United States District Court, D. Nebraska
IN THE MATTER OF PLANET MERCHANT PROCESSING, INC., Debtors.
KIM GEIKEN and EVO MERCHANT SERVICES, LLC, Defendants. PLANET MERCHANT PROCESSING, INC., Plaintiff,
FINDINGS AND RECOMMENDATIONS TO THE UNITED STATES
L. Saladino Chief Judge.
was held on August 7, 2017, on the motion by Thomas D.
Stalnaker as the Chapter 7 trustee for the bankruptcy estate
of Planet Merchant Processing, Inc., to withdraw the
reference of this adversary proceeding (Fil. No. 38), and
objection by defendant EVO Merchant Services, LLC (Fil. No.
42). Donald L. Swanson, J. Daniel Weidner, and John D.
Stalnaker appeared for Thomas D. Stalnaker; T. Randall Wright
and Mark Maloney appeared for EVO Merchant Services, LLC; and
Kathryn A. Dittrick Heebner appeared for Kim Geiken.
debtor is a Nebraska corporation which developed a software
product, known as Acquire360, for back-end processing of
debit and credit transactions. Defendant Kim Geiken worked as
a senior software developer for an affiliated entity, Planet
Group, Inc., and was involved in the development and support
of Acquire360. Ms. Geiken resigned from Planet Group in
January 2015 and promptly went to work for defendant EVO
Merchant Services, LLC, a former customer of the debtor and a
licensee of the Acquire360 software. The debtor alleges that
Ms. Geiken impermissibly took proprietary information,
including the Acquire360 source code, with her when she left.
debtor filed this adversary proceeding in January 2017
against Ms. Geiken and EVO alleging tortious conversion,
misappropriation of trade secrets, copyright infringement,
and violation of the automatic bankruptcy stay. In February
2017, the debtor converted its bankruptcy case from a Chapter
11 to a Chapter 7 and Thomas D. Stalnaker was appointed
trustee, succeeding to the debtor's causes of action in
this adversary proceeding.
Group also filed a lawsuit against Ms. Geiken in Douglas
County District Court. That case was removed to the United
States District Court in May 2017 and is pending at No.
17CV169. That complaint arises from the same set of facts,
and alleges breach of a confidential information agreement,
misappropriation of trade secrets, breach of fiduciary
duties, and violation of the federal Computer Fraud and Abuse
bankruptcy trustee wants the district court to withdraw the
reference of the adversary proceeding and consolidate the two
cases. The motion is made under 28 U.S.C. § 157(d) for
cause because the trustee's claims involve
“non-core” matters which require adjudication of
common-law or state-law claims. These causes of action are
not created by any provision of the Bankruptcy Code and they
would exist outside of the bankruptcy case. Essentially, the
trustee is raising the question of the bankruptcy court's
authority to decide this adversary proceeding under Stern
v. Marshall, 564 U.S. 462 (2011).
United States District Court for the District of Minnesota
has addressed the issue of withdrawal of the reference for
Stern questions, and its explanation is applicable
the bankruptcy statutes:
[T]he district courts of the United States have
“original and exclusive jurisdiction of all cases under
title 11.” Congress has divided bankruptcy proceedings
into three categories: those that “aris[e] under title
11”; those that “aris[e] in” a Title 11
case; and those that are “related to a case under title
11.” District courts may refer any or all such
proceedings to the bankruptcy judges of their district . . .
. District courts also may withdraw a case or proceeding
referred to the bankruptcy court “for cause
Stern v. Marshall, 131 S.Ct. 2594, 2603 (2011)
(quoting 28 U.S.C. §§ 1334(a), 157(a), (d)). In
this District, all bankruptcy cases and proceedings are
automatically referred to the bankruptcy judges. Bankruptcy
Local Rule 1070-1.
judges may hear and enter final judgments in “all core
proceedings arising under title 11, or arising in a case
under title 11.” “Core proceedings include, but
are not limited to” 16 different types of matters . . .
Stern, 131 S.Ct. at 2603-04 (quoting 28 U.S.C.
§§ 157(b)(1), (b)(2)(C), 158).
bankruptcy judge determines that a referred “proceeding
. . . is not a core proceeding but . . . is otherwise related
to a case under title 11, ” the judge may only
“submit proposed findings of fact and conclusions of
law to the district court.” It is the district court
that enters final judgment in such cases after reviewing de
novo any matter to which a party objects. Id. at
2604 (quoting 28 U.S.C. § 157(c)(1)).
Stern v. Marshall, the Supreme Court held that
section 157(b)'s grant of authority to a bankruptcy court
to “hear and determine . . . and . . . enter
appropriate orders and judgments, ” on
“counterclaims by the estate against persons filing
claims against the estate, ” violated Article III of
the United States Constitution when the state law claims
would not be “completely resolved in the bankruptcy
process of allowing or disallowing claims.” 131 S.Ct.
at 2611. Therefore, “some claims labeled by Congress as
‘core' may not be adjudicated by a bankruptcy court
in the manner designated by § 157(b).” Exec.
Benefits Ins. Agency v. Arkison (In re Bellingham), 134
S.Ct. 2165, 2172 (2014).
re Bellingham, decided by the Supreme Court in June
2014, explained that if a so-called Stern claim
“satisfies the criteria of § 157(c)(1)” in
that it is “related to a case under title 11, ”
then “the bankruptcy court simply treats the claims as
non-core: The bankruptcy court should hear the proceeding and
submit proposed findings of fact and ...