Bloomberg News

NewPage, Vitro SAB, Madoff, Lehman, Inspirada: Bankruptcy

October 31, 2011

(This report contains items about companies both in bankruptcy and not in bankruptcy. Adds Madoff, Lehman and Point Blank in Updates; MF Global and River Road Casino in Watch List; and sections on Bank Failure and Advance Sheets.)

Oct. 31 (Bloomberg) -- The official creditors’ committee for NewPage Corp. is bent on investigating a transaction immediately before bankruptcy where the coated paper manufacturer transferred $25 million to a Canadian subsidiary named NewPage Port Hawkesbury Corp., the owner of a paper mill in Nova Scotia.

The committee characterizes the transaction as being structured as a settlement where the U.S. company paid $25 million for the Canadian subsidiary to give the U.S. company the right to collect $53 million in accounts receivable. The committee’s Oct. 27 motion for authority to conduct an investigation comes up for hearing on Nov. 9 in U.S. Bankruptcy Court in Delaware.

The committee says the Nova Scotia company owed the parent $45 million for money loaned to fund operating deficits. The committee seeks authority to investigate the bona fides of the settlement and whether it in fact was beneficial to the U.S. company. The committee believes it wasn’t.

The committee says the Canadian company couldn’t have financed its bankruptcy filing in Canada without the $25 million. The committee noted how the settlement only required approval from the court in Canada, not the bankruptcy court in Delaware.

Miamisburg, Ohio-based NewPage was acquired in 2005 by Cerberus Capital Management LP. Cerberus is among those the committee wishes to investigate.

NewPage listed assets of $3.4 billion and debt totaling $4.2 billion. Liabilities included $232 million on a revolving credit plus $1.77 billion on 11.375 percent senior secured first-lien notes. Second-lien obligations include $802 million in 10 percent secured notes and $225 million in floating-rate notes. In addition to $200 million in 12 percent senior unsecured notes, there is $498 million owing on two issues of floating-rate pay-in-kind notes.

NewPage has 16 paper-making machines operating in seven plants in the U.S. and Nova Scotia. The Canadian affiliate filed for reorganization in Nova Scotia. The company reported a $229 million net loss in the first half of 2011 on revenue of $1.79 billion, following a $674 million net loss in 2010 on revenue of $3.6 billion.

The case is In re NewPage Corp., 11-12804, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Vitro Bondholders Allowed to Continue New York Suit

Vitro SAB, the Mexican glassmaker, was defeated in its effort to persuade the U.S. Bankruptcy Court in Dallas to stop the bondholders’ indenture trustee from proceeding with a lawsuit pending in New York state court against non-bankrupt Vitro subsidiaries.

Commenced in August, the bondholders’ suit seeks a declaration from the state court that the Vitro parent’s reorganization in a Mexican court can’t affect non-bankrupt subsidiaries’ guarantees of $1.2 billion in defaulted bonds.

After first answering the New York complaint, the Vitro Mexican parent filed papers in Dallas early this month hoping the bankruptcy judge would stop the suit. Last week, U.S. Bankruptcy Judge Harlin Hale allowed the suit to go forward. Hale said that the suit wasn’t against a company in bankruptcy in the U.S. and didn’t threaten the property of a bankrupt company.

Hale declined to reach the questions of whether the New York court should defer to the Mexican court or whether rulings by the Mexican court would be enforced in the U.S. with regard to subsidiaries’ liabilities.

In opposing imposition of a stay on the New York suit, the bondholders’ indenture trustee pointed out how the Texas judge previously refused to use the Vitro parent’s Chapter 15 case as grounds for halting actions by creditors in the U.S. against non-bankrupt Vitro subsidiaries.

The Vitro parent was granted protection from creditors in the U.S. under Chapter 15. The case in the U.S. gives the Vitro parent the ability to attempt to enforce in the U.S. whatever reorganization the Mexican court eventually approves.

Bondholders have been opposing Vitro’s efforts, arguing that the company won’t pay the bonds in full while allowing shareholders to retain the equity.

Holders of some of defaulted bonds filed involuntary Chapter 11 petitions last year against several Vitro subsidiaries. Some put themselves into Chapter 11 this year and later sold their businesses. In April, the bankruptcy judge in Texas denied the involuntary petitions against 10 subsidiaries that hadn’t elected Chapter 11 voluntarily. The bondholders are appealing.

The Vitro parent’s reorganization was revived by an appellate court in Mexico after having been dismissed in a lower court.

