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Myers v. Niroomand-Rad

United States District Court, D. Nebraska

January 20, 2017

TRUSTEE RICHARD D. MYERS, Plaintiff,
v.
MOHSEN NIROOMAND-RAD, MICHAEL NIROOMAND-RAD, RYAN NIROOMAND-RAD, USA CONSTRUCTION COMPANY INCORPORATED, XION CONSTRUCTION COMPANY, LLC, and JOHN DOES 1-10, Defendants.

          MEMORANDUM AND ORDER

          Robert F. Rossiter, Jr. United States District Judge.

         This matter is before the Court on the proposed Findings and Recommendations (Filing No. 1) of the bankruptcy court[1] recommending that this Court deny defendants Ryan Niroomand-Rad (“Ryan”), Michael Niroomand-Rad (“Michael”), and Xion Construction Company, LLC's (“Xion” and collectively, “defendants”) Motion to Withdraw the Reference of Adversary Proceeding No. 16-8050 pursuant to 28 U.S.C. § 157(d). The defendants timely objected to the bankruptcy court's Findings and Recommendations (Filing No. 3). See NEGenR 1.5(b)(2). Trustee Richard D. Meyers (“trustee”) did not file any response. For the reasons stated below, the defendants' objection is overruled, and their Motion to Withdraw is denied without prejudice.

         I. BACKGROUND

         On September 23, 2014, Mohsen Niroomand-Rad (“debtor”), the president of USA Construction Company, Inc. (“USA Construction”), filed for bankruptcy. USA Construction was in the business of obtaining federal government contracts and hiring subcontractors to perform the work. Michael and Ryan, the debtor's sons, are majority shareholders of USA Construction. Michael was also Xion's registered agent. Like USA Construction, Xion was in the business of obtaining federal government contracts.

         On September 21, 2016, the trustee filed an adversary complaint against the debtor, the defendants, and others, attempting to recover assets for the bankruptcy estate. The trustee asserted eight claims for relief: (1) Alter Ego/Piercing Corporate Veil; (2) Substantive Consolidation; (3) Declaratory Judgment to Determine that Net Financial Benefits from Federal Government Contracts were Held in Trust for the Debtor and are Property of the Bankruptcy Estate; (4) Turnover of All Property of the Estate Held by Alter Ego Defendants pursuant to 11 U.S.C. § 542; (5) Avoidance and Recovery of Fraudulent Transfers pursuant to 11 U.S.C. §§ 544, 550 & 551 and § 36-705 of the Nebraska Uniform Fraudulent Transfer Act (“NUFTA”); (6) Avoidance and Recovery of Fraudulent Transfers pursuant to 11 U.S.C. §§ 544, 550 & 551 and NUFTA § 36-706; (7) Avoidance and Recovery of Fraudulent Transfers Pursuant to 11 U.S.C. §§ 544, 548, 550 & 551; and (8) Accounting. The case was referred to the bankruptcy court. See 28 U.S.C. § 157(a); NEGenR 1.5(a).

         On November 18, 2016, the defendants moved for permissive withdrawal of the reference of the adversary proceedings pursuant to 28 U.S.C. § 157(d). Contending the trustee “asserted ‘non-core' claims that involve substantial consideration of state law and Defendants have a right to a jury trial on these claims, ” the defendants primarily argued “it is proper for the District Court to withdraw the reference to this adversary case so that all claims may be heard and decided in one forum.” The trustee resisted the defendants' motion, arguing “the adversary proceeding involves core proceedings under 28 U.S.C. § 157(b)(2) and proceedings whose outcome could conceivably have an effect on the estate being administered in bankruptcy.”

         On December 16, 2016, the bankruptcy court concluded “the reference should not be withdrawn” and recommended that this Court deny the defendants' Motion. In reaching that conclusion, the bankruptcy court observed it “may not have the authority to enter a final judgment on the issues in this adversary proceeding absent consent of the parties because of the state-law, non-core claims, but that does not mean this court should not administer and hear the adversary proceeding and provide findings and recommendations to the district court for final adjudication.” See 28 U.S.C. § 157(c)(1) (permitting bankruptcy judges to hear related non-core proceedings and submit proposed findings and conclusions to the district court); Exec. Benefits Ins. Agency v. Arkison, 573 U.S.__, __, 134 S.Ct. 2165, 2170 (2014) (concluding the procedures set forth in § 157(c)(1) apply to fraudulent-conveyance claims).

