Case 2:21-cv-08778-FLA Document 20 Filed 02/06/23 Page 1 of 18 Page ID #:789

JS-6

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 IN RE CACHET FINANCIAL Case No. 2:21-cv-08778-FLA 11 SERVICES, A CALIFORNIA Bankr. Case No. 2:20-bk-10654-VZ 12 CORPORATION, Adv. Pro. Case No. 2:21-ap-01187-VZ

13 Debtor/Plaintiff

ORDER DENYING DEFENDANT’S

14 v. MOTION TO WITHDRAW

REFERENCE OF ADVERSARY

15 PROCEEDING TO BANKRUPTCY

THE BANCORP BANK, A COURT [DKT. 1]

16

DELAWARE-CHARTERED

17 BANKING INSTITUTION, Defendant. 18

19 20

21 22 23 24 25 26 27 28

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1 RULING 2 Before the court is Defendant The Bancorp Bank’s (“Bancorp” or “Defendant”) 3 Motion to Withdraw Reference of Adversary Proceeding to Bankruptcy Court 4 (“Motion”). Dkt. 1 (“Mot.”). Debtor and Plaintiff Cachet Financial Services 5 (“Cachet” or “Plaintiff”) opposes the Motion. Dkt. 10 (“Opp’n”). On January 23, 6 2022, the court found this matter appropriate for resolution without oral argument and 7 vacated the hearing set for January 28, 2022. Dkt. 14; see Fed. R. Civ. P. 78(b); Local 8 Rule 7-15. 9 On September 25, 2022, Defendants Dime Community Bank (“Dime Bank”), 10 John Romano (“Romano”), and Yuriy Rubinov (“Rubinov”) filed a collective Joinder 11 to Bancorp’s Motion. Dkt. 18. 12 For the reasons stated herein, the court DENIES Bancorp’s Motion in its 13 entirety.1 14 BACKGROUND 15 I. Factual Background2 16 Cachet was a national financial services company focused on processing 17 Automated Clearing House (“ACH”) transactions and providing related services in the 18 payroll industry. AP FAC ¶ 5. Cachet contracted with payroll processing companies, 19 referred to as “Remarketers,” under Remarketer Agreements to provide payroll ACH 20 transactions. Id. ¶ 40. Bancorp is a Delaware chartered commercial bank and a 21 22 1 For purposes of this Motion, the court will cite filings in: (1) In re Debtor Cachet Financial Services, Case No. 2:20-bk-10654-VZ (Bankr. C.D. Cal.) (the “Bankruptcy 23 Action”) as “BA Dkt. #”; (2) Cachet Financial Services v. The Bancorp Bank et al., 24 Case No. 2:21-ap-01187-VZ (Bankr. C.D. Cal.) (the “Adversary Proceeding”) as “AP Dkt. #”; and (3) The Bancorp Bank v. Advanced Payroll Solutions, Inc. et al., Case 25 No. 1:19-cv-02088-MN (D. Del.) (the “Interpleader Action”) as “IA Dkt. #.” 26 2 On May 31, 2022, Cachet filed a First Amended Complaint (“FAC”) in the 27 Adversary Proceeding. AP Dkt. 11 (“AP FAC”). These factual allegations are stated in this Order only to provide background regarding the parties’ dispute and do not 28 represent findings of fact by this court.

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1 Federal Deposit Insurance Corporation (“FDIC”) insured institution. Id. ¶ 6. Bancorp 2 is also an Originating Depository Financial Institution (“ODFI”) that is permitted to 3 conduct ACH transactions pursuant to the National Automated Clearing House 4 Association (“NACHA”). Id. On or around August 4, 2010, Cachet and Bancorp 5 entered into an ODFI Agreement (“ODFI Agreement”), whereby Bancorp agreed to 6 act as Cachet’s ODFI and facilitate Cachet’s ACH transactions for Cachet’s 7 Remarketer clients. AP FAC ¶ 45; Dkt. 1-2 (“Summers Decl.”), Ex. A. 8 Cachet alleges that beginning in the summer and fall of 2019, several of its 9 clients engaged in fraudulent conduct that led ultimately to the parties’ dispute. See 10 AP FAC ¶¶ 53–57, 67–101. According to Cachet, around August and September of 11 2019, Cachet’s client, MyPayroll HR (“MPHR”), and its principal, Michael Mann 12 (“Mann”), “manipulated” and/or “altered” Cachet’s batch file specifications—“the 13 instructions that dictate the direction, timing and flow of funds”—to steal more than 14 $26 million from Cachet’s accounts (the “MPHR Incident”). Id. ¶¶ 53–56; BA Dkt. 15 511 (Am. Disclosure State.) at 5–6. 16 Around October 2019, Bancorp informed Cachet about suspicious activity 17 occurring with another of Cachet’s clients’ accounts. AP FAC ¶¶ 67–102. Cachet 18 alleges Joshua Rothenberg (“Rothenberg”) and/or Henry Kauftheil (“Kauftheil”) 19 caused batch files to be uploaded to Cachet’s servers that caused the disbursement of 20 approximately $21 million from Cachet’s settlement account to accounts controlled by 21 Cachet’s clients DD Care Management LLC, a New York limited liability company, 22 and DD Care Management LLC, a Florida limited liability company (collectively, 23 “DD Care”), without a corresponding credit to Cachet’s accounts, resulting in a multi- 24 million-dollar theft (the “DD Care Incident”).3 Id.; BA Dkt. 511 at 7. According to 25 Cachet, this was the result of an ongoing fraudulent scheme perpetrated by 26