The Chapter 11 cases for U.S. subsidiaries is In re Vitro Asset Corp., 11-32600, U.S. Bankruptcy Court, Northern District of Texas (Dallas). The Chapter 15 case for the parent is Vitro SAB de CV, 11-33335, in the same court.


Madoff ‘Net Winner’ Appeals for Some of Picower’s $7.2 Billion

A customer of Bernard L. Madoff Investment Securities Inc. who took out more than she invested filed an appellate brief on Oct. 28 attempting to overturn an agreement by the estate of the late Jeffrey M. Picower to forfeit $2.2 billion to the U.S. government and pay $5 billion to the Madoff trustee.

The customer, Adele Fox, is appealing to the U.S. Court of Appeals in Manhattan. Fox claims she represents a class of 3,000 customers who want part of Picower’s $7.2 billion, even though they took out more than they invested and received profits that in reality represented money stolen from other customers. Fox’s appeal is preventing Irving Picard, the Madoff trustee, from distributing $5 billion to customers who didn’t take out their investments.

Fox is appealing a ruling in May by U.S. District Judge Thomas P. Griesa, who held that her status as a so-called net winner didn’t give her the right to intervene in the government’s forfeiture action. For details on the Picower settlement and how the money is to be distributed, click here for the Dec. 20 Bloomberg bankruptcy report.

Griesa said in his opinion that “Fox’s main goal appears to be to challenge the treatment of net winners.” The judge said Fox’s proper course of action was to appeal the ruling that limited customer claims to the difference between the amount invested and the amount taken out.

The U.S. Court of Appeals ruled in August that Picard was correct in how he calculates customer claims. As a result, net winners like Fox will have general unsecured claims to receive payment only after claims of so-called net losers are fully paid. Other customers are asking for rehearing of the August ruling before all active judges on the Court of Appeals. That rehearing request is holding up additional distributions that Picard otherwise could make to customers.

For details on Greisa’s ruling in May, click here for the May 25 Bloomberg bankruptcy report.

Fox rests her appeal to the circuit court in part on the argument that the $5 billion going to Picard is $4 billion more than the trustee should have been able to recover even in a successful lawsuit. The other $2.2 billion forfeit to the government is to be distributed by Picard to customers.

Fox wants the circuit court to send the case back to Griesa with instructions that some of the $7.2 billion go to net winners who took more out of Madoff than they invested.

The Madoff firm began liquidating in December 2008, with the appointment of the trustee under the Securities Investor Protection Act. Bernard Madoff individually went into an involuntary Chapter 7 liquidation in April 2009. His bankruptcy case was consolidated with the firm’s liquidation. Madoff is serving a 150-year prison sentence following a guilty plea.

The appeal in the circuit court is Fox v. $7,206,157,717 on deposit at JPMorgan Chase Bank NA, 11-2898, U.S. Court of Appeals for the Second Circuit (Manhattan). The forfeiture action in Griesa’s court is U.S. v. $7,206,157 on Deposit at JPMorgan Chase Bank NA, 10-9398, U.S. District Court, Southern District New York (Manhattan).

The liquidation in bankruptcy court in the Madoff liquidation case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The criminal case is U.S. v. Madoff, 09-cr-00213, U.S. District Court, Southern District of New York (Manhattan).

Barclays, Lehman Trustee File First Briefs on Appeal

Barclays Capital Inc. and the trustee for Lehman Brothers Inc., the remnants of the brokerage subsidiary of Lehman Brothers Holdings Inc., both filed initial briefs on Oct. 28 in their cross-appeals of a February ruling by the bankruptcy judge finding the facts following a 2010 trial.

U.S. Bankruptcy Judge James M. Peck awarded the trustee $2.05 billion from Barclays on account of so-called margin assets. The Lehman brokerage trustee was ordered to pay Barclays more than $1.1 billion on account of so-called clearance-box assets.

The lawsuit arose from Barclays’s purchase of Lehman’s brokerage business one week after the Chapter 11 filing in September 2008. Barclays and the Lehman trustee both contend the other was entitled to nothing while the amount each was awarded should have been more.

The appeal will be decided by U.S. District Judge Richard J. Holwell no earlier than February. Each side will file another set of briefs on Dec. 23. The last briefs are due Feb. 10.

