Cinematronics, Inc., In re

• Decision Date: 22 October 1990
• Docket Number: Nos. 89-55296,89-55297,s. 89-55296
• Citation: 916 F.2d 1444
• Parties: , 24 Collier Bankr.Cas.2d 952, 20 Bankr.Ct.Dec. 1868, Bankr. L. Rep. P 73,663 In re CINEMATRONICS, INC., Debtor. (Two Cases) Harold S. TAXEL, Trustee, Plaintiff, v. ELECTRONIC SPORTS RESEARCH, Defendant-third-party-plaintiff/Appellee, v. James PIERCE, Third-party-defendant/Appellant. Harold S. TAXEL, Trustee, Plaintiff-Appellant, v. ELECTRONIC SPORTS RESEARCH, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1444

916 F.2d 1444

59 USLW 2342, 24 Collier Bankr.Cas.2d 952,

20 Bankr.Ct.Dec. 1868, Bankr. L. Rep. P 73,663

In re CINEMATRONICS, INC., Debtor. (Two Cases)

Harold S. TAXEL, Trustee, Plaintiff, v. ELECTRONIC SPORTS RESEARCH, Defendant-third-party-plaintiff/Appellee, v. James PIERCE, Third-party-defendant/Appellant.

Harold S. TAXEL, Trustee, Plaintiff-Appellant, v. ELECTRONIC SPORTS RESEARCH, Defendant-Appellee.

Nos. 89-55296, 89-55297.

United States Court of Appeals Ninth Circuit.

Argued and Submitted June 6, 1989.

Decided Oct. 22, 1990.

Kevin J. Hoyt, Estes & Hoyt, San Diego, Cal., for plaintiff-appellant.

Philip J. Giacinti, Jr., Procopio, Cory, Hargreaves & Savitch, San Diego, Cal., for defendant-appellee.

Timothy D. Kelley, Rancho Santa Fe, Cal., for third party defendant-appellant.

Appeal from the United States District Court for the Southern District of California.

Before HUG, HALL and WIGGINS, Circuit Judges.

HUG, Circuit Judge:

This interlocutory appeal was brought pursuant to 28 U.S.C. Sec. 1292(b) (1988). The district judge, 111 B.R. 902, considered this case to be a core bankruptcy proceeding in which there was a request for a jury trial. He denied the request to withdraw the action from the bankruptcy court, determining that jury trials on core bankruptcy matters may be held in bankruptcy courts. ¹ We conclude that appellees' claims constituted noncore bankruptcy proceedings. We also find that appellant James Pierce had a Seventh Amendment right to a jury trial in the district court with regard to the noncore bankruptcy claims brought against him and that a bankruptcy court cannot conduct a jury trial in a noncore action. Therefore, we reverse the district court's order denying Pierce's motion for withdrawal of the claims against him and remand to the district court.

I. Facts and Procedural Background

Cinematronics, Inc., a California corporation engaged in developing, manufacturing, and marketing video arcade games, filed for reorganization under Chapter 11 of the federal bankruptcy laws in September of 1982. Appellant Harold S. Taxel was appointed trustee of the bankruptcy estate. Appellant Pierce, the principal shareholder and president of Cinematronics, was authorized to continue as Cinematronics' chief operating officer. In May, 1984, Pierce met with Roland Colton, a representative of Electronic Sports Research ("ESR"), a California partnership. The men allegedly discussed the possibility of Cinematronics undertaking the design, manufacture and sale of a new baseball video arcade game, entitled "World Series: The Season." ESR alleges that Colton agreed to disclose his design concept to Pierce only after Pierce signed an agreement promising to keep the information confidential. According to ESR, Colton explained the game's secret design and later reached an agreement with Pierce for the payment of royalties by Cinematronics to ESR should Cinematronics use the design concept.

Ultimately, Pierce informed ESR that Cinematronics was not interested in using the design. In October 1985, however, ESR alleges that it discovered a baseball game being marketed by Cinematronics that incorporated ESR's confidential design concept. ESR filed in Illinois state court an action for damages and injunctive relief. On October 31, 1985, the state court issued a temporary restraining order that forbid the display of Cinematronics' baseball game at a particular trade show in Chicago.

Taxel responded by filing the present action in bankruptcy court, claiming that ESR's actions violated the automatic stay provisions of the bankruptcy code. See 11 U.S.C. Sec. 362(a) (1988). Taxel sought both preliminary and permanent injunctive relief. The bankruptcy court first restrained the Illinois court and ESR from proceeding with the Illinois action and then preliminarily enjoined ESR from interfering with Cinematronics' marketing of the video game. The state court action was later dismissed.

On November 12, 1985, ESR answered the complaint filed in bankruptcy court and asserted counterclaims against Taxel and third-party claims against Pierce. Against both Taxel and Pierce, ESR alleged claims for (1) breach of contract, (2) breach of the implied covenant of good faith and fair dealing, (3) fraud, (4) breach of fiduciary duty, (5) misappropriation of confidential information, and (6) unfair competition and business practice. In addition, Taxel was charged with negligence in his supervision of Pierce and Cinematronics. ESR sought both compensatory and punitive damages. Both ESR and Pierce submitted written demands for a jury trial regarding ESR's claims.

