US Trustee v. Buch

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF ILLINOIS

In re:

MEGAN M. STATEN, Case No. 3:21-CV-794-NJR

Ch. 7 Bankruptcy Case No. 20-30604

Debtor.

NANCY GARGULA, UNITED STATES

Trustee,

Plaintiff,

v. Adversary No. 21-03009

DEIGHAN LAW LLC, f/k/a Law

Solutions Chicago LLC, d/b/a Upright

Law LLC, and RONALD ALLAN BUCH,

Defendants.

MEMORANDUM AND ORDER

ROSENSTENGEL, Chief Judge:

Pending before the Court is a Motion to Withdraw Reference from the United

States Bankruptcy Court for the Southern District of Illinois filed by Defendants Deighan

Law LLC., d/b/a Upright Law LLC (“Upright”), and Ronald Allan Buch pursuant to

28 U.S.C. § 157(d). (Doc. 2). United States Trustee Nancy J. Gargula (“the Trustee”) filed

a response in opposition to the request to withdraw reference, and Defendants filed a

reply. (Docs. 2-1, 3). For the reasons set forth below, the motion is denied.

BACKGROUND

On September 25, 2018, debtor Megan Staten allegedly contacted Upright about

filing for bankruptcy. She ultimately did file for bankruptcy, “and . . . agree[d] to pay

UpRight Law the quoted sum of $1,675.00 in attorney’s fees plus the court filing fee of

$335.00 to accomplish her filing.” See Compl., In re Staten, 21-03009 (Bankr. S.D. IL. June

10, 2021). Almost six months later—after Staten had paid all the fees Upright charged—

the case was handed off to Buch. But Buch did not file a Chapter 7 bankruptcy petition

for Staten when he was handed the case in March 2019. Rather, over a year later, on June

15, 2020, Buch filed Staten’s bankruptcy petition, thus allowing creditors to continue to

garnish hundreds of dollars from Staten’s wages in 2018, 2019, and 2020.

According to the Trustee, Upright is a legal referral service that sends potential

bankruptcy filers to local attorneys, like Buch. The Trustee alleges that “[d]uring the

months from September 25, 2018 until March 13, 2019, UpRight Law did not provide

Debtor with a check list of documents to gather, did not begin to prepare or review the

petition, schedules and required documents, did not request that the Debtor gather and

save copies of paystubs, bank statements, bills/notices from creditors and tax returns,

and, contrary to their promises they would provide immediate legal help, failed to act

with appropriate diligence to ensure Debtor’s case was filed in a timely manner.” As a

result, on June 10, 2021, the Trustee filed a complaint against Defendants based on

Upright’s method of doing business. The Trustee alleges Defendants have violated

bankruptcy law in three ways—pointing to three provisions of the Bankruptcy Code and

one Bankruptcy Rule:

(1) 11 U.S.C. § 526(a)(1), which prohibits debt relief agencies from “fail[ing]

to perform any service that such agency informed an assisted person or

prospective assisted person it would provide in connection with a case

or proceeding under this title”;

(2) 11 U.S.C. § 526(a)(3), which prohibits debt relief agencies from

“misrepresent[ing] to any assisted person or prospective assisted

person, directly or indirectly, affirmatively or by material omission,

with respect to—(A) the services that such agency will provide to such

person; or (B) the benefits and risks that may result if such person

becomes a debtor in a case under this title”;

(3) 11 U.S.C. § 329(b), which allows the court to cancel an agreement for a

debtor to pay an attorney an amount exceeding the reasonable value of

the services performed or order the return of the excess payment to the

estate or the person who made the payment; and

(4) Federal Rule of Bankruptcy Procedure 2017, which permits a court, after

notice and a hearing, to determine whether a debtor’s payment to an

attorney in contemplation of the filing of a Bankruptcy petition was

excessive.

See Compl., In re Staten, 21-03009 (Bankr. S.D. IL. June 10, 2021). The Trustee seeks an

injunction, a civil penalty, and disgorgement of amounts Staten paid defendants.

This matter was referred to the Bankruptcy Court pursuant to 28 U.S.C. § 157(1)

and Local Rule Br1001.1. However, Defendants ask the Court to withdraw that reference

pursuant to 28 U.S.C. § 157(d). Defendants argue that withdrawal is mandatory because:

(1) Defendants are entitled to a jury trial under the Seventh Amendment on

Trustee’s claims against them for civil penalties for a clear and consistent

pattern or practice of violating 11 U.S.C. § 526;

(2) this proceeding requires consideration of Defendants’ due process

rights under the Fifth Amendment;

(3) their First Amendment rights are infringed by the Trustee’s request

under 11 U.S.C. § 526(c)(5) to enjoin Upright from violating § 526(a); and

(4) this is a non-core proceeding and there is a need for uniformity and

efficient resolution of the dozens of Bankruptcy cases in which the

Trustee has sought relief against Upright and its network of local

attorneys for similar reasons.

