UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF ALASKA

       6 ABR 504        
To: THE HONORABLE JAMES K. SINGLETON, CHIEF DISTRICT JUDGE

1.    RECOMMENDATION- This report and recommendation is made pursuant to the local bankruptcy rule⁽¹⁾ which provides that, when a party moves to withdraw the reference, ⁽²⁾ the bankruptcy court shall make a report and recommendation to the district judge as to how to treat the motion.

The bankruptcy court recommends that the U.S. District Court deny defendant's motion to withdraw the reference,⁽³⁾ and order defendant's attorney to show cause why he should not be sanctioned for having filed it.

   2.    SUMMARY- The issue for the district court to determine is whether it should allow the defendant to withdraw the reference of this adversary proceeding to the district court, so he can have a jury trial in a case that has been pending for almost four years, and in which he made no demand for a jury trial until the present motion, filed eight days before the bench trial set by the court. It seems incontrovertible that the defendant has waived his right to a jury trial at this late date, and should not be allowed to derail the bench trial in bankruptcy court which is currently set on September 19, 2000.

   3.    REPORT-

   3.1.    Procedural Background- The trustee filed over six hundred fraudulent transfer actions in 1996 and 1997. To better manage the cases, the       6 ABR 505   court established a lead case called the Bonham Recovery Actions (the BRA). ⁽⁴⁾

In the BRA, the court set a deadline for parties to move to withdraw the reference with respect to jury demands. The final deadline set to file a motion to withdraw the reference because of a jury demand, and to pay the filing fee for such a motion, was January 1999. ⁽⁵⁾ Rowe did not seek to withdraw the reference until September 11, 2000.

The trustee filed suit against Rowe in October 1996, to recover allegedly fraudulent transfers to Rowe. Rowe served an answer on plaintiff's counsel in December 1997, but never demanded a jury trial until September 11, 2000, and then only by implication when he filed his motion to withdraw the reference. Rowe's December 1997, answer was never filed with the court, but a copy (obtained from plaintiff's counsel in open court) is attached to the Proceeding Memo of a hearing on September 15, 2000.

The court held numerous pretrial conferences in individual BRA proceedings on May 25, 2000, in an attempt to resolve the BRA adversaries which had not been removed to district court. One of them was the Rowe matter.

Rowe's attorney, Thomas Sehler of Arlington, Virginia, attended telephonically and the court set a bench trial for Tuesday, September 5, 2000, on a trailing calendar. No objection was made by Sehler on the grounds that       6 ABR 506   Rowe was entitled to a jury trial. At Rowe's request, the trial was reset with the consent of both parties for a time certain on Tuesday, September 19, 2000, at 9:00 a.m.,

In August 2000, Sehler requested a hearing date on a motion to conditionally withdraw (or, "expunge" in the parlance of some practitioners) defendant's proof of claim.⁽⁶⁾ Withdrawal of the proof of claim was a predicate to defendant's right to a jury trial on the fraudulent transfer issue, since a creditor who has filed a proof of claim which has not been withdrawn is deemed to have waived the right to a jury trial. ⁽⁷⁾ Rowe's motion to expunge his proof of claim was denied on September 11, 2000. ⁽⁸⁾

At the hearing on September 11, 2000, the court was working from a faxed "copy" of the motion. The faxed motion to withdraw (expunge) the proof of claim did not, plainly request withdrawal of the reference, as the modified motion filed with the clerk does.

A modified version of the motion was filed on September 11, 2000, which now plainly requested both withdrawal (expungement) of the proof of claim and withdrawal of the reference, along with the $75 fee for a withdrawal of reference motion. Thus, the request to withdraw the reference was not filed until September 11, 2000.

