Gypsum Resources, LLC v. Clark County (In re Gypsum Resources Materials, LLC)

In re: GYPSUM RESOURCES MATERIALS, LLC [ ]Affects Gypsum Resources Materials LLC [X] Affects Gypsum Resources LLC [ ] Affects All Debtors, Debtor

GYPSUM RESOURCES LLC a Nevada limited liability company, Plaintiff, v. CLARK COUNTY a political subdivision of the State of Nevada, and CLARK COUNTY BOARD OF COMMISSIONERS, Defendants CLARK COUNTY a political subdivision of the State of Nevada, and CLARK COUNTY BOARD OF COMMISSIONERS, Counter-Claimants v. GYPSUM RESOURCES LLC a Nevada limited liability company, Counter-Defendant.

Nos. 19-14796-MKN, 19-14799-MKN

Adv. Proc. No. 19-01105-MKN

United States Bankruptcy Court, D. Nevada

September 21, 2021

Chapter 11

GYPSUM RESOURCES, LLC ATTN: OFFICER/MANAGING AGENT

TODD L. BICE PISANELLI BICE, LLC

ORDER ON MOTION (1) FOR DETERMINATION THAT THE CLAIMS AT ISSUE ARE NOT CORE MATTERS FOR WHICH THE BANKRUPTCY COURT MAY ISSUE FINAL RELIEF; (2) FOR DETERMINATION OF RIGHT TO JURY TRIAL ON DEFENDANTS' COUNTERCLAIM; AND (3) TO RETURN THE CASE TO DISTRICT COURT FOR FINAL ADJUDICATION ^[1]

Honorable Mike K. Nakagawa United States Bankruptcy Judge

On August 18, 2021, the court heard the Motion (1) for Determination That The Claims at Issue Are Not Core Matters For Which The Bankruptcy Court May Issue Final Relief; (2) for Determination of Right to Jury Trial on Defendants' Counterclaim; and (3) to Return The Case to District Court For Final Adjudication ("Motion"). The Motion was filed by the Defendants and Counterclaimants in the above-captioned adversary proceeding and opposed by the Plaintiffs and Counterdefendants. The appearances of counsel were noted on the record. After arguments were presented, the matter was taken under submission.

BACKGROUND^[2]

On May 17, 2019, Gypsum Resources, LLC ("Debtor") filed a civil complaint against Clark County ("County") and the Clark County Board of Commissioners ("Board") collectively referred to as the "Defendants." The face of the civil complaint as well as the prayer included a jury demand. The Complaint was filed in the United States District Court for the District of Nevada ("USDC") and denominated Case No. 2:19-cv-00850-GMN-EJY ("USDC Case").^[3] (Dkt. 1; AECF No. 1).^[4]

On July 26, 2019, Debtor filed a voluntary Chapter 11 petition in this bankruptcy court. (ECF No. 1).^[5]

On August 26, 2019, Debtor filed its schedules of assets and liabilities ("Schedules") as well as its statement of financial affairs ("SOFA"). (ECF Nos. 106 and 107). The pending USDC Case was listed by the Debtor in Part 11 of its property Schedule "A/B" and in Part 3 of the SOFA.

On September 4, 2019, Debtor filed a motion in the USDC asking that the USDC Case be referred to this bankruptcy court ("Referral Motion"). (Dkt. 17; AECF No 1).^[6]

On October 22, 2019, Debtor and the County filed a stipulated joint discovery plan ("First Stipulated Discovery Plan"). (AECF No. 8). The First Stipulated Discovery Plan stated, inter alia, that a demand for jury trial had been made and that the Debtor does not consent to a jury trial before the bankruptcy judge under 28 U.S.C. § 157(e).

On November 7, 2019, the USDC entered an order granting in part and denying in part the Referral Motion ("USDC Referral Order"). (Dkt. 28; AECF Nos. 1 and 11). The USDC determined that the claims alleged in the USDC Case were at least "related to" this Chapter 11 proceeding and therefore referred it to this bankruptcy court.^[7] The USDC also dismissed as moot the pending motions filed by the County and the Board. The USDC also concluded that it is for the bankruptcy court^[8] to decide whether the claims are core or non-core matters within the meaning of 28 U.S.C. § 157(a),^[9] citing Exec. Benefits Ins. Agency v Arkison, 573 U.S. 25, 33 (2014).^[10] See USDC Referral Order at 1:17-19.^[11]

On February 10, 2020, Defendants filed in the bankruptcy court a motion seeking a judgment on the pleadings under Civil Rule 12(c) ("12(c) Motion"). (AECF No. 20).

On June 19, 2020, an order was entered by the bankruptcy court denying the 12(c) Motion ("12(c) Order"). (AECF No. 48).

On July 6, 2020, Debtor filed a Second Amended Complaint for Damages; Petition for Writ of Mandamus, and Damages ("SAC"), including a jury demand. (AECF No. 61).^[12] A copy of the prior Settlement Agreement is attached to the SAC. As discussed in note 12, supra, Debtor seeks mandamus, declaratory and injunctive relief, as well as various forms of damages, interest, attorneys' fees, and costs, arising from the Settlement Agreement.