Barclays’s appeal and the trustee’s cross-appeal both deal with the contract for sale of Lehman’s brokerage business. Each says Peck erroneously interpreted the agreement. To the extent Holwell believes the appeal is based on an argument that Peck made erroneous factual findings, overturning the bankruptcy judge is difficult because findings of fact can’t be set aside unless they are “clearly erroneous.”

To sidestep the rigors of the “clearly erroneous” rule, the warring factions are trying to convince Holwell that Peck misinterpreted the contract where no testimony was necessary to establish the facts. Similarly, they argue Peck committed a legal error, more easily overturned, by employing incorrect rules for interpreting a contract.

The trustee and Barclays worked out an arrangement where neither was required to file a bond pending appeal. For a summary of Peck’s June 6 ruling on the amount each side owed, click here for the June 7 Bloomberg bankruptcy report. For a summary of Peck’s original Feb. 22 opinion, click here for the April 13 Bloomberg bankruptcy report.

Lehman creditors are voting on the Chapter 11 plan in preparation for the Dec. 6 confirmation hearing. The trustee for the brokerage subsidiary makes distributions to creditors and customers without going through the process of proposing and confirming a plan.

The Lehman holding company filed under Chapter 11 in New York on Sept. 15, 2008, and sold office buildings and the North American investment-banking business to Barclays one week later. The remnants of the Lehman brokerage operations went into liquidation on Sept. 19, 2008, in the same court, with a trustee appointed under the Securities Investor Protection Act.

The appeal is Barclays Capital Inc. v. Lehman Brothers Inc. (In re Lehman Brothers Holding Inc.), 11-cv-6052, U.S. District Court, Southern District of New York (Manhattan).

The Lehman holding company Chapter 11 case is In re Lehman Brothers Holdings Inc., 08-13555, while the liquidation proceeding under the Securities Investor Protection Act for the brokerage operation is Securities Investor Protection Corp. v. Lehman Brothers Inc., 08-01420, both in U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Philadelphia Orchestra Musicians New Contract Approved

The Philadelphia Orchestra received approval last week for a new labor contract where the musicians’ union consents to termination of the existing defined-benefit pension plan.

The new contract provides a $2,050 minimum weekly salary, rising to $2,400 when the contract expires in September 2015. In addition, the orchestra will pay $3.33 million to musicians over the life of the new contract.

Assuming the bankruptcy court in Philadelphia later approves termination of the existing pension plan, musicians will be covered by a defined-contribution plan where the orchestra will contribute between 8 percent and 10.5 percent of salaries to an annuity.

The Pension Benefit Guaranty Corp. estimated that it will have a claim for at least $42.8 million if the existing pension program is terminated.

The pension plan is conducting an investigation into the orchestra’s endowment fund and whether it can be used to pay creditors’ claims.

The orchestra’s Chapter 11 petition in April said assets and debt were both less than $50 million. From the outset, the orchestra said it intends on using Chapter 11 to gain relief from pension obligations, secure a new lease with the Kimmel Center where it performs, and structure a new union contract with musicians.

The case is In re The Philadelphia Orchestra Association, 11-13098, U.S. Bankruptcy Court, Eastern District of Pennsylvania (Philadelphia).

PJ Finance Plan Sponsorship Up for Auction Dec. 8

PJ Finance Co. LLC and its chief antagonist, secured lender Torchlight Loan Services LLC, agreed to put their disputes on ice pending an auction testing whether there’s a better offer to sponsor a plan than the one filed by the company and the creditors’ committee in September. The company plan would be financed with $10 million from the owners.

Torchlight had a motion pending to dismiss the case or convert to a liquidation in Chapter 7. The motion has been put on hold pending the auction.

Under procedures approved Oct. 28 by the U.S. Bankruptcy Judge in Delaware, other bids are due Dec. 2. If there is a competing bid, an auction will take place Dec. 8, followed by a hearing on Dec. 15 for approval of a disclosure statement sponsored by the auction’s winner.

Absent another bid, there will be no auction. Instead, the bankruptcy court will hold what it calls a “contested hearing” on Jan. 18 for approval of the September disclosure statement.

PJ Finance, the owner of 9,500 apartment units in 32 projects, gave Torchlight two options in the September plan.

Torchlight can keep the full amount of a $370 million secured claim on the properties, paying 3.5 percent interest and maturing in 2019. The first option would enable unsecured creditors to split $5 million in cash to cover $10 million in claims.

