Walker, Truesdell, Roth & Associates ex rel. Extended Stay Litigation Trust v. Blackstone Group, L.P. (In re Extended Stay, Inc.)
466 B.R. 188
S.D.N.Y.2011Background
- Five adversary actions were withdrawn from bankruptcy court and are before the district court for possible withdrawal under 28 U.S.C. § 157(d).
- Plaintiffs seek mandatory or permissive withdrawal based on Stern v. Marshall and related authority.
- Actions arise from Extended Stay, Inc. bankruptcy and involve fraudulent transfers, disallowance of claims, and related state and federal law claims.
- Bankruptcy court retained jurisdiction over claims arising in or related to the Chapter 11 cases, including claims to recover assets for the estate.
- The five actions include: LBO-related fraudulent transfers and disallowance (LBO and Post-LBO Complaints), a State Court Complaint removed to federal court and a Mirror Image Complaint, and a Conflicts Complaint.
- Courts must analyze core vs non-core status, legal vs equitable nature, and efficiency/Forum considerations under Orion and Stern.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Stern mandates withdrawal under §157(d). | Stern requires withdrawal because non-Bankruptcy Code federal law (constitutional authority) dominates. | Stern is not controlling here since the issue does not regulate interstate commerce and does not implicate Article III constitutional authority. | Stern does not require mandatory withdrawal. |
| Whether non-core federal claims or state-law claims mandate withdrawal. | Given Stem’s scope, federal non-core claims (securities and FDCPA) dominate. | Stem does not expand mandatory withdrawal; most claims are core or fall under efficient handling in bankruptcy court. | Non-core claims do not mandate withdrawal; remaining factors apply. |
| Whether permissive withdrawal should be granted under Orion factors. | Factors favor withdrawal for efficiency and avoiding forum shopping. | Factors weigh against withdrawal due to bankruptcy court familiarity and potential efficiency gains. | Courts declined to withdraw for cause; Orion factors weigh against withdrawal. |
| Whether core/non-core classification remains relevant after Stern. | Core/non-core status is moot post-Stern and should favor withdrawal. | Core/non-core still informs permissive withdrawal analysis except for Stem’s constitutional limits. | Core/non-core distinction remains a relevant consideration for permissive withdrawal. |
| Whether Article III restrictions justify keeping five actions in bankruptcy court. | Withdrawal would restructure labor division and burden efficiency. | Bankruptcy court familiarity promotes efficient handling and uniform bankruptcy administration. | No Article III-based basis to compel withdrawal. |
Key Cases Cited
- Stern v. Marshall, 131 S. Ct. 2594 (2011) (bankruptcy court authority to enter final judgment narrowed; Stem’s narrow context)
- In re BearingPoint, Inc., 453 B.R. 486 (Bankr.S.D.N.Y. 2011) (withdrawal considerations resemble permissive analysis; delay/efficiency)
- In re CIS, 140 B.R. 351 (S.D.N.Y. 1992) (denying mandatory withdrawal where jurisdiction issues raised)
- In re Wedtech Corp., 94 B.R. 293 (S.D.N.Y. 1988) (pretrial familiarity supports keeping reference; economy)
- In re Orion Pictures Corp., 4 F.3d 1095 (2d Cir. 1993) (core vs non-core framework; judicial economy)
- In re Texaco Inc., 84 B.R. 911 (S.D.N.Y. 1988) (considerations for withdrawal and efficiency)