Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-14-55740/USCOURTS-ca9-14-55740-0/pdf.json

Parties Involved:
EPD Investment Company, LLC

John C. Kirkland
Appellee
Poshow Ann Kirkland
Appellant
Jerrold S. Pressman

Jason M. Rund
Appellee

Document Text:

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

IN THE MATTER OF EPD

INVESTMENT COMPANY, LLC, and

JERROLD S. PRESSMAN,

Debtors.

POSHOW ANN KIRKLAND,

individually and as Trustee of the

Bright Conscience Trust Dated

September 9, 2009,

Appellant,

v.

JASON M. RUND, Chapter 7 Trustee;

JOHN C. KIRKLAND, an individual,

Appellees.

No. 14-55740

D.C.

No. 2:13-cv09023-SJO

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2 IN THE MATTER OF EPD INVESTMENT CO.

IN THE MATTER OF EPD

INVESTMENT COMPANY, LLC, and

JERROLD S. PRESSMAN,

Debtors.

JOHN C. KIRKLAND, an individual,

Appellant,

v.

JASON M. RUND, Chapter 7 Trustee,

Appellee.

No. 14-56478

D.C. No.

2:13-cv-08768-

SJO

OPINION

Appeals from the United States District Court

for the Central District of California

S. James Otero, District Judge, Presiding

Argued and Submitted

April 8, 2016—Pasadena, California

Filed May 9, 2016

Before: Barry G. Silverman and Susan P. Graber, Circuit

Judges, and Jennifer A. Dorsey,

*

 District Judge.

Opinion by Judge Silverman

* The Honorable Jennifer A. Dorsey, United States District Judge for the

District of Nevada, sitting by designation.

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IN THE MATTER OF EPD INVESTMENT CO. 3

SUMMARY**

Bankruptcy / Arbitration

The panel affirmed the district court’s decision affirming

the bankruptcy court’s denial of a motion to compel

arbitration in a bankruptcy trustee’s adversary proceeding

seeking avoidance of fraudulent transfers.

The panel held that the bankruptcy trustee’s fraudulent

conveyance, subordination, and disallowance causes of action

were core proceedings, thereby giving the bankruptcy court

discretion to weigh the competing bankruptcy and arbitration

interests at stake. The bankruptcy court properly determined

that the arbitration provisions at issue conflicted with the

Bankruptcy Code purposes of having bankruptcy law issues

decided by bankruptcy courts; of centralizing resolution of

bankruptcydisputes; and of protecting parties from piecemeal

litigation. Accordingly, the bankruptcy court did not abuse

its discretion in denying the motion to compel arbitration.

The panel rejected the argument that the trustee’s

fraudulent transfer claims were the constitutional equivalent

of non-core claims because the defendant had requested a

jury trial and had not consented to one before the bankruptcy

court.

The panel also agreed with the district court that the

bankruptcy trustee was not bound by the arbitration

agreements for purposes of the fraudulent transfer claims.

** This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

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4 IN THE MATTER OF EPD INVESTMENT CO.

COUNSEL

David M. Axelrad, Steven S. Fleischman, and John F. Querio

(argued), Horovitz & Levy LLP, Encino, California, for

Appellants Poshow Ann Kirkland, individuallyand as Trustee

of the Bright Conscience Trust dated September 9, 2009, and

John C. Kirkland.

Jeffrey I. Golden, Weiland Golden Smiley Wang Ekvall &

Strok LLP, Costa Mesa, California, for Appellant John C.

Kirkland.

Steven T. Gubner, CoreyR. Weber (argued), and Michael W.

Davis, Ezra BrutzkusGubner, Woodland Hills, California, for

Appellee Jason M. Rund, Chapter 7 Trustee.

OPINION

SILVERMAN, Circuit Judge:

At issue in this appeal is whether a bankruptcy court erred

in denying a motion to compel arbitration. We hold that it

had discretion to decide the motion and that it did not abuse

its discretion in denying it. We therefore affirm.

Plaintiff Jason Rund is the Chapter 7 Trustee for the

estates of both EPD Investment Co. (“EPD”) and Jerrold S.

Pressman, whose separately filed bankruptcy cases have been

substantively consolidated. Defendant John Kirkland is an

attorney who acted as counsel for Pressman and EPD. 

Defendant Poshow Ann Kirkland is John’s wife and the

trustee of the Bright Conscience Trust, to which John

assigned interests he held in the debtors.

