In Re Cuker Interactive, LLC

Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 In Re: Case No.: 20-CV-01854-CAB-BLM 12 CUKER INTERACTIVE, LLC, ORDER AFFIRMING 13 BANKRUPTCY COURT Debtor. 14 16 PILLSBURY WINTHROP SHAW 17 PITTMAN, LLP, 18 Appellant, 19 v. 20 CUKER INTERACTIVE, LLC, 21 Appellee. 22 23 24 25 In this matter, Appellant Pillsbury Winthrop Shaw Pittman LLP (“Pillsbury”) 26 appeals a September 4, 2020 order by the United States Bankruptcy Court for the Southern 27 District of California denying Pillsbury’s petition to compel arbitration of a lien dispute 28 with Debtor and Appellee Cuker Interactive, LLC (“Cuker”). The appeal has been fully 1 briefed, and the Court deems it suitable for submission without oral argument. As 2 discussed below, the Bankruptcy Court’s denial of Pillsbury’s petition to compel 3 arbitration is affirmed. 4 I. Background 5 Pillsbury represented Cuker in litigation against Walmart in Arkansas. After a jury 6 trial, the Arkansas District Court entered judgment in favor of Cuker for $745,021 in 7 damages and $2,664,262.44 in attorney’s fees and sanctions. On December 8, 2017, while 8 the litigation was ongoing, Pillsbury sent a letter to counsel for Walmart providing notice 9 that Cuker owed Pillsbury money for its services in the Walmart lawsuit and purporting to 10 assert an attorney’s lien under Arkansas law on amounts owed by Walmart to Cuker in the 11 lawsuit. [Doc. No. 19-1 at 14.]1 12 On December 13, 2018, Cuker filed for Chapter 11 bankruptcy in this district. 13 Pillsbury filed a proof of claim asserting a claim for $1,637,418.71 secured by an attorney’s 14 lien on the judgment and proceeds of the Walmart lawsuit and perfected by the December 15 8, 2017 letter to Walmart’s counsel. [Doc. No. 19-1 at 10-12.] On May 29, 2020, Cuker 16 filed an adversary proceeding against Pillsbury to determine whether Pillsbury’s claim is 17 secured or unsecured. [Doc. No. 19-1 at 6-9, 28.] In a motion for summary judgment filed 18 shortly thereafter, Cuker asked the bankruptcy court to determine as a matter of law that 19 Pillsbury’s claim is a general unsecured claim not entitled to priority. [Doc. No. 19-1 at 20 29.] 21 Pillsbury filed a petition to compel arbitration of the adversary proceeding2 based on 22 an arbitration provision in Pillsbury’s engagement letter with Cuker. [Doc. No. 19-1 at 53; 23 Doc. No. 21-1 at 3.] After a hearing, the bankruptcy court issued a letter opinion denying 24 Pillsbury’s petition. [Doc. No. 19-1 at 109-113.] The bankruptcy court gave three reasons 25 26 27 1 Citations to the record use the ECF watermark for the instant appeal. 2 The petition also asked, in the alternative, for the case to be transferred to the Arkansas district court. 28 1 for its decision: (1) the lien dispute is not covered by the arbitration provision in the 2 engagement letter; (2) the engagement letter does not reflect an agreement to arbitrate the 3 threshold arbitrability of the lien dispute; and (3) even if the lien dispute was arbitrable, the 4 bankruptcy court would exercise its discretion to retain jurisdiction. [Id.] On September 5 18, 2020, Pillsbury filed a notice of appeal of this ruling and a statement of election to have 6 the appeal heard in the district court. [Doc. No. 1.] 7 II. Discussion 8 Although Pillsbury argues that each of the bankruptcy court’s three grounds for 9 denying Pillsbury’s motion to compel arbitration were incorrect, this Court need not 10 consider the first two grounds unless it also finds that the Court did not have the discretion 11 (or abused that discretion) in retaining jurisdiction even if the lien dispute was arbitrable. 