Or, Torchlight can have new secured debt equal to whatever value the judge assigns to the collateral. The new secured debt would start off paying 3 percent interest and mature in 2022. Under the alternative, unsecured creditors would receive $4 million cash, and Torchlight would receive a new unsecured note for 40 percent its estimated $165 million deficiency claim. The 40 percent is to represent the same distribution received by unsecured creditors.

Torchlight, the special servicer for $475 million in mortgage-backed securities, has been seeking dismissal of the case, contending the Chapter 11 filing was not made in good faith.

Trade suppliers are owed $4.4 million, according to court papers. The projects are in Arizona, Florida, Georgia, Tennessee and Texas. PJ gave its address as the office of a law firm in Chicago.

The case is PJ Finance Co. LLC, 11-10688, U.S. Bankruptcy Court, District of Delaware (Wilmington).

TRUPs Holders Seek Liquidation of Harrington West

The attempted reorganization of Harrington West Financial Group Inc. should be converted to a liquidation in Chapter 7, according to Holdco Advisors LP, as agent for trust-preferred securities, commonly known as TRUPs.

Harrington was the parent of failed Los Padres Bank FSB, which was taken over by regulators August 2010. Although Harrington had an approved disclosure statement, the plan couldn’t be confirmed in September because both classes of voting creditors said “no.”

One class included the TRUPs, while the other was voted down by the Federal Deposit Insurance Corp. Since the plan failed, Holdco says Harrington hasn’t been able to come up with an alternative acceptable to the TRUPs holders and the FDIC.

Holdco argues there are “insufficient assets” to justify continuation of the Chapter 7 effort. A hearing on the conversion motion hasn’t yet been set.

The disclosure statement for the failed plan told unsecured creditors and holders of $25.8 million in TRUPs that they stood to recover 0.2 percent from a liquidating trust to be created under the plan.

Harrington filed under Chapter 11 in September 2010 in Santa Barbara, California, after the bank was taken over by regulators the month before. Harrington said that assets were $579,000 plus tax refunds of an “unknown amount.” Liabilities were listed for $26 million.

The case is In re Harrington West Financial Group Inc., 10-14677, U.S. Bankruptcy Court, Central District California (Santa Barbara).

Ambac Joins List Seeking Dismissal of Harrisburg Bankruptcy

Ambac Assurance Corp., the guarantor of $65 million in municipal bonds issued by Harrisburg, Pennsylvania filed papers on Oct. 28 arguing that the city’s Chapter 9 bankruptcy petition should be dismissed at a Nov. 23 hearing.

Parroting the objection taken by the state, Ambac cites Pennsylvania law barring a city of Harrisburg’s size from filing bankruptcy before July 2012.

The city is working with auctioneers to plan the sale of 8,000 relics collected for a Wild West museum that never came to fruition. The collection cost $8 million to acquire. For Bloomberg coverage, click here.

Two days after the Chapter 9 filing on Oct. 11, the state of Pennsylvania filed a motion to dismiss the case as being unauthorized. Later, the state adopted a new law allowing the governor to appoint a receiver who may join those seeking dismissal. National Public Finance Guarantee Corp. is also favoring dismissal on grounds espoused by the state.

Court papers say the city, Pennsylvania’s capital, is $65 million in default on $242 million owing on bonds sold to finance an incinerator that converts trash to energy. The bonds are insured by Assured Guaranty Municipal Corp.

The case is In re City of Harrisburg, Pennsylvania, 11-06938, U.S. Bankruptcy Court, Middle District of Pennsylvania (Harrisburg).

Bank of America Opposes $4.5 Million Loan for QualTeq

Bank of America NA filed court papers contending that the proposed $4.5 million loan to QualTeq Inc. will give the company no “substantial benefit” while the purpose of the financing is to relieve company insiders of their guarantees on existing debt owed to Sterling National Bank, the putative lender.

Bank of America argued in papers filed on Oct. 27 that QualTeq won’t benefit because $3.7 million of the new debt will be used to pay off an existing debt to New York-based Sterling. QualTeq is a South Plainfield, New Jersey-based provider of production services to direct marketing firms. It filed under Chapter 11 in August along with affiliates, blaming bankruptcy on negative publicity from court rulings against the founder of the company.

The hearing to consider approval of the financing is scheduled for Nov. 3 in U.S. Bankruptcy Court in Delaware.

Charlotte, North Carolina-based Bank of America says it’s an interested party in the QualTeq case because it has $43 million in judgments against Pethinaidu Veluchamy, the company’s founder.

