594 B.R. 423
C.D. Cal.2018Background
- Debtor EPD Investment Co., LLC (EPD) allegedly operated at a loss since 2003 and ran as a Ponzi-like operation, using new investor funds to pay earlier creditors.
- Jerrold Pressman is EPD's sole proprietor; Jason Rund is the Chapter 7 trustee who filed an adversary complaint (Fourth Am. Compl.) alleging fraudulent transfers and seeking avoidance/recovery and disallowance of claims.
- Defendant John C. Kirkland (and Poshow Ann Kirkland, trustee of Bright Conscience Trust) represented Pressman, invested in EPD, and is accused of helping conceal EPD’s finances and receiving avoidable transfers.
- Kirkland demanded a jury trial on the fraudulent transfer claims, has not filed a proof of claim against the estate, and did not consent to a jury trial in the bankruptcy court.
- The bankruptcy court issued a Report & Recommendation favoring Rund as to some claims; the district court previously rejected that R&R and denied reconsideration.
- Defendants moved to withdraw the reference of adversary proceeding No. 12-02424 to the bankruptcy court; the district court granted withdrawal of the entire adversary proceeding for cause, including to preserve Kirkland’s jury right and for judicial economy.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether withdrawal is mandatory because resolution requires non-Bankruptcy Code federal law | Rund argues claims are core/related and appropriate for bankruptcy adjudication | Kirkland asserts right to jury trial and no consent to bankruptcy jury trial, requiring withdrawal | Court granted withdrawal: Kirkland’s jury demand and lack of consent showed cause to withdraw reference |
| Whether permissive withdrawal for cause is warranted | Rund impliedly argues efficiency favors bankruptcy handling | Defendants argue jury trial, delay, and costs justify district court trial; overlapping claims with BC Trust support full withdrawal | Court found cause and judicial economy: withdrew reference to entire adversary proceeding |
| Whether bankruptcy court can conduct jury trial without consent | Rund contends bankruptcy court may adjudicate fraudulent transfer claims | Kirkland contends 28 U.S.C. §157(e) prohibits jury trial in bankruptcy absent consent | Court applied law: bankruptcy court cannot hold jury trial without consent; Kirkland preserved jury right |
| Whether overlapping claims against BC Trust should remain in bankruptcy | Rund likely favored centralized bankruptcy resolution | Defendants argued common facts counsel for unified district court handling with Kirkland trial | Court concluded uniformity and judicial economy favored withdrawing entire action |
Key Cases Cited
- Security Farms v. Int'l Bhd. of Teamsters, 124 F.3d 999 (9th Cir. 1997) (factors governing permissive withdrawal of reference)
- In re HealthCentral.com, 504 F.3d 775 (9th Cir. 2007) (defendant's preservation of jury right can establish cause to withdraw reference)
- Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (U.S. 1989) (right to jury trial in fraudulent conveyance/avoidance actions)
- Langenkamp v. Culp, 498 U.S. 42 (U.S. 1990) (effect of filing a proof of claim on jury rights in bankruptcy)