FirstEnergy Solutions Corp. and the Withdraw of Adversary Proceedings in Ohio

The Withdraw of Adversary Proceedings in Ohio Under Firstenergy Solutions Corp.

The matter at hand was heard by the United States District Court for the Northern District of Ohio after Bluestone Energy Sales Corp. filed a Motion to Withdrawal an Adversary Proceeding filed by FirstEnergy Solutions Corp.

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    Bluestone had a contract prior to the bankruptcy and FirstEnergy claimed that the Agreement was breached by failing to make a payment under the contract. FirstEnergy filed a Chapter 11 Voluntary Petition for Bankruptcy on March 31st, 2018. In December of the same year, FirstEnergy brought an adversary proceeding against Bluestone. One claim involved turnover of estate property under 11 USC 542 and one claim involved an alleged breach of contract. Bluestone moved to dismiss the claim however the motion to dismiss was denied. Bluestone then filed an answer but sought to have the adversary proceeding removed from the docket.

    Bluestone argued that the issues raised were not core proceedings as contemplated by 28 U.S.C. §157. Secondly, Bluestone argued it was entitled to a jury trial under the Seventh Amendment of the U.S. Constitution.

    District courts are authorized by 28 U.S.C. 157(d) to withdraw part or all of a case or proceeding either sua sponte or upon the timely motion of any party for cause. This is generally a discretionary function of the court. In this case, no party alleged any facts that would require a withdrawal such as Title 11 or federal law considerations. As such, it was discretionary for the court to determine whether the withdraw the adversary proceeding. Given this landscape, the court endeavors to analyze whether good cause has been shown. In general, withdrawals should only be granted in a limited class of proceedings for which the moving party bears the burden of proof. Ultimately, the issue revolves around whether the proceeding is a “core proceeding” or not. This is also determined by the bankruptcy judge pursuant to 28 U.S.C. 157(b)(3).

    The court held that it was undisputed that the court had not ruled on whether the adversary proceeding was a core or non-core proceeding. The court noted that the adversary proceeding was in its early stages and should remain in the bankruptcy court as opposed to reverting to the trial court. Withdrawing the proceeding would cause delay and obstruction and not foster judicial economy. The motion to withdrawal the adversary proceeding was denied by the court and the proceeding was terminated and removed from the Court’s docket.

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