      6 ABR 507         3.2.     Even if Rowe Had Never Filed a Proof of Claim, He Made No Timely Demand for a Jury Trial and Thus Has Waived His Right to One - Although a defendant in a fraudulent transfer action is generally acknowledged to have a right to a jury trial ⁽⁹⁾ before the district court if all parties do not consent to a bankruptcy judge conducting it, ⁽¹⁰⁾ a bankruptcy court is also competent to hear the matter at a bench trial and enter a final judgment if a jury trial is not demanded in a timely fashion. A bench trial of a fraudulent transfer proceeding is within the bankruptcy court's core jurisdiction. ⁽¹¹⁾

Waiting until eight days before trial to first file a demand in a proceeding which had been pending for almost four years is not timely. Bankruptcy proceedings incorporate FRCP 38(b)(2),⁽¹²⁾ which provides:

(b) Demand. Any party may demand a trial by jury of any issue triable of right by a jury by,




(1) serving upon the other parties a demand therefor in writing at any time after the commencement of the action and not later than 10 days after the service of the last pleading directed to such issue,...

The answer in this case was served on plaintiff's attorney in December 1997. The consequences of failing to file a timely demand is that the right to a jury trial is waived.⁽¹³⁾

      6 ABR 508  

Rowe has never filed a formal demand for a jury trial, and the one implicit in the motion to withdraw the reference filed on September 11, 2000, is clearly much too late. In addition, a motion to withdraw the reference is itself a time critical event. ⁽¹⁴⁾ Rowe's motion to withdraw the reference is untimely, even aside from the untimely demand for a jury trial.

     3.3.    Rowe is Not Entitled to a Jury Trial Because He Filed a Proof of Claim Before This Adversary Proceeding Was Commenced Which He Has Not Been Allowed to Withdraw- Although I have recently denied the motion to expunge Rowe's proof of claim, I will discuss briefly why it was not meritorious. The right to a jury trial is waived if a claimant has an existing proof of claim, ⁽¹⁵⁾ so denial of the right to withdraw his claim further blocks Rowe's right to a jury trial.

Withdrawal of a proof of claim is governed by FRBP 3006, which states, in part:

(a) WITHDRAWAL OF CLAIM. Except as provided in this rule, a creditor may withdraw a claim as of right by filing a notice of withdrawal.Unless the court orders otherwise, a creditor may not withdraw a claim if, after the creditor files a proof of claim, an objection to the claim is filed, a complaint is filed against the creditor in an adversary proceeding, the creditor has accepted or rejected a plan, or the creditor has otherwise participated significantly in the case. Rule 9014 governs a motion to withdraw a claim. The court may include terms and conditions which the court considers proper. ... [italics added]

      6 ABR 509  

Rowe filed his Proof of Claim No. 550 for $52,500 on February 27, 1996. The trustee did not file this adversary proceeding until over seven months later, on October 7, 1996. Thus, this falls squarely within the proviso that court approval must be obtained before withdrawal of the proof of claim is allowed.

A few cases have allowed withdrawal of proofs of claim to reignite the right to a jury trial, but all of them have been in situations where the adversary proceeding was at its inception, rather than on the verge of trial like Rowe's case. For example, In re County of Orange. ⁽²⁰⁾

The court said that a defendant should be allowed to withdraw his proof of claim if no "legal prejudice" would befall the plaintiff debtor in the, adversary proceeding.⁽²¹⁾ In that case, the motion to withdraw the proof of claim was filed only eight days after the adversary against the defendant had been filed, not eight days before trial as in the present proceeding. Thus, in County of Orange, the court found there was no legal prejudice because "the adversary case is still extremely new".⁽²²⁾

The court relied principally on the 9th Circuit's opinion in In re Lowenschuss⁽²³⁾ for the proper interpretation of FRBP 3006(a). Lowenschuss       6 ABR 510   did not involve a jury trial issue, but did state the general rule governing an FRBP 3006(a) motion as follows:

Federal Rule of Bankruptcy Procedure 3006, which is governed by the same considerations underlying Federal Rule of Civil Procedure 41(a)(2), provides that voluntary dismissals should be granted only upon an order of the bankruptcy court which "shall contain such terms and conditions as the court deems proper." Fed. R.Bankr. P. 3006; see id., Advisory Committee Note (1984). In deciding whether to grant a voluntary dismissal, a trial court must consider whether the defendant will suffer legal prejudice as a result of the court's dismissal. See Hyde & Drath v. Baker, 24 F.3d 1162, 1169 (9th Cir. 1994); see also LeCompte, 528 F.2d at 604 ("[We] follow the traditional principle that dismissal should be allowed unless the defendant will suffer some plain prejudice other than the mere prospect of a second lawsuit.") (emphasis in original) (citations omitted) (cited with approval in Unioil, 809 F.2d at 556).

