In re Akatugba

Background

Debtor Ayo Akatugba moved to withdraw the reference for her motion for sanctions. In this district, bankruptcy cases are automatically referred to the bankruptcy court. Creditors UMB Bank, N.A.; Morgan Stanley Mortgage Capital Holdings, LLC; and Newrez LLC d/b/a Shellpoint Mortgage Servicing opposed the motion. At the district court’s request, the bankruptcy court recommended against withdrawal.

Akatugba sought both mandatory and permissive withdrawal under 28 U.S.C. § 157(d). Mandatory withdrawal is required when resolving a proceeding requires material interpretation of federal law outside the Bankruptcy Code, rather than merely applying that law. Permissive withdrawal allows a district court, in its discretion, to take a matter from the bankruptcy court when cause exists.

Mandatory Withdrawal

Akatugba argued that her sanctions motion raised claims under the Real Estate Settlement Procedures Act, the Truth in Lending Act, related Consumer Financial Protection Bureau regulations, and the Fair Debt Collection Practices Act. She also identified an issue concerning whether notices of mortgage-payment changes filed in bankruptcy court under Bankruptcy Rule 3002.1 were communications covered by the Fair Debt Collection Practices Act.

The court held that Akatugba had not shown that resolving these issues would require interpreting federal non-bankruptcy law or analyzing significant, open, and unresolved questions under that law. The court therefore concluded that mandatory withdrawal was not required at that time.

Permissive Withdrawal

The court considered factors including judicial efficiency, delay and costs, uniform bankruptcy administration, and the possibility of forum shopping. Akatugba argued that withdrawal would promote efficiency because, in her view, none of her claims—including claims under Title 11—were core bankruptcy claims.

The court was not persuaded that none of the claims were core claims. It noted that a request for sanctions for alleged violations of the automatic stay may be a core proceeding because it may exist only within a bankruptcy case. The efficiency factor therefore did not necessarily favor withdrawal.

The court also found that withdrawal would cause additional delay and costs by requiring the parties to restart briefing in the district court. The bankruptcy court was familiar with the case, and the sanctions motion involved issues within that court’s expertise. The district court concluded that the bankruptcy court should address the issues in the first instance, even if it could not enter a final judgment on certain claims.

Disposition

The court declined to exercise its discretion to withdraw the reference. It denied Akatugba’s motion to withdraw the reference without prejudice and directed the clerk to close the file. The order addressed which court should handle the sanctions matter; it did not resolve the merits of the sanctions claims.