27 3 Rothenberg, Kauftheil, and DD Care are Defendants in the Adversary Proceeding. 28 AP FAC ¶¶ 7–11.

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1 Rothenberg and Kauftheil, assisted by Defendant Dime Bank. AP FAC ¶¶ 62–102. 2 On October 23, 2019, Bancorp unilaterally terminated the ODFI Agreement 3 with Cachet and froze the funds in Cachet’s accounts with Bancorp (the “Stake”). Id. 4 ¶ 107. In the Notice of Termination letter, Bancorp stated Cachet “reversed 5 approximately $26 million in ACH credit transactions to employee and corporate 6 accounts associated with MPHR, due to MPHR’s failure to fund such transactions,” in 7 violation of NACHA rules. Summers Decl., Ex. B. According to Bancorp, this 8 resulted in “(i) a funding exposure of $26 million, (ii) Bancorp being compelled to 9 report the matter to its banking regulator, the [FDIC], (iii) Bancorp issuing letters of 10 indemnity to over 1,100 RDFIs, and (iv) NACHA assessing fines totaling $200,000, 11 to date, against Bancorp.” Id. Bancorp also claimed Cachet failed to implement 12 controls to ensure it would not originate credit transactions to its clients unless such 13 transactions were pre-funded, as it had promised following the MPHR Incident, 14 exposing Bancorp to additional financial risk during the DD Care Incident. Id. 15 On November 5, 2019, Bancorp filed the Interpleader Action in the United 16 States District Court for the District of Delaware (the “Delaware District Court”), 17 requesting leave to deposit the Stake with the court, an order discharging Bancorp 18 from liability related to the Stake, and the distribution of the funds to claimants 19 through interpleader proceedings. Dkt. 11-5 (Cachet RJN, Ex. 5). 20 Cachet contends Bancorp’s termination of the ODFI Agreement and Cachet's 21 ability to originate ACH transactions constituted a breach of the agreement. Id. 22 ¶¶ 107–112. According to Cachet, Bancorp engaged in tortious conduct by freezing 23 the funds in Cachet’s accounts with Bancorp, removing and disbursing these funds 24 without authorization, and blocking Cachet’s access to its bank and Remarketer client 25 account information. Id. ¶¶ 104–09; see also BA Dkt. 511 (Am. Disclosure State.) at 26 7. As a result, Cachet was allegedly unable to process ACH transactions for its 27 clients, forced to cease operations as an ACH processor, and became subject to 28 numerous lawsuits from Remarketers, employers, and employees. AP FAC ¶ 120; BA

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1 Dkt. 511 at 4. 2 Bancorp asserts it validly exercised its option to terminate the ODFI Agreement 3 for safety and soundness reasons, under § 5.2 of the agreement. Dkt. 1-1 (“Mot. Br.”) 4 at 4–5. Section 5.2 provides in relevant part: 5 Bancorp may at its sole discretion terminate this Agreement immediately and without notice in order to ensure compliance with 6 the law and/or assure its regulators of the safety and soundness of its 7 operations relative to Processor. 8 Summers Decl., Ex. A §5.2. 9 II. Procedural Background 10 On January 21, 2020, Cachet filed a voluntary petition for Chapter 11 11 bankruptcy relief in the United States Bankruptcy Court for the Central District of 12 California (the “Bankruptcy Court”). BA Dkt. 1; AP FAC ¶ 121. On January 24, 13 2020, the Delaware District Court stayed the Interpleader Action pending direction 14 from the Bankruptcy Court. IA Dkt. 247. 15 As of the filing of the FAC, 192 Proofs of Claim were filed against Cachet’s 16 estate in the Bankruptcy Action. AP FAC ¶¶ 121–24. In September 2020, Bancorp 17 filed two Proof of Claims against Cachet’s estate, later amending one of its claims in 18 August 2021. See Dkts. 11-1, 11-2, 11-3 (Cachet RJN, Exs. 1–3). Bancorp asserts 19 claims for indemnity under the ODFI Agreement for the attorney’s fees it incurred in 20 connection with the MPHR and DD Care Incidents and the Interpleader Action. See 21 generally id. 22 On February 9, 2021, Cachet and Bancorp entered into a stipulation to seek 23 limited relief from the stay in the Interpleader Action and establish a process for the 24 distribution of the Stake to the Remarketers and litigation of the parties’ crossclaims 25 and/or counterclaims. Summers Decl., Ex. C; Dkt. 11-14 (Cachet RJN, Ex. 14). On 26 March 9, 2021, the Bankruptcy Court approved the parties’ stipulation and granted 27 Bancorp and Cachet leave to file counterclaims and crossclaims in the Interpleader 28 Action. Dkt. 11-6 (Cachet RJN, Ex. 6).

