The Science Behind Withdrawal of the Reference
When representing your client in bankruptcy court, you may have the distinct pleasure of either filing or responding to a motion for withdrawal of the reference. The motion to withdraw the reference serves an important purpose in bankruptcy law and can have a huge impact on your client's case.
According to the 1984 Amendments to the Bankruptcy Code, Article III district courts retain bankruptcy jurisdiction. Therefore, a party may be required to litigate matters in this arena that were previously heard by bankruptcy courts. In this setting, Title 28 of the United States Code, Section 157 authorizes the district court to withdraw a reference to the bankruptcy court under certain circumstances.
The moving party must file the motion with the bankruptcy court and the clerk of the court will then transfer the motion to the appropriate district court. The motion will then be heard by the district court and it will be in the district court's sole discretion whether to grant or deny the motion. Keep in mind that the bankruptcy court can also submit a recommendation as to whether the district court should withdraw the reference. The withdrawal will apply to both core and non-core proceedings.
You should also know that there are two kinds of withdrawals: mandatory and discretionary. In a mandatory withdrawal, the district court must withdraw the reference if there is an unavoidable nexus between the bankruptcy issue and federal law affecting interstate commerce, or where the matter would result in liquidation of a claim for personal injury or wrongful death. See 28 U.S.C. Section 157(d). A discretionary withdrawal of the reference can be based on any grounds. According to 28 U.S.C. Section 157(d), a discretionary withdrawal must be accompanied by a showing of cause.
A motion to withdraw the reference may be a useful tool for your client, especially when a demand for a jury trial is warranted. However, the decision to file a motion to withdraw should not be taken lightly. In a nutshell, you are telling the bankruptcy court, that it has no jurisdiction, or should not exercise jurisdiction in your client's case. So, if you are filing a motion to withdraw, make sure that your client's position is solid and rightfully belongs in the district court.