ESR moved the bankruptcy court under 28 U.S.C. Sec. 157(b)(3) (1988) for a determination that the claims by ESR qualified as noncore proceedings. ESR asserted that its claims relate to Cinematronics' Chapter 11 reorganization so unless the parties consent to final adjudication, the bankruptcy court could only recommend findings of fact and conclusions of law. See 28 U.S.C. Sec. 157(c)(1)(1988). Pierce offered no opposition to ESR's motion. Taxel, however, argued that the claims against the estate were core proceedings; thus, the bankruptcy court could issue a final and binding judgment.

On May 19, 1987, the bankruptcy court determined that the ESR claims were core proceedings because the claims arose postpetition and, if successful against the estate, would assume priority as administrative claims. ² In addition, the bankruptcy court expressly held that ESR and Pierce had a right to jury trial on all issues arising from the ESR claims. Concerned that it lacked the authority to conduct a jury trial, the bankruptcy court recommended that the district court withdraw the reference for the ESR claims and conduct a jury trial. The bankruptcy court transmitted this recommendation in the form of a proposed order for withdrawal. All parties stipulated to the court's proposed withdrawal. Pierce then made an oral motion to the district court for withdrawal of the reference of the third-party complaint against him.

The district court denied Pierce's motion, concluding that bankruptcy courts have authority to conduct jury trials in core proceedings and that such trials conform to constitutional requirements. On Pierce's suggestion, however, the district court certified the order denying Pierce's motion as appropriate for immediate interlocutory appeal under section 1292(b). We granted permission for both Pierce and Taxel to appeal the order, and each party perfected an appeal under Fed.R.App.P. 5(d).

II. Seventh Amendment Right

Taxel and Pierce maintain on appeal that they each were sued in their personal capacity and that satisfaction of their Seventh Amendment right requires the district court to withdraw the reference and to supervise a jury trial of the claims against them as individuals. ESR also maintains that it has a Seventh Amendment right to a jury trial on all issues arising from its claims against Taxel and Pierce but expresses indifference on the situs of the trial.

The bankruptcy court determined that Pierce had a Seventh Amendment right to a jury trial. The district court also agreed that Pierce had a right to a jury trial, however, it concluded that the trial could be held in the bankruptcy court. Without delving into the question of situs at this point in our discussion, we also find that Pierce has a Seventh Amendment right to a jury trial. See Granfinanciera, S.A. v. Nordberg, --- U.S. ----, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989) (analysis for determining whether a Seventh Amendment right to a jury trial exists).

We decline, however, to consider whether Taxel has a Seventh Amendment right that requires withdrawal of the reference and a jury trial in district court. Although Taxel stipulated to Pierce's motion for withdrawal of the reference, the record on appeal does not show that Taxel asserted his own Seventh Amendment right as a basis for withdrawal of the reference before bringing this present appeal. We, therefore, do not consider that issue on this interlocutory appeal. See Life Ins. Co. of N. Am. v. Reichardt, 591 F.2d 499, 506 (9th Cir.1979).

Because we will not consider Taxel's Seventh Amendment rights, we deem it proper to reconsider Taxel's standing to appeal under section 1292(b). See United States v. 5.96 Acres of Land, 593 F.2d 884, 887 (9th Cir.1979) (circuit court has discretion to reconsider the grant of permission to appeal under section 1292(b)). Ordinarily, "a party may only appeal to protect its own interests, and not those of a coparty," even though the outcome of the appeal may have some effect on the party. Libby, McNeill, & Libby v. City Nat'l Bank, 592 F.2d 504, 511 (9th Cir.1978). Reversal of the order denying Pierce's motion for withdrawal of the reference of the third-party complaint would depend entirely upon Pierce's Seventh Amendment rights, which Taxel has no standing to assert. We therefore dismiss Taxel's appeal as improvidently granted.

We also decline to consider any right to a jury trial that ESR may have because ESR does not challenge the situs of the trial. The focus of the present appeal is the propriety of the district court's order denying Pierce's motion for withdrawal.

III. Scope of Section 1292(b) Review

The first hurdle we encounter is that the bankruptcy court concluded that ESR's claims against Pierce and Taxel were core proceedings within the meaning of 28 U.S.C. Sec. 157(b)(2)(A) and (B) (1988). Hence this interlocutory appeal is premised on that conclusion.

Pierce argues that the bankruptcy court mislabeled the claims as core. Further, he insists that we must review and reverse this bankruptcy court finding, even though it is not a certified issue on this interlocutory appeal. We agree.

Although section 1292(b) requires certification by the trial court of "controlling" questions of law, the appeals it authorizes are from orders not questions. See United States v. Stanley, 483 U.S. 669,...