Albert v. Site Mgmt., Inc.

506 B.R. 453

Marc E. ALBERT

v.SITE MANAGEMENT, INC., et al.

Civil Action No. DKC 14–360.

United States District Court, D. Maryland.

Filed Feb. 28, 2014.

Alan M. Grochal, Lee Bryan Rauch, Tydings and Rosenberg LLP, Baltimore, MD, for Defendant.

Janet M. Nesse, Stinson Leonard Street LLP, Washington, DC, for Plaintiff.

MEMORANDUM OPINION

DEBORAH K. CHASANOW, District Judge.

Presently pending and ready for review in this breach of contract case is a motion by Defendants Site Management, Inc. t/a Site Realty Group, and Site Leasing, Inc. to modify, or partially withdraw, the reference. (ECF No. 1). The issues have been briefed, and the court now rules, no hearing being deemed necessary. Local Rule 105.6. For the following reasons, the motion will be denied.

I. Background

This case traces its lineage to the bankruptcy case Jin Suk Kim Trust d/b/a La Union Mall, No. 11–14033, in the United States Bankruptcy Court for the District of Maryland. In that bankruptcy case, Plaintiff was appointed as the disbursing agent to assist Debtor Jin Suk Kim Trust in carrying out the duties and responsibilities set forth in the Amended Plan of Reorganization (“Plan”) approved by the Bankruptcy Court on July 27, 2012. (Civil Action No. 13–1853, ECF No. 1, ¶ 5). Debtor owned and operated the shopping center known as La Union Mall in Langley Park, Maryland (“Shopping Mall”). ( Id. ¶ 10). Since 2009, Defendant Site Management had managed the Shopping Mall and Defendant Site Leasing leased space in the Shopping Mall. ( Id. ¶¶ 11, 15). Debtor applied to retain Defendants as its property manager and leasing agents which the Bankruptcy Court approved. ( Id. ¶¶ 12–13). Pursuant to this application, “the terms and conditions of any lease agreement were to be subject to the Debtor's final approval, were to be made in the Debtor's name, and were to be executed by the Debtor.” ( Id. ¶ 18).

Plaintiff alleges that on the eve of the July 27, 2012 Plan confirmation, the Defendants negotiated a long-term lease, took substantial commissions, and disposed of assets, all while being instructed not to do so and without informing the Plaintiff or the Bankruptcy Court. ( Id. ¶¶ 21–23). It is further alleged that Defendants did not provide accurate receivables information to the Debtor, the Bankruptcy Court, and creditors. The bankruptcy plan was proposed and then approved by the court based upon this inaccurate information. ( Id. ¶¶ 24–25). Plaintiff alleges that Defendants failed to keep complete records; negotiated lease extensions to maximize their returns without full disclosure; failed to close accounts at the direction of Plaintiff; and prepared inaccurate monthly operating reports for submission to the Bankruptcy Court. ( Id. ¶¶ 26–29).

On June 25, 2013, Plaintiff filed a complaint in this court. (Civil Action No. 13–1853, ECF No. 1). Plaintiff claims that Defendants' actions constituted negligence, breach of contract and fiduciary duty, and fraud. Defendants moved to dismiss the complaint for (1) failure to join a necessary party pursuant to Federal Rule of Civil Procedure 12(b)(7); (2) lack of standing; and (3) failure to comply with an order of the Bankruptcy Court. (ECF No. 8). Plaintiff opposed the motion (ECF No. 10), and Defendants replied. (ECF No. 12). On September 25, 2013, the undersigned referred this case to Bankruptcy Judge Thomas Catliota pursuant to 28 U.S.C. § 157(a) and Local Rule 402. (ECF No. 13). Civil Action number 13–1853 was administratively closed on October 17, 2013.

Defendants filed a motion to modify, or partially withdraw, the reference pursuant to 28 U.S.C. § 157(d) on October 28, 2013. (Civil Action No. 14–360, ECF No. 1). Plaintiff opposed on November 7, 2013. (ECF No. 2). On December 12, 2013, Judge Catliota ruled that the bankruptcy court had subject matter jurisdiction of the referred case under 28 U.S.C. § 1334(b). (Adversary No. 13–554, Dkt. No. 29).¹ On December 17, 2013, Judge Catilota denied Defendants' motion to dismiss to the extent it was based on grounds two (2) and three (3). He denied the motion to dismiss on the remaining ground on January 28, 2014, after La Union Center, LLC filed a stipulation that Plaintiff could proceed on behalf of both parties, thereby addressing the issue of failing to join a necessary party. (Adversary No. 13–554, Dkt. Nos. 32 and 38).

