Dooley v. MB Indus., L.L.C.

DAVID M. DOOLEY, SR., ET AL. v. MB INDUSTRIES, L.L.C., ET AL.

CIVIL ACTION NO. 16-0110

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF LOUISIANA SHREVEPORT DIVISION

March 1, 2018

JUDGE S. MAURICE HICKS, JR.

MAGISTRATE JUDGE HAYES

MEMORANDUM RULING

Before the Court is Petitioners David M. Dooley, Sr., individually and as Trustee for the BD 2008 Family Trust No. 1, Brenda Dooley, individually and as Trustee for the DMD 2008 Family Trust No. 1, David M. Dooley, Jr., and Chris Vallot's (collectively the "Dooley Parties") "Motion to Withdraw Reference" (Record Document 1) arguing the bankruptcy judge lacks final adjudication authority in the adversary proceeding, David M. Dooley, Sr., et al. v. MB Industries, LLC, et al., (Bankruptcy Case No. 15-1005) to the bankruptcy case, In re: MB Industries, LLC, (Bankruptcy Case No. 14-12416).¹ Defendants Carmel Enterprises, LLC, Carmel Foods, LLC, Carmel Group, Inc., Hallwood Financial Limited, Hallwood Modular Buildings, LLC, X-Treme Doors, LLC, Frederick J. Gossen, Jr. ("Gossen"), Gert Lessing ("Lessing"), and Anthony Gumbiner ("Gumbiner") (collectively the "Defendants") have opposed the Motion (Record Documents 4, 13, and 18) and suggest the Holland America factors do not favor withdrawing the reference. The Dooley Parties filed a memorandum (Record Document 1-2) in support of their Motion and multiple responses (Record Documents 6, 9, and 19) arguing the Holland Americafactors, specifically their right to a jury trial, weigh in favor of withdrawal. For the reasons described herein, the Dooley Parties' Motion is DENIED.

FACTUAL AND PROCEDURAL BACKGROUND

The Dooley Parties initiated this adversary proceeding seeking rescission of a transaction which occurred on October 27, 2011, pursuant to which David Dooley, Sr. ("Mr. Dooley") sold and transferred interests in various companies, including the Debtor, MB Industries, LLC ("MBI"). See Adversary Document 1. The consideration promised to Mr. Dooley for the sale of the business interests included: (1) $250,000 cash; (2) a promissory note for $2,750,000; and (3) monthly payments to his wife, son, and son-in-law for an agreed period of time. See id. The cash due at closing in the amount of $250,000 was paid; however, the promissory note has not been paid, except for one interest payment made in February 2012 for approximately $88,000, and the payments to Mr. Dooley's family members were terminated in May 2013. See id.

In February 2013, Mr. Dooley filed suit in Louisiana state court to enforce his rights on the note and amended his petition in February 2014 to first seek rescission. See id. With Mr. Dooley's suit pending, MBI entered bankruptcy in October 2014, automatically staying the Dooley Parties' state court action. See Bankruptcy Document 1. The Dooley Parties then sought authorization from the MBI Bankruptcy Court to proceed with their state court action, but their request was denied by Judge Norman. See Bankruptcy Document 252. In response, the Dooley Parties filed their Complaint to Rescind and Dissolve Contract, and for Damages to initiate this adversary proceeding in the Bankruptcy Court on March 10, 2015. See Adversary Document 1.

In their Complaint, the Dooley Parties seek primary relief in the form of a rescission of the October 27, 2011 transaction. See id. As an adjunct to that claim, the Dooley Parties also claim an accounting, damages for breach of management duties during the period since October 27, 2011, and damages for emotional distress. See id. In the event rescission is not granted, the Dooley Parties alternatively seek compensatory damages, to include payment of all sums which they would have been entitled to receive under the agreement, plus legal interest and attorney's fees. See id.

Defendants, Hallwood Financial Limited, Hallwood Modular Buildings, LLC, Gumbiner, and Lessing (collectively the "Hallwood Parties"), filed an answer and counterclaim in which they (1) objected to the entry of any final judgment in this adversary proceeding by the Bankruptcy Court, and (2) demanded a jury trial. See Adversary Document 8. The Hallwood Parties have recently withdrawn their previous demand for jury trial. See Adversary Document 153.

Defendants, Gossen, The Carmel Group, Inc., Carmel Enterprises, X-Treme Doors, LLC, and Carmel Foods, LLC (collectively the "Gossen Parties"), answered the Complaint, and like the Hallwood Parties, specifically objected to the entry of any final orders or judgments by the Bankruptcy Court. See Adversary Document 14. In addition, on December 15, 2015, Gossen, The Carmel Group, Inc., and Carmel Enterprises (the "Gossen Counterclaimants") filed a counterclaim against the Dooley Parties, seeking indemnity for costs incurred in defending the original Complaint. See Adversary Document 96. The Dooley Parties timely answered the counterclaim, and in their answerthey (1) expressly declare that they do not consent to the entry of final judgment by the Bankruptcy Court, and (2) ask for a jury trial. See Adversary Document 100.

