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Mason v. Klarchek

United States District Court, Seventh Circuit

May 2, 2013

RICHARD J. MASON, Chapter 7 Trustee, Plaintiff,
v.
RICHARD J. KLARCHEK; MICHELLE M. KLARCHEK; ATG TRUST COMPANY, as Successor to Northern Trust Company as Trustee Under Trust Agreement Dated January 31, 1995 and Known as Trust No. 9264; and ATG TRUST COMPANY, as Successor to Northern Trust Company as Trustee Under Trust Agreement Dated October 31, 2002 and Known as Trust No. 10009, Defendants.

MEMORANDUM OPINION AND ORDER

JOHN W. DARRAH, District Judge.

Michelle M. Klarchek and ATG Trust Company, as trustee of ATG Trust No. 9264 and ATG Trust No. 10009, (collectively, the "Movants") move to withdraw the reference of this proceeding to the bankruptcy court, pursuant to 28 U.S.C. § 157(d) and Fed.R.Bankr.P. 5011. This matter has been fully briefed. Based on the analysis below, the motion is denied.

BACKGROUND

Richard J. Klarchek ("Richard") filed a voluntary petition of Chapter 11 bankruptcy on October 6, 2010. (Mot. § 1.) The Chapter 11 proceeding was converted to a Chapter 7 liquidation proceeding on May 1, 2012. ( Id. ) Richard J. Mason ("Trustee") is the appointed trustee. ( Id. ) The Trustee filed an adversary complaint in the bankruptcy court, opposing Richard's transfer of an interest in two Illinois land trusts that held legal title to two condominiums, where Richard and Michelle principally reside. ( Id. § 2.) Richard sought to transfer his interest from himself to Richard and Michelle as tenants by the entirety. ( Id. ) Mason v. Klarchek, Adv. No. 12 A 01688 (Bankr. N.D.Ill. 2012) (the "Adversary Proceeding").

The complaint filed in the Adversary Proceeding alleges three claims, based upon Illinois statutory or common law claims: (1) the creation of the tenancy by the entirety was established simply to defeat the claims of Richard's creditors; (2) the transfer to Michelle which created the tenancy by the entirety was a fraudulent transfer; and (3) Michelle's appointment of Richard with a power of direction over the land trusts ignores a necessary element to establish a tenancy by the entirety.[1] ( Id. § 3.) The Trustee also filed an objection to an exemption claimed by Richard. (Resp. Ex. A.)

The Movants filed answers in opposition to the Adversary Proceeding. The Movants argue this Court should withdraw the reference of the Adversary Proceeding to the bankruptcy court and, instead, designate the Adversary Proceeding on the Northern District Court of Illinois's docket. The Movants seek to have the reference to the bankruptcy court withdrawn for cause, pursuant to 28 U.S.C. § 157.

The Trustee opposes the motion to withdraw the reference and re-docket the Adversary Proceeding as a jury proceeding in the Northern District of Illinois.

LEGAL STANDARD

28 U.S.C. 157(d) provides:

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.

This "provision has been read narrowly so that withdrawal of the reference is mandatory only where resolution of the claims will require substantial and material interpretation of a non-title 11 statute, or which involve an analysis of significant open and unresolved issues regarding non-Title 11 law." In re Coe-Truman Technologies, Inc., 214 B.R. 183, 185 (N.D. Ill. 1997) ( Coe-Truman ) (citations and quotations omitted). "Conversely, withdrawal of the reference is not required where resolution of the proceeding involves the mere application of well-settled non-bankruptcy law to a new factual setting." Coe-Truman, 214 B.R. at 185 (citing In re Vicars Ins. Agency, Inc., 96 F.3d 949, 954 (7th Cir. 1996)). "Withdrawal is traditionally the exception, rather than the rule...." In re Emerald Casino, Inc., 467 B.R. 128, 135 (Bankr. N.D.Ill. 2012). However, a bankruptcy court is not authorized to conduct a jury trial. Matter of Grabill Corp., 967 F.2d 1152, 1158 (7th Cir. 1992).

To determine whether or not withdrawal of the reference is appropriate, courts in this District traditionally consider the following factors: "(i) whether the proceeding is core or non-core, (ii) considerations of judicial economy and convenience, (iii) promoting the uniformity and efficiency of bankruptcy administration, (iv) forum shopping and confusion, (v) conservation of debtor and creditor resources, and (vi) whether the parties requested a jury trial." Emerald Casino, 467 B.R. at 135. "The bankruptcy judge shall determine, on the judge's own motion or on timely motion of a party, whether a proceeding is a core proceeding under this subsection or is a proceeding that is otherwise related to a case under title 11." 28 U.S.C. § 157(b)(3).

ANALYSIS

In the instant case, the Trustee contends that the Movants failed to demonstrate that "cause" exists to withdraw the reference of the Adversary Proceeding to the bankruptcy court. At the very least, the Trustee ...


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