(Doc. 2, pp. 4-5).

LEGAL STANDARD

District courts have original jurisdiction over all bankruptcy proceedings arising

out of Title 11 of the United States Code, see 28 U.S.C. § 1334, but a district court may

“provide that any or all cases under title 11 [of the United States Code] and any or all

proceeding arising under title 11 or arising in or related to a case under title 11 shall be

referred to the bankruptcy judges for the district.” 28 U.S.C. § 157(a). This district’s Local

Rule Br1001.1 automatically refers all cases rising under Title 11 to the bankruptcy judge

in this district.

A district judge “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” for the removal. 28 U.S.C. § 157(d). Section 157(d) does not define “cause,” but

courts generally consider the following factors in determining whether cause exists:

whether withdrawal would promote judicial economy or uniformity and efficiency in

bankruptcy administration; whether it would reduce forum shopping; whether it would

cause delay and costs to the parties; whether a particular court has familiarity with the

case; whether the parties have demanded a jury trial; and whether a core or non-core

proceeding is involved. See Adelsperger as Tr. For Consol. Bankr. Estate of 5 Star Commercial,

LLC v. 3d Holographics Med. Imaging Inc., 2019 WL 2206091, at *2 (N.D. Ind. May 21, 2019).

As another district court put it, district courts have “broad discretion to determine

whether to withdraw a reference based on cause, but at the same time, permissive

withdrawal is the exception, rather than the rule, as bankruptcy jurisdiction is ‘designed

to provide a single forum for dealing with all claims to the bankrupt’s assets.’” In re K &

R Express Sys., Inc., 382 B.R. 443, 446 (N.D. Ill. 2007) (citing In re Sevko, Inc., 143 B.R. 114,

115 (N.D. Ill. 1992), and quoting Xonics v. First Wis. Fin. Corp., 813 F.2d 127, 131 (7th Cir.

1987)). The moving party has the burden of establishing sufficient cause. In re Stein, 2017

WL 2418325, at *1 (S.D. Ind. June 2, 2017).

DISCUSSION

I. Right to a Jury Trial Under the Seventh Amendment

The Seventh Amendment guarantees the right to a jury trial for “suits at common

law, where the value in controversy shall exceed twenty dollars[.]” U.S. Const. amend.

VII. The Supreme Court “[has] consistently interpreted the phrase ‘[s]uits at common

law’ to refer to ‘suits in which legal rights were to be ascertained and determined, in

contradistinction to those where equitable rights alone were recognized, and equitable

remedies were administered.’” Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 41 (1989)

(quoting Parsons v. Bedford, 28 U.S. 433, 447 (1830)). To determine whether the right to

jury trial is present in a particular action, courts consider the following:

First, we compare the statutory action to 18th-century actions brought in

the courts of England prior to the merger of the courts of law and equity.

Second, we examine the remedy sought and determine whether it is legal

or equitable in nature. The second stage of this analysis is more important

than the first. If, on balance, these two factors indicate that a party is entitled to a

jury trial under the Seventh Amendment, we must decide whether Congress may

assign and has assigned resolution of the relevant claim to a non-Article III

adjudicative body that does not use a jury as factfinder.

Id. at 42 (internal citations and quotations omitted) (emphasis added).

Defendants argue that “[a]pplication of the Granfinanciera test confirms that

Defendants are entitled to a jury trial on the [Trustee’s] § 526 claims.” (Doc. 2, p. 12).

Defendants first note that “[c]laims brought by the Federal Government that purport to

seek civil penalties have long been held to be analogous to actions in debt that fell within

jurisdiction of the English courts of law.” (Id.). As one might predict, Defendants continue

arguing that § 526 claims seek a legal remedy—not equitable—because the Trustee seeks

civil penalties. (Doc. 2, p. 13).

Even if claims brought by the Government seeking civil penalties have long been

tied to English courts of law and the claims seek a legal remedy, the Court must still

decide whether § 526 claims involve a matter of “private right” or “public right.”