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1 The Bankruptcy Court’s Order stated in pertinent part: 2 The automatic stay imposed pursuant to 11 U.S.C. §362(a) is hereby modified to allow the Debtor, Bancorp, any payroll company that 3 contracted directly with the Debtor (“Remarketer”) who received 4 notice of the remarketer claims bar date in this bankruptcy case and any Remarketer who appeared in the action pending in the United 5 States District Court for the District of Delaware (“District Court”), 6 Case No. 19-02088-MN (“Bancorp Interpleader”) to take such actions in the Bancorp Interpleader as necessary to participate in the Bancorp 7 Interpleader, including entering into the transactions and carrying out 8 the disbursements contemplated in the Stipulation attached to the Asfaw Declaration in support of the Motion as Exhibit 1 (the 9 “Stipulation”) and filing responsive pleadings. Bancorp and the 10 Debtor shall also be allowed to file counterclaims and crossclaims in the Bancorp Interpleader and to fully participate in Phases 1 through 4 11 of the litigation before the District Court as set forth in the Stipulation. 12 The Debtor, Remarketers and Bancorp shall also be permitted to enter into a stipulation to request the District Court to, inter alia, enter a 13 scheduling order that requires the proceedings in the Bancorp 14 Interpleader to occur in the phases set forth in the Stipulation in order to have the Stake disbursed from the District Court without prejudice 15 to the Remarketers recovering the remainder of their claims in this 16 bankruptcy case. 17 Id. (footnotes omitted). On June 11, 2021, the Delaware District Court also approved 18 the parties’ stipulation. IA Dkt. 300. 19 On July 1, 2021, the Bankruptcy Court granted Cachet’s motion to confirm a 20 plan of reorganization, and Cachet’s plan became effective on July 15, 2021. BA Dkt. 21 682; Dkt. 11-13 (Cachet RJN, Ex. 13). On July 22, 2021, the Delaware District Court 22 disbursed the Stake in the Interpleader Action pursuant to the parties’ stipulation. 23 Dkt. 11-8 (Cachet RJN, Ex. 8); IA Dkt. at 7/22/2021 entry. 24 On September 14, 2021, Cachet commenced an adversary proceeding against 25 Bancorp in the Bankruptcy Court. AP Dkt. 1. On November 4, 2021, Bancorp filed 26 the instant Motion to Withdraw Reference of the Adversary Proceeding. Dkt. 1. 27 Cachet’s original Complaint in the Adversary Proceeding asserted claims 28 against Bancorp only. See AP Dkt. 1. On May 31, 2022, Cachet filed its operative

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1 FAC asserting claims against Bancorp and nineteen other individuals and entities. 2 See generally AP FAC. The FAC asserts nineteen claims in total, including seven 3 claims against Bancorp for: (1) breach of contract; (2) negligence; (3) intentional 4 inference with contract; (4) conversion; (5) express indemnity; (6) accounting; and 5 (7) objection to Bancorp’s Proofs of Claim. Id. ¶¶ 280–355, 365–77. 6 Bancorp, joined by Defendants Dime Bank, Romano, and Rubinov, now moves 7 for an order withdrawing reference of the underlying Adversary Proceeding from the 8 Bankruptcy Court. Cachet opposes the Motion. 9 DISCUSSION 10 I. Judicial Notice 11 Cachet requests this court take judicial notice of various documents filed in the 12 Bankruptcy Action, the Adversary Proceeding, and Interpleader Action, as well as a 13 recent decision from this district. Dkt. 11 (Cachet RJN); Dkt. 19 (citing In re Debtor 14 Cachet Fin. Servs., 2:22-cv-01362-DMG, Dkt. 17). Bancorp has not filed an 15 objection to Cachet’s requests. 16 Courts may take judicial notice of court filings and other matters of public 17 record. See Reyn’s Pasta Bella, LLC v. Visa USA, Inc., 442 F.3d 741, 746 n. 6 (9th 18 Cir. 2006). Accordingly, the court GRANTS Cachet’s requests for judicial notice 19 with respect to any document on which the court relies. The requests are otherwise 20 DENIED as moot. 21 II. Legal Standard 22 Pursuant to 28 U.S.C. § 157(a) (“Section 157(a)”), district courts may refer 23 “any or all cases under title 11 and any or all proceedings arising under title 11 or 24 arising in or related to a case under title 11 … to the bankruptcy judges for the 25 district.” “Bankruptcy judges may hear and determine all cases under title 11 and all 26 core proceedings arising under title 11, or arising in a case under title 11, … and may 27 enter appropriate orders and judgments,” subject to review by the district courts. 28 28 U.S.C. § 157(b)(1). Bankruptcy judges may also “hear a proceeding that is not a core