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IN THE MATTER OF EPD INVESTMENT CO. 5

In October 2012, the Trustee filed an adversary

proceeding against John and Poshow (as trustee of the trust),

seeking to disallow the trust’s proofs of claim, and to avoid

fraudulent transfers under federal and state law. The Trustee

subsequently filed the operative second amended complaint,

in which he alleges, among other things, that: (1) EPD

operated as a Ponzi scheme and, in mid-2009, stopped

making payments to all but a few favored creditors; (2) while

acting as counsel for EPD and Pressman, John invested or

lent at least $150,000 to EPD; (3) after EPD stopped making

payments to creditors, John transferred his interests in EPD

to his family trust (the Bright Conscience Trust) and/or his

wife as trustee; (4) the trust in turn filed a financing statement

against all assets of EPD and Pressman; (5) John knew about

the Ponzi scheme and knew that filing the financing statement

was a fraudulent conveyance; and (6) John arranged for

Pressman, through EPD, to make John’s monthly mortgage

payments to his lender while John was aware of the Ponzi

scheme.

John moved the bankruptcy court to compel arbitration of

the adversary proceeding. He argued that he had numerous

agreements with EPD and Pressman, each of which included

broad arbitration clausesrequiring binding private arbitration,

and that the Trustee’s causes of action fell within the scope of

those clauses. He also argued that the Trustee’s claims

against him were disguised non-core matters; however, he

acknowledged that the Trustee’s fraudulent transfer claims

were statutorily core matters under 28 U.S.C. § 157(b)(2)(H). 

Notably, John made no argument to the bankruptcycourt that,

pursuant to some of the agreements, an arbitrator must decide

issues of arbitrability. Poshow later joined the motion to

compel.

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6 IN THE MATTER OF EPD INVESTMENT CO.

The Trustee raised various arguments in opposition;

however, he did not argue to the bankruptcy court that he was

not bound by the pre-petition agreements signed by the

debtors.

The bankruptcy court denied John’s motion to compel

arbitration. The bankruptcy court ruled that the Trustee’s

causes of action were core matters. Applying our decision in

Continental Insurance Co. v. Thorpe Insulation Co. (In re

Thorpe Insulation Co.), 671 F.3d 1011, 1021 (9th Cir. 2012),

the bankruptcy court further ruled that allowing arbitration

would conflict with the underlying purposes of the

Bankruptcy Code. The bankruptcy court’s decision

specifically noted that: (1) the Trustee did not challenge the

applicability of the arbitration provisions to the claims cited

in the complaint; and (2) John acknowledged that claims to

recover fraudulent transfers could be characterized as core

proceedings.

After the bankruptcy court ruled, John and Poshow

appealed the bankruptcy court’s decision to the district court,

and John moved the bankruptcy court to issue a stay pending

appeal.

While his stay motion was pending, John answered the

complaint. He demanded a jury trial and argued that the

bankruptcy court lacked jurisdiction to adjudicate the

Trustee’s claims against John because he had neither filed a

proof of claim nor consented to jurisdiction. Cognizant that

this development might affect the analysis of whether to

compel arbitration, the bankruptcy court granted John a stay

pending appeal.

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IN THE MATTER OF EPD INVESTMENT CO. 7

The district court affirmed the bankruptcy court. It also

addressed for the first time new arguments: (1) from the

Trustee, that the arbitration agreements were not enforceable

against him; and (2) from John, that his answer transformed

the adversary proceeding into a constitutionally non-core

matter, which could alter the bankruptcy court’s Thorpe

Insulation analysis.

The district court determined that the Trustee was not

bound to arbitrate the fraudulent conveyance claims, because

he was asserting claims that either belonged to the estate’s

creditors or would benefit them, and no creditor had been a

party to the arbitration agreement.

The district court further determined that arbitration of the

subordination and disallowance claims would conflict with

the underlying purposes of the Bankruptcy Code, because

resolution of those causes of action would require factual

findings closely linked to the Trustee’s administration of the

estate.

John and Poshow timely appeal.

Jurisdiction

We have jurisdiction to review the bankruptcy court’s

order denying the motion to compel arbitration, 9 U.S.C.

§ 16(a)(1)(C), as well as the district court’s orders affirming

the bankruptcy court, 28 U.S.C. §§ 158, 1291.