Granfinanciera, 492 U.S. at 42. Generally, claims involve a matter of private rights when

one individual is liable “to another under the law as defined.” Crowell v. Benson, 285 U.S.

22, 51 (1932). Public rights are “statutory rights that are integral parts of a public

regulatory scheme and whose adjudication Congress has assigned to an administrative

agency or specialized court of equity.” Granfinanciera, 492 U.S. at 55.

The Supreme Court “has not ‘definitively explained’ the distinction between

public and private rights, Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S.

50, 69, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), and its precedents applying the public-rights

doctrine have ‘not been entirely consistent.’” Oil States Energy Servs., LLC v. Greene’s

Energy Grp., LLC, 138 S. Ct. 1365, 1373 (2018) (quoting Stern v. Marshall, 564 U.S. 462, 488

(2011)). Luckily, the Supreme Court has faced Article III challenges to a bankruptcy

court’s resolution of a debtor’s suit multiple times. Stern, 564 U.S. at 485. The Court in

Stern summarized Northern Pipeline, 458 U.S. 50, by noting the following:

In Northern Pipeline, we considered whether bankruptcy judges serving

under the Bankruptcy Act of 1978—appointed by the President and

confirmed by the Senate, but lacking the tenure and salary guarantees of

Article III—could “constitutionally be vested with jurisdiction to decide [a]

state-law contract claim” against an entity that was not otherwise part of

the bankruptcy proceedings. Id., at 53, 87, n. 40, 102 S.Ct. 2858 (plurality

opinion); see id., at 89–92, 102 S.Ct. 2858 (Rehnquist, J., concurring in

judgment). The Court concluded that assignment of such state law claims

for resolution by those judges “violates Art. III of the Constitution.” Id., at

52, 87, 102 S.Ct. 2858 (plurality opinion); id., at 91, 102 S.Ct. 2858 (Rehnquist,

J., concurring in judgment).

The plurality in Northern Pipeline recognized that there was a category of

cases involving “public rights” that Congress could constitutionally assign

to “legislative” courts for resolution. That opinion concluded that this “public

rights” exception extended “only to matters arising between” individuals and the

Government “in connection with the performance of the constitutional functions

of the executive or legislative departments ... that historically could have been

determined exclusively by those” branches. Id., at 67–68, 102 S.Ct. 2858 (internal

quotation marks omitted). A full majority of the Court, while not agreeing

on the scope of the exception, concluded that the doctrine did not

encompass adjudication of the state law claim at issue in that case. Id., at

69–72, 102 S.Ct. 2858; see id., at 90–91, 102 S.Ct. 2858 (Rehnquist, J.,

concurring in judgment) (“None of the [previous cases addressing Article

III power] has gone so far as to sanction the type of adjudication to which

Marathon will be subjected .... To whatever extent different powers granted

under [the 1978] Act might be sustained under the ‘public rights’ doctrine

of Murray’s Lessee ... and succeeding cases, I am satisfied that the

adjudication of Northern’s lawsuit cannot be so sustained”).

Id. at 485–86 (emphasis added).

The Court acknowledged that the consideration “of the application of the public

rights exception—and the [next] case in which [the] [Court] [ ] considered that doctrine

in the bankruptcy context . . . is Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 109 S.Ct. 2782,

106 L.Ed.2d 26 (1989).” Id. at 492. The Court in Stern then summarized Granfinanciera:

In Granfinanciera we rejected a bankruptcy trustee’s argument that a

fraudulent conveyance action filed on behalf of a bankruptcy estate against

a noncreditor in a bankruptcy proceeding fell within the “public rights”

exception. We explained that, “[i]f a statutory right is not closely intertwined

with a federal regulatory program Congress has power to enact, and if that right

neither belongs to nor exists against the Federal Government, then it must be

adjudicated by an Article III court.” Id., at 54–55, 109 S.Ct. 2782. We reasoned

that fraudulent conveyance suits were “quintessentially suits at common

law that more nearly resemble state law contract claims brought by a

bankrupt corporation to augment the bankruptcy estate than they do

creditors’ hierarchically ordered claims to a pro rata share of the

bankruptcy res.” Id., at 56, 109 S.Ct. 2782. As a consequence, we concluded

that fraudulent conveyance actions were “more accurately characterized as

a private rather than a public right as we have used those terms in our

Article III decisions.” Id., at 55, 109 S.Ct. 2782.

