Many bankruptcy claims are complex and involve adversary proceedings filed by creditors who believe the debtor engaged in conduct that renders their debt non-dischargeable, such as fraud. In some instances, a party alleging bankruptcy and non-bankruptcy claims in a single pleading in a case that is before a bankruptcy court, may file a motion asking a bankruptcy matter to be heard before the district court, which is referred to as a withdrawal of reference. Recently, a California court discussed grounds for granting a withdrawal of reference, in a case in which the debtor was accused of violation of fiduciary duties. If you are a California resident or business owner and you wish to file for bankruptcy, you should consult a dedicated California bankruptcy attorney to discuss your rights.
Factual and Procedural History
It is reported that the debtor individual and the debtor company, which was solely owned by the individual, both filed petitions for bankruptcy. Subsequently, adversary proceedings were filed by trustees in both cases, asserting claims of violation of fiduciary duties under ERISA and violation of the RICO act. The debtor individual’s bankruptcy was dismissed. The debtor company did not file an answer to the adversary proceeding, and a default was entered.
Allegedly, the trustees then filed a lawsuit against the debtor individual in the district court, again setting forth claims of violation of fiduciary duties under ERISA and violation of the RICO act. The trustees then filed a motion to withdraw the reference of the adversary proceeding against the debtor company, arguing that it was mandatory as it required consideration of both non-bankruptcy and bankruptcy claims, and non-bankruptcy law was substantially involved in the case. Continue reading