Feldman ex rel. Estate of Image Masters, Inc. v. ABN AMRO Mortgage Group Inc.

515 B.R. 443, 2014 U.S. Dist. LEXIS 114899
CourtDistrict Court, E.D. Pennsylvania
DecidedAugust 19, 2014
DocketCivil Action Nos. 13-290, 13-291
StatusPublished
Cited by4 cases

This text of 515 B.R. 443 (Feldman ex rel. Estate of Image Masters, Inc. v. ABN AMRO Mortgage Group Inc.) is published on Counsel Stack Legal Research, covering District Court, E.D. Pennsylvania primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Feldman ex rel. Estate of Image Masters, Inc. v. ABN AMRO Mortgage Group Inc., 515 B.R. 443, 2014 U.S. Dist. LEXIS 114899 (E.D. Pa. 2014).

Opinion

MEMORANDUM OPINION

GOLDBERG, District Judge.

I. INTRODUCTION

Lynn E. Feldman, Trustee of the estate of Image Masters, Inc. and related entities has filed two adversary proceedings in bankruptcy court against numerous banks and home lenders in connection with a fraud perpetrated through Image Masters, Inc. by its principal, Wesley Snyder. Currently before us are the Trustee’s motions to withdraw the references of those proceedings to bankruptcy court pursuant to 28 U.S.C. § 157(d). For the reasons discussed below, the motions will be denied.

II. FACTUAL AND PROCEDURAL BACKGROUND

Snyder’s scheme, which defrauded more than 800 homeowners and investors out of approximately $65 million, has been explained in detail in previous opinions issued by this Court. See Image Masters, Inc. v. Chase Home Fin., 489 B.R. 375 (E.D.Pa.2013). A brief summary of this scheme is as follows: Snyder initiated the fraud by inducing homeowners to enter into new home mortgages for more than the amount owed on their existing mortgages, with the proceeds from the new mortgage being used to pay off the existing mortgage. Snyder then convinced the homeowners to turn over the extra, “wrap” amount from the new mortgages to Image Masters, telling the homeowners that the wrap amounts would either be used to pay down the new mortgage or invested on their behalf. The homeowners were then persuaded to sign new mortgages in favor of Image Masters for the same amount, but at a lower interest rate than their new conventional mortgages. Pursuant to the Image Masters mortgages, the homeowners made payments to Image Masters, while Image Masters assumed responsibility for paying the homeowners’ conventional mortgages. However, Image Masters had no contractual relationship with the mortgage companies/lenders obligating Image Masters to make payments on the homeowners’ behalf. In reality, the wrap amounts were not used to pay down the [445]*445new mortgages, nor were any profits earned on the money. Instead, Snyder used the wrap amounts to pay down preexisting homeowners’ mortgages. The fraud was uncovered when Snyder was unable to generate enough funds to keep the mortgages current. In November 2007, Snyder was charged criminally with fraud and related offenses, and subsequently convicted and sentenced to a substantial period of incarceration.

On September 18, 2007, before the criminal charges were filed, Image Masters and the related entities petitioned for relief under Chapter 7 of the Bankruptcy Code. Lynn E. Feldman (“Trustee”) was appointed trustee of the estates on November 27, 2007. The Trustee subsequently initiated two adversary proceedings in bankruptcy court against the Defendant lenders/banks who issued the homeowners their new mortgages, seeking to avoid and recover more than $25 million of allegedly preferential and fraudulent transfers paid by Image Masters, on behalf of the homeowners, to Defendants. On December 17, 2009, the bankruptcy court dismissed both actions in their entirety, holding that the Trustee had failed to state a claim for either actual or constructive fraud. The bankruptcy court also found that the homeowners were necessary parties under Federal Rule of Civil Procedure 19 whose joinder was required.

On March 11, 2013, we affirmed the bankruptcy court’s ruling with respect to the dismissal of the constructive fraud counts and agreed that certain homeowners were necessary parties under Rule 19. However, we vacated the bankruptcy court’s ruling with respect to the actual fraud count, and remanded the case to the bankruptcy court for further proceedings. Image Masters, Inc. v. Chase Home Fin., supra.

Since the adversary proceedings were remanded, the bankruptcy court has ordered, and the parties have submitted further briefing on the Rule 19 issue. In addition, the Trustee has demanded a jury trial (without consenting to such a trial in bankruptcy court) and Defendants have moved to strike her demand.

The Trustee has now moved under 28 U.S.C. § 157(d) to withdraw the reference of the adversary proceedings to bankruptcy court. The Trustee argues that her demand for a jury trial, refusal to consent to such a trial in bankruptcy court and the bankruptcy court’s lack of authority to enter final judgment on her fraudulent transfer claims make withdrawal mandatory. The Trustee urges that withdrawal at this time will promote judicial efficiency and preserve the resources of the parties by eliminating the round of possible appeals that would result from further litigation in bankruptcy court.

Defendants respond that the bankruptcy court has the authority to enter final judgment on the Trustee’s claims; that to the extent that such authority is lacking, the Trustee waived any objection to the bankruptcy court entering judgment; and that the Trustee has waived her right to a jury trial. Defendants ask us to deny the Trustee’s motions, or in the alternative, to defer our ruling until the bankruptcy court rules on Defendants’ motion to strike the Trustee’s demand for a jury trial.

III. LEGAL STANDARD

28 U.S.C. § 157(a) allows a district court to refer any or all cases arising under the bankruptcy code to a bankruptcy judge. Section 157(d) provides that “[t]he 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.” In determining wheth[446]*446er a party has shown cause for withdrawal, courts look to factors including: (1) promoting uniformity of bankruptcy administration; (2) reducing forum shopping; (3) fostering economical use of resources; (4) expediting the bankruptcy process; and (5) timing of the request for withdrawal. In re Pruitt, 910 F.2d 1160, 1168 (3d Cir.1990). Courts also consider whether a jury trial has been requested. Pennsylvania Acad. of Music v. Regitz, 2010 WL 4909952 (E.D.Pa. Nov. 30, 2010).

IV. DISCUSSION

A. Authority of the Bankruptcy Court

The statutory scheme governing the bankruptcy court’s jurisdiction was enacted as the Bankruptcy Amendments and Federal Judgeship Act of 1984, 28 U.S.C. § 151, et seq. Recognizing the distinction drawn by the United States Supreme Court between “public rights,” which may be removed from the jurisdiction of Article III courts, and “private rights,” which may not, Congress divided all bankruptcy related matters into “core” and “non-core” proceedings and set out the bankruptcy court’s authority to adjudicate them accordingly. Executive Benefits Ins. Agency v. Arkison (In re Bellingham Insurance Agency, Inc.), — U.S. -, 134 S.Ct. 2165, 2171, 189 L.Ed.2d 83 (2014); (citing Northern Pipeline Constr. Co. v. Marathon Pipe Line Co.,

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Bluebook (online)
515 B.R. 443, 2014 U.S. Dist. LEXIS 114899, Counsel Stack Legal Research, https://law.counselstack.com/opinion/feldman-ex-rel-estate-of-image-masters-inc-v-abn-amro-mortgage-group-paed-2014.