JOHN T. ELFVIN, Senior United States District Judge
Presently before the undersigned are motions to withdraw the referral of an adversary proceeding — commenced by Official Committee of Unsecured Creditors of Corson Manufacturing Company ("the Unsecured Creditors") against HSBC Bank USA ("HSBC"), Gioia Management, Inc., Anthony Gioia, Richard Gioia (collectively "the Gioia defendants"), Phillips, Lytle, Hitchcock, Blaine Huber LLP ("Phillips Lytle") and Robert M. Greene, Esq. — now in Bankruptcy Court pursuant to 28 U.S.C. § 157 (d). For the reasons that follow, such motions are denied but the referral as it relates to the adversary proceeding will be modified to the extent set forth below.
See Standing Order of this Court dated July 13, 1984 (referring all cases "related to" a pending bankruptcy case to Bankruptcy Court).
Corson Manufacturing Company ("Corson"), a company engaged in the business of supplying product packaging, filed a Chapter 11 petition in the Bankruptcy Court December 15, 1999. Phillips Lytle, of which Greene is Chief Executive Officer, was Corson's counsel prior to such filing. The underlying Complaint in the adversary proceeding asserts that the Gioia defendants and Greene were able to purchase 100% of the stock of Corson in 1989 through a multi-million dollar loan provided by HSBC. It then asserts that, in mid-1999 and during a time when Corson was sustaining heavy business losses, Corson guaranteed and collateralized HSBC's loan to the Gioia defendants and Greene in return for the Gioias guaranteeing certain of HSBC's loans to Corson. The Complaint alleges that this transaction allowed HSBC to be granted a security interest to the full extent of its exposure to any Corson-related debt while making the individual loans to the Gioia defendants and Greene non-recourse. The Complaint avers that such transaction, inter a/ia, was fraudulent and voidable under the United States Bankruptcy Code and New York's Debtor and Creditor Law.
In bringing the instant motions, the Gioia defendants, Greene and Phillips Lytle state that several claims asserted against them in the Complaint are non-core within the meaning of the Bankruptcy Code and that they have demanded a jury trial and will not consent to the entry of a final order of judgment as to such claims by the Bankruptcy Court. They note that, where a controversy is deemed to be non-core and a jury trial demanded therefor, the reference should be withdrawn with regard to such. Moreover and because withdrawing the bankruptcy referral as it relates to this adversary proceeding with respect to only the non-core claims would result in unnecessary delay and depletion of judicial resources, such defendants also argue this Court should withdraw the entire adversary proceeding from Bankruptcy Court.
Such claims include allegations of malpractice and various breaches of fiduciary duties.
"A proceeding that involves rights created by bankruptcy law, or that could arise only in a bankruptcy case, is a core proceeding." In re Green, 200 B.R. 296, 298 (S.D.N Y 1996). "An action that does not depend upon the bankruptcy laws for its existence and which could proceed in a court that lacks federal bankruptcy jurisdiction is non-core." Ibid.
According to 28 U.S.C. § 157 (d), this Court "may withdraw in whole or in part, any case or proceeding referred [to the Bankruptcy Court] under this section, on its own motion or on timely motion of any party, for cause shown." Although 28 U.S.C. § 157 (d) does not define the term "cause, " the Second Circuit Court of Appeals has instructed that a district court should 100k to a number of factors in determining whether cause has been shown, including first evaluating "whether the claim is core or non-core and then, where the claim is found to be non-core, evaluating "questions of efficient use of judicial resources, delay and costs to the parties, uniformity of bankruptcy administration, the prevention of forum shopping, and other related factors." In re Orion Pictures Corp., 4 F.3d 1095, 1101 (2d Cir. 1993).
Insofar as the Complaint asserts claims premised on malpractice and various breaches of fiduciary duties, the undersigned agrees with the Gioia defendants, Greene and Phillips Lytle that such constitute non-core claims — i.e., these allegations exist independent of the bankruptcy case. Moreover and because the Gioia defendants, Greene and Phillips Lytle will not consent to adjudication by the Bankruptcy Court of these non-core claims, the undersigned notes that these claims may not be finally determined by the Bankruptcy Court.
Nevertheless, the present motions to withdraw the Order of Reference will not be granted because of countervailing considerations. As indicated by the Unsecured Creditors, the non-core claims asserted against the moving defendants are closely related to the core fraudulent-transfer claims asserted against such defendants. Consequently, it is plain that merely severing the non-core claims from the core claims would likely result "in duplicative presentations on substantially overlapping factual matters" and "cause unnecessary delay and deplete both judicial resources and the assets of the bankruptcy estate." In re Green, 200 B.R. 296, 299 (S.D.N.Y 1996). Therefore and rather than withdraw any — or all — of the bankruptcy referral as it relates to this adversary proceeding, it appears better that the Bankruptcy Court continue to preside over the adversary proceeding, given its familiarity with the case and the kinds of issues raised therein, until such time as the issues raised in the Complaint are ready to be finally determined by trial or by dispositive motion. See In re Wedtech Corp., 94 B.R. 293 (S.D.N.Y 1988).
Accordingly, it is hereby ORDERED that the motions to withdraw the bankruptcy referral are denied but that the referral as it relates to the adversary proceeding at issue is modified so as to permit this Court to finally determine, whether by trial or by dispositive motion, the claims raised in such proceeding's Complaint.