Id. at 492 (emphasis added). After analyzing both Northern Pipeline and Granfinanciera, the

Court in Stern—another case in which the Supreme Court considered the public rights

doctrine in the bankruptcy context—concluded the following:

[Petitioner’s] counterclaim—like the fraudulent conveyance claim at issue

in Granfinanciera—does not fall within any of the varied formulations of the

public rights exception in this Court’s cases. It is not a matter that can be

pursued only by grace of the other branches, as in Murray’s Lessee, 18 How.,

at 284, or one that “historically could have been determined exclusively by”

those branches, Northern Pipeline, supra, at 68, 102 S.Ct. 2858 (citing Ex parte

Bakelite Corp., supra, at 458, 49 S.Ct. 411). The claim is instead one under state

common law between two private parties. It does not “depend [ ] upon the

will of congress,” Murray’s Lessee, supra, at 284; Congress has nothing to do

with it.

In addition, [petitioner’s] claimed right to relief does not flow from a federal

statutory scheme, as in Thomas, supra, at 584 – 585, 105 S.Ct. 3325, or Atlas

Roofing, 430 U.S., at 458, 97 S.Ct. 1261. It is not “completely dependent

upon” adjudication of a claim created by federal law, as in Schor, 478 U.S.,

at 856, 106 S.Ct. 3245. And in contrast to the objecting party in Schor, id., at

855–856, 106 S.Ct. 3245, [respondent] did not truly consent to resolution of

[petitioner’s] claim in the bankruptcy court proceedings.

. . .

Furthermore, the asserted authority to decide [petitioner’s] claim is not

limited to a “particularized area of the law,” as in Crowell, Thomas, and

Schor. Northern Pipeline, 458 U.S., at 85, 102 S.Ct. 2858 (plurality opinion).

We deal here not with an agency but with a court, with substantive

jurisdiction reaching any area of the corpus juris. See ibid.; id., at 91, 102 S.Ct.

2858 (Rehnquist, J., concurring in judgment). This is not a situation in which

Congress devised an “expert and inexpensive method for dealing with a

class of questions of fact which are particularly suited to examination and

determination by an administrative agency specially assigned to that task.”

Crowell, 285 U.S., at 46, 52 S.Ct. 285; see Schor, supra, at 855–856, 106 S.Ct.

3245. The “experts” in the federal system at resolving common law

counterclaims such as [petitioner’s] are the Article III courts, and it is with

those courts that her claim must stay.

Id. at 493–94 (emphasis added).

Unlike the claims in Northern Pipeline, Granfinanciera, and Stern, claims under

11 U.S.C. § 526 flow from a federal statutory scheme established by Congress to protect

consumer debtors from certain conduct by debt relief agencies. See, e.g., Milavetz, Gallop

& Milavetz, P.A. v. United States, 559 U.S. 229, 231–32 (2010) (acknowledging that

“Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act of

2005 (BAPCPA or Act) to correct perceived abuses of the bankruptcy system. Among the

reform measures the Act implemented are a number of provisions that regulate the

conduct of ‘debt relief agenc[ies]’—i.e., professionals who provide bankruptcy assistance

to consumer debtors”). Accordingly, § 526 claims fall within at least one “of the varied

formulations of the public rights exception in [ ] [the] [Supreme] Court’s cases[,]” Stern,

564 U.S. at 493, and Defendants are not entitled to a jury trial on the Trustee’s § 526

claims.1

1 The Court further finds the permissive nature of this assignment immaterial to the question of

whether Defendants are entitled to a jury trial. The permissive nature of the assignments in

II. Mandatory Withdrawal

Next, Defendants argue that withdrawal of the reference is mandatory because

resolution of this proceeding requires consideration of Defendants’ due process rights

under the Fifth Amendment and Defendants’ right to commercial speech under the First

Amendment. But withdrawing the reference because the resolution potentially requires

consideration of rights under the First and Fifth Amendments would ignore Seventh

Circuit jurisprudence.

Indeed, the Seventh Circuit has explained that “[g]iven the discretion granted to

district courts by § 157(d), there is little reason to assume that withdrawal is required by

the mere presence of a non-title 11 issue, even if that issue is outcome determinative.” In

re Vicars Ins. Agency, Inc., 96 F.3d 949, 953 (7th Cir. 1996). “[A]s far as non-title 11 issues

are presented, mandatory withdrawal is required only when those issues require the

interpretation, as opposed to mere application, of the non-title 11 statute, or when the

court must undertake analysis of significant open and unresolved issues regarding the

non-title 11 law. Id. at 954. “The legal questions involved need not be of ‘cosmic

proportions,’ In re Rimsat, Ltd., 196 B.R. 791, 799 (N.D. Ind. 1995), but must involve more

than mere application of existing law to new facts.” Id.