         On December 30, 2016, the defendants objected to the bankruptcy court's Findings and Recommendations. That same day, the defendants answered the adversary complaint and “demand[ed] a trial by jury of all issues so triable.” The defendants “do not consent to having a jury trial conducted by the Bankruptcy Court or to having the Bankruptcy Court enter a final order or judgment.” See 28 U.S.C. § 157(e) (permitting a bankruptcy judge to conduct a jury trial “with the express consent of all the parties.”).

         II. DISCUSSION

         The defendants' Motion for Withdrawal is based on 28 U.S.C. § 157(d). Under that subsection, the Court, in its discretion, “may withdraw, in whole or in part, any case or proceeding referred . . . for cause shown.” Id. The statute, as the bankruptcy court noted, does not describe what cause must be shown to warrant withdrawing a reference, and neither the Supreme Court, nor the Eighth Circuit has yet weighed in on the subject. See, e.g., Kelley v. JPMorgan Chase & Co., 464 B.R. 854, 860 (D. Minn. 2011). Other courts, however, have identified several factors to consider, including (1) whether the claims are core or non-core claims under 28 U.S.C. § 157(b)(2); (2) the potential delay and costs to the parties; (3) judicial economy; (4) the promotion of uniformity in bankruptcy administration; (5) the prevention of forum shopping and confusion; and (6) the existence of a jury demand. See, e.g., In re Orion Pictures Corp., 4 F.3d 1095, 1101-02 (2d Cir. 1993); Holland Am. Ins. Co. v. Succession of Roy, 777 F.2d 992, 998 (5th Cir. 1985).

         Evaluating these factors, the bankruptcy court concluded the circumstances of this case do not warrant withdrawal. The bankruptcy court explained that several of the trustee's claims are core proceedings and the others “are related to the bankruptcy case because they concern the recovery of assets belonging to the bankruptcy estate which have allegedly been transferred to nondebtors in an effort to conceal the assets or hinder creditors in their efforts to collect from the debtor.” Noting its familiarity with the case and the lack of jury demand at that point, the bankruptcy court stated it is “willing and able to administer a timely progression of the case toward trial.” What's more, the bankruptcy court found “[t]he prudent husbandry of judicial resources favors leaving the adversary proceeding with the bankruptcy court at this time for increased judicial efficiency in both courts.”

         The defendants agree with the factors the bankruptcy court considered but argue its application of those factors is flawed. In the defendants' view, the pertinent factors weigh in favor of granting their Motion to Withdraw because this case involves both core and non-core claims and the trustee's non-core claims predominate. Although § 157(c)(1) expressly permits bankruptcy judges to consider non-core proceedings and issue proposed findings of fact and conclusions of law, the defendants suggest it is inefficient to follow that procedure when “a single court” could “hear and decide the matter.”

         The defendants also point out that they made a jury demand after the bankruptcy court issued its Findings and Recommendations. As the defendants see it, they are entitled to a jury “at the very least” for the trustee's declaratory-judgment and fraudulent- conveyance claims. See Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 64 (1989) (holding that “a person who has not submitted a claim against a bankruptcy estate has a right to a jury trial when sued by the trustee in bankruptcy to recover an allegedly fraudulent monetary transfer”). Again, the defendants argue it is more efficient and “more economical to have the matter heard by one jury, in one court, with one judge having the jurisdiction to enter a final judgment, rather than splitting the matter between two courts.”

         The defendants' arguments fail to persuade the Court that withdrawal is warranted at this time. While the Findings and Recommendations (understandably) do not account for the defendants' subsequent jury demand, the bankruptcy court's analysis of the remaining factors is thorough and well-reasoned. Notwithstanding the defendants' arguments to the contrary, the Court agrees with the bankruptcy court that it is more prudent and ...


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