One Longhorn Land I, L.P. v. Presley
529 B.R. 755
C.D. Cal.2015Background
- Debtor Brian Presley filed Chapter 7; creditor One Longhorn Land I, L.P. (Longhorn) sued in bankruptcy court seeking nondischargeability of a $625,000 obligation, alleging fraud, fiduciary defalcation, and securities-law violations tied to Presley’s film ventures and investor Palo Verde.
- Longhorn’s adversary complaint asserts nondischargeability under 11 U.S.C. §§ 523(a)(2), (a)(4), and (a)(19); Longhorn also filed a related federal securities action in the Eastern District of Texas against other defendants.
- Longhorn moved to withdraw the bankruptcy reference to the district court (both mandatorily and permissively) to permit consolidation/transfer with the Texas action and to obtain a jury trial.
- Presley opposed withdrawal; the bankruptcy court had not yet conducted substantive proceedings on the adversary complaint and had a pending motion to dismiss.
- The district court evaluated mandatory withdrawal under 28 U.S.C. § 157(d) (interpretation of non-bankruptcy federal law required) and permissive withdrawal factors (core v. non-core, judicial economy, jury demand, forum shopping).
- The court concluded the claims are core dischargeability matters, § 523(a)(19) does not mandate removal, Longhorn failed to show a Seventh Amendment jury right requiring withdrawal, and permissive withdrawal was not warranted; motion denied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether mandatory withdrawal under 28 U.S.C. § 157(d) is required because federal securities law or § 523(a)(19) requires interpretation outside bankruptcy | Federal securities issues and § 523(a)(19) raise substantial federal questions requiring district-court adjudication | Bankruptcy court can apply federal securities law and may determine nondischargeability under § 523(a)(19); mandatory withdrawal requires more than routine application | Denied: Longhorn failed to show mandatory withdrawal; § 523(a)(19) does not strip bankruptcy court of liability-determination power |
| Whether permissive withdrawal is warranted given core v. non-core nature and efficiency/uniformity concerns | Non-bankruptcy securities and fraud claims predominate; efficiency and consolidation with Texas action favor withdrawal | Claims are core dischargeability proceedings under § 157(b)(2)(I); bankruptcy has exclusive jurisdiction over § 523(a)(2) and (a)(4); withdrawal would be inefficient | Denied: claims are core; other factors (judicial economy, forum-shopping, uniformity) do not favor withdrawal |
| Whether Longhorn’s jury demand requires withdrawal to district court | Jury demand means bankruptcy court cannot finally adjudicate without consent; withdrawal is appropriate to preserve jury right | Ninth Circuit precedent limits Seventh Amendment jury rights in dischargeability proceedings; bankruptcy forum is constitutionally permissible for these claims | Denied: Longhorn did not show a required jury trial; bankruptcy forum may adjudicate these nondischargeability claims |
| Whether consolidation/transfer efficiency justifies withdrawal now to allow later transfer to Texas | Withdrawal would allow motion to transfer/consolidate with the Texas federal action and avoid duplicative litigation | Transfer/consolidation motions are hypothetical; core bankruptcy claims remain in bankruptcy and make withdrawal inefficient | Denied: speculative transfer/consolidation does not justify withdrawal at this stage |
Key Cases Cited
- Sec. Farms v. Int’l Bhd. of Teamsters, Chauffers, Warehousemen & Helpers, 124 F.3d 999 (9th Cir. 1997) (mandatory withdrawal requires substantial federal questions)
- In re Vicars Ins. Agency, Inc., 96 F.3d 949 (7th Cir. 1996) (narrow construction of mandatory withdrawal to avoid escape hatch)
- In re Ionosphere Clubs, Inc., 922 F.2d 984 (2d Cir. 1990) (interpretation, not mere application, of non-title 11 law is needed for mandatory withdrawal)
- In re Deitz, 760 F.3d 1038 (9th Cir. 2014) (bankruptcy courts retain authority to enter final judgments on § 523 dischargeability claims)
- Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989) (Seventh Amendment and allocation of jury rights between Article III and non-Article III tribunals)
- Rein v. Providian Fin. Corp., 270 F.3d 895 (9th Cir. 2001) (bankruptcy courts have exclusive jurisdiction over certain nondischargeability actions)