Ackerman v. Eber (In re Eber)

• Decision Date: 09 July 2012
• Docket Number: 11–55341.,Nos. 10–56772,s. 10–56772
• Parties: In the Matter of José EBER, Debtor. Michael Ackerman; Floyd Kuriloff, Appellants, v. José Eber, Appellee. In the Matter of José Eber, Debtor. Michael Ackerman; Floyd Kuriloff, Appellants, v. José Eber; Carolyn A. Dye, Trustee; US Trustee, Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

687 F.3d 1123

56 Bankr.Ct.Dec. 190

12 Cal. Daily Op. Serv. 7777

2012 Daily Journal D.A.R. 9457

In the Matter of José EBER, Debtor.

Michael Ackerman; Floyd Kuriloff, Appellants,

v.José Eber, Appellee.

In the Matter of José Eber, Debtor.

Michael Ackerman; Floyd Kuriloff, Appellants,

v.José Eber; Carolyn A. Dye, Trustee; US Trustee, Appellees.

Nos. 10–56772, 11–55341.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted April 9, 2012.

Filed July 9, 2012.

Ronald M. Greenberg (argued), Dykema Gossett LLP, CA, for the appellants.

Jeffrey S. Shinbrot (argued), Jeffrey S. Shinbrot, APLC, CA, for the appellee.

Appeal from the United States District Court for the Central District of California, George H. Wu, District Judge, Presiding. D.C. Nos. 2:10–cv–04974–GW, 2:10–cv–07222–GW.

Before: ANDREW J. KLEINFELD and MILAN D. SMITH, JR., Circuit Judges, and ALGENON L. MARBLEY, District Judge.^*

OPINION

MARBLEY, District Judge:

Appellants Michael Ackerman and Floyd Kuriloff appeal the district court's orders affirming the bankruptcy court's denial of three motions: (1) Motion to Compel Arbitration and to Stay Adversary Proceeding ¹ (“Motion to Compel Arbitration”); (2) Motion for Relief from the Automatic Stay Under 11 U.S.C. § 362 (“Motion for Relief from Automatic Stay”); and (3) Motion to Vacate Order re Automatic Stay (“Motion to Vacate”). This appeal turns on the tension between the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (“FAA”), and the United States Bankruptcy Code, 11 U.S.C. § 101 et seq.² (“Bankruptcy Code”), and more specifically, a bankruptcy court's jurisdiction to determine dischargeability pursuant to § 523(a)(2), (4), and (6).

We hold that the district court did not abuse its discretion in denying Ackerman and Kuriloff's Motion to Compel Arbitration because granting the Motion would have “conflict[ed] with the underlying purposes of the Bankruptcy Code.” Cont'l Ins. Co. v. Thorpe Insulation Co. (In re Thorpe Insulation), 671 F.3d 1011, 1021 (9th Cir.2012); see also United States Lines, Inc. v. Am. S.S. Owners Mut. Prot. & Indem. Ass'n, Inc. (In re United States Lines, Inc.), 197 F.3d 631, 641 (2d Cir.1999) (“Where the bankruptcy court has properly considered the conflicting policies in accordance with law, we acknowledge its exercise of discretion and show due deference to its determination that arbitration will seriously jeopardize a particular core bankruptcy proceeding.”).

We need not address the district court's decision affirming the bankruptcy judge's denial of Ackerman and Kuriloff's Motion for Relief from the Automatic Stay or the Motion to Vacate because the stay had already dissolved before the bankruptcy judge ruled on these Motions. The stay dissolved when the bankruptcy judge issued a discharge under § 727, replacing the stay with an injunction under § 524. Aldrich v. Imbrogno (In re Aldrich), 34 B.R. 776, 779 (9th Cir.BAP 1983). Therefore, the result of this case would be unaffected regardless of whether we affirmed or reversed these Motions.

I. BACKGROUND

On May 21, 2009, Ackerman and Kuriloff commenced an arbitration proceeding against Eber in New York, New York pursuant to terms of a written agreement between the parties. Neither party disputes the terms of the written agreement. Damages, which were sought based upon claims for breach of contract, fraud, and breach of fiduciary duty in connection with the construction and operation of Eber's hair salon in Las Vegas, Nevada, were alleged to be approximately $3.3 million. Eber filed for Chapter 7 bankruptcy protection in the bankruptcy court on June 16, 2009, and the arbitration was automatically stayed.

On September 8, 2009, Ackerman and Kuriloff filed a Complaint for Determination that Debts are Non-Dischargeable and for Damages (“Complaint”) in the bankruptcy court's adversary proceeding. On December 23, 2009, Ackerman and Kuriloff filed a Motion for Relief from Automatic Stay in the bankruptcy proceeding asking the bankruptcy court to allow them to proceed with arbitration of their claims. A hearing on that Motion was set for March 16, 2010. Eber's bankruptcy trustee filed a Report of No Distribution on January 17, 2010, and Eber received his discharge under § 727 on March 4, 2010. Ackerman and Kuriloff's Motion for Relief from Automatic Stay was denied by the bankruptcy court on March 22, 2010.

