United States District Court, N.D. Illinois, Eastern Division
October 7, 2004.
In re: COMDISCO, INC. at al, Debtors, COMDISCO, INC., Plaintiff,
ST. PAUL FIRE & MARINE INSURANCE COMPANY, ST. PAUL MERCURY INSURANCE COMPANY, IMA OF COLORADO, INC., Defendants.
The opinion of the court was delivered by: BLANCHE MANNING, District Judge
MEMORANDUM AND ORDER
Motion to Withdraw the Reference.
Defendant IMS of Colorado seeks to withdraw this court's
reference of this matter to the bankruptcy court pursuant to
28 U.S.C. § 157(d), Rule 5011 of the Federal Rules of Bankruptcy
Procedure, and Northern District of Illinois Internal Operating
Procedure 15. For the following reasons, the motion is granted.
Plaintiff Comdisco Ventures is a wholly owned subsidiary of
Comdisco, Inc. In 2001, Comdisco, Inc. filed a voluntary
Chapter 11 plan. The plan became effective in August of 2002, and
Comdisco is presently operating its business and managing its
properties as a reorganized debtor under Chapter 11.
In March of 2004, Comdisco Ventures filed an adversary
proceeding against IMA. The complaint in the adversary proceeding
alleged that IMA's policies required IMA to indemnify Comdisco Ventures for losses to office equipment. Comdisco
Ventures seeks recovery under theories of professional negligence
and negligent and intentional misrepresentation.
Under 28 U.S.C. § 157(d), "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. The district court shall, on timely motion of a
party, so withdraw a proceeding if the court determines that
resolution of the proceeding requires consideration of both title
11 and other laws of the United States regulating organizations
or activities affecting interstate commerce."
Withdrawal of a reference is not intended to be an escape hatch
from bankruptcy to district court. In re Coe-Truman
Technologies, Inc., 214 B.R. 183, 184 (N.D. Ill. 1997). Thus,
the reference should only be withdrawn in a limited class of
proceedings, and the movant bears the burden of establishing that
this relief is appropriate. Id. The first sentence of § 157(d)
is generally known as the permissive withdrawal provision, and
authorizes the discretionary withdrawal of the reference "for
cause shown." Factors relevant to cause include: judicial
economy, promotion of uniformity and efficiency in bankruptcy
administration, reduction of forum shopping, delay and costs to
the parties, the court's familiarity with the case, and whether
the adversary proceeding is core or non-core. In re Coe-Truman
Technologies, Inc., 214 B.R. at 187. The court must also
consider whether the parties are entitled to a jury trial. See,
e.g., In re Sevko, 143 B.R. 114, 117 (N.D. Ill. 1992). In this case, Comdisco contends that: (1) IMA's motion is
untimely; (2) withdrawal of the reference would be improper
because this is a core proceeding; and (3) judicial economy would
be promoted by allowing this matter to proceed in the bankruptcy
court. The court disagrees.
First, there is no bright line rule that gives a party a
certain number of days in which it may seek to withdraw the
reference. Judge Lefkow granted a motion to withdraw the
reference in another Comdisco insurance adversary proceeding on
June 18, 2004, In re: Comdisco Ventures, Inc., Nos. 04 C 2007 &
04 C 2393, 2004 WL 1375353 (N.D. Ill. Jun. 18, 2004), Judge Black
denied IMA's motion to dismiss on August 11, 2004, and IMA filed
its motion to withdraw the reference on August 24, 2004. Given
the very moderate lapse of time between the rulings from Judge
Lefkow and Judge Black, it would be inappropriate to bar IMA from
seeking to withdraw the reference. See In re Sevko,
143 B.R. 114, 115 (N.D. Ill. 1992) (a motion to withdraw the reference
should be filed "as soon as possible, or at the first reasonable
opportunity after the moving party has notice of the grounds for
withdrawal, depending on the facts of each case").
The court next considers whether this is a core
proceeding.*fn1 The most important factor in determining if
the reference should be withdrawn is whether the adversary
proceeding sought to be withdrawn is core or non-core. In re
Sevko, 143 B.R. at 117. "[A] proceeding is core . . . if it
invokes a substantive right provided by Chapter 11 or if it is a
proceeding that, by its nature, could arise only in the context
of a bankruptcy case." Id., quoting Diamond Mortgage Corp. of Illinois v. Sugar, 913 F.2d 1233, 1239 (7th Cir. 1990); In re
U.S. Brass Corp., 110 F.3d 1261, 1268 (7th Cir. 1997) ("core
proceedings" are claims "by or against the debtor that arise
under the Bankruptcy Code in the strong sense that the Code
itself is the source of the claimant's right or remedy").
Here, the court sees no principled reason to depart from Judge
Lefkow's thoughtful analysis of the precise issue before the
court. See In re: Comdisco Ventures, Inc., WL 1375353 at *2-4.
In short, the court agrees with Judge Lefkow's conclusion that
this type of proceeding is non-core because: (1) claims against
insurers over the "ownership" of insurance contracts require the
court to interpret the terms of a contract; and (2) the right to
collect upon an asset of the estate is not a substantive right
granted by Title 11. See id.; see also In re Coe-Truman
Technologies, Inc., 214 B.R. at 187 (collecting cases holding
that "breach of contract claims have consistently and
traditionally been found to be non-core"). Thus, the most
important factor relating to withdrawal of the reference favors
Moreover, the insurance dispute is entirely severable from the
bankruptcy proceedings, so withdrawal of the reference will not
require the district and bankruptcy courts to address the same
issues. This is especially true given that Comdisco's four other
suits against insurers and insurance brokers are already
consolidated and pending before Judge Lefkow for pretrial
purposes. The court assumes that if the reference is withdrawn in
this case, Judge Lefkow will deem it related and add it to her
pending Comdisco matters. Keeping this matter before the
bankruptcy court would, therefore, hinder judicial economy.
Finally, consolidating this action with the other Comdisco
insurance cases will promote uniformity and be efficient. It will
be less expensive to litigate the pre-trial matters together. Lat but not least, the bankruptcy court's familiarity with the
bankruptcy proceedings will not help it address the state law
issues raised in adversary complaint. Accordingly, the court
finds that withdrawal of the reference is warranted.
IMA's motion to withdraw the reference [1-1] is granted.