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1 proceeding but that is otherwise related to a case under title 11.” Id. § 157(c)(1). “In 2 such proceeding, the bankruptcy judge shall submit proposed findings of fact and 3 conclusions of law to the district court, and any final order or judgment shall be 4 entered by the district judge after considering the bankruptcy judge’s proposed 5 findings and conclusions and after reviewing de novo those matters to which any party 6 has timely and specifically objected.” Id. 7 Pursuant to Section 157(d): 8 The district court may withdraw, in whole or in part, any case or proceeding referred under this section, on its own motion or on timely 9 motion of any party, for cause shown. The district court shall, on 10 timely motion of a party, so withdraw a proceeding if the court determines that resolution of the proceeding requires consideration of 11 both title 11 and other laws of the United States regulating 12 organizations or activities affecting interstate commerce. 13 28 U.S.C. § 157(d). 14 This statute “contains two distinct provisions: the first sentence allows 15 permissive withdrawal, while the second sentence requires mandatory withdrawal in 16 certain situations.” One Longhorn Land I, L.P. v. Presley, 529 B.R. 755, 759 (C.D. 17 Cal. 2015) (citation and quotation marks omitted). “Under either provision, the 18 ‘burden of persuasion is on the party seeking withdrawal.’” Id. (citation and quotation 19 marks omitted). 20 III. Analysis 21 Bancorp argues withdrawal is mandatory, or in the alternative, that there is 22 cause to support permissive withdrawal. See generally Mot. The court addresses each 23 argument in turn. 24 A. Mandatory Withdrawal 25 “The Ninth Circuit has not squarely addressed mandatory withdrawal, but other 26 circuits have held that ‘mandatory withdrawal is required only when [non-title 11] 27 issues require the interpretation, as opposed to mere application, of the non-title 11 28 statute, or when the court must undertake analysis of significant open and unresolved

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1 issues regarding the non-title 11 law.’” In re Tamalpais Bancorp, 451 B.R. 6, 8 (N.D. 2 Cal. 2011) (quoting In re Vicars Ins. Agency, Inc., 96 F.3d 949, 954 (7th Cir. 1996)); 3 see also In re Ionosphere Clubs, Inc., 922 F.2d 984, 995 (2d Cir. 1990).4 Courts in 4 this circuit have largely adopted this approach. Id. (collecting cases); see also In re 5 Ruby’s Diner, Inc., No. 8:21-cv-00845-SVW, 2021 WL 4572001, at *1 (C.D. Cal. 6 June 2, 2021); One Longhorn, 529 B.R. at 759–60; In re Temecula Valley Bancorp, 7 Inc., 523 B.R. 210, 214 (C.D. Cal. 2014). Additionally, “[t]he mandatory withdrawal 8 provision should be construed narrowly so as to avoid creating an ‘escape hatch’ by 9 which bankruptcy matters could easily be removed to the district court.’” In re 10 Temecula Valley Bancorp, 523 B.R. 210, 214 (C.D. Cal. 2014) (quoting In re Vicars, 11 96 F.3d at 952) (quotation marks omitted). 12 Here, all of Cachet’s claims against Bancorp, aside from Cachet’s objection to 13 Bancorp’s Proofs of Claim, arise from state law. See AP FAC ¶¶ 280–355. As such, 14 Cachet does not affirmatively assert any claims arising from non-title 11 federal law 15 that would require substantial interpretation of the non-title 11 statute. See In re 16 Tamalpais Bancorp, 451 B.R. at 8. 17 Bancorp argues its defense to Cachet’s claims “will require material 18 consideration of a complex body of law related to ACH transfers, banking regulations, 19 and the safety and soundness requirements for financial institutions.” Mot. Br. At 10. 20 Specifically, Bancorp asserts § 5.2 of the ODFI Agreement permitted it to terminate 21 the agreement “immediately and without notice in order to ensure compliance with 22 law and/or assure its regulators of the safety and soundness of its operations relative to 23 [Cachet],” as a result of the MPHR and DD Care Incidents. Id. At 12 (citing Summers 24 Decl., Ex. A § 5.2). According to Bancorp, Cachet’s clients’ failure to comply with 25

26 4 “The Ninth Circuit has suggested that mandatory withdrawal hinges ‘on the presence 27 of substantial and material questions of federal law.’” One Longhorn, 529 B.R. at 759 (quoting Sec. Farms v. Int’l Bhd. of Teamsters, Chauffers, Warehousemen & Helpers, 28 124 F.3d 999, 1008 n. 4 (9th Cir. 1997)).

