United States District Court, E.D. Virginia, Richmond Division
LYNN L. TAVENNER, Trustee,
CHESAPEAKE CONSTRUCTION GROUP, LLC, et al., Movants.
HANNAH LAUCK, UNITED STATES DISTRICT JUDGE
matter comes before the Court on the Motion to Withdraw the
Reference filed by Defendants Chesapeake Construction Group,
LLC, David Oelrich, Lawrence Oelrich, a/k/a Larry Oelrich,
and Matt Oelrich (collectively, "Defendants"). (ECF
No. 1.) Defendants move to withdraw the four-count adversary
complaint initiated by Trustee Lynn Tavenner (the
"Trustee") in the underlying bankruptcy action.
Trustee opposes the withdrawal. The Court exercises
jurisdiction pursuant to 28 U.S.C. §
parties fully briefed the matter in the Bankruptcy Court, and
the Court dispenses with oral argument because the materials
before it adequately present the facts and legal contentions,
and argument would not aid the decisional process. The matter
is ripe for disposition. For the reasons that follow, the
Court will deny the Motion to Withdraw the Reference and
remand this matter to the Bankruptcy Court.
Factual and Procedural Background
March 24, 2014, five individuals instituted an involuntary
bankruptcy petition against James Ashby Moncure (the
"Debtor") under Chapter 7 of the Bankruptcy
Code. The United States Bankruptcy Court
for the Eastern District of Virginia (the "Bankruptcy
Court") thereafter appointed the Trustee. On March 25,
2016, the Trustee initiated an adversary action against
Defendants by filing a Complaint in the Bankruptcy Court (the
"Trustee Complaint"). The Trustee Complaint
asserted four causes of action: (1) "Turnover and
Accounting"; (2) "Preferential Transfers"; (3)
"Fraudulent Transfers"; and, (4) "Fraudulent
Transfer." (Trustee Compl. ¶¶ 27-54.) The
Trustee alleged that the Debtor had made nine transfers to
Defendants within the two years before the petition was
filed, in the total amount of $433, 000, at a time when the
Debtor's liabilities were greater than his assets, and
that the bankruptcy estate was therefore entitled to recover
Trustee asserted the following claims:
Count One: Turnover and Accounting (the
"Turnover Claim") - All of the Transfers
constitute property of the bankruptcy estate.
Count Two: Preferential Transfers (the
"Preference Claim") - Certain transfers
were made within 90 days prior to the bankruptcy petition,
for the benefit of the Defendants, while the Debtor was
insolvent, and when the Defendants were creditors of the
Count Three: Fraudulent Transfers (the
"548(a)(1)(A) Fraudulent Transfer Claim")
- The Debtor made certain transfers within the two
years prior to the bankruptcy petition with the actual intent
to hinder, delay, and defraud some of his debtors.
Count Four: Fraudulent Transfer (the
"548(a)(1)(B) Fraudulent Transfer
Claim") - The Debtor made certain transfers
within the two years prior to the bankruptcy petition, at a
time when he was insolvent, for less than a reasonably
equivalent value in exchange, and intending to incur debts
beyond his ability to pay.
Trustee averred that she could void or recover the
transferred amounts pursuant to 11 U.S.C. § 548(a)(1)(A)
and (B),  § 547(b),  and recover the money
for the bankruptcy estate pursuant to 11 U.S.C.
§§550 and 551.
moved to dismiss the Trustee Complaint (the "First
Motion to Dismiss"), and on March 15, 2017, the
Bankruptcy Court held a hearing on the First Motion to
Dismiss. During the hearing, the Bankruptcy Court announced
its intent to grant the Motion to Dismiss in part, deny it in
part, and grant the Trustee leave to amend. The parties also
discussed discovery, pretrial procedures, and trial dates. On
March 24, 2017, the Bankruptcy Court entered an Order
granting in part and denying in part the First Motion to
Dismiss, and granting the Trustee leave to amend. The
Bankruptcy Court ordered the Trustee to file an Amended
Complaint within fourteen days and ordered Defendants to file
a responsive pleading within ten days after that.
days earlier, on March 22, 2017, the Bankruptcy Court entered
a Pretrial Order governing discovery, dispositive motions,
and pretrial filings. The Pretrial Order also ordered:
Any party not consenting to the entry of a final order by the
Bankruptcy Judge shall file a Motion to Withdraw the
Reference or for other appropriate relief within 30 days of
the entry of this Scheduling Order, and shall promptly set
the matter for hearing. The failure to comply with the terms
of this paragraph shall be deemed to constitute consent to
the entry of final orders by the Bankruptcy Judge.
(Pretrial O.¶ 13.)
Trustee filed an Amended Complaint on April 7, 2017 (the
"Trustee Amended Complaint"), and Defendants
thereafter filed a Partial Motion to Dismiss (the
"Second Motion to Dismiss"). The Trustee opposed
the Second Motion to Dismiss, and Defendants replied.
Defendants never set the Second Motion to Dismiss for a
hearing. On May 24, 2017, the Trustee filed a Motion to Deny
Jury Demand, moving the Bankruptcy Court to deny
Defendants' demand for a jury trial. Defendants opposed,
and the Court held a hearing on June 7, 2017. At the June 7,
2017 hearing, the Bankruptcy Court denied the Second Motion
to Dismiss and granted the Motion to Deny Jury Demand. On
June 16, 2017, the Bankruptcy Court entered an Order denying
the Second Motion to Dismiss and granting the Motion to Deny
Jury Demand (the "June 16, 2017 Order").