On July 20, 2020, Defendants filed an answer to the SAC, which included a jury demand following the prayer. (AECF No. 64).

On August 10, 2020, Defendants filed a motion for leave to file a counterclaim. (AECF No. 66).

On September 18, 2020, an order was entered approving a second revised stipulated discovery plan and scheduling order ("Second Stipulated Scheduling Order"). (AECF No. 88). The revised discovery plan stated, inter alia, that a demand for jury trial had been made and that the Debtor does not consent to a jury trial before the bankruptcy judge under 28 U.S.C. §157(e). It further stated that all parties do not consent to the bankruptcy court entering a final judgment.^[13] Additionally, it stated that the case should be ready for trial by approximately September 2021 and the trial should take approximately ten days.

On October 5, 2020, a Stipulated Confidentiality and Protective Order was entered. (AECF No. 89).

On November 23, 2020, an order was entered granting on an unopposed basis the Defendant's motion for leave to file a counterclaim.^[14] (AECF No. 90).

On November 30, 2020, Defendants filed a Counter-Claim Against Plaintiff Gypsum Resources, LLC ("Counterclaim"). (AECF No. 93).^[15]

On December 23, 2020, Debtor filed an answer to the Counterclaim. (AECF No. 105).^[16]

On April 15, 2021, an order was entered approving a stipulation to extend discovery deadlines, setting a bar date of August 19, 2021, for discovery to be completed, a bar date of September 20, 2021 for dispositive motions to be filed, and October 20, 2021 for a proposed pretrial order to be submitted. (AECF No. 109).

On April 23, 2021, Debtor filed a Motion to Compel Production of Documents Improperly Withheld for Privilege ("Compel Motion") (AECF No. 114).

On May 7, 2021, Defendants filed an opposition that included a countermotion seeking a protective order from the discovery sought by the Debtor ("Protective Motion"). (AECF No. 120).

On June 24, 2021, a hearing was conducted on both the Compel Motion and the Protective Motion.

On June 30, 2021, a memorandum decision was entered addressing both the Compel Motion and the Protective Motion ("Combined Decision").^[17] (AECF No. 190).

On July 15, 2021, Defendants filed the instant Motion. (AECF No. 202). On August 4, 2021, Debtor filed an opposition to the instant Motion ("Opposition"). (AECF No. 208).

On August 11, 2021, Defendants filed their reply ("Reply"), along with a Declaration of Thomas D. Dillard, Jr. ("Dillard, Jr. Declaration"). (AECF No. 210).^[18]

On August 12, 2021, Debtor filed a separate, amended motion under Civil Rule 45 to compel a significant, non-party witness in the USDC Case to provide further responses to a subpoena. (AECF No. 218).

DISCUSSION

As its title suggests, the instant Motion seeks two determinations both of which affect whether the claims encompassed by this adversary proceeding should be referred back to the USDC. The first determination involves whether the claims in this proceeding are core matters. The second determination asks whether the Defendants have a right to jury trial on their Counterclaims. Local Rule 9015(e) provides that "Unless the assigned judge orders otherwise, all proceedings will continue in the bankruptcy court until the matter is ready for trial."

I. The Claims Asserted in the USDC Case Are Not Core Proceedings.

As to the first determination, it is not disputed that none of the claims alleged in the SAC or the Counterclaim arise under bankruptcy law nor do they arise in the Chapter 11 case. The USDC Case was commenced before the Debtor even sought bankruptcy relief and the claims alleged by the Debtor do not arise under bankruptcy law. Compare, e.g., In re Andrade-Garcia, 627 B.R. 158, 162 (Bankr. D. Nev. 2021)(core jurisdiction exists for claim objections arising under Section 502). Likewise, the counterclaims alleged by the Defendants arise out of the same transaction or occurrence as the Debtor's claims. As a result, Defendants' claims were compulsory counterclaims under Civil Rule 13(a) that had to be asserted in the USDC Case or they would be barred. See Combined Decision at 26:1-13. Under Bankruptcy Rule 7013, however, Defendants were not required to assert the counterclaims in this adversary proceeding, but they voluntarily chose to do so. See Combined Decision at 26:14-20. Under these circumstances, the counterclaims also do not arise in the Chapter 11 case even though Defendants filed the counterclaims after the Chapter 11 case was commenced. Compare, e.g., In re Aquino, 2021 WL 2144356, at *27 (Bankr. D. Nev. May 25, 2021)(core jurisdiction exists for Chapter 13 plan confirmation request, plan confirmation objection, and motion to dismiss that arise in the bankruptcy case).

As the USDC acknowledged, the claims alleged by the Debtor are related to the bankruptcy case. The same conclusion would apply to the claims alleged in the Counterclaim as they are based on the same transaction or occurrence. That the claims alleged are related to the bankruptcy case, however, does not dictate whether they are core or non-core matters within the meaning of 28 U.S.C. §157(b)(2). Debtor's claim for breach of contract as well as its claim for breach of implied covenant of good faith and...