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1 federal regulations, unstopped by Cachet, exposed Bancorp to material and 2 unnecessary financial risk that justified its termination of the ODFI Agreement to 3 prevent additional deficits and ensure compliance with federal law. Id. At 13. 4 Bancorp, thus, argues that “[d]etermining whether Bancorp properly terminated the 5 ODFI Agreement to maintain Bancorp’s safety and soundness under the 6 circumstances of the massive schemes perpetrated by Cachet’s customers will involve 7 the interpretation of numerous federal laws and regulations that affect interstate 8 commerce, including, but not limited to regulations from the FDIC and the Federal 9 Reserve.” Mot. Br. at 12. The court disagrees. 10 “[T]he weight of authority places emphasis on what issues are to be addressed 11 rather than what statutes are involved.” In re Tamalpais Bancorp, 451 B.R. at 9 12 (emphasis in original). The essence of Bancorp’s defense appears to be that “the 13 schemes perpetrated by Cachet’s customers” put Bancorp at “financial risk” and risk 14 of “supervisory actions and third-party claims from Cachet clients,” such that it was 15 justified in terminating the ODFI Agreement for safety and soundness reasons. Id. at 16 13. However, the question of whether Bancorp’s unilateral termination of the ODFI 17 Agreement was necessary or justified “to ensure compliance with law and/or to assure 18 its regulators of the safety and soundness of its operations relative to [Cachet]” is 19 separate from the question of whether Cachet’s clients violated federal laws and 20 regulations. 21 Although the statutes and regulations cited in the Motion provide relevant 22 background as to why Cachet’s clients’ conduct during the MPHR and DD Care 23 Incidents may have been improper, Bancorp has not identified any specific provisions 24 that would require significant interpretation for it to defend successfully against 25 Cachet’s claims. See Mot. Br. at 12–13. As the FAC alleges MPHR’s principal 26 (Mann), Kauftheil, Rubinov, and DD Care, engaged in fraudulent conduct, Cachet 27 does not appear to dispute Bancorp’s assertion that its clients violated federal statutes 28 and regulations. See AP FAC ¶¶ 52–57, 61–103. Accordingly, the question of

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1 whether Bancorp’s termination of the ODFI Agreement was valid under § 5.2 of the 2 agreement would appear to turn on principles of contract interpretation and factual 3 determinations regarding Cachet and Bancorp’s conduct, and not “substantial and 4 material” interpretation of non-title 11 federal law. 5 Other issues to be addressed include, inter alia, whether Bancorp is entitled to 6 indemnity and whether Bancorp’s conduct leading up to and following termination of 7 the ODFI Agreement caused Cachet’s alleged harm. While application of the cited 8 statutes and regulations may assist the court in answering these questions or 9 interpreting the terms of the ODFI Agreement, this is not sufficient to mandate 10 withdrawal. See One Longhorn, 529 B.R. at 760 (finding “the mere fact that federal 11 non-bankruptcy law may need to be applied does not make withdrawal mandatory,” 12 and that “merely stating without elaboration that ‘substantial and material analysis’ 13 will be required” was insufficient to support mandatory withdrawal) (emphasis in 14 original)); see also In re Tamalpais Bancorp, 451 B.R. at 9 (“[A] movant must do 15 more than merely suggest that novel issues of law could possibly arise in a bankruptcy 16 proceeding.”). 17 Accordingly, Bancorp has failed to show that non-title 11 federal issues 18 “require the interpretation, as opposed to mere application, of the non-title 11 statute,” 19 or that the Bankruptcy Court “must undertake analysis of significant open and 20 unresolved issues” regarding non-title 11 federal law. See In re Tamalpais Bancorp, 21 451 B.R. at 8. The court, therefore, finds mandatory withdrawal is not appropriate 22 under Section 157(d). 23 B. Permissive Withdrawal 24 A district court “may” withdraw reference of the Adversary Proceeding “for 25 cause shown.” 28 U.S.C. § 157(d). “In determining whether cause exists, a district 26 court should consider the efficient use of judicial resources, delay and costs to the 27 parties, uniformity of bankruptcy administration, the prevention of forum shopping, 28 and other related factors.” Sec. Farms, 124 F.3d at 1008.