II. Motion to Withdraw Reference to Bankruptcy Court

Defendants seek the permissive withdrawal of the reference of this adversary proceeding to the bankruptcy court pursuant to 28 U.S.C. § 157(d), which provides in pertinent part: “The district court may withdraw, in whole or in part, any case or proceeding referred under this section, on its own motion or on timely motion of any party, for cause shown.” ² “The district court has broad discretion in deciding whether reference should be withdrawn for cause shown.” In re Millennium Studios, Inc., 286 B.R. 300, 303 (D.Md.2002). Courts determining whether cause exists for withdrawal are to consider the following factors: (1) whether the matter at issue between the parties is “core” within the meaning of Section 157(b)(2) of the Bankruptcy Code; (2) uniformity of bankruptcy administration; (3) forum shopping; (4) conservation of creditor and debtor resources; (5) expediency of the bankruptcy proceeding; (6) the likelihood of a jury trial. Id.;Mason v. Ivey, 498 B.R. 540, 549 (M.D.N.C.2013); Vieira v. AGM, II, LLC, 366 B.R. 532, 537–38 (D.S.C.2007); In re U.S. Airways Grp., Inc., 296 B.R. 673, 681 (E.D.Va.2003). It is the movant's burden to show cause for the permissive withdrawal of reference to bankruptcy court. Millennium Studios, 286 B.R. at 303.

Defendants argue that the reference should be withdrawn because the matter at issue is a “non-core” proceeding, but even if the matter is considered “core,” withdrawal conserves resources because the bankruptcy court may not enter any final orders or judgments on these state common law claims pursuant to the recent decision of the Supreme Court of the United States in Stern v. Marshall, ––– U.S. ––––, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). Plaintiff's opposition is devoid of any substantive response, simply arguing that Defendants' motion “appears to be a motion for reconsideration and/or attempt to have the Bankruptcy Court overrule the District Court,” which he opposes. (ECF No. 2 ¶ 9).

28 U.S.C. § 157(b)(1) gives a bankruptcy court authority to “hear and determine all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11,” subject to appellate review by the district court under 28 U.S.C. § 158. In a proceeding that is not “core” but otherwise related to a case under Title 11, the bankruptcy court can only submit proposed findings of fact and conclusions of law to the district court, which shall consider the recommendation along with any objections by the parties. 28 U.S.C. § 157(c)(1).

Section 157(b)(2) provides a non-exclusive list of “core” proceedings. Pertinent to this case, the list includes “matters concerning the administration of the estate,” § 157(b)(2)(A), and “other proceedings affecting the liquidation of the asserts of the estate,” § 157(b)(2)(O).

Following the Supreme Court's decision in Stern, courts have determined that the correct way to examine the first factor of the permissive withdrawal determination is not “whether the matter can be classified as ‘core’ under 28 U.S.C. § 157, but rather [ ] whether, under Stern, the [b]ankruptcy [c]ourt has the final power to adjudicate it.” ACC Retail Prop. Dev. And Acquisition Fund, LLC v. Bank of Am., N.A., No. 5:12–CV–361–BO, 2012 WL 8667572, at *2 (E.D.N.C. Sept. 28, 2012) ( quoting Dev. Specialists, Inc. v. Akin Gump Strauss Hauer & Feld LLP, 462 B.R. 457, 467 (S.D.N.Y.2011)). Under that rubric, the bankruptcy court must possess both statutory and constitutional authority to issue a final decision.

Turning first to the statutory question, Plaintiff's claims fit within the category of “arising in” cases, generally defined as a controversy that “would have no practical existence but for the bankruptcy.” Grausz v. Englander, 321 F.3d 467, 471 (4th Cir.2003) (emphasis in original). Grausz involved a claim by the debtor against his bankruptcy lawyer for malpractice. The United States Court of Appeals for the Fourth Circuit held that the claim arose in Title 11 because it involved legal advice concerning the bankruptcy itself, and thus would have no practical existence but for the bankruptcy case. Id. at 471. Like the debtor's claim against his law firm for malpractice in his bankruptcy in Grausz, Plaintiff's claims here would have no existence but for the bankruptcy. Plaintiff is the disbursing agent for the debtor who appointed Defendants—with the bankruptcy court's approval—as the debtor's leasing agent and property manager. Plaintiff claims that Defendants were deficient in their duties post-petition and pre-confirmation and that their representations were relied upon by the bankruptcy court. Such alleged wrongdoing goes to the integrity of the bankruptcy process.

Furthermore, Plaintiff's claims are also “core proceedings” under 28 U.S.C. § 157(b)(2)(A)'s broad inclusion of “matters concerning the administration of the estate.” They are akin to claims brought by a debtor to assert a malpractice claim against his bankruptcy lawyer, or against the accounting firm that provided accounting services prior to plan confirmation, situations courts have found to be “core” proceedings. See, e.g., Grausz, 321 F.3d at 475 (holding that a debtor's malpractice claim against his bankruptcy lawyer is a core proceeding) ( citing In re Southmark Corp., 163 F.3d 925 (5th Cir.1999)).

In holding that such claims were “core,” the United States Court of Appeals for the Fifth Circuit explained in Southmark that ensuring that “court-approved managers of the debtor's estate are performing their work, conscientiously and cost-effectively,” and...