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i. Weisfelner v. Blavatnik, et al. (In re Lyondell Chem. Co., et al.), 467 B.R. 712 (S.D.N.Y. 2012)
Issue: Whether the reference should be permissively withdrawn.
Holding: The court held that the bankruptcy court's lack of authority to finally adjudicate claims did not constitute "cause" for permissive withdrawal of the reference early in the proceedings. The court, examining the factors in Orion Pictures, as amended by Stern, denied the motions to withdraw the reference (without prejudice) in order to allow the bankruptcy court to issue opinions on the pending motions to dismiss and motions for summary judgment. The court first provided a brief history of the relevant case law and constitutional and statutory provisions, namely Article III (and public rights exception), and section 157 of Title 28 permitting district courts to refer cases to the bankruptcy court. The court then noted that in Stern, "the Supreme Court held that an Article I bankruptcy court lacked constitutional authority to enter final judgment on a state law counterclaim that is not resolved in the process of ruling on a creditor's proof of claim, even though the claim was properly designated as "core" under the 1984 Act. In other words, the 1984 Act had granted bankruptcy courts final adjudicative authority over a type of claim that fell outside the public rights exception. At least in this "one isolated respect," then, Congress had exceeded the limitations of Article III." Next, the court addressed permissive withdrawal of the reference, and the factors traditionally examined by the Second Circuit in such an inquiry. The court noted that "[u]nder the pre-Stern standard, the 'threshold' inquiry in evaluating a request for permissive withdrawal was whether the claim was core or non-core, because that issue determined both 'questions of efficiency and uniformity,' and 'the relevance of parties' jury trial rights.'" The court then noted that after Stern, the core/non-core distinction may or may not remain relevant to the inquiry. The court then stated, "[u]nder Stern, it is not the core/ non-core distinction but Article III that determines the bankruptcy court's adjudicative authority. Thus, a district court evaluating a motion to withdraw must first determine whether or not the bankruptcy court has constitutional authority to enter final judgment on the claim, since it is on this issue that 'questions of efficiency and uniformity' certainly turn, and 'the relevance of parties' jury trial rights' may also turn." The court found that the bankruptcy court lacked final adjudicative authority over all but a few of the claims asserted by the trustee. First, the court found that the fraudulent conveyance claims, brought against third parties who had not filed claims against the estate, did not fall within the public rights exception. Second, the court found that these fraudulent conveyance claims would not necessarily be resolved in ruling on any defendant's proof of claim. Finally, the court found that the defendants had not expressly consented to adjudication of those claims in the bankruptcy court. In short, under the "clear language" of Stern that expressly drew an analogy to the fraudulent conveyance claims at issue in Granfinanciera, the court found that these claims were matters of private right over which the bankruptcy court lacked final adjudicative authority. The court rejected the trustee's argument that the order confirming the debtor's plan contained language authorizing the bankruptcy court to hear and determine these claims. The court found that the confirmation order simply did no
©2014 William L. Norton III