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1 1. Core and Non-Core Claims 2 A district court “‘should first evaluate whether the claim is core or non-core, 3 since it is upon this issue that questions of efficiency and uniformity will turn.’” One 4 Longhorn, 529 B.R. at 762 (quoting In re Orion Pictures Corp., 4 F.3d 1095, 1101 5 (2d Cir. 1993)). “Core proceedings include, but are not limited to … (B) allowance or 6 disallowance of claims against the estate…” and “(C) counterclaims by the estate 7 against persons filing claims against the estate[.]” 28 U.S.C. § 157(b)(2). “Actions 8 that do not depend on bankruptcy laws for their existence and that could proceed in 9 another court are considered ‘non-core.’” Sec. Farms, 124 F.3d at 1008. 10 “The Ninth Circuit has suggested that permissive withdrawal is appropriate 11 where ‘non-core issues predominate.’” One Longhorn, 529 B.R. at 763 (quoting Sec. 12 Farms, 124 F.3d at 1008). However, “[t]he determination of whether claims are core 13 or non-core is not dispositive of a motion to withdraw a reference.” Id. Ultimately, 14 “[i]t is within a district court’s discretion to grant or deny a motion for permissive 15 withdrawal of reference; that decision will not be disturbed unless the court abuses its 16 discretion.” Sec. Farms, 124 F.3d at 1008 (internal quotations marks and citation 17 omitted). 18 Cachet has asserted seven claims against Bancorp for: (1) breach of contract, 19 (2) negligence, (3) intentional inference with contract, (4) conversion, (5) express 20 indemnity, (6) accounting, and (7) objection to Bancorp’s Proofs of Claim. AP FAC 21 ¶¶ 280–355, 365–77. Bancorp does not dispute that Cachet’s objection to Bancorp’s 22 Proofs of Claim is a core claim. Mot. Br. at 17. The parties, however, dispute 23 whether Cachet’s remaining state-law claims are core or non-core claims and whether 24 non-core issues predominate. See id. at 16–17. 25 Cachet argues the Adversary Proceeding qualifies as a “core proceeding” under 26 28 U.S.C. § 157(b)(2)(C) because its claims against Bancorp are “counterclaims by 27 the estate against persons filing claims against the estate.” Opp’n at 20. Bancorp 28 argues that even if Cachet’s state-law claims qualify as “counterclaims” under the

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1 statute, they should be considered non-core under the Supreme Court’s holding in 2 Stern v. Marshall, 564 U.S. 462 (2011), as they “go far beyond any issues raised by 3 Bancorp’s proof of claim with respect to Bancorp’s claimed right to indemnification 4 under the ODFI Agreement.” Mot. Br. at 16. 5 In Stern, 546 U.S. at 501–02, the Supreme Court held that “even though 6 bankruptcy courts are statutorily authorized to enter final judgment on a class of 7 bankruptcy-related claims, Article III of the Constitution prohibits bankruptcy courts 8 from finally adjudicating certain of those claims.” See also Exec. Benefits Ins. Agency 9 v. Arkison, 573 U.S. 25, 28 (2014). The Supreme Court has referred to such claims as 10 “Stern claims,” which it defined as “claim[s] designated for final adjudication in the 11 bankruptcy court as a statutory matter, but prohibited from proceeding in that way as a 12 constitutional matter.” Id. at 30–31. Such claims are considered non-core claims, but 13 may be referred to the bankruptcy court for proposed findings of fact and conclusions 14 of law, subject to de novo review by the district court.5 Id. at 36. 15 Cachet does not respond to Bancorp’s contention that its state-law claims are 16 Stern claims and appears to concede this point. Accordingly, the key question is 17 whether the non-core issues raised in the state-law claims predominate over the issues 18 raised in Cachet’s core claim for disallowance of Bancorp’s Proofs of Claim. The 19 court finds they do not. 20 Cachet’s core claim for disallowance alleges Bancorp is not entitled to 21 indemnification because “[a]ny losses sustained by Bancorp are the direct result of its 22 own negligence or willful misconduct,” in connection with its termination of the 23 ODFI Agreement and the freezing of and transfer of the Stake from Cachet’s accounts 24

25 5 “The [bankruptcy] statute permits Stern claims to proceed as non-core within the 26 meaning of § 157(c).” Arkison, 573 U.S. at 36. “[W]hen a bankruptcy court is 27 presented with such a claim, the proper course is to issue proposed findings of fact and conclusions of law.” Id. at 31. “The district court will then review the claim de novo 28 and enter judgment.” Id.

