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Dane S. Field, Bankruptcy v. Wells Fargo Bank

December 20, 2012

DANE S. FIELD, BANKRUPTCY
TRUSTEE OF THE MORTGAGE STORE, INC.,
PLAINTIFF,
v.
WELLS FARGO BANK, DEFENDANT.



The opinion of the court was delivered by: Susan Oki Mollway Chief United States District Judge

ORDER DENYING DEFENDANT'S MOTION TO WITHDRAW REFERENCE

I. BACKGROUND.

This is a fraudulent transfer action case initiated by Plaintiff Dane S. Field, Trustee of the estate of The Mortgage Store, Inc. ("The Mortgage Store"), against Defendant Wells Fargo pursuant to 11 U.S.C. § 544(b) and Haw. Rev. Stat. §§ 651C-4(a) and 651C-5(a).

The Trustee alleges that The Mortgage Store's private borrowing program operated as a Ponzi scheme. Compl. ¶¶ 9-10. In 2007, when George Lindell was the president and sole shareholder of The Mortgage Store, The Mortgage Store made two transfers of nearly $200,000 each to Wells Fargo Bank (the "2007 transfers") to pay down the balance on Lindell's personal home equity line of credit. Id. ¶¶ 12-13. In 2010, The Mortgage Store filed a Chapter 7 bankruptcy petition, saying that it owed approximately 113 private lenders over ten million dollars. Id. ¶ 14.

The Trustee for The Mortgage Store alleges that the 2007 transfers were "made in the furtherance of a fraud by Lindell, and without any benefit accruing to The Mortgage Store." Opp'n at 3. The Trustee therefore contends that "he is entitled to avoid both transfers to Wells Fargo Bank, in the principal amounts of $197,555.92 and $195, 931.34, together with interest on these amounts, pursuant to 11 U.S.C. § 544(b) and Haw. Rev. Stat. §§ 651C-4(a) and 651C-5(a)." Id.

Before the court is Wells Fargo's motion to withdraw this court's reference to the Bankruptcy Court so that the case may be heard by a district judge. Motion, ECF No. 1. The court denies the motion.

II. STANDARD OF REVIEW.

Federal district courts have jurisdiction over all bankruptcy cases under title 11. 28 U.S.C. § 1334. Local Bankruptcy Rule 1070-1(a) provides that, pursuant to 28 U.S.C. § 157(a), all civil proceedings arising in or related to a case under title 11 are referred to the bankruptcy judges of this district. A party who believes that a proceeding pending in the Bankruptcy Court should instead be litigated before the district court may move for mandatory or permissive withdrawal of that reference pursuant to 28 U.S.C. § 157(d), which provides:

The district court may withdraw, in whole or in part, any case or proceeding referred under this section, on its own motion or on timely motion of any party, for cause shown.

The district court shall, on timely motion of a party, so withdraw a proceeding if the court determines that resolution of the proceeding requires consideration of both title 11 and other laws of the United States regulating organizations or activities affecting interstate commerce.

28 U.S.C. § 157(d) (emphasis added). Motions to withdraw a reference are heard by the district court. Fed. R. Bankr. 5011(a). "The party moving for withdrawal of the reference has the burden of persuasion." Hawaiian Airlines, Inc. v. Mesa Air Group, Inc., 355 B.R. 214, 218 (D. Haw. 2006).

II. ANALYSIS.

A. Withdrawal of the Reference is Not Mandatory.

Wells Fargo first argues that withdrawal of the reference is mandatory. Wells Fargo repeatedly argues that withdrawal of the reference is mandatory in this case. See Motion at 3-5. The Bankruptcy Code requires a district court to withdraw the reference only when "resolution of the proceeding requires consideration of both title 11 and other laws of the United States." 28 U.S.C. 157(d) (emphasis added). This is not such a case. The only non-title 11 laws at issue in this case are state laws. See Motion at 4 (explaining that the other claims involve Haw. Rev. Stat. ยงยง 651C-4(a) and 651C-5(a)). Because the only ...


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