The debtor, MBI, filed an answer to the original Complaint and, pursuant to Bankruptcy Rule 7012, expressly declared that it does not consent to entry of final orders or judgments by the bankruptcy judge. See Adversary Document 10. MBI subsequently filed a counterclaim seeking to avoid as fraudulent various transfers made to the Dooley Parties. MBI asserts that its counterclaim is a "core" proceeding, although several of the causes asserted are founded on state law. The Dooley Parties have answered the counterclaim, have given notice that they do not consent to the entry of final orders or judgments by the Bankruptcy Court on any non-core claims, and have requested a jury trial.² See Adversary Document 99.

The remaining Defendants to the original Complaint, BK, LLC, MBI Global, LLC, and MBI Construction and Logistics Services, LLC (hereafter the "Schoonover Parties"), are all entities in which Steven Schoonover, or companies controlled by him, has acquired an interest. The Schoonover Parties filed an answer in which they question the existence of "related to" jurisdiction of this Court with respect to the claims. See Adversary Document 9.

In addition to the pleadings themselves, there have been significant orders and filings which are pertinent in this matter. On April 8, 2015, the Dooley Parties filed several Proofs of Claim regarding the payment of salary and employment benefits and payments on the $2.75 million promissory note, asserting their claims are "subject to adjustment inthe event Dooley is successful in obtaining rescission of the transaction" in the MBI bankruptcy case. See Bankruptcy Documents 42-45. On June 4, 2015, Judge Norman issued an Order (the "Stern Order") in the adversary proceeding requiring the parties to make any objections not later than July 10, 2015, to the Bankruptcy Court finally adjudicating matters contemplated by Stern v. Marshall. See Adversary Document 18. Importantly, no parties filed any objection to Judge Norman's Stern Order.

On August 28, 2015, the Dooley Parties filed a Petition for Writ of Mandamus and/or Writ of Quo Warranto in the 15th Judicial District for Acadia Parish, Louisiana. See Adversary Document 20-1. Because this new Dooley lawsuit pertains to the same facts and legal issues among the same parties as in the adversary proceeding, Judge Norman enjoined that state court litigation. See Adversary Document 50. Next, the Dooley Parties amended their original Complaint³ twice and paragraph one now reads, "This is a non-core proceeding. Plaintiffs do not consent to the issuance of final orders or judgments by the bankruptcy court."⁴ Adversary Documents 126 and 142. On May 6, 2016, Mr. Dooley filed a Petition for Declaratory Judgment in the 15th Judicial District for Acadia Parish, Louisiana. See Record Document 23-1. In that petition, Mr. Dooley sued three of the Defendants in the adversary proceeding (Hallwood Modular Buildings, LLC, Hallwood Financial Limited, and Gossen). See id. The defendants filed an Exception of Lis Pendens and a Motion for Stay because the lawsuit involved the same transaction or occurrenceand the same parties as the adversary proceeding. See Record Document 23-2. On August 8, 2016, the district court in Acadia Parish stayed Mr. Dooley's lawsuit and the ruling was affirmed by the Third Circuit Court of Appeal. See Record Documents 23-3 and 23-4.

Additionally, since the filing of the instant Motion, the Bankruptcy Court has ruled on five motions for summary judgment regarding the Dooley Parties' claims against the Defendants, and five motions to dismiss in this matter. The Bankruptcy Court dismissed the Dooley Parties' (1) indemnity claims against John Blank ("Blank"), Lessing, and Gossen, (2) claims for mismanagement against Gumbiner and Lessing, and (3) claims of intentional infliction of emotional distress against all Defendants. See Adversary Documents 182, 183, and 185. More recently, the Court denied the Dooley Parties' Motion for Leave to Appeal the Bankruptcy Court's dismissals, suggesting it would be more just and efficient for the case to remain in the Bankruptcy Court. See Case No. 16-362, Record Document 7.

The Dooley Parties argue the Holland America factors weigh in their favor and withdrawal is proper. Chiefly, the Dooley Parties suggest their constitutional right to a jury and the fact that their underlying lawsuit is a non-core proceeding is sufficient for this Court to grant their Motion to Withdraw. See Record Document 1-2 at 9-12. Defendants state the Dooley Parties have waived their right to a jury trial or, alternatively, have no right. See Record Document 4 at 19-22. Defendants also argue that whether the underlying lawsuit is core or non-core is not pertinent in light of new case law; instead, the issue is whether the bankruptcy court has authority to finally adjudicate the matter,which Defendants believe the bankruptcy court has because all parties consented. See id. at...