According to court filings, several creditors obtained judgments against the founder, followed by “multiple other creditors” who “obtained multimillion dollar judgments against the founder and/or his wife.”

QualTeq and its affiliates provide services including database management, customized printing and plastic card production and personalization, according to court papers.

The company listed assets of as much as $50 million and debt of as much as $10 million.

The case is In re Qualteq Inc., d/b/a VCT New Jersey Inc., 11-12572, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Fairfield Liquidators Amend $919 Million Suit Against Manager

Liquidators from the British Virgin Islands for Fairfield Sentry Ltd. and affiliated funds, which had been the largest feeder funds for Bernard L. Madoff Investment Securities Inc., filed an amended complaint last week against the funds’ managers, including Fairfield Greenwich Ltd. and Fairfield Greenwich (Bermuda) Ltd.

The complaint seeks return of $919 million paid over six years as management and performance fees for supposed profits from investing with Madoff. The complaint says the managers were paid 20 percent of realized and unrealized growth in the funds’ net assets.

The complaint, originally filed in New York state court, was transferred to U.S. District Court and from there to the bankruptcy court in Manhattan.

The liquidators were granted relief under Chapter 15 of U.S. bankruptcy laws. Chapter 15 allows courts in the U.S. to assist foreign bankruptcies.

The Fairfield Chapter 15 case is In re Fairfield Sentry Ltd., 10-13164, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Inspirada Development’s Chapter 11 Plan Confirmed

The reorganization plan for the 2,000-acre Inspirada residential development in Henderson, Nevada, was confirmed on Oct. 27 by the U.S. Bankruptcy Court in Las Vegas.

The plan was opposed only by Meritage Homes Corp., one of the project’s eight owners from the homebuilding industry.

The reorganization plan for the project’s owner, South Edge LLC, implements a settlement negotiated in May by secured lenders with South Edge’s Chapter 11 trustee, KB Home and other homebuilders who represented 92 percent of the ownership interests in the project. For details on the settlement to be carried out through the Chapter 11 plan, click here for the June 17 Bloomberg bankruptcy report.

Confirmation was facilitated by a settlement this month with Focus Group South LLC. Focus was claiming a lien on about $26 million cash and was opposing approval of the reorganization plan. For details on the settlement, click here for the Oct. 7 Bloomberg bankruptcy report.

For Bloomberg coverage of confirmation, click here.

KB has 49 percent of the project. Other owners joining in the settlement include Coleman Toll LP (10.5 percent), Pardee Homes Nevada Inc. (4.9 percent), and Beazer Homes USA Inc. (2.6 percent), a KB regulatory filing said.

Bankruptcy began with an involuntary petition filed by secured lenders. The U.S. District Court in April upheld a decision from February by the bankrupt judge to put South Edge in bankruptcy involuntarily and simultaneously appoint a trustee.

The project ultimately was to cost $1.25 billion and would have 8,500 homes. The lenders were to provide $595 million in financing. Other financing includes $102 million in public bonds for improvements.

The Chapter 11 case is In re South Edge LLC, 10-32968, U.S. Bankruptcy Court, District of Nevada (Las Vegas).

Sun Capital Takes Point Blank at Auction for $36.6 Million

Point Blank Solutions Inc., a manufacturer of soft body armor for police and military, was authorized by the bankruptcy judge on Oct. 28 to sell the business for about $36.6 million to an affiliate of Sun Capital Partners Inc., a Boca Raton, Florida-based private-equity firm.

At the Oct. 27 auction, the first bid of $20 million came from an affiliate of Gores Group LLC. For Bloomberg coverage of the sale-approval hearing, click here.

Point Blank filed under Chapter 11 in April 2010. Based in Pompano Beach, Florida, Point Blank has two plants. Revenue in 2009 exceeded $153 million.

The Chapter 11 petition listed assets of $64 million against debt totaling $68.5 million. Debt included a $10.5 million secured loan paid off by financing for the Chapter 11 case. Point Blank said it also owed $28.2 million to trade suppliers.

The case is In re Point Blank Solutions Inc., 10-11255, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Perkins Has More Exclusivity in Case Plan Fails Today

Restaurant operator Perkins & Marie Callender’s Inc. was given an insurance policy in case the U.S. Bankruptcy Court in Delaware doesn’t approve the Chapter 11 plan at today’s confirmation hearing. The company’s exclusive right to propose a plan was extended until Jan. 9.

