W.D.N.C.: Crypto Colo Center v. Dei Vitae Enterprises: Withdrawal of Reference to Bankruptcy Court

Summary:

James   and Susan  Burton filed a pro se Chapter 13 bankruptcy case on February 22, 2023,  disclosing a 98.5% ownership interest in Dei Vitae Enterprises.  This was followed on February 28, 2023,  with the Chapter 11 filing by  Dei Vitae Enterprises, LLC (DVE).   Crypto Colo Center filed  identical complaints in both bankruptcy cases on March 24, 2023, soon filing  a Motion to Withdraw Reference.    The Burtons’ Chapter 13 case and the related adversary proceeding were dismissed, rendering the motion to withdraw reference in that case moot.  Crypto Colo filed an amended complaint in the DVE adversary proceeding on July 27, 2023, with 15 non-title 11 causes of action.   DVE’s Chapter 11 case was dismissed on September 6, 2023.   DVE moved to dismiss the adversary proceeding, but the bankruptcy court denied the motions and granted abstention, pending the district court's ruling on the withdrawal motion.

The district court found sufficient cause to withdraw the reference of the remaining Adversary Proceeding to the bankruptcy court,  primarily because  the remaining causes of action did not stem from the bankruptcy and were non-core, including federal securities fraud and various state law claims such as fraud, misappropriation, and breaches of fiduciary duty.  In retrieving the case from the bankruptcy court,  the district court also considered the following factors:

• Uniformity of Bankruptcy Administration: Withdrawal will not impact uniform administration as the issues are non-title 11.
• Efficiency and Judicial Economy: Withdrawal is more efficient given the bankruptcy case dismissal.
• Forum Shopping: No indication of forum shopping.
• Right to Jury Trial: A jury demand has been filed, and bankruptcy courts cannot hold jury trials in non-core matters without consent.

Commentary:

It seems rather strange that the Burtons  filed a pro se Chapter 13 bankruptcy,  but the nearly wholly-owned Dei Vitae Enterprises was represented by counsel  a mere week later in its Chapter 11 bankruptcy  (which was signed by Susan Burton.)  While this may be a circumstance where potential or actual conflicts of interest between the Burtons and DVE precluded those entities from sharing the same attorney,  this would nonetheless appear to be a good example of how Tall Building Lawyers  might benefit from  cultivating relationships with the consumer debtor bar,  especially to avoid falling into the muck of Chapter 13 practice.  Admittedly,  calling Chapter 11 attorneys TBLs probably won't endear me to them enough to  result in collaborative referrals.....

Given the reticence,  often verging on hostility, from bankruptcy courts to non-title 11 causes of action related to allegations of improper and illegal creditor actions,  this decision shows both how to withdraw an Adversary Proceeding to district court and that such withdrawal increases the durability of any action,  so that it can more readily survive dismissal of the underlying bankruptcy.

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