Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_10-cv-01029/USCOURTS-azd-2_10-cv-01029-1/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 28:0158 Notice of Appeal re Bankruptcy Matter (BAP)

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 The request for oral argument is denied because the issues have been fully briefed

and oral argument will not aid the Court’s decision. See Fed. R. Civ. P. 78(b); Partridge v.

Reich, 141 F.3d 920, 926 (9th Cir. 1998).

WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

In re Gorilla Companies LLC, et al., 

Debtors. _________________________________

Robb M. Corwin; Jillian C. Corwin; and

13 Holdings, LLC,

Appellants, 

vs.

Gorilla Companies LLC, et al.,

Appellees.

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No. CV-10-1029-PHX-DGC

No. AP-09-00266-RJH

No. BK-09-02898-RJH

No. BK-09-02901-CGC

No. BK-09-02903-GBN

No. BK-09-02905-CGC

ORDER

Pursuant to this Court’s order granting a bifurcated appeal (Doc. 21), the parties have

briefed the issue of whether the bankruptcy court erred in adjudicating as a “core proceeding”

counterclaims made by Appellee Gorilla Companies LLC (“Gorilla”). This is the only issue

before the Court on this portion of the appeal, and it has been fully briefed. Docs. 22, 26, 29.

For the reasons that follow, the Court finds that the adjudication was appropriately deemed

a core proceeding by the bankruptcy court.1

Case 2:10-cv-01029-DGC Document 30 Filed 10/14/10 Page 1 of 6
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I. Background.

Robb and Jillian Corwin are the sole owners of 13 Holdings, LLC. The Corwins and

13 Holdings will be referred to collectively as the “Corwin Parties.” In June 2007,

13 Holdings and Gorilla entered into an Asset Purchase Agreement under which 13 Holdings

sold the assets of an event-management company to Gorilla in exchange for an immediate

cash payment, one million shares of Gorilla stock, a promissory note for $1.5 million, and

a second note that could pay up to $6 million depending on Gorilla’s performance (the

“Seller Note”). In early 2008, Gorilla made a large payment to 13 Holdings on the Seller

Note. A dispute later arose regarding the amount owed under the Seller Note.

Gorilla filed suit against the Corwin Parties in state court. See Gorilla Cos. LLC v.

Corwin, No. CV2008-032847 (Ariz. Super. Ct. Dec. 23, 2008). The Corwin Parties filed

counterclaims. The case was removed to the bankruptcy court after Gorilla filed for chapter

11 bankruptcy protection on February 20, 2009. Gorilla Cos. LLC v. Corwin, No. AP-09-

00266-RJH (Bankr. Ariz. Mar. 10, 2009). The Corwin Parties subsequently filed proofs of

claim in the bankruptcy proceedings that mirrored their state-court counterclaims, and Gorilla

responded with counterclaims that mirrored its state-court claims.

On March 22, 2010, the bankruptcy court issued a judgment in which it adjudicated

the proofs of claim filed by the Corwin Parties and the state law counterclaims brought by

Gorilla. Doc. 23-1 at 4; Doc. 22 at 7-8. The bankruptcy court ruled against the Corwin

Parties. The bankruptcy court framed the March 22 adjudication as a core proceeding under

28 U.S.C. § 157(b)(2)(B) and (C), and treated the Gorilla claims as “compulsory

counterclaims to the Corwin Proof of Claims.” Doc. 23-1 at 4. 

II. Analysis.

On appeal, a federal district court reviews issues of law from a bankruptcy court de

novo and factual findings for clear error. In re Strand, 375 F.3d 854, 857 (9th Cir. 2004).

A bankruptcy court can hear and decide, inter alia, “all core proceedings arising under title

11, or arising in a case under title 11.” 28 U.S.C. § 157(b)(1). A proceeding is core if it falls

within 28 U.S.C. § 157(b)(2), if it is “at the core of federal bankruptcy power,” and if a

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 Insofar as the Corwin Parties argue that this Court must apply a fairness test under

Castlerock to determine whether Gorilla’s counterclaims satisfy § 157(b)(2)(C), this Court

disagrees. The unfairness mentioned in Castlerock appears to have arisen from the unique

procedural posture of that case, a posture that does not exist here.

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binding decision by a bankruptcy judge does not violate Article III of the U.S. Constitution.

28 U.S.C. § 157(b)(2); see Piombo Corp. v. Castlerock Props. (Castlerock), 781 F.2d 159,

162 (9th Cir. 1986); see generally N. Pipeline Constr. Co. v. Marathon Pipe Line Co., 458

U.S. 50 (1982). Counterclaims asserted in response to a proof of claim constitute “core

proceedings” under 28 U.S.C. § 157(b)(2)(C) if the counterclaims are “necessary

precursor[s] to the resolution of [the proof of claim],” In re Marshall, 600 F.3d 1037, 1040

(9th Cir. 2010), and if they are raised after the proof of claim was filed, Castlerock, 781 F.2d

at 160-62.

A. The Corwin Proofs of Claim.

This case differs from Castlerock procedurally, and the distinction makes a difference.

