1. INTRODUCTION- A number of defendants in the Bonham Recovery Actions (the BRA) have filed motions under FRBP 3006 to withdraw their proofs of claim to obtain a jury trial on the trustee's fraudulent transfer and preference avoidance action in district court. The motions will be granted.

2. BACKGROUND- Many BRA defendants seek to withdraw their proofs of claim so their adversary proceedings can be tried before a jury in the U.S. District Court. The motions were made relatively soon after the filing of the individual BRA adversary proceedings. There is a principle motion filed for one of the adversary defendants,⁽¹⁾ and many other BRA defendants have joined in. A table listing all of them and the docket entry where the motions and joinders are filed - main case, the BRA, or their individual adversary proceeding, is attached to the order filed concurrently with this memorandum.

The matter is being considered in the BRA since it involves common issues of fact 6 ABR 50      and law raised in a number of individual adversary proceedings.

The motions to withdraw claims were subject to several conditions:

• that the claimants be allowed to file claims against World Plus, Inc. (WPI) or Atlantic Pacific Funding Corp. (APFC), if those entities were substantively consolidated, and



• that the claimants be permitted to file subsequent claims under 11 USC § 502(h) and FRBP 3002(c)(3).

The first condition no longer presents a problem. The court has consolidated the RaeJean Bonham case with the two corporate nondebtors, WPI and APFC. The order of consolidation provides that the proofs of claim filed against Bonham will be deemed to be filed against the consolidated estates of RaeJean Bonham, WPI, or APFC. Also, the claims bar date was extended to allow the filing of any new claims until June 22, 1998.⁽²⁾

The second condition also creates no problem. The BRA defendants have cited the statute and related rule which will allow any BRA claimant to file a new claim based upon the avoidance of any transfers which the trustee may obtain.⁽³⁾ There should be no objection to allowance of such new claims which are properly filed. The trustee does not object to withdrawal of the claims, provided the claimants are barred from refiling their present proofs of claim in the bankruptcy proceedings.

The trustee has no objection to the filing of new claims under § 502(h) by anyone whose present claims are being withdrawn and who has to pay a judgment to the trustee under one of the avoidance actions.⁽⁴⁾ These prospective claims are not the same as the claims being withdrawn by the pending motion.

6 ABR 51      3. LEGAL ANALYSIS- FRBP 3006 allows a creditor that filed a proof of claim to withdraw that claim under certain circumstances. The rule provides:

A creditor may withdraw a claim as of right by filing a notice of withdrawal, except as provided in this rule. If after a creditor has filed a proof of claim an objection is filed thereto or a complaint is filed against that creditor in an adversary proceeding, or that creditor has accepted or rejected the plan or otherwise has participated significantly in the case, the creditor may not withdraw the claim except on order of the court after a hearing on notice to the trustee or debtor in possession, and any creditors' committee elected pursuant to § 705(a) or appointed pursuant to § 1102 of the Code. The order of the court shall contain such terms and conditions as the court deems proper. Unless the court orders otherwise, an authorized withdrawal of a claim shall constitute withdrawal of any related acceptance or rejection of a plan.

The case law generally supports the right of a claimant, at least at the early stages of the adversary litigation, to withdraw a proof of claim when no legal prejudice will accrue to the other party. The fact that the party withdrawing the proof of claim will gain the right to a jury trial is not considered to be legal prejudice.⁽⁵⁾

If the movants had requested that the right to reassert the claims being withdrawn at a later date under the authority of In re Lowenschuss,⁽⁶⁾ the court would have granted the request. The facts of Lowenschuss are different than the BRA situation.

In Lowenschuss, it would have been futile to continue a litigation in the bankruptcy court because, the court had ruled that the property which was the subject of the lawsuit, was not deemed to be property of the estate. The results of any such litigation would have been a nullity at that time, or at least a very costly exercise for little benefit. But, the appellate court said the claimant should be allowed to refile the claim which it was withdrawing 6 ABR 52      if it were later ruled that the subject property was property of the estate. Withdrawal of that claim, by the way, had nothing to do with obtaining the right to a jury trial.

In the present case, the debtors want to have a jury trial in federal district court. All the money available to pay creditors in this estate, with some insignificant exceptions, is coming from the trustee's avoidance actions. The trustee has, to date, recovered over two million dollars.

Had the BRA claimants failed to withdraw their proofs of claim, they would have lost their right to a jury trial before the U.S. District Court.⁽⁷⁾ If they are willing to give up their present claims to buy the right to a jury trial, they will be allowed to do so.

4. CONCLUSION- A separate order will be entered to implement this Memorandum Decision. That order will have a lengthy table identifying the approximately 200 entities who are withdrawing their previously filed proofs of claim.

Because the posture of the case has changed, the movants will be allowed to withdraw their motions to withdraw their proofs of claim by Friday, January 15, 1999. In such case, the right to a jury trial will be waived, and a trial will be held in the bankruptcy court, unless the district court rules otherwise.

Also, to facilitate settlement of BRA proceedings, any portion of a claim being withdrawn may be reinstated as part of a settlement with the trustee.

Dated:        December 21, 1998

HERBERT A. ROSS
U.S. Bankruptcy Judge

D3660

1. 6 ABR 49      See, Motion to Withdraw Proofs of Claim, filed by Brad E. Ambarian for various BRA defendants, Docket Entry 146 in the BRA, filed April 21, 1997.

2. 6 ABR 50      Order Granting Trustee's Motion for Substantive Consolidation of World Plus, Inc. and Atlantic Pacific Funding Corporation With Debtor, Docket Entry 1545 in the main case, filed April 30, 1998.

3. 6 ABR 50      11 USC § 502(h) and FRBP 3002(c)(3).

4. 6 ABR 50      See, 11 USC § 502(h) and FRBP 3002(c)(3).

5. 6 ABR 51      In re Lowenschuss, 67 F3d 1394, 1399 (9^th Cir 1995), cert den 116 SCt 2497 (1966); In re County of Orange, 203 BR 977, 980 (Bankr CD Calif 1996); In re 20/20 Sport, Inc., 200 BR 972, 978-979 (Bankr SD NY 1996).

6. 6 ABR 51      See, Footnote 4.

7. 6 ABR 52      Langenkamp v Culp, 111 SCt 330 (1990); In re Hooker Investments, Inc., 937 F2d 833, 838-39 (2^nd Cir 1991). See, also, Granfinanciera, S.A. v Nordberg, 492 US 33, 109 SCt 2782 (1989).