June 16, 2017 Order, the Bankruptcy Court "adopted and
incorporated" the Proposed Findings of Fact and
Conclusions of Law (the "Findings of Fact") filed
by the Trustee on June 16, 2017. (June 16, 2017 O. 1.) The
Findings of Fact state that Defendants
did not timely move to withdraw the reference, nor did [they]
seek other appropriate relief. [They] set nothing down for
hearing after entry of the Pre-Trial Order. [They] took no
affirmative action as is required by the Court's
Pre-Trial Order. Thus, [they have] consented to the entry
of final orders by [the Bankruptcy] Court. [They have]
consented to [the Bankruptcy] Court hearing all matters.
(Findings of Fact 9 (emphasis added).)
12, 2017, Defendants filed the Motion to Withdraw.
Jurisdiction of the Bankruptcy Courts
to 28 U.S.C. § 1334, the district courts have
"original and exclusive jurisdiction of all cases"
under the Bankruptcy Code. 28 U.S.C. § 1334(a). District
courts may refer all bankruptcy matters to bankruptcy judges,
28 U.S.C. § 157(a),  as this District has done since
1984. See In the Matter of: The Administration of the
Bankruptcy Courts and Reference of Bankruptcy Cases and
Proceedings to the Bankruptcy Judges of this District
(E.D. Va. August 15, 1984) (Order).
general, bankruptcy courts oversee the matters before them in
two different ways. Under 28 U.S.C. § 157(b),
"[b]ankruptcy judges may hear and determine all
cases under title 11 and all core proceedings
arising under title 11, or arising in a case under title 11 .
. . ." 28 U.S.C. § 157(b)(1) (emphasis added).
Thus, in bankruptcy cases and in so-called "core
proceedings, " bankruptcy courts have jurisdiction to
both hear and determine the case. See
id. Under 28 U.S.C. § 157(c) when a proceeding
before the bankruptcy court is "non-core, " but
"otherwise related to a case under title 11, " a
bankruptcy court has the authority to hear but not
determine the proceeding. In those cases, the
bankruptcy court must "submit proposed findings of fact
and conclusions of law to the district court, " which
considers the bankruptcy court's recommendations, and
enters the final orders and judgments. 28 U.S.C. §
the jurisdictional limitation on bankruptcy courts, the
determination of whether a matter is "core" or
"non-core" becomes important. Section
157(b)(2) sets forth a list of so- called
"statutory core proceedings." This non-exhaustive
list provides guidance about whether a proceeding is core,
but is not dispositive. Ultimately, in order to deem a
proceeding "core" or "non-core, " a
"[c]ourt [should] identify the nature of the cause of
action itself, and whether the action invokes a right under
title 11 or that arose in a case under title 11."
Chesapeake Trust v. Chesapeake Bay Enters., Inc.,
No. 3:13cv344, 2014 WL 202028, at *3 (E.D. Va. Jan. 17, 2014)
(citing Corliss Moore & Assoc., LLC v. Credit Control
Servs., Inc., 497 B.R. 219, 224 (E.D. Va.2013)).
proceeding "arising in" a case under title 11
"is a proceeding that, even if not specifically provided
for in the Bankruptcy Code, can take place only in the
context of a case under title 11, " including
"various matters affecting administration of a
bankruptcy estate." In re Gladstone, 513 B.R.
149, 153 (Bankr. S.D. Fl. 2014). In making the core or
non-core determination, the Court evaluates whether the claim
seeks relief that would "require the Court to
recognize whether something is or is not property of a debtor
to be administered as part of the estate." Id.
If the relief sought in the claim requires that the Court
make such a determination, "the matter 'arises
in' a title 11 case and 'arises under' title 11
within the meaning of 28 U.S.C. § 1334(b)."
Id. In sum, "[t]he Court looks beyond the label
applied to the claim to [the claim's] substance" to
determine whether a claim is core or non-core. Id.
Thus, a proceeding could be designated "core" under
§ 157(b), but, because of the nature of the cause of
action, not constitute a "core proceeding."
Proceedings of this nature have been referred to as
"constitutionally non-core proceedings."
even the presence of non-core claims in an adversary
proceeding does not mean "that the bankruptcy court
immediately loses jurisdiction of the entire matter or that
the district court cannot delegate to the bankruptcy court
the responsibility for supervising discovery, [and]
conducting pre-trial conferences." In re Stansbury
Poplar Place, Inc., 13 F.3d 122, 128 (4th Cir. 1993).
They may instead fall into the category of claims that a
bankruptcy court could hear but not determine. And, of
course, if all parties consent to the bankruptcy court's
jurisdiction, bankruptcy courts may hear all matters and
enter final judgment in even non-core claims. See, e.g.,
Wellness Int'l Network, Ltd. v. Sharif, 135
S.Ct. 1932, 1942 (2015) ("[L]itigants may validly
consent to adjudication by bankruptcy courts.").
Withdrawal of the Reference
all bankruptcy proceedings, whether core or non-core, the
district court retains the power to "withdraw... any
proceeding referred" to the bankruptcy court, and decide
the matter itself. 28 U.S.C. § 157(d). Bankruptcy law
provides two avenues by which a district court can order a
case withdrawn from the bankruptcy court: mandatory
withdrawal or permissive withdrawal. 28 U.S.C. §
157(d). A party who seeks district court
determination of a matter filed in an underlying bankruptcy
action may, as Defendants have here, file a motion to
withdraw the reference. The burden of demonstrating ...