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In Re v. Michael Leonard Byce

December 14, 2011

IN RE MICHAEL LEONARD BYCE AND ELIZABETH LEA BYCE, DEBTORS
JUSTMED, INC. PLAINTIFF,
v.
MICHAEL LEONARD BYCE, DEFENDANT.



The opinion of the court was delivered by: B. Lynn Winmill Chief Judge United States District Court

MEMORANDUM DECISION AND ORDER

INTRODUCTION

Before the Court is JustMed, Inc.'s motion to withdraw this adversary proceeding from the bankruptcy court. The Court has determined oral argument would not significantly assist the decisional process and will therefore consider the motion without a hearing. For the reasons expressed below, the Court will deny the motion.

BACKGROUND

Michael and Elizabeth Byce filed a chapter 7 bankruptcy petition in September 2010. JustMed filed a proof of claim against the bankruptcy estate based on an existing judgment against Mr. Byce.

The facts underlying JustMed's judgment relate to computer source code Mr. Byce helped develop for JustMed. Mr. Byce removed the source code from JustMed's computers, which prompted JustMed's suit for various torts, including misappropriation of trade secrets, conversion, and breach of fiduciary duty. A central dispute in the lawsuit was who owned the source code.

JustMed prevailed at trial and the district court awarded roughly $48,000 in damages, which included a $5,000 punitive award. See JustMed, Inc. v. Byce, Case No. 1:05-cv-333-MHW (D. Idaho Jan. 1, 2008) (Amended Judgment, Dkt. 118), reversed in part, 600 F.3d 1118 (9th Cir. 2010). On appeal, the Ninth Circuit upheld the district court's finding that JustMed owned the source code. 600 F. 3d at 1128. It disagreed on the trade secrets issue, however, concluding that nothing in Byce's conduct took the action beyond the realm of a simple conversion. Id. at 1131. The court remanded the matter to the district court with instructions to determine whether JustMed could recover damages on the conversion or breach of fiduciary duty claims, and whether an injunction to prevent future misappropriation is warranted. Id. at 1131.

A few months after the Ninth Circuit issued its opinion, the Byces filed their bankruptcy petition. As mentioned, JustMed filed a proof of claim based on its judgment. JustMed also filed this adversary proceeding, seeking a determination that the judgment debt is non-dischargeable.

JustMed's adversary complaint seems to presume that the bankruptcy court will resolve the issues the Ninth Circuit remanded to the district court. The complaint requests a $48,000 judgment "based upon conversion and breach of fiduciary duty."

JustMed now seeks to remove this adversary proceeding from the bankruptcy court based on the Supreme Court's recent decision in Stern v. Marshall, 131 S. Ct. 2594 (2011). JustMed contends that under Stern, the bankruptcy court has no constitutional authority to finally decide the "non-core state law issues on remand from the Ninth Circuit . . . ." Motion to Withdraw Reference, Dkt. 1, at 2.

Analysis

The Court will address JustMed's interpretation of Stern after laying out the relevant statutory framework.

1. The Statutory Framework

District courts have original and exclusive jurisdiction of all bankruptcy cases. 28 U.S.C. § 1334(a). They also have original, but not exclusive, jurisdiction over proceedings arising under Title 11, or arising in or related to, cases under Title 11. 28 U.S.C. § 1334(b). This Court has referred all bankruptcy cases to its bankruptcy ...


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