12 Pillsbury concedes as much in its opening brief. [Doc. No. 19 at 13.] Accordingly, before 13 addressing whether the bankruptcy court correctly determined the threshold arbitrability 14 issue and whether it correctly determined the arbitration provision in question did not apply 15 to the lien dispute, the Court considers whether, assuming either or both of those rulings 16 were incorrect, the bankruptcy court abused its discretion in retaining jurisdiction even 17 assuming the lien dispute is subject to arbitration. 18 There is no dispute that whether Pillsbury’s claim is secured or unsecured is a core 19 bankruptcy proceeding. [Doc. No. 19 at 24 n.10.] “[I]n a core [bankruptcy] proceeding.... 20 a bankruptcy court has discretion to decline to enforce an otherwise applicable arbitration 21 provision only if arbitration would conflict with the underlying purposes of the Bankruptcy 22 Code.” In re EPD Inv. Co., LLC, 821 F.3d 1146, 1150 (9th Cir. 2016) (quoting In re 23 Thorpe Insulation Co., 671 F.3d 1011, 1021 (9th Cir. 2012)). “A bankruptcy court abuses 24 its discretion if it applies the law incorrectly or if it rests its decision on a clearly erroneous 25 finding of material fact. . . . Clear error exists only when the reviewing court is left with a 26 definite and firm conviction that a mistake has been committed.” In re Marshall, 721 F.3d 27 1032, 1039 (9th Cir. 2013) (internal quotation marks and citations omitted). “When a 28 bankruptcy court considers conflicting policies . . ., [the Ninth Circuit] acknowledge[s] [the 1 bankruptcy court’s] exercise of discretion and defer[s] to its determinations that arbitration 2 will jeopardize a core bankruptcy proceeding.” In re EPD Inv. Co., 821 F.3d at 1150 3 (quoting In re Eber, 687 F.3d 1123, 1131 (9th Cir. 2012)). 4 Here, as Pillsbury concedes in its opening brief, “the bankruptcy court 5 acknowledged the correct factors” when determining whether to exercise its discretion to 6 retain jurisdiction over the lien dispute even if the arbitration provision in the engagement 7 agreement applied. [Doc. No. 19 at 20 n.12; Doc. No. 19-1 at 112.] To that end, the 8 bankruptcy court considered the same three criteria for determining whether arbitration 9 would conflict with the bankruptcy code that Pillsbury cites in its briefs before this Court: 10 (1) having bankruptcy law issues decided by bankruptcy courts; (2) centralizing resolution 11 of bankruptcy disputes; and (3) avoiding piecemeal litigation. In re EPD Inv. Co., 821 12 F.3d at 1150; see also Doc. No. 19 at 24; Doc. No. 19-1 at 112. When a bankruptcy court 13 identifies the correct legal rule, as Pillsbury concedes it did here, it abuses its discretion 14 only if its “application of the correct legal standard [to the facts] was (1) illogical, (2) 15 implausible, or (3) without support in inferences that may be drawn from the facts in the 16 record.” In re Taylor, 599 F.3d 880, 887 (9th Cir. 2010) (quoting United States v. Hinkson, 17 585 F.3d 1247, 1262 (9th Cir. 2009)). 18 The Court is not persuaded that the bankruptcy court’s application of the EPD factors 19 to the facts and circumstances of the lien dispute was illogical, implausible, or without 20 support of the record. Accordingly, the bankruptcy court did not abuse its discretion in 21 retaining jurisdiction over the lien dispute even if the arbitration provision in the 22 engagement agreement applied to that dispute. 23 III. Conclusion 24 Because the bankruptcy court did not abuse its discretion in retaining jurisdiction 25 over the lien dispute, the Court need not consider Pillsbury’s separate arguments that the 26 bankruptcy court incorrectly determined that it could decide the threshold arbitrability issue 27 and that the lien dispute is not covered by the arbitration provision in Pillsbury’s 28 1 ||}engagement letter with Cuker. The bankruptcy court’s denial of Pillsbury’s petition to 2 ||compel arbitration is AFFIRMED. 3 It is SO ORDERED. 4 ||Dated: January 20, 2021 6 Hon. Cathy Ann Bencivengo United States District Judge 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28