As shown below, consideration of Defendants’ due process rights under the Fifth

Amendment and Defendants’ right to commercial speech under the First Amendment

Northern Pipeline, Granfinanciera, and Stern were not material. Instead, the Supreme Court

concentrated on the varied formulations of the public rights exception.

require merely application—and do not require the Bankruptcy Court to undertake

analysis of significant open and unresolved issues regarding these rights.2

A. Right to Due Process Under the Fifth Amendment

The Fifth Amendment provides that “[n]o person shall ... be deprived of life,

liberty, or property, without due process of law.” U.S. Const. amend. V. “The general test

for determining what process is due and when was set out in Mathews v. Eldridge, 424 U.S.

319, 96 S.Ct. 893, 47 L.Ed.2d 18 (1976).” Simpson v. Brown Cnty., 860 F.3d 1001, 1006 (7th

Cir. 2017). “Mathews identified three factors to be balanced: first, the private interest at

stake; second, the risk of erroneous deprivation and the value, if any, of additional

procedural safeguards; and third, the government’s countervailing interests.” Id. (citing

Mathews, 424 U.S. at 335). “The basic rights guaranteed by constitutional due process are

notice of the intended adverse government action and an opportunity to be heard in

response, although more elaborate procedural rights—such as the rights to present

evidence, to confront adverse witnesses, and to be represented by counsel—may apply

in cases in which vital private interests are at risk.” Id.

2 Defendants also passingly note that the reference must be withdrawn where resolution of a

proceeding requires consideration of Title 11 and interstate commerce. Rather than going into

further detail, the Court agrees with the analysis of Senior District Judge J. Phil Gilbert in In re

Collier, 2022 WL 874730, at *5 (S.D. Ill. Mar. 24, 2022). As noted by Judge Gilbert, “[u]nder § 157(d),

mandatory withdrawal requires, at minimum, the presence of a non-Bankruptcy Code federal

law that has ‘more than a de minimis effect on interstate commerce.’” Id. (quoting Mikulin v. L.

Sols. Chicago, LLC, 2020 WL 514474, at *2 (N.D. Ala. Jan. 31, 2020)). Like in In re Collier, “Defendants

do not make an adequate showing that a resolution of this matter has more than a de minimis

effect on interstate commerce.” Id. Accordingly, the Court rejects this argument.

Defendants argue the Bankruptcy Court cannot serve as a neutral arbiter for six

reasons, and thus due process requires withdrawal of the reference.3 Defendants quote

Montgomery v. Uchtman, 426 F.3d 905 (7th Cir. 2005), for the notion that “[t]he Due Process

Clause guarantees litigants an impartial judge.” Id. at 910; (Doc. 2, p. 19). Significantly,

the Court in Montgomery provided examples where a party rebutted the general

presumption that judges are honest and impartial. See e.g., Tumey v. State of Ohio, 273 U.S.

510 (1927); Ward v. Vill. of Monroeville, Ohio, 409 U.S. 57 (1972); Aetna Life Ins. Co. v. Lavoie,

475 U.S. 813 (1986). “In Tumey and Ward, it was certain that only convictions would

generate revenue; thus, the judges’ bias was clear.” Montgomery, 426 F.3d at 911.

“Similarly, in Aetna Life Ins. it was certain that the Alabama Supreme Court justice’s

decision and unprecedented award of damages made success in his own

contemporaneous lawsuit far more likely.” Id. Not only do Defendants fail to compare

the Bankruptcy Court’s actions to the examples in Tumey, Ward, and Aetna Life Ins., but

also Defendants’ six reasons fail to rebut the general assumption that the Bankruptcy

Court is honest and impartial.

Defendants also quote a Ninth Circuit case for the notion that “[a] neutral judge is

one of the most basic due process protections.” Zolotukhin v. Gonzales, 417 F.3d 1073, 1075

(9th Cir. 2005). In Zolotukhin, the Ninth Circuit found that an immigration judge

prejudiced the petitioner’s case by prejudging the merits of the case and denying the

petitioner “a full and fair opportunity to present evidence on his behalf, including . . .

