United States District Court, D. Nebraska
RHETT R. SEARS, et al., Plaintiffs,
KORLEY B. SEARS, Defendant.
MEMORANDUM AND ORDER
JOHN M. GERRARD, District Judge.
This matter is before the Court on the Report and Recommendation of the United States Bankruptcy Judge (filing 1) and plaintiffs' motion for attorney fees (filing 4). The Court has reviewed the defendant's objection (filing 5) to the report and recommendation, and finds it to be completely without merit. The Court will, therefore, overrule the objection, deny the plaintiffs' Motion for Withdrawal of Reference (case no. 4:12-ap-4034, filing 35), and grant the plaintiffs' motion for attorney fees.
MOTION FOR WITHDRAWAL OF REFERENCE
The underlying bankruptcy case is an adversary proceeding filed to determine the dischargeability of the defendant's debt. The plaintiffs, who are creditors of the defendant in his Chapter 11 bankruptcy proceeding, allege that he failed to disclose his interest in certain property that he had supposedly transferred but actually had retained. According to the plaintiffs, the defendant's actions warrant denial of a discharge pursuant to several subsections of 11 U.S.C. § 727(a). See case no. 4:12-ap-4034, filing 1. The defendant claims that this Court should withdraw the reference of the adversary proceeding to bankruptcy court pursuant to 28 U.S.C. § 157(d).
BANKRUPTCY COURT JURISDICTION/RIGHT TO JURY TRIAL
The defendant primarily argues, relying on Stern v. Marshall, 131 S.Ct. 2594 (2011) and Grandfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989), that the bankruptcy court lacks jurisdiction to determine whether the defendant fraudulently transferred property. See filing 6 at 4-6. In a related argument, the defendant contends that he has a right to a jury trial on such a claim. See filing 6 at 6-7.
But as the bankruptcy court has repeatedly tried to explain to the defendant, this is not a fraudulent transfer claim. The defendant filed for bankruptcy, seeking to have his debts discharged, and the plaintiffs filed a complaint with the bankruptcy court alleging that the defendant's debts should not be discharged. In other words, it was the defendant who filed a bankruptcy petition seeking relief from the bankruptcy court under the Bankruptcy Code, and the bankruptcy court obviously has jurisdiction to decide whether or not to grant such relief. See In re Anthony, 481 B.R. 602, 614 (D. Neb. 2012). "The bankruptcy court exists to decide issues arising under the Bankruptcy Code, and because the existence of the remedy depends upon Congress' exercise of authority, Congress can limit the extent to which a judicial forum is available." Id. (citing Stern, 131 S.Ct. at 2612).
It is, in fact, well understood that a determination of dischargeability is necessary to the claims-allowance process and may be determined by the bankruptcy court consistent with Stern. See, Pearson v. Almgren, 685 F.3d 691, 695 (8th Cir. 2012); In re Deitz, 469 B.R. 11, 18-20 (B.A.P. 9th Cir. 2012) (collecting cases); In re Sherali, 490 B.R. 104, 115-17 (Bankr. N.D. Tex. 2013); In re Boricich, 464 B.R. 335, 336-37 (Bankr. N.D.Ill. 2011); see also Mason v. Ivey, 498 B.R. 540, 547-49 (M.D. N.C. 2013) (avoidance action). "[T]here can be little doubt that a bankruptcy court, as an Article I tribunal, has the constitutional authority to hear and finally determine what claims are nondischargeable in a bankruptcy case.'" Deitz, 469 B.R. at 20 (quoting In re Carroll, 464 B.R. 293, 312 (Bankr. N.D. Tex. 2011), aff'd sub nom, Carroll v. Farooqi, 486 B.R. 718 (N.D. Tex. 2013)). Nor is the defendant's constitutional right to a jury trial implicated by the bankruptcy court's determination of the dischargeability of his debts. Pearson, 685 F.3d at 694-95; see Boricich, 464 B.R. at 336-37; see also Mason, 498 B.R. at 549. There is no common-law or constitutional right to have one's debts discharged in bankruptcy-that remedy was created by Congress, and "Congress may set the terms of adjudicating a suit when the suit could not otherwise proceed at all.'" Anthony, 481 B.R. at 614 (quoting Stern, 131 S.Ct. at 2612).
It is, simply put, absurd to contend that the bankruptcy court lacks jurisdiction to decide whether a debt may be discharged in bankruptcy. The defendant contends that the plaintiffs' nondischargeability argument is "inextricably intertwined with" and "virtually the same as fraudulent transfer claims." Filing 6 at 7-9. But "virtually the same" is not the same, and the bottom line is that it is the defendant who has asked for relief from the bankruptcy court. He cannot do that and then deny the bankruptcy court's jurisdiction to decide whether he is entitled to it.
CHAPTER 7 CONVERSION
The defendant also argues that his Chapter 11 bankruptcy proceeding cannot be converted into a Chapter 7 proceeding without his consent, because he is a farmer. See 11 U.S.C. § 1112(c). And that much is true. See id. But there are two problems with the defendant's argument.
The first is that nothing in this proceeding converted the defendant's Chapter 11 reorganization into a Chapter 7 liquidation. Chapter 11 provides that the confirmation of a reorganization plan
does not discharge a debtor if-
(A) the plan provides for the liquidation of all or substantially all of the ...