Generally, the bankruptcy courts have jurisdiction over bankruptcy matters and claims arising in bankruptcy actions. Certain bankruptcy-related actions and claims filed in bankruptcy courts are better handled by other courts, however; as such, in some instances, a bankruptcy court will refer a matter to a state or federal court. If a bankruptcy court refers a case to another court, the plaintiff has the option of moving to withdraw the reference, but proving the such motions should be granted can be challenging, as demonstrated in a recent California case. If you struggle to pay your debts and wonder if filing for bankruptcy is right for you, it is wise to talk to a California bankruptcy lawyer at your earliest opportunity.
Facts of the Case
It is alleged that the plaintiff filed a motion for sanctions in bankruptcy court against the defendants, including claims under federal non-bankruptcy statutes. The bankruptcy court automatically referred the case to the district court. The plaintiff moved to withdraw the reference, seeking both mandatory and permissive withdrawal to have the district court decide the sanctions motion.
Reference of Claims in Bankruptcy Matters
The district court denied the motion to withdraw the reference. In doing so, it explained that the mandatory withdrawal provision should be interpreted narrowly rather than as an escape hatch allowing most bankruptcy matters to be removed to the district court. Withdrawal is only required when materially considering non-bankruptcy federal law. Courts have found withdrawal mandatory when non- bankruptcy issues necessitate interpreting, not just applying, non-bankruptcy law or undertaking analysis of major unsettled non-bankruptcy law questions. Under this approach, the party seeking withdrawal must show more than the possibility novel non-bankruptcy law issues could arise in the bankruptcy case.