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1 with Bancorp. AP FAC ¶¶ 109–118, 370–372. Cachet’s state-law claims arise from 2 and are related to the same events, transactions, and agreements as Bancorp’s 3 disallowance claim, and their resolution would require the same findings of fact and 4 conclusions of law. Compare AP FAC ¶¶ 280–355 with Dkts. 11-1, 11-2, 11-3. 5 Accordingly, the court finds non-core issues do not predominate over core 6 issues in the Adversary Proceeding. 7 2. Judicial Efficiency, Delay, and Costs 8 Next, Bancorp argues judicial efficiency weighs in favor of immediate 9 withdrawal because the Bankruptcy Court may only make proposed findings of fact 10 and conclusions of law regarding Cachet’s state-law claims, subject to de novo review 11 by this court. Mot. Br. at 16. Bancorp further notes that the Bankruptcy Court cannot 12 conduct the jury trial Cachet has demanded absent Bancorp’s express consent, which 13 it will not provide. Id. at 17. According to Bancorp, “[i]t would be a waste of judicial 14 resources to require the Bankruptcy Court to become intimately familiar with the 15 unique facts and law governing this Adversary Proceeding, … only to have that time 16 and effort duplicated by a district court when the case is withdrawn for jury trial.” Id. 17 at 19. 18 Cachet responds that a party’s assertion of the right to a jury trial does not 19 constitute good cause for permissive withdrawal of the reference, and “a bankruptcy 20 court’s pre-trial management, which includes discovery, motions, and pretrial 21 conferences, does not in any way diminish a party’s right to a jury trial.” Opp’n at 21 22 (citing In re Healthcentral.com, 504 F.3d 775, 787 (9th Cir. 2007)). Cachet further 23 argues that having this court hear such matters would thwart judicial efficiency given 24 the Bankruptcy Court’s familiarity and expertise in handling Cachet’s bankruptcy, and 25 create potential disruption of the resolution of that bankruptcy. Id. Cachet also notes 26 that this court’s heavy caseload, limited resources, and need to prioritize other matters 27 further tips the efficiency balance against withdrawal. Id. The court agrees with 28 Cachet.

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1 The Ninth Circuit has held that “bankruptcy courts are not divested of pre-trial 2 jurisdiction over matters which they ultimately may be unable to decide.” In re Cedar 3 Funding, Inc., 419 B.R. 807, 819 (B.A.P. 9th Cir. 2009) (citing SigIn re 4 Healthcentral.com, 504 F.3d at 787). Instead, “the bankruptcy court is “permitted to 5 retain jurisdiction over the action for pre-trial matters.” In re Healthcentral.com, 504 6 F.3d at 787. As the Ninth Circuit has explained, “allowing the bankruptcy court to 7 retain jurisdiction over pre-trial matters, does not abridge a party’s Seventh 8 Amendment right to a jury trial.” Id. (emphasis in original). Furthermore, “requiring 9 that an action be immediately transferred to district court simply because of a jury 10 trial right would run counter to our bankruptcy system,” as Congress has empowered 11 the bankruptcy courts to “hear” title 11 actions and enter relevant “orders.” Id. (citing 12 28 U.S.C. § 157(b)(1)) (emphasis in original). “Only by allowing the bankruptcy 13 court to retain jurisdiction over the action until trial is actually ready do we ensure 14 that our bankruptcy system is carried out.” Id. at 788 (emphasis in original). 15 A review of the docket for the Adversary Proceeding demonstrates that several 16 Defendants to the FAC, including Bancorp, have filed motions to dismiss Cachet’s 17 claims, which are currently set to be heard on March 23, 2023. AP Dkts. 45, 54, 80, 18 108, 176. Withdrawing reference to the Adversary Proceeding at this time would 19 result in further costs and delay resolving pretrial motions which could narrow the 20 issues or “obviate the need for trial altogether.” See Hjelmeset v. Hung, No. 5:17-cv- 21 05697-BLF, 2018 WL 558917, at *5 (N.D. Cal. Jan. 25, 2018); see also In re Solid 22 Landings Behav. Health, Inc., No. 8:20-cv-01167-JGB, 2020 WL 5934304, at *3 23 (C.D. Cal. July 28, 2020) (noting a bankruptcy court’s rulings on pre-trial matters 24 “[were] likely to narrow the issues, draw attention to the most important areas of 25 dispute, and provide the Court with valuable (but non-binding) guidance on issues the 26 Bankruptcy Court [was] most familiar with”). 27 The Bankruptcy Court is also in a better position to handle these pre-trial 28 matters because it has been handling Cachet’s bankruptcy since January 2020 and the

