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 Contributing Editor: Steven R. Kinsella, Fredrikson & Byron, P.A.
Judge_Ericksen___Diocese_of_Winona-Rochester_v__United_States_Fire_Ins__Co_.pdf

            In Diocese of Winona-Rochester v. United States Fire Ins. Co., No. 19-cv-0518 (D. Minn. Apr. 19, 2019), ECF No. 48, the District Court denied a motion to withdraw reference filed by London Market Insurers (“LMI”) and supported by other defendant insurers, seeking the transfer of the insurance coverage adversary proceeding from the Bankruptcy Court to the District Court.

            Under 28 U.S.C. § 157(a) and Local Rule 1070-1, the District Court automatically refers all bankruptcy cases and related adversary proceedings to the Bankruptcy Court, but the District Court may withdraw the reference “for cause” and upon a timely motion pursuant to 28 U.S.C. § 157(d). The District Court identified six factors to analyze when determining if cause existed to withdraw the reference: “(1) whether the claim is core to the bankruptcy proceedings; (2) the efficient use of judicial resources; (3) the delay and costs to the parties; (4) uniformity of bankruptcy administration; (5) the prevention of forum shopping; and (6) the presence of a jury demand.” The District Court’s opinion focused on three of the six factors, finding that the other three factors did not weigh strongly for or against withdrawal of the reference.

            The District Court began by addressing the first factor, whether the jurisdictional distinction between core and non-core proceedings weighed in favor of withdrawal of the reference. As a preliminary matter, the District Court first determined that the Bankruptcy Court’s jurisdiction in the insurance coverage adversary proceeding was non-core because the insurance coverage claims did not arise under the Bankruptcy Code or otherwise arise in the context of the bankruptcy case. Since the District Court determined that the adversary proceeding was non-core, instead of entering a final order, the Bankruptcy Court would be limited to submitting proposed findings of fact and conclusions of law to the District Court for de novo review. LMI argued that this created a duplicative review process, which would be a sufficient reason by itself to withdraw the reference. The District Court ultimately rejected this argument and adopted the reasoning of the court in In re H&W Motor Express Co., 343 B.R. 208, 215-16 (N.D. Iowa 2006), which held that “the mere fact a bankruptcy proceeding is not a core proceeding” was insufficient to justify a withdrawal of the reference because such a bright line rule would prevent the bankruptcy court from retaining the reference for any non-core matter.

            The District Court then addressed the second, third, and sixth factors when analyzing LMI’s contention that, because the right to a jury trial existed, the Bankruptcy Court’s handling of all pre-trial proceedings would be an inefficient use of judicial resources and costly to the parties. The District Court first determined that withdrawal of the reference solely based on the right to a jury trial would be premature in this case because the insurance coverage adversary proceeding had not advanced past the summary judgment phase and because the parties were currently engaged in mediation. The District Court then directly addressed the arguments concerning the judicial efficiency of the Bankruptcy Court’s handling of pre-trial matters, drawing a direct comparison to referrals of pre-trial matters in non-bankruptcy cases to magistrate judges and noting that referrals to magistrate judges increased judicial efficiency even though the District Court similarly reviews de novo all of the magistrate judge’s recommendations. Thus, the District Court concluded that the right to a jury trial did not, by itself, require withdrawal of the reference and that the Bankruptcy Court’s handling of pre-trial matters promoted judicial efficiency and would not result in undue delay or costs to the parties.

            Ultimately, the District Court denied the motion because, while the claims in the adversary proceeding were non-core and LMI had a right to a jury trial, the jurisdictional distinction between core and non-core and the existence of a right to a jury trial did not, by themselves, justify withdrawal of the reference, especially in light of the District Court’s determination that the Bankruptcy Court’s handling of pre-trial matters increased judicial efficiency.