3 None of Defendants’ six reasons address the basic factors in Mathews.

exclude[ing] the testimony of several key witnesses.” Id. The closest Defendants get to

comparing their situation with Zolotukhin is the assertion that “[t]he Bankruptcy Court

already has prejudged the merits.” (Doc. 2, p. 21). Defendants contend “[t]he Bankruptcy

Court has purported to make ‘Findings of Facts’ relating to Defendants’ representation

of debtors in numerous cases in the absence of any contested matter or evidentiary

hearing.” (Id.). The problem is these “Findings of Fact” were not findings on the merits of

the allegations raised by the Trustee. Rather, these “Findings of Fact” were made in

response to the Motions to Close Case filed by Defendants. (Doc. 2, pp. 369-415). The

Court fails to see how making “Findings of Facts” in an order over Defendants’ Motion

to Close Case amounts to prejudging the merits—especially when comparing the

situation to the prejudging that happened in Zolotukhin.

Besides the above, Defendants fail to show their due process rights under the Fifth

Amendment requires the Bankruptcy Court to undertake an analysis of significant open

and unresolved issues.4 See In re Vicars, 96 F.3d at 953 (“[T]he moving party [must] [ ]

demonstrate that the grounds for withdrawal are satisfied (i.e., substantial and material

consideration is required”). Accordingly, the Court does not find that withdrawal of the

reference is mandatory.

B. Right to Commercial Speech Under the First Amendment

Besides the Fifth and Seventh Amendments, Defendants argue the reference must

be withdrawn because their First Amendment rights are infringed by the Trustee’s

4 “Indeed bankruptcy courts are quite adept at analyzing due process challenges in bankruptcy

cases.” Cordova v. City of Chicago, 618 B.R. 244, 248–49 (N.D. Ill. 2020) (collecting cases).

request under 11 U.S.C. § 526(c)(5) to enjoin Upright from “engaging in conduct which

would violate Section 526(a), including representing to Debtor that it is ‘efficient’ or able

to timely file a case or that it will provide immediate legal help.” See Compl., In re Staten,

21-03009 (Bankr. S.D. IL. June 10, 2021).

The First Amendment grants citizens the freedom of speech, stating that:

“Congress shall make no law… abridging the freedom of speech.” U.S. Const. amend. I.

However, “certain categories of speech receive a lesser degree of constitutional

protection.” Jordan v. Jewel Food Stores, Inc., 743 F.3d 509, 515 (7th Cir. 2014).

“[C]ommercial speech is constitutionally protected but governmental burdens on this

category of speech are scrutinized more leniently than burdens on fully protected

noncommercial speech.” Id. (citing Bd. of Trustees of State Univ. of New York v. Fox, 492 U.S.

469, 477 (1989); Zauderer v. Off. of Disciplinary Couns. of Supreme Ct. of Ohio, 471 U.S. 626,

637 (1985)). The Supreme Court has acknowledged a difference between restrictions on

commercial speech and disclosure requirements, such that “the First Amendment interests

implicated by disclosure requirements are substantially weaker than those at stake when

speech is actually suppressed . . . .” Zauderer, 471 U.S. at 651 (emphasis added); see also

Connecticut Bar Ass’n v. United States, 620 F.3d 81, 93 (2d Cir. 2010) (acknowledging that

“because the regulations compel disclosure without suppressing speech, Zauderer, not

Central Hudson, provides the standard of review”); Dwyer v. Cappell, 762 F.3d 275, 282 (3d

Cir. 2014) (noting that “the takeaway[ ] [is] there exist different frameworks for analyzing

restrictions on speech and disclosure requirements”).

Similar to Defendants’ due process rights under the Fifth Amendment, Defendants

fail to demonstrate that their right to commercial speech under the First Amendment

requires the Bankruptcy Court to undertake an analysis of significant open and

unresolved issues. Commercial speech may demand higher or lower scrutiny depending

on the “nature both of the expression and of the government interests served by its

regulation.” Cent. Hudson Gas & Elec. Corp. v. Pub. Serv. Comm’n of New York, 447 U.S. 557,

563 (1980). However, the default test is the four-part intermediate-scrutiny approach in

Central Hudson. Defendants do not argue that this case is any different.

Moreover, courts have not found that First Amendment rights automatically

require an analysis of significant open and unresolved issues. See Szanto v. Santo, 2019

WL 1932366, at *7 (D. Or. May 1, 2019) (acknowledging that while party made “general

references” to the First Amendment—the party failed to “explain how these laws or

constitutional provisions require the Bankruptcy Court to interpret an uncertain legal

principle as opposed to applying a fixed legal standard to a given set of facts”); Greenspan

v. Paul Hastings Janofsky & Walker LLP, 2012 WL 3283516, at *6 (N.D. Cal. Aug. 10, 2012)

(noting that the right to association “involves at most the routine application of the

federal law . . . [and] [d]efendant does not point to a novel application of these

constitutional principles at issue here”); In re Ionosphere Clubs, Inc., 103 B.R. 416, 420

(S.D.N.Y. 1989) (finding “that the[ ] purported First Amendment issues do not constitute

substantial and material considerations for the resolution of the adversary proceeding”).