In Castlerock, a state law contract action between Castlerock and Piombo was stayed when

Castlerock filed a Chapter 11 bankruptcy petition. Castlerock, 781 F.2d at 160. In the

bankruptcy action, Castlerock asserted several state law counterclaims against Piombo, and

Piombo moved to sever. Id. The bankruptcy judge denied both of Piombo’s motions, after

which Piombo filed an answer to the counterclaims and filed a proof of secured claim as a

defensive measure. Id. The bankruptcy judge ultimately tried the Piombo proof of claim and

Castlerock’s counterclaims, found for Castlerock, and Piombo appealed. Id. The Ninth

Circuit ruled in favor of Piombo because, inter alia, the proceeding was not core under

§ 157(b)(2)(C). Castlerock’s counterclaims were filed before Piombo filed its proof of claim

and therefore failed to fall within the traditional procedural posture of “counterclaims” to

which § 157(b)(2)(C) applies. Castlerock, 781 F.2d at 161-62 (deciding that Castlerock’s

counterclaims did not “fall[] within the [§ 157(b)(2)(C)] provision” because “[t]he

counterclaims were asserted before the Proof of Claim was filed”).2

Here, the Corwin Parties asserted proofs of claim against the Gorilla bankruptcy

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 The Corwin Parties argue that their filing of a proof of claim should not be deemed

consent to the bankruptcy court’s jurisdiction, notwithstanding language in Langenkamp v.

Culp, 498 U.S. 42, 44 (1990): “by filing a claim against a bankruptcy estate, the creditor

triggers the process of allowance and disallowance of claims thereby subjecting himself to

the bankruptcy court’s equitable power.” The Court need not pass on this argument because

it concludes that the claims adjudicated by the bankruptcy court are core.

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estate. Only then did Gorilla counterclaim. The bankruptcy court did not assert jurisdiction

over the counterclaims before the proofs of claim were filed.

The Corwin Parties argue that their proofs of claim track their own counterclaims in

state court and that the proofs of claim are therefore noncore due to the constitutional

concerns cited in Marathon. The Corwin Parties cite In re Kamine/Besicorp Allegany, L.P.,

214 B.R. 953 (Bankr. D.N.J. 1997), for this proposition, but Allegany does not provide the

needed support. In Allegany, the district court had decided that the creditor’s claims were

noncore prior to the creditor filing a new proof of claim; in essence, the proof of claim

attempted to obtain core jurisdiction where none existed. Id. at 954-55. There was no similar

jurisdictional maneuvering in this case. 

The Corwin Parties have cited no Ninth Circuit law holding that prepetition state-law

claims can never constitute core claims against a bankruptcy estate. Congress specifically

provided that a claim cannot be deemed noncore merely because it involves an issue of state

law. See 28 U.S.C. § 157(b)(3). The Corwin Parties have not shown that their proofs of

claim fall substantively outside the bankruptcy court’s core jurisdiction.3

B. The Gorilla Counterclaims.

A counterclaim to a proof of claim can be adjudicated as a core proceeding under

§ 157(b)(2)(C) if it is a “necessary precursor to the resolution of [a proof of claim] against

the bankruptcy estate.” Marshall, 600 F.3d at 1040. The mere fact that the counterclaim is

compulsory is not controlling. Id. at 1058.

In Marshall, Pierce Marshall brought a proof of claim against Vickie Lynn Marshall’s

bankruptcy estate, alleging that she and her attorneys defamed him. Id. She counterclaimed

that Pierce Marshall tortiously interfered with her “expectation that she would inherit from

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[her deceased husband’s] estate.” Id. at 1045. The Ninth Circuit held, inter alia, that Vickie

Lynn Marshall’s counterclaim, albeit compulsory, was noncore because “Pierce Marshall’s

defamation claim could be fully adjudicated without fully adjudicating Vickie Lynn

Marshall’s tortious interference claim.” Id. at 1060. In other words, “her counterclaim was

not an integral part of the claims allowance and disallowance process.” Id. at 1059.

Marshall held that a counterclaim constitutes a core proceeding “only if the

counterclaim is so closely related to the proof of claim that the resolution of the counterclaim

is necessary to resolve the allowance or disallowance of the claim itself.” Id. at 1058. In this

case, the proofs of claim filed by the Corwin Parties included four claims by 13 Holdings for

additional payments under the Seller Note. Gorilla’s counterclaims asserted that the Corwin

Parties breached the Asset Purchase Agreement, defrauded Gorilla, and made negligent

misrepresentations to Gorilla, and that Gorilla had overpaid the Corwin Parties and was owed

money in return. Clearly, resolution of Gorilla’s claims that it had overpaid on the Seller

Note and that Corwin had defrauded it and made negligent misrepresentations as part of the

asset purchase transaction that gave rise to the Seller Note was necessary to resolve 13

Holdings’ claim for additional payments under the Seller Note. All of the parties’ claims and

counterclaims arose out of the asset purchase transaction and the resulting contracts. The

Corwin Parties have not shown Gorilla’s counterclaims to be noncore under Marshall.

The Corwin Parties argue that “[u]nder Ninth Circuit law, the core determination must

be made on a claim-by-claim basis,” (Doc. 22 at 13), citing to Dunmore v. United States, 358

F.3d 1107, 1114 (9th Cir. 2004). Appellants misread Dunmore, which stands for the

proposition that “[w]hen presented with a mixture of core and noncore claims, [the appellate

court] must employ a claim-by-claim analysis to determine whether the bankruptcy court

could enter a final order for that claim.” Id. (emphasis added). This Court has not found a

“mixture of core and noncore claims” in this case. Therefore, Dunmore is inapposite.

IT IS ORDERED:

1. The bankruptcy court’s resolution of the core/noncore issue is affirmed.

2. Appellants shall file their opening brief on the remaining merits of this appeal

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by November 3, 2010. The response brief shall be filed by November 24,

2010, and the reply by December 8, 2010. 

DATED this 14th day of October, 2010.

Case 2:10-cv-01029-DGC Document 30 Filed 10/14/10 Page 6 of 6