Standard of Review

Generally, we review a bankruptcy court’s decision

independently and without deference to the district court’s

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8 IN THE MATTER OF EPD INVESTMENT CO.

decision. Decker v. Tramiel (In re JTS Corp.), 617 F.3d

1102, 1109 (9th Cir. 2010). This court reviews a bankruptcy

court’s findings of fact for clear error and its conclusions of

law de novo. Id.

“[I]n a core [bankruptcy] proceeding . . . . a bankruptcy

court has discretion to decline to enforce an otherwise

applicable arbitration provision only if arbitration would

conflict with the underlying purposes of the Bankruptcy

Code.” In re Thorpe Insulation Co., 671 F.3d at 1021. We

review de novo whether a bankruptcy court, as a matter of

law, has discretion to deny a motion to compel arbitration. 

Id. at 1019–20. If we conclude that the bankruptcy court had

discretion, we then review the exercise of discretion only for

abuse of discretion. Id. at 1020. “When a bankruptcy court

considers conflicting policies . . . , we acknowledge its

exercise of discretion and defer to its determinations that

arbitration will jeopardize a core bankruptcy proceeding.” 

Ackerman v. Eber (In re Eber), 687 F.3d 1123, 1131 (9th Cir.

2012).1

1 The Eber court wrote that we generally review motions to compel

arbitration de novo, explaining that factual findings are reviewed for clear

error and legal conclusions de novo. 687 F.3d at 1126. The Eber court

went on to acknowledge that we defer to a bankruptcy court’s exercise of

discretion when the bankruptcy court determines that arbitration will

jeopardize a core bankruptcy proceeding. Id. at 1131. We perceive no

conflict between the standards of review announced in Thorpe and Eber

that would affect the outcome in this case because, under both Thorpe and

Eber: (1) questions of law contained in a motion to compel arbitration are

reviewed de novo; and (2) the bankruptcy court is entitled to discretion

when deciding whether arbitration would conflict with a core bankruptcy

proceeding.

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IN THE MATTER OF EPD INVESTMENT CO. 9

The Bankruptcy Court Did Not Abuse Its Discretion

In this case, the bankruptcy court did not abuse its

discretion in denying the Kirklands’ motion to compel

arbitration. In re Eber, 687 F.3d at 1131; In re Thorpe

Insulation Co., 671 F.3d at 1020–21.

On de novo review, we agree with the bankruptcy court

that the Trustee’s fraudulent conveyance, subordination, and

disallowance causes of action were core proceedings, thereby

giving the bankruptcy court discretion to weigh the

competing bankruptcy and arbitration interests at stake. See

28 U.S.C. § 157(b)(2)(B), (H); see also In re Thorpe

Insulation Co., 671 F.3d at 1021. The bankruptcy court

properly applied Thorpe Insulation to determine that the

arbitration provisions at issue conflicted with Bankruptcy

Code purposes of having bankruptcy law issues decided by

bankruptcy courts; of centralizing resolution of bankruptcy

disputes; and of protecting parties from piecemeal litigation. 

See In re Thorpe Insulation Co., 671 F.3d at 1022–23.

The bankruptcy court’s Thorpe Insulation analysis was

supported by the record extant at the time the bankruptcy

court ruled because the bankruptcy court had supervised the

debtors’ cases for nearly three years, during which the

Trustee filed more than 100 other adversary proceedings with

the bankruptcy court.

Stern v. Marshall and Its Progeny Are Inapplicable

John now argues that the Trustee’s fraudulent conveyance

claims against John are “the constitutional equivalent of noncore claims” because John has requested a jury trial and has

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10 IN THE MATTER OF EPD INVESTMENT CO.

not consented to one before the bankruptcy court.2John

argues that, under the Supreme Court’s decisions in Stern v.

Marshall, 564 U.S. 462 (2011), and Executive Benefits

Insurance Agency v. Arkison, 134 S. Ct. 2165 (2014), the

fraudulent conveyance claims against him must now be

treated as non-core, which means that the bankruptcy court

necessarily lacked discretion to deny his motion to compel

arbitration. We disagree.

As an initial matter, John did not file his answer until

after the bankruptcy court had denied his motion to compel. 

As a result, the bankruptcy court has never had an

opportunity to determine in the first instance whether the

fraudulent conveyance claims remain a core proceeding in

light of the answer. See Exec. Benefits Ins. Agency, 134 S.

Ct. at 2171 (“It is the bankruptcy court’s responsibility to

determine whether each claim before it is core or non-core.”).