Accordingly, the Court does not find that withdrawal of the reference is mandatory based

on Defendants’ commercial speech argument.

III. Permissive Withdrawal

District courts “may withdraw, in whole or in part, any case or proceeding . . . on

its own motion or on timely motion of any party, for cause shown.” 28 U.S.C. § 157(d)

(emphasis added). Section 157(d) does not define “cause,” but courts generally consider

the following factors in determining whether cause exists:

- whether withdrawal would promote judicial economy or uniformity and

efficiency in bankruptcy administration;

- whether it would reduce forum shopping;

- whether it would cause delay and costs to the parties;

- whether a particular court has familiarity with the case;

- whether the parties have demanded a jury trial; and

- whether a core or non-core proceeding is involved.

Homa v. Gargula, 2019 WL 6701684, at *1 (S.D. Ill. Dec. 9, 2019) (citing Adelsperger as Tr. For

Consol. Bankr. Estate of 5 Star Commercial, LLC v. 3d Holographics Med. Imaging Inc., 2019

WL 2206091, at *2 (N.D. Ind. May 21, 2019)).

Defendants argue withdrawal of the reference is appropriate because the Trustee’s

adversary proceeding is non-core, and “the Bankruptcy Court cannot enter a final

judgment, and any recommendation . . . would need to be reviewed de novo by this

Court.” (Doc. 2, p. 5).

Defendants are incorrect. This is a core proceeding. The fact that claims under

§ 526 are not listed in 28 U.S.C. § 157 is of little importance. To be sure, 11 U.S.C.

§ 157(b)(2) begins with the phrase “[c]ore proceedings include, but are not limited

to . . . .” See also Matrix IV, Inc. v. Am. Nat. Bank & Tr. Co. of Chicago, 649 F.3d 539, 550 (7th

Cir. 2011) (acknowledging that “[s]ection 157(b)(2) provides a nonexhaustive list of ‘core’

proceedings”).

When a claim is not listed in 11 U.S.C. § 157(b)(2), the Seventh Circuit uses the

following definition for determining whether a matter is a core proceeding:

A proceeding is core under section 157 if it invokes a substantive right

provided by title 11 or if it is a proceeding that, by its nature, could arise

only in the context of a bankruptcy case.

Barnett v. Stern, 909 F.2d 973, 981 (7th Cir. 1990) (quoting In re Wood, 825 F.2d 90, 97 (5th

Cir. 1987)). Under Barnett’s definition, the Trustee’s claims against Defendants are core

proceedings. First, these claims invoke substantial rights created by federal bankruptcy

law—not rights created outside federal bankruptcy law. Second, these claims do not exist

outside of the bankruptcy context.5

Courts agree that “[a]ctions under 11 U.S.C. § 526 are ‘core’ proceedings.” Mikulin

v. L. Sols. Chicago, LLC, 2020 WL 514474, at *3 (N.D. Ala. Jan. 31, 2020); see e.g., In re

Anderson, 562 B.R. 135, 139 (Bankr. S.D. Tex. 2016) (“[w]hile claims under 11 U.S.C.

5 Again, 11 U.S.C. § 526(a)(1) prohibits debt relief agencies from “fail[ing] to perform any service

that such agency informed an assisted person or prospective assisted person it would provide in

connection with a case or proceeding under this title.” 11 U.S.C. § 526(a)(3) prohibits debt relief

agencies from “misrepresent[ing] to any assisted person or prospective assisted person, directly

or indirectly, affirmatively or by material omission, with respect to—(A) the services that such

agency will provide to such person; or (B) the benefits and risks that may result if such person

becomes a debtor in a case under this title.” 11 U.S.C. § 329(b) allows the court to cancel an

agreement for a debtor to pay an attorney an amount exceeding the reasonable value of the

services performed or order the return of the excess payment to the estate or the person who

made the payment. Finally, Federal Rule of Bankruptcy Procedure 2017 permits a court, after

notice and a hearing, to determine whether a debtor’s payment to an attorney in contemplation

of the filing of a Bankruptcy petition was excessive.

§§ 526–528 are not enumerated core proceedings under 28 U.S.C. § 157, they invoke

substantive rights established by the Bankruptcy Code”); In re Bascus, 548 B.R. 742, 745

(Bankr. S.D. Tex. 2016) (“[w]hile claims under 11 U.S.C. §§ 110 and 526–528 are not

enumerated core proceedings under 28 U.S.C. § 157, they invoke substantive rights

established by the Bankruptcy Code”); In re Dobbs, 535 B.R. 675, 679 (Bankr. N.D. Miss.

2015) (analyzing violations of § 526 and acknowledging that “[t]his is a core proceeding

arising under Title 11 of the United States Code (the ‘Bankruptcy Code’) as defined in

28 U.S.C. § 157(b)(2)(A)”); In re Harrelson, 537 B.R. 16, 27 (Bankr. M.D. Ala. 2015) (“[a]

claim asserting violations of debt relief agency restrictions is not specifically listed as a

‘core’ proceeding under 28 U.S.C. § 157(b)(2). Nevertheless, it is a core proceeding

because the right to disgorge fees of entities purporting to provide bankruptcy assistance

is established by the Bankruptcy Code and is unique to bankruptcy”); In re Kohlenberg,

2012 WL 3292854, at *3 (Bankr. N.D. Ohio Aug. 10, 2012) (“[p]laintiff’s claim brought

under § 526, which sets forth certain restrictions on debt relief agencies and remedies for

the failure to comply with its provisions, is a core proceeding as it involves substantive

rights created by federal bankruptcy law”).

Courts also agree that actions under 11 U.S.C. § 329 are core proceedings. See In re

Gelb, 2022 WL 982199, at *1 (Bankr. N.D. Ill. Mar. 31, 2022) (acknowledging that “[t]his

proceeding is brought under sections 526, 527, 528 and 329 of the Bankruptcy Code and

involves matters concerning the administration of the estate and invokes substantive

rights that are either provided by the Code or could only arise in the context of a

bankruptcy case. Accordingly, this is a core proceeding under 28 U.S.C. §§ 157(b)(1) and

(b)(2)(A)”); In re Att’y & Debt Relief Agency, 2013 WL 6036844, at *1 (Bankr. M.D. Fla. Nov.

13, 2013) (finding that the court had jurisdiction to adjudicate proceedings “pursuant to

Fed. R. Bankr.P.2090–1, 2090–2, and 11 U.S.C. §§ 329, 526–28, and 707(b)(4)”).

Evaluating the other factors to determine whether cause exists hurts Defendants’

argument. Withdrawal would not promote judicial economy or uniformity and efficiency

in bankruptcy administration as similar cases between the Trustee and Defendants are in

front of the Bankruptcy Court. Further, the motion to withdraw here has already caused

delay and costs to the parties—in part because the Court’s unfamiliarity with the case

and the parties’ arguments has caused the Court to dig through hundreds of documents

and review many cases—and transferring the case to the District Court may continue to

cause delay. On that same note, the Bankruptcy Court is the most familiar with the case

as it has administered the underling case since 2020. Accordingly, the Court does not find

that withdrawal of the reference is appropriate.

IV. Certifying Issues For Interlocutory Appeal

Finally, in the last sentence of the Motion to Withdraw, Defendants ask the Court

to “certify the Seventh Amendment right to a jury trial issue and the Fifth Amendment

due process issue for interlocutory appeal to the United States Court of Appeals for the

Seventh Circuit (the ‘Seventh Circuit’).” (Doc. 2, p. 2). Then in Defendants’ Memorandum

in Support of Motion to Withdraw, Defendants do not ask the Court to certify the issue

for interlocutory appeal. Not only do Defendants fail to ask the Court to certify the issue

for interlocutory appeal in their Memorandum in Support of Motion to Withdraw, but

also Defendants fail to make any argument as to why certification is appropriate.

Accordingly, Defendants’ request to certify the issues for interlocutory appeal is waived.

CONCLUSION

For these reasons set forth above, the Motion to Withdraw the Reference is

DENIED. (Doc. 2). Defendants’ request to certify the issues for interlocutory appeal is

DENIED. The Court further DIRECTS the Clerk of Court to send a copy of this

Memorandum and Order to Bankruptcy Judge Laura K. Grandy and TERMINATE this

case.

IT IS SO ORDERED.

DATED: July 11, 2022

NANCY J. ROSENSTENGEL |

Chief U.S. District Judge

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