For details on the plan, click here for the July 18 Bloomberg bankruptcy report.

Court papers said assets were $290 million while debt aggregated $440.8 million. When the bankruptcy began, the company owned 85 Marie Callender’s stores in nine states and franchised 37 in four states. It owned 160 Perkins stores in 13 states and franchised 314 in 31 states. During bankruptcy the company closed 72 locations, leaving 130 Perkins stores in operation along with 46 Marie Callender’s, court papers say. The company was acquired in 2005 by Castle Harlan Inc. for $245 million cash.

The case is In re Perkins & Marie Callender’s Inc., 11-11795, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Watch List

MF Global Seeks Buyer to Avert Bankruptcy

The board of MF Global Holdings Ltd., a New York-based commodities and derivatives broker, met throughout the weekend to consider options, according to a person with direct knowledge of the situation. Five potential buyers are in talks to buy all or parts of the company, the person said.

For Bloomberg coverage, click here.

In lowering the credit rating to junk last week at Ba2, Moody’s Investors Service said the firm’s “$6.3 billion sovereign risk exposure represented five times the company’s tangible common equity.” On the other hand, Moody’s said MF has an “adequate liquidity profile and price transparency of a majority of the firm’s assets.”

Jon Corzine, the former governor of New Jersey, is MF’s chairman and chief executive officer.

River Rock Casino Debt Maturing Tomorrow May Default

River Rock Entertainment Authority, the operator of an Indian-owned casino in Geyserville, California, is “unlikely” to refinance the $200 million in first-lien bonds maturing tomorrow, Standard & Poor’s said on Oct. 28 while downgrading the debt to CCC.

The bonds traded on Oct. 28 at 62.975 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

S&P said there is a “high likelihood” that the authority “will need to pursue a restructuring to address the maturity.”

The new S&P rating lines up with the downgrade issued in August by Moody’s Investors Service.

River Rock is an unincorporated governmental instrumentality of the Dry Creek Rancheria Band of Pomo Indians. The tribe has a 75-acre reservation and fewer than 1,000 enrolled members, Moody’s said.

Bank Failure

Illinois Bank Failure Bring Year’s Total to 85

All American Bank, a one-branch bank in Des Plaines, Illinois, with $33.4 million in deposits, was taken over on Oct. 28 by regulators, becoming the 85th U.S. bank to fail this year.

The deposits were taken over by another bank. The failure will cost the Federal Deposit Insurance Corp. $6.5 million.

Last year, there were 157 bank failures. The failures in 2010 were the most since 1992, when 179 institutions were taken over by regulators.

Advance Sheets

No Withdrawal Until Bankruptcy Judge Rules on ‘Core’

A district judge in New Jersey wrote an opinion last week on how jury-trial cases should be handled in light of Stern v. Marshall, a ruling in June by the U.S. Supreme Court dealing with constitutional limitations on the power of bankruptcy judges.

The case involved a preference and fraudulent transfer lawsuit by a bankruptcy trustee against a bankrupt’s lawyer to recover fees paid before bankruptcy. The lawyer filed a motion to remove the suit to district court. U.S. District Judge Susan D. Wigenton in Newark, New Jersey, denied the motion without prejudice, meaning it can be refiled later.

The lawyer claimed the right to a jury trial and said she wouldn’t consent to trial in bankruptcy court. Wigenton said that the “assertion that she is entitled to a jury trial alone is not a basis for this court to grant” the motion to withdraw the reference.

Wigenton said the motion was premature because the bankruptcy judge hadn’t yet ruled on whether the suit was “core” or “non-core.”

“There is no reason why the bankruptcy court may not ‘preside over an adversary proceeding and adjudicate discovery disputes and motions only until such time as the case is ready for trial,’” the judge said.

Wigenton said the bankruptcy court can rule on a summary judgment motion because it “does not raise Seventh Amendment issues since the motion is disposed of as a matter of law and review by an Article III judge is de novo.”

The lawyer was told she could renew the motion after the bankruptcy judge has ruled whether the suit is core and discovery is complete.

The case is Perkins v. Verma, 11-2557, U.S. District Court, District of New Jersey (Newark).

--With assistance from Romy Varghese in Philadelphia and Dawn McCarty, Steven Church and Michael Bathon in Wilmington, Delaware. Editors: Glenn Holdcraft, Mary Romano.

To contact the reporter on this story: Bill Rochelle in New York at

To contact the editor responsible for this story: John Pickering at

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