In deciding whether there is "legal prejudice," a court may take into account one party's diligent preparation for trial and the other party's lack of diligence.⁽²⁴⁾ In Rowe's case, the trustee has prepared for and is ready for trial in a matter that has been pending for almost four years. Rowe is only now coming out of the woodwork and belatedly trying to resurrect right to a jury trial. I concluded that granting the motion to withdraw or expunge Rowe's proof of claim as a predicate to his right to a jury trial would entail sufficient legal prejudice to the plaintiff trustee to require denial of Rowe's motion. I therefore denied the motion to expunge several days ago.

      6 ABR 511  

The existence of that proof of claim is an additional reason why the district court should find that there is no basis to withdraw the reference.

     4.    CONCLUSION- The district court should deny the motion to withdraw the reference. The demand for a jury trial was untimely and Rowe submitted himself to a nonjury trial when he filed a proof of claim arising out of the same transactions.

The bankruptcy court intends to proceed with a bench trial on September 19, 2000, notwithstanding the fact that the district court probably will not have time to rule on the defendant's motion.

Finally, Rowe's motion to withdraw the reference is so lacking in legal and factual merit that I recommend that the district court consider ordering Mr. Sehler to show cause why he should not be subject to Rule 11 sanctions.⁽²⁵⁾

DATED: September 18, 2000,

HERBERT A. ROSS
U.S. Bankruptcy Judge,

N O T E S:    


  1.     LBR 5011-1.
  2.     28 USC § 157(d).
  3.     Defendant's Motion for Conditional Withdrawal of Proofs of Claim and for Removal of Case to United States District Court for the District of Alaska for Trial by Jury, Docket Entry 39, filed September 11, 2000.
  4.     In re BONHAM RECOVERY ACTIONS. a proceeding to jointly administer certain pre-trial issues in numerous related adversary proceedings, Adv. No. F95-00897-168-HAR (BANCAP 96-4281).
  5.;     See, Notice of Deadline to Join in Motion to Withdraw the Reference and Pay Fee, BRA Docket Entry 714, filed December 1, 1998, and Order Extending Deadline to Pay Fee for Joining in Motion to Withdraw the Reference, BRA Docket Entry 750, filed December 18, 1998.
  6.     Proof of Claim No. 550, filed on February 27, 1996.
  7.     See, Part 3.3. of this Memorandum.
  8.     Order Denying Motion To Withdrew Proof Of Claim No. 550 Of Michael F. Rowe, Docket Entry 41, filed on September 12, 2000.
  9.     See, Granfinanciera, S.A. v Nordberg, 492 US 33, 109 SCt 2782 (1989).
10.     28 USC § 157(e).
11.     28 USC § 157(b)(2)(H).
12.     See, FRBP 9015(a), incorporating FRCP 38.
13.     Official Plan Comm. v Starshak & Assoc., Inc. (In re Balsam), 185 BR 54, 58 {ED Mo 1995).
14.     28 USC § 157(d).
15.     See, Langenkamo v Culp, 111 SCt 330 (1990); In re Hooker Investments. Inc., 937 F2d 833, 838-39 (2^nd Cir 1991).
20.     In re County of Orange, 203 BR 977, 980-83 (Bankr CD Cal 1006).
21.     Id, at 203 BR 977, 980-83.
22.     Id, at 203 BR 977, 982.
23.     Resorts International, Inc. v Lowenschuss (In re Lowenschuss), 67 F3d 1394 1400-01 (9^th Cir 1995), cert den 116 SCt 2497 (1996).
24.     Grover v Eli Lilly and Co., 33 F3d 716, 718 (6th Cir 1995).
25.     FRCP 11(c)(1)(B).