Chapter 4, H. Withdrawal of Reference from District Court

• Jurisdiction: United States

H. Withdrawal of Reference from District Court

As mentioned earlier, all bankruptcy matters are automatically referred to the bankruptcy court from the district court.⁸¹ However, a party may seek to withdraw that reference and have the matter heard by the district court.⁸² In the insurance context, this typically applies to when the debtor has filed a declaratory action as an adversary proceeding in the bankruptcy action and the insurer desires to have the matter heard before the federal district court instead of the bankruptcy court.

The process is commenced by filing what's known as a "motion to withdraw the reference." It seeks to eliminate the reference to automatic reference from the district court to the bankruptcy court, thereby having the district court hear the matter in the first instance. The motion is typically filed with the bankruptcy court, which then transmits it to the district court. Pursuant to the § 157(d) and the Federal Rules of Bankruptcy Procedure, only the district court may rule on the motion.⁸³

There are two types of withdrawal: mandatory and permissive. 28 U.S.C. § 157(d) provides:

The district court may withdraw, in whole or in part, any case or proceeding referred under this section on its own motion or on timely motions of any party, for cause shown. The district court shall, on timely motion of a party, so withdraw a proceeding if the court determines that resolution of the proceeding requires consideration of both title 11 and other laws of the United States regulating organizations or activities affecting interstate commerce.

The second sentence is the so-called mandatory withdrawal provision.⁸⁴

Courts consider the following factors when evaluating cause for withdrawal: judicial economy, promotion of uniformity and efficiency in bankruptcy administration, reduction of forum-shopping, delay and costs to the parties, the particular court's familiarity with the case, and whether the adversary proceeding is "core" or "noncore."⁸⁵ The "most important" factor considered is "whether the adversary proceeding sought to be withdrawn is core or non-core."⁸⁶ Bankruptcy judges have specialized expertise in bankruptcy law, and references of core proceedings are seldom withdrawn.⁸⁷

It is important to note that filing a motion to withdraw the reference does not stay any applicable deadlines that otherwise exist.⁸⁸ Rather, a party seeking to withdraw the reference must also request that the matter be stayed while the district court determines the motion to withdraw the reference.⁸⁹ The request is made to the bankruptcy court first, and if the bankruptcy court refuses then the request to stay can be renewed before the district court.⁹⁰

I. Mandatory Withdrawal

Courts have uniformly agreed that a narrow interpretation of when to use the mandatory...