In this case, though, that doesn’t matter because John’s

answer did not take the Trustee’s fraudulent conveyance

causes of action outside the analytical paradigm that this

court established in Thorpe Insulation.

The Trustee’s fraudulent conveyance claims against John

remain statutorily core, see Exec. Benefits Ins. Agency v.

Arkison (In re Bellingham Ins. Agency, Inc.), 702 F.3d 553,

565 (9th Cir. 2012), aff’d, Exec. Benefits Ins. Agency, 134 S.

Ct. 2165, meaning that Congress has identified that type of

claim as one that historically fell within the scope of the

2 Poshow filed a proof of claim on behalf of the trust and has,

accordingly, consented to bankruptcy court jurisdiction. See Wellness

Int’l Network, Ltd. v. Sharif, 135 S. Ct. 1932, 1949 (2015) (bankruptcy

courts may decide Stern claims submitted to them by consent).

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IN THE MATTER OF EPD INVESTMENT CO. 11

bankruptcy court’s power. See Exec. Benefits Ins. Agency,

134 S. Ct. at 2171 n.7. Stern and its progeny simply

recognize that sometimes the bankruptcy court’s statutory

authority to decide a core matter must give way when that

interest conflicts with a non-creditor’s constitutional right to

entry of a final judgment by an Article III adjudicator. See id.

at 2172 (“Stern made clear that some claims labeled by

Congress as ‘core’ may not be adjudicated by a bankruptcy

court in the manner designated by § 157(b).”); In re

Bellingham Ins. Agency, 702 F.3d at 566 (“Only the power to

enter final judgment is abrogated.”). Stern does not affect the

statutory designation of matters as core for the purpose of

determining whether the bankruptcy court has discretion to

deny arbitration because that decision is not itself a final

judgment.

In short, while we agree with John that his answer might

affect the bankruptcy court’s ultimate weighing of competing

bankruptcy and arbitration policies, we disagree that, as a

matter of law, the answer stripped the bankruptcy court of

discretion to perform that weighing in the first place. The

Trustee’s fraudulent conveyance claim retains its statutory

“core” label. As we have explained, when deciding motions

to compel arbitration, nothing more is required.

Other Arguments

We briefly consider other arguments raised by the parties.

Enforceability and the“OtherwiseApplicable Arbitration

Provision”

The Trustee argues that the arbitration agreements do not

apply to him because his claims fall outside the scope of the

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12 IN THE MATTER OF EPD INVESTMENT CO.

agreements. However, the Trustee did not make this

argument to the bankruptcy court, even though John argued

there that the Trustee’s causes of action fell within the scope

of John’s prior contractual relationship with the debtors. 

Accordingly, we have no factual findings from which to

evaluate whether the agreements are “otherwise applicable.”

The Trustee’s failure to present this argument to the

bankruptcy court does not affect our ability to reject it here. 

The bankruptcy court assumed that the agreements were

enforceable against the Trustee, and declined to compel

arbitration for other reasons, which we affirm. The district

court held that the Trustee was not bound by the agreements. 

We agree.

The Trustee brought fraudulent transfer claims under

11 U.S.C. §§ 544 and 548, and California Civil Code section

3439.04. John asserts that all of these claims are subject to

the arbitration agreements that he signed with the debtors. 

But, under § 544, the Trustee is empowered only to bring

claims that might be brought “by a creditor holding an

unsecured claim.” 11 U.S.C. § 554(b)(1). And California

Civil Code section 3439.04(a)(1) permits a creditor to bring

a claim for fraudulent transfer that a debtor made with intent

to hinder, delay, or defraud a creditor of the debtor. For the

purpose of these claims, the Trustee stands in the shoes of the

creditors, not the debtors. Only the parties to an arbitration

agreement are bound by it. Mitsubishi Motors Corp. v. Soler

Chrysler-Plymouth, Inc., 473 U.S. 614, 625 (1985). The

creditors did not sign the arbitration clauses at issue here. As

a result, arbitration agreements signed by the debtors cannot

apply to claims under § 544 or California Civil Code section

3439.04. See Allegaert v. Perot, 548 F.2d 432 (2d Cir. 1977)

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IN THE MATTER OF EPD INVESTMENT CO. 13

(so holding). As to these claims, then, the court had no

discretion to allow arbitration.

Arbitrability

The Kirklands argue that the plain language of some of

the arbitration agreements requires an arbitrator to decide

whether the Trustee’s claims are arbitrable. This argument

was not presented to the bankruