JAMES GRAHAM, District Judge
This matter is before the Court on Great American Insurance Company's renewed motion to withdraw the reference of the adversary proceeding to the bankruptcy court. The adversary proceeding concerns a dispute over the proceeds of an excess directors and officers ("DO") insurance policy issued by Great American to National Century Financial Enterprises, Inc. This Court denied without prejudice an earlier motion to withdraw the reference because the bankruptcy court had not yet determined whether the adversary proceeding was core or non-core. Now that the bankruptcy court has held that the proceeding is non-core, Great American renews its motion.
For the reasons stated below, the motion to withdraw the reference is granted.
I. Background
Great American issued an excess DO insurance policy to National Century for the period of March 28, 2002 through March 28, 2003. The policy provided coverage of $5 million upon the exhaustion of a primary DO insurance policy issued to National Century by Gulf Insurance Company. The Gulf insurance policy provided coverage in the amount of $5 million.
On November 18, 2002, National Century filed for Chapter 11 bankruptcy protection amid allegations of fraud and financial wrongdoing. The Debtors initiated an adversary proceeding against Gulf and Great American. The complaint seeks, among other things, a declaration that the Great American policy is enforceable and that the Debtors are entitled to coverage. Great American asserted counterclaims for rescission of the policy or, alternatively, declaratory judgment that the policy is null and void due to fraud and misrepresentations in obtaining the policy. Great American made a jury demand in its counterclaim.
Great American then filed a motion to withdraw the reference. The Court denied the motion as premature because the bankruptcy court had not yet determined whether the adversary proceeding was core or non-core.
In a July 23, 2004 order, the bankruptcy court held that the Great American proceeding is non-core. The bankruptcy court found that the proceeding "involves a claimed right to insurance coverage and allocation created by state contract law" and could be vindicated "in an ordinary breach of contract suit if [National Century] was not bankrupt." Shortly thereafter, Great American renewed its motion to withdraw the reference.
On November 19, 2004, the bankruptcy court severed all claims, cross-claims, and counterclaims relating to Great American, such that the Great American adversary proceeding is now separate from the proceeding involving Gulf Insurance.
On January 10, 2005, the bankruptcy court held that National Century is an insured claimant under the Gulf DO policy and allocated the entire $5 million available under that policy. Thus, proceeds under the Gulf policy are exhausted.
II. Discussion
Under 28 U.S.C. § 157(d), "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." While Congress did not define "cause," courts have identified a number of factors to be considered when deciding whether cause exists: whether the claim or proceeding is core or non-core, judicial economy, uniformity in the administration of bankruptcy law, whether the claim is legal or equitable, the presence of a jury demand, and prevention of forum shopping.See Dionne v. Simmons, 200 F.3d 738, 741 (11th Cir. 2000);In re Orion Pictures Corp., 4 F.3d 1095, 1101 (2d Cir. 1993);In re Pruitt, 910 F.2d 1160, 1168 (3rd Cir. 1990); Holland America Ins. Co. v. Succession of Roy, 777 F.2d 992, 999 (5th Cir. 1985); Holland v. LTV Steel Company, Inc., 288 B.R. 770, 774 (Bankr. N.D. Ohio 2002).
The bankruptcy court has determined that the adversary proceeding regarding the Great American excess DO policy is non-core. This weighs significantly in favor of withdrawing the reference, "since it is upon this issue that questions of efficiency and uniformity will turn." Orion Pictures, 4 F.3d at 1101. Courts have noted that whether a proceeding is core or non-core is "the most important" factor in deciding a motion to withdraw reference. In re Burger Boys, Inc., 94 F.3d 755, 762 (2d Cir. 1996); see also In re U.S. Airways Group, Inc., 296 B.R. 673, 682 n. 21 (E.D. Va. 2003); In re Coe-Truman Technologies, Inc., 214 B.R. 183, 187 (N.D. Ill. 1997). Though a court can withdraw reference of either a core or non-core proceeding, "[t]he reference is much more likely to be withdrawn if the proceeding is characterized as non-core." Valley Forge Plaza Associates v. Fireman's Fund Ins. Companies, 107 B.R. 514, 516 (E.D. Pa. 1989); see also In re Ranch 1 Inc., No. C2 Civ. 4417, 2002 WL 31175184 at *2 (S.D.N.Y. Sept. 27, 2002).
To this Court's knowledge, the bankruptcy court's ruling on the core/non-core issue was not appealed.
Of the remaining factors, Great American's right to a jury trial is the main focus of the parties. The Debtors argue that the relief sought by Great American — rescission — is equitable and, thus, there is no Seventh Amendment right to a jury trial.See Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 42, 109 S.Ct. 2782, 2790 (1989). Great American responds that it is entitled to a jury trial because the dispute is about money, namely, whether Great American must pay out $5 million in proceeds under the excess DO policy. According to Great American, judicial economy supports withdrawing the reference because the case would ultimately have to be tried by this Court.
