere application of well-settled law."
As to the second prong of the test above, neither party offers an argument as to whether any non-bankruptcy federal laws at issue have more than a de minimis effect on interstate commerce. Regardless, the Court finds that Rule 65, a procedural rule rather than a substantive law, does not regulate organizations or activities and does not have more than a de minimis effect on interstate commerce. Accordingly, CES's motion for mandatory withdrawal is DENIED.
CES also seeks permissive withdrawal. Under 28 U.S.C. § 157(d), "The district court may withdraw, in whole or in part, any case or proceeding referred . . ., on its own motion or on timely motion of any party, for cause shown."
"The decision to withdraw a reference from bankruptcy court is within the court's discretion, but the decision must be based on a sound, articulated foundation." Leslie Burleigh v. Hometown Credit, LLC, 2017 WL 4400111, at *3 (S.D. Miss. July 18, 2017) (internal quotation marks and quoted sources omitted). Courts consider: (1) whether the proceeding is core or non-core; (2) whether withdrawal would foster a more economical use of the parties' resources; (3) whether withdrawal would expedite the bankruptcy process; (4) whether withdrawal would reduce forum shopping and promote uniformity; and (5) whether jury demands have been made. Holland Am. Ins. Co. v. Succession of Roy, 777 F.2d 992, 999 (5th Cir. 1985).
Here, CES carries the burden of showing cause for permissive withdrawal, yet it makes no argument that the proceeding is non-core;
As to whether withdrawal would foster a more economical use of the parties' resources, CES argues that this Court, in contrast to courts in Lafayette, is geographically positioned to compel witnesses to testify.
CES also argues, relatedly, that "[p]otential witnesses and evidence are solely located in north Louisiana and east Texas[,]" and that "repeated travel and hearings in Lafayette, before the bankruptcy court, would be grossly inefficient." [Doc. No. 13, p. 10]. To this extent, it appears that CES is attempting to re-litigate its motion for intra-district transfer, which the bankruptcy court denied
Turning to whether withdrawal would expedite the bankruptcy process, CES argues, baldly, that this Court's "expertise, familiarity and resources are helpful and necessary to processing the claims, issues and bringing the adversary actions into focus so that any claims remaining can be brought to a final judgment." [Doc. No. 13, p. 10-11]. CES also argues, again with no explanation, that this Court "is in the best position to render final judgment and avoid further contests to the jurisdiction of the bankruptcy court." Id. at 11. The Court disagrees with CES's assessment. As the bankruptcy court is familiar with the three adversary proceedings and has expeditiously conducted the proceedings since January of 2017, and considering that those proceedings are interlaced with the two underlying bankruptcy proceedings, maintaining the reference will promote the most expeditious and uniform
With respect to whether withdrawal would reduce forum shopping, CES contends: "As shown in the motions for intra-district transfer [both in the bankruptcy actions and the adversary proceedings] and the affidavits and evidence submitted [also part of the present appeal records . . .], debtors engaged in forum shopping, presumably to avoid filing their bankruptcies in the Shreveport Division." [Doc. No. 1-1, p. 16 (internal brackets in original)]. The Court, however, again finds that CES is attempting to re-litigate motions that the Court, as well as the bankruptcy court, has denied multiple times. Moreover, as Padco points out, CES's multiple motions for transfer reflect CES's attempt to forum shop: "CES' motion is nothing more than yet another attempt, now [its] fourth attempt overall and [its] second with this court, to `forum shop' this case out of the bankruptcy court in Lafayette." [Doc. No. 12, p. 5]. To this end, "Motions to withdraw pose significant risks of forum shopping because a party can first observe the bankruptcy judge's rulings, and then decide whether to bring the motion." City Bank v. Compass Bank, 2011 WL 5442092, at *6 (W.D. Tex. Nov.9, 2011) (emphasis added).
Finally, with respect to the last prong of the Holland test, CES demands a jury in all three adversary proceedings.
In Langenkamp v. Culp, 498 U.S. 42, 44 (1990) (internal quotation marks omitted), the Supreme Court held that if a creditor is met with a debtor's
CES counters that the claims in the adversary proceedings are not "integrally related" to CES's proof of claim or the restructuring of the debtor-creditor relationship. [Doc. No. 13]. To this end, the Supreme Court held that "the creditor's claim and the ensuing preference action by the trustee become integral to the restructuring of the debtor-creditor relationship through the bankruptcy court's equity jurisdiction." Langenkamp, 498 U.S. at 44. The Court did not explicitly state whether the preference action was integrally related to the restructuring of the debtor-creditor relationship simply because the creditor filed a claim or whether the action was so related because the creditor's claim and the preference action involved integrally similar legal and factual issues. The Fifth Circuit, however, has chosen the latter: relying on Stern v. Marshall, 564 U.S. 462, 496 (2011), the Fifth Circuit opined that, to decide whether a creditor is entitled to a jury trial, courts must examine whether the resolution of the creditor's proofs of claim "will necessarily require the resolution of the debtor's" claims against the creditor. U.S. Bank Nat. Ass'n, 761 F.3d at 418.
Here, CES is not entitled to a jury trial. Padco alleges in the adversary proceedings that CES possesses its equipment, that CES owes Padco for equipment it rented from Padco, that CES owes Padco for renting Padco's equipment to a third party, that CES engaged in fraudulent billing practices, and that CES improperly placed oil and gas liens on several wells. Integrally related to those allegations, CES recites in its proof of claim that the basis for the claim is "sale of oilfield equipment/related services and oil well liens." [Doc. No. 12, p. 7]. In support of its claim, CES attached a list of unpaid invoices. Id. at 10-11. Plainly, the claims in Padco's adversary proceedings against CES are integrally related to CES's proof of claim in the underlying bankruptcy proceeding and, consequently, to the restructuring of the debtor-creditor relationship.
On balance, the Holland factors weigh against withdrawing the adversary proceedings.
For the reasons set forth above, Defendant Case Energy Services, LLC's "Motion to Withdraw Reference Pursuant to 28 U.S.C. 157(d)" [Doc. No. 1] is DENIED.