On April 1, 2010, Ackerman and Kuriloff filed a Motion to Vacate the bankruptcy court's decision denying the Motion for Relief from Automatic Stay in the bankruptcy proceeding and, simultaneously, a Motion to Compel Arbitration in the adversary proceeding. The Motion to Compel Arbitration was denied on June 10, 2010, and the Motion to Vacate was denied June 30, 2010. Ackerman and Kuriloff also filed a Request to Stay the Adversary Proceeding Pending Appeal of the denial of their Motions, but the bankruptcy court denied that request as well.

Ackerman and Kuriloff filed an appeal of the denial for their Motion to Compel Arbitration with the district court on June 23, 2010, and the district court affirmed the denial on October 26, 2010. Ackerman and Kuriloff filed a Notice of Appeal on November 11, 2010.

Ackerman and Kuriloff also filed an appeal of the denial for their Motion for Relief from Automatic Stay and Motion to Vacate with the district court on July 13, 2010, and the district court affirmed the denial on February 1, 2011. Ackerman and Kuriloff filed a Notice of Appeal to this Court on March 2, 2011.

The adversary proceeding was set for trial on March 9, 2011, and Motions to Stay the Adversary Proceeding Pending Appeal of the denial of their Motions were filed in both the district court and with us, but both courts denied Plaintiffs' request. The trial was held on March 9, 2011.³ The bankruptcy court found that Plaintiffs had not proven the elements necessary to prevail under § 523(a)(2), (4), and (6), and held that Ackerman and Kuriloff's claims were therefore discharged. The bankruptcy court filed Findings of Fact and Conclusions of Law, and a Judgment on March 29, 2011. This appeal followed.

II. JURISDICTION

This Court has jurisdiction pursuant to 28 U.S.C. § 1291. We also have jurisdiction under 28 U.S.C. § 158(d) and 9 U.S.C. § 16(a)(1)(B). See Thorpe Insulation, 671 F.3d at 1019.

III. STANDARD OF REVIEW

This Court generally reviews motions to compel arbitration de novo. See Britton v. Co–Op Banking Grp., 916 F.2d 1405, 1409 (9th Cir.1990); Pipe Trades Council of N. Cal., Local 159 v. Underground Contractors Ass'n of N. Cal., 835 F.2d 1275, 1278 (9th Cir.1988). To the extent the bankruptcy court made factual findings in connection with its decision to deny Ackerman and Kuriloff's Motion to Compel Arbitration, however, we will review these factual determinations for clear error, and its legal conclusions de novo. See Thorpe Insulation, 671 F.3d at 1019 (citing Decker v. Tramiel (In re JTS Corp.), 617 F.3d 1102, 1109 (9th Cir.2010)).

IV. ANALYSIS

Ackerman and Kuriloff attempt to parse the underlying dispute between the parties into “three separate and distinct claims”: (1) liability, (2) damages, and (3) if liability is found, dischargeability. They argue that liability and damages are non-core matters based on New York law, ⁴ and that dischargeability is a core matter based upon the Bankruptcy Code. Ackerman and Kuriloff argue that where there are both non-core and core claims involved, the right to arbitration cannot be denied unless the party opposing the motion to compel arbitration shows, and the bankruptcy court makes a finding that, enforcing the parties' arbitration agreement would inherently conflict with the Bankruptcy Code or necessarily jeopardize its objectives. Appellants further contend that no such finding was made by the bankruptcy court. Rather, the bankruptcy court's decision to deny their Motion to Compel Arbitration was based upon its view that it could be barred from deciding issues related to dischargeability as a result of collateral estoppel if an arbitrator made certain findings.

Eber retorts that Ackerman and Kuriloff admitted in their Complaint that the claims they assert against Eber constitute core proceedings pursuant to 28 U.S.C. § 157(b)(2)(I), despite now arguing that liability and damages should be treated as non-core claims. Eber also points out that the bankruptcy court made factual findings that, by seeking to compel arbitration, Ackerman and Kuriloff were attempting to have an arbitrator determine the dischargeability of their § 523(a)(2), (4), and (6) claims.

The bankruptcy court denied Ackerman and Kuriloff's Motion to Compel Arbitration, finding unpersuasive their argument that they were simply seeking to enforce their contractual right to arbitrate liability and damages, and intended to leave the determination of dischargeability for the bankruptcy court to decide. The bankruptcy court explained:

Mr. GREENBERG: We are not asking the arbitrator to decide dischargeability. We have never asked that.

THE COURT: Oh, I know you say that. But I respectfully disagree.

Mr. GREENBERG: Okay.

THE COURT: That's really what you you're asking. What you are asking is for that arbitrator to decide things which then would be collateral estoppel. Of course, that's what you're doing—

Mr. GREENBERG: Well—

THE COURT: —because there's no other reason—let's not kid each other. Of course, that's what you're doing.

Mr. GREENBERG: Okay.

THE COURT: So if in fact they make the required findings, then for all practical purposes, the arbitrator is deciding it, even though technically not.

The district court noted that implicit in the bankruptcy court's ruling was the “recognition that establishing liability on causes of action based on fraud pursuant to 11 U.S.C. § 523(a)(2), breach of fiduciary duty pursuant to 11 U.S.C. § 523(a)(4), and intentional acts based on § 523(a)(6), is tantamount to establishing non-dischargeability.” This district court held that the bankruptcy court made a factual...