Though the Court will stop short of holding that Great American is entitled to a jury trial, the Court finds that Great American's jury demand is facially valid. Since the time Great American made a jury demand in its counterclaim, liability under the excess policy has matured because the Gulf primary policy has been exhausted. Though rescission is an equitable form of relief,see Black v. Boyd, 248 F.2d 156, 162 (6th Cir. 1957) ("Rescission is a proceeding in equity."), the counterclaim also seeks declaratory judgment that the Debtors are not entitled to coverage due to fraud and misrepresentations. The Debtors' complaint seeks a declaration that the excess policy is enforceable and that they are entitled to coverage. The Court agrees with Great American that the heart of the dispute is whether the Debtors can recover the policy proceeds. Great American appropriately cites In re Ben Cooper, Inc., 896 F.2d 1394 (2d Cir. 1990), vacated, 498 U.S. 964, 111 S.Ct. 425 (1990), reinstated, 924 F.2d 36 (2d Cir. 1991), where a debtor in bankruptcy (Cooper) claimed coverage under a commercial property insurance policy after a fire damaged its property. The insurer (ICSP) alleged that Cooper committed fraud in obtaining the policy and sought to have the policy rescinded and its obligations declared void. The court held that ICSP had a right to a jury trial:
We reject Cooper's contention that, merely because ICSP arguably is seeking rescission, the nature of the action is equitable. We agree with Professor Moore, who states that when "the insurer's liability under the policy has matured, the basic issues are legal. This is true whether the insurer sues to cancel the policy and the beneficiary counterclaims for recovery on the policy, or the beneficiary sues for recovery on the policy and the insurer defends and/or counterclaims for cancellation on the ground of fraud." 5 Moore's Federal Practice ¶ 38.23, at 38-200-01 (2d ed. 1988) (footnotes omitted);
see also American Life Ins. Co. v. Stewart,
300 U.S. 203, 212,
57 S.Ct. 377, 379,
81 L.Ed. 605 (1937);
Woods v. National Life and Accident Ins. Co.,
347 F.2d 760, 767 (3d Cir. 1965).
Ben Cooper, 896 F.2d at 1401-02.
That Great American's jury demand is facially valid supports withdrawing the reference. As one court put it, "[i]f a case is non-core and a jury demand has been filed, the district court may find that the inability of the bankruptcy court to hold the trial itself constitutes cause to withdraw the reference." In re 131 Liquidating Corp., 222 B.R. 209, 211 (S.D.N.Y. 1998) (citingOrion, 4 F.3d at 1101); see also Growe v. Bildard Inc., 2005 WL 1177718, at *1 (D. Me. May 19, 2005) ("[A] valid jury demand can have the effect of mandating withdrawal to the District Court for trial."). Under 28 U.S.C. § 157(e), consent of the parties and designation by the district court is required before a bankruptcy court may conduct a jury trial. Great American states that it will not consent to the bankruptcy court conducting a jury trial. Accordingly, a jury trial would ultimately have to be tried by this Court. See Rafoth v. National Union Fire Ins. Co., 954 F.2d 1169, 1172-73 (6th Cir. 1992); Roberds, Inc. v. Palliser Furniture, 291 B.R. 102, 104 (S.D. Ohio 2003) ("Absent . . . consent of the parties, bankruptcy courts within the Sixth Circuit do not have the authority to conduct jury trials.").
The Debtors argue that even if Great American has a right to a jury trial, judicial economy favors having the bankruptcy court handle the Great American proceedings until they are "trial ready." According to the Debtors, the bankruptcy court has gained familiarity with the facts and issues in the Great American case while handling the Gulf proceedings. See In re Kirk E. Douglas, Inc., 170 B.R. 169, 170 (D. Colo. 1994) ("The bankruptcy court has authority, even when a jury trial has been demanded, to supervise discovery, conduct pretrial conferences, and rule on motions.").
Though the bankruptcy court is certainly capable of handling the matter, judicial economy will be best served by this Court dealing with the coverage dispute between Great American and the Debtors. The bankruptcy court found that the dispute is one of state contract law and that resolution of the Debtors' claimed right to insurance coverage does not depend on bankruptcy law. The Court will not require the bankruptcy court to oversee discovery and other pre-trial matters in a case where none of the substantive rights at issue invoke bankruptcy law.
The bankruptcy court's familiarity with the Gulf matter is not sufficient reason to deny the motion to withdraw. Unlike Great American, Gulf consented to the jurisdiction of the bankruptcy court, chose not to contest the validity of the policy, and volunteered to pay out the policy proceeds. The main substantive issues facing the bankruptcy court in the Gulf matter were whether National Century was an insured claimant and whether its claims were payable under the policy. In the Great American matter, by contrast, the main issues involve the validity of the policy, namely whether the excess policy is void due to fraud.
III. Conclusion
Accordingly, Great American' September 23, 2004 motion to withdraw the reference of the adversary proceeding to the bankruptcy court (doc. 1) is GRANTED.