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1 Adversary Proceeding since September 2021, and is more familiar with the facts and 2 issues than this court. See In re Canter, 299 F.3d 1150, 1154 (9th Cir. 2002) (finding 3 district court’s withdrawal of reference “was an inefficient allocation of judicial 4 resources” where bankruptcy court was more familiar with the facts and issues of the 5 case); see also In re Solid Landings, 2020 WL 5934304, at *3 (recognizing the 6 bankruptcy court’s ability to conserve judicial resources “by conducting pre-trial 7 management in the form of discovery, pre-trial conferences, and ruling on routine 8 motions”). As such, judicial efficiency weighs heavily against withdrawal at this 9 stage of the proceedings. 10 3. Uniformity of Bankruptcy Administration 11 Bancorp argues withdrawal of the reference would not impair the uniform 12 administration of the bankruptcy proceeding because the Bankruptcy Court has 13 confirmed Cachet’s plan of reorganization and the Bankruptcy Action is concluded 14 except for claims administration. Mot. Br. at 19–20. Cachet responds withdrawal 15 would jeopardize the uniformity of bankruptcy administration as the Bankruptcy 16 Court retained jurisdiction over all claims against the estate, including Bancorp’s 17 proof of claims and the estate’s claims against creditors. Opp’n at 23. The court 18 agrees with Cachet. 19 Although the Bankruptcy Court has confirmed Cachet’s plan of reorganization, 20 the Bankruptcy Action has not yet concluded and the outcome of the parties’ claims 21 may have a significant impact on the administration of the bankruptcy. Accordingly, 22 this factor weighs against withdrawing reference of the Adversary Proceeding. 23 4. Preventing Forum Shopping 24 Bancorp asserts that withdrawing reference of the Adversary Proceeding will 25 not encourage forum shopping because Cachet should have filed its claims in the 26 27 28

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1 Delaware District Court pursuant to the ODFI Agreement’s forum selection clause.6 2 Mot. Br. at 20–21. According to Bancorp, it intends to file a motion to transfer the 3 Adversary Proceeding to the Delaware District Court if this court grants the Motion 4 and withdraws the reference. Id. at 21. 5 Cachet responds that denial of the Motion will prevent Bancorp from engaging 6 in impermissible forum shopping because its adversary complaint is merely a 7 counterclaim to Bancorp’s Proofs of Claim in the Bankruptcy Action. Opp’n at 23– 8 24. Cachet, in turn, contends the Interpleader Action should have been filed in this 9 district pursuant to the ODFI Agreement’s forum selection clause, and states it intends 10 to move to transfer the Interpleader Action to the Bankruptcy Court if the subject 11 Motion is denied. Opp’n at 23–24. 12 The question before the court is whether withdrawing the reference to the 13 Bankruptcy Court on the subject Motion would encourage or prevent forum shopping 14 between this court and another court. See Sec. Farms, 124 F.3d at 1009 (rejecting the 15 argument that withdrawal of reference after the bankruptcy court issued an order 16 remanding state law claims encouraged forum shopping, as the bankruptcy court’s 17 dispositive orders were subject to the approval of the district court). Neither 18 Bancorp’s stated intent to file motions to transfer the Adversary Proceeding to the 19 Delaware District Court nor Cachet’s stated intent to file a motion to transfer the 20 Interpleader Action to the Bankruptcy Court are before this court on the subject 21 Motion, and the court will not analyze the potential merits of either proposed motion 22 at this time.7 23 24 6 The ODFI Agreement’s forum selection clause requires any action initiated by Cachet “arising out of or relating to” the agreement to be filed in Delaware, and any 25 action initiated by Bancorp “arising out of or relating to” the agreement to be filed in 26 Los Angeles, California. Summers Decl., Ex. A § 17.1. 27 7 Neither Bancorp nor Cachet state why they have not already filed motions to transfer the Adversary Proceeding or the Interpleader Action with the Bankruptcy Court and 28

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I As neither party discusses whether granting or denying the subject Motion 2 || would encourage or prevent forum shopping—rather than hypothetical motions the 3 | parties intend to file if this Motion were to be granted or denied—this factor does not 4 | weigh in favor or against permissive withdrawal. 5 3. Conclusion Regarding Permissive Withdrawal 6 In sum, the court finds non-core issues do not predominate over core issues in 7 || the Adversary Proceeding, and that considerations of (1) judicial efficiency, delay, and 8 | costs to the parties and (2) the uniformity of bankruptcy administration weigh against 9 | withdrawal. The question of the prevention of forum shopping is a neutral factor that 10 | does not weigh in favor or against withdrawal. Accordingly, the court DENIES 11 | Bancorp’s request for permissive withdrawal. 12 CONCLUSION 13 For the foregoing reasons, the court DENIES Bancorp’s Motion in its entirety. 14 15 IT IS SO ORDERED. 16 17 | Dated: February 6, 2023

? FERNANDO L. AENLLE~ROCHA 20 United States District Judge 21 22 23 24 25 26 a 27 | Delaware District Court, respectively, if they believe either action was filed in the wrong forum. Similarly, Bancorp and Cachet have not stated why grant or denial of 28 | the subject Motion would make such transfer more appropriate or necessary. 18