MSP Recovery Claims v. Plant Insulation Company Asbestos Settlement Trust

Background

MSP Recovery Claims, Series LLC filed an adversary proceeding in Bankruptcy Court, No. 3:21-03045, against the Plant Insulation Company Asbestos Settlement Trust. It then moved to withdraw the bankruptcy reference, which is the District Court's referral of the bankruptcy-related matter to the Bankruptcy Court. The District Court determined that the motion could be decided without oral argument and vacated the scheduled hearing.

Legal standard

Under 28 U.S.C. § 157(d), withdrawal is mandatory when resolving a proceeding requires consideration of both bankruptcy law and other federal laws regulating organizations or activities affecting interstate commerce. The court explained that, in the Ninth Circuit, mandatory withdrawal generally requires interpretation—not merely application—of the non-bankruptcy statute, or analysis of significant open and unresolved issues under that law. A party seeking mandatory withdrawal must at least show that the bankruptcy case requires interpretation of federal law.

A court may also withdraw the reference as a matter of discretion. The court considered whether discretionary withdrawal would promote judicial economy.

Analysis

The court identified a potentially dispositive standing issue. Standing is the legal requirement that a party show it has a sufficient connection to the dispute to pursue the case. The court noted that other courts had rejected similar allegations where plaintiffs did not adequately allege that Medicare Advantage organizations incurred reimbursable costs, were not reimbursed, or validly assigned their rights to the plaintiff.

The court relied on its explanation in a prior related proceeding, Case No. 3:21-cv-08526-EMC (N.D. Cal., March 3, 2022), that this threshold standing issue did not require interpreting a non-bankruptcy statute. Instead, resolving standing involved conventional pleading analysis, and the Bankruptcy Court would not need to analyze significant open and unresolved issues under non-bankruptcy law.

The court therefore concluded that mandatory withdrawal was not warranted at that stage. It also concluded that discretionary withdrawal would not promote judicial economy.

Disposition

Judge Richard Seeborg denied the motion to withdraw the bankruptcy reference. The opinion does not decide the underlying standing issue or the merits of the adversary proceeding.