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Homa v. Gargula

United States District Court, S.D. Illinois

December 9, 2019

ERIC HOMA, Plaintiff,
v.
UNITED STATES TRUSTEE NANCY J. GARGULA, Defendant.

          MEMORANDUM AND ORDER

          NANCY J. ROSENSTENGEL, CHIEF U.S. DISTRICT JUDGE

         Pending before the Court is a Motion to Withdraw Reference from the United States Bankruptcy Court for the Southern District of Illinois filed by Plaintiff Eric Homa (“Homa”) pursuant to 28 U.S.C. § 157(d) (Doc. 1). Defendant United States Trustee Nancy J. Gargula (“the Trustee”) filed a response in opposition to the request to withdraw reference (Doc. 2), and Homa filed a reply (Doc. 3). The Court heard arguments on the Motion to Withdraw Reference on December 5, 2019.

         Background

         On June 18, 2019, Homa, a bankruptcy attorney with UpRight Law LLC, filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code in this district's bankruptcy court on behalf of Debtor, Chelsea Potter (“Potter”). In the course of that proceeding, Chief United States Bankruptcy Judge Laura K. Grandy issued a fee review order relating to the $1, 675 fee Homa charged Potter. Shortly thereafter, Homa filed a Motion to Withdraw Reference in this Court.

         Legal Standard

         District courts have original jurisdiction over all bankruptcy proceedings arising out of Title 11 of the United States Code, see 28 U.S.C. § 1334, but a district court may “provide that any or all cases under title 11 [of the United States Code] and any or all proceeding arising under title 11 or arising in or related to a case under title 11 shall be referred to the bankruptcy judges for the district.” 28 U.S.C. § 157(a). This district's Local Rule Br1001.1 automatically refers all cases rising under Title 11 to the bankruptcy judge in this district.

         A district judge “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” for the removal. 28 U.S.C. § 157(d). Section 157(d) does not define “cause, ” but courts generally consider the following factors in determining whether cause exists: whether withdrawal would promote judicial economy or uniformity and efficiency in bankruptcy administration; whether it would reduce forum shopping; whether it would cause delay and costs to the parties; whether a particular court has familiarity with the case; whether the parties have demanded a jury trial; and whether a core or non-core proceeding is involved. See Adelsperger as Tr. For Consol. Bankr. Estate of 5 Star Commercial, LLC v. 3d Holographics Med. Imaging Inc., No. 3:16-CV-759-HAB, 2019 WL 2206091, at *2 (N.D. Ind. May 21, 2019).

         As another district court put it, district courts have “broad discretion to determine whether to withdraw a reference based on cause, but at the same time, permissive withdrawal is the exception, rather than the rule, as bankruptcy jurisdiction is ‘designed to provide a single forum for dealing with all claims to the bankrupt's assets.'” In re K & R Express Sys., Inc., 382 B.R. 443, 446 (N.D. Ill. 2007) (citing In re Sevko, Inc., 143 B.R. 114, 115 (N.D. Ill. 1992), and quoting Xonics v. First Wis. Fin. Corp., 813 F.2d 127, 131 (7th Cir. 1987)). The moving party has the burden of establishing sufficient cause. In re Stein, Case No. 1:17- cv-00561-TWP-MJD, 2017 WL 2418325, at *1 (S.D. Ind. June 2, 2017).

         Analysis

         Homa asks the Court to withdraw the reference in order to: (1) allow the district court to establish an updated presumptively reasonable attorney fee for Chapter 7 cases filed within the Southern District of Illinois; and (2) obtain guidance relating to the propriety of the use of a Rule 2004 Examination as a tool to evaluate the reasonableness of a Chapter 7 attorney fee.

         Homa argues that withdrawal of the reference will promote uniformity and efficiency, emphasizing that the Seventh Circuit Court of Appeals requires a district court to set a presumptively reasonable fee for consumer bankruptcies, citing Matter of Kindhart, 160 F.3d 1176, 1179 (7th Cir. 1998). Homa also argues that withdrawing the reference will promote judicial economy because the Court can promptly issue, within 30 days, guidance as to the presumptively reasonable fee for Chapter 7 cases as contemplated by Kindhart.

         The Trustee responds that the issues raised by Homa are core matters within the meaning of 28 U.S.C. § 157(b)(2) that should be adjudicated by the bankruptcy court. The Trustee argues that Homa is engaging in forum shopping to avoid the bankruptcy court's review of UpRight Law's fees and is seeking an advisory opinion from this Court on issues irrelevant to the underlying case. The Trustee also asserts that Homa distorts the substance of the Kindhart decision.

         In Kindhart, a bankruptcy attorney sought additional fees in three Chapter 13 cases. Kindhart, 160 F.3d at 1177. The bankruptcy court in the Central District of Illinois had previously established an $800 base to be used as presumptively reasonable for Chapter 13 attorneys' fees. Id. The attorney filed a motion for additional fees exceeding the $800 base. Id. The bankruptcy court awarded a portion of the fees sought in one case but did not award increases in two of the cases. Id.

         The attorney appealed this ruling to the district court. The district court ultimately affirmed, noting that the attorney failed to show that the use of the $800 benchmark procedure was contrary to law or that its use was arbitrary, or so low ...


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