VICTOR MARRERO, District Judge.
Irving Picard (the "Trustee"), trustee for the liquidation of Bernard L. Madoff Investment Securities LLC ("BLMIS"), instituted adversary proceeding No. 12-02047 requesting an Application for Enforcement of Automatic Stay and Related Stay Orders and Issuance of a Preliminary Injunction (the "Stay Application") to enjoin the preliminary class action settlement reached in Anwar v. Fairfield Greenwich Ltd., No. 09 Civ. 118 (S.D.N.Y.) ("Anwar"). Plaintiffs Pacific West Health Medical Center Inc. Employees Retirement Trust, Harel Insurance Company Ltd., Martin and Shirley Bach Family Trust, Natalia Hatgis, Securities & Investment Company (SICO) Bahrain, Dawson Bypass Trust and St. Stephen's School (collectively the "Anwar Plaintiffs") filed a motion to withdraw the bankruptcy reference with respect to the Trustee's Stay Application pursuant to 28 U.S.C. § 157(d) (the "Motion"). The Trustee has filed opposition to the Motion. Defendants Fairfield Greenwich Ltd., Fairfield Greenwich (Bermuda) Limited, and certain of the defendant individuals associated with those entities (collectively, the "Fairfield Defendants") filed a declaration in support of the Anwar Plaintiffs' Motion, while reserving certain rights in connection with the matter.
For the reasons sets forth below, the Court GRANTS the Anwar Plaintiffs' Motion.
District courts have original jurisdiction over bankruptcy cases and all civil proceedings "arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334. Pursuant to 28 U.S.C. § 157(a), the district court may refer actions within its bankruptcy jurisdiction to the bankruptcy judges of the district. The Southern District of New York has
Mandatory withdrawal of the reference is required "where substantial and material consideration of non-Bankruptcy Code federal statutes is necessary for resolution of the proceedings." In re Ionosphere Clubs, Inc., 922 F.2d 984, 995 (2d Cir.1990). "Substantial and material consideration" means "significant interpretation, as opposed to simply application, of federal laws apart from the bankruptcy statutes." City of New York v. Exxon Corp., 932 F.2d 1020, 1026 (2d Cir.1991); Picard v. HSBC Bank PLC, 450 B.R. 406, 409 (S.D.N.Y.2011). Mandatory withdrawal does not depend on whether a matter falls within the bankruptcy court's "core" or "non-core" jurisdiction. See Exxon, 932 F.2d at 1026. Furthermore, the Court "need not evaluate the merits of the parties' positions" to determine whether withdrawal is mandatory. Bear, Stearns Sec. Corp. v. Gredd, No. 01 Civ. 4379, 2001 WL 840187, at *4 (S.D.N.Y. July 25, 2001). Rather, it is sufficient that "resolution of this matter will require substantial and material consideration of federal law outside the Bankruptcy Code." Id. at *3. Although mandatory withdrawal does not require matters of first impression be involved, where they are, "the burden of establishing a right to mandatory withdrawal is more easily met." Picard v. JPMorgan Chase & Co., et al., 454 B.R. 307, 312 (S.D.N.Y.2011) (quotation marks omitted); Gredd, 2001 WL 840187, at *2 (same).
Absent mandatory withdrawal, the Court has broad discretionary authority to withdraw the bankruptcy reference for cause shown. In re Enron Corp., 295 B.R. 21, 25 (S.D.N.Y.2003). In exercising its broad discretion to withdraw the bankruptcy reference, the Court should consider the following factors: (1) whether the bankruptcy court has constitutional authority to enter a final decision;
The Anwar Plaintiffs claim that withdrawal of the bankruptcy reference here is mandatory because the Trustee's Stay Application will require significant interpretation of the Securities Investor Protection Act, 15 U.S.C. §§ 78aaa et seq. ("SIPA"). Specifically, the Anwar Plaintiffs assert
The Court finds that withdrawal of the bankruptcy references is mandatory because a determination of whether the Anwar Plaintiffs' independent claims against the Fairfield Defendants can become property of the BLMIS estate necessarily involves a significant interpretation of federal law outside the Bankruptcy Code.
As a preliminary matter, the Court notes that much of the Trustee's argument goes to the merits of the dispute between the Anwar Plaintiffs and the Trustee rather than the appropriate forum in which the dispute should be adjudicated. This Court has repeatedly noted that it "need not evaluate the merits of the parties' positions" in order to determine whether withdrawal is warranted, Gredd, 2001 WL 840187, at *4. Accordingly, the Court declines to address the substantive merits of the dispute between the Trustee and the Anwar Plaintiffs regarding, among other things, whether the relevant funds and/or claims are property of the BLMIS estate.
The Court finds that the withdrawal of the reference is mandatory because the resolution of the Trustee's Stay Application will require substantial and material consideration of federal law outside of the Bankruptcy Code, including SIPA. The very nature of the Trustee's argument requires not only an interpretation of the Bankruptcy Code, but also a fundamental analysis of the nature of the Anwar Plaintiffs' legal claims themselves. The Trustee is not merely arguing that some pool of funds in possession of the Fairfield Defendants constitutes estate property — a conclusion which the Anwar Plaintiffs claim is contrary to the controlling law and which in theory could be determined by the bankruptcy court
Even if withdrawal of the reference in this case were not mandatory, the Court finds that there are compelling reasons warranting exercise of its discretion to withdraw the reference under these circumstances. Although whether or not a bankruptcy court has constitutional authority to enter a final decision in the particular action may be the most important factor in determining the permissive withdrawal of the bankruptcy reference, this Court may exercise its broad discretion to withdraw the reference where "other factors to be considered favor the discretionary withdrawal of the adversary proceeding." In re Complete Mgmt., Inc., No. 02 Civ. 1736, 2002 WL 31163878, at *3 (S.D.N.Y. Sept. 27, 2002). Regardless of the bankruptcy court's authority to enter a final decision in this matter, the Court finds that a plethora of "other factors" exist counseling in favor of withdrawing the bankruptcy reference.
To begin with, the Anwar action has a long and complicated history before this Court. The Trustee filed the Stay Application — the first filing by the Trustee in this matter — nearly four years after Anwar was removed to federal court and following the filing of more than 1,000 docket entries in the case. Having considered numerous and contentious motions to dismiss in Anwar, this Court is intimately familiar with the nature of the Anwar Plaintiffs' claims and therefore is in the best position to analyze the Trustee's Stay Application and efficiently render a decision that will not unnecessarily delay both the BLMIS bankruptcy proceedings and Anwar. The impending final fairness hearing for the Anwar settlement-currently scheduled for March 22, 2013 — and the extensive litigation costs the parties have expended to date only reinforce the Court's view.
This conclusion is especially compelling taking into account that any determination of this motion by the bankruptcy court may be subject to de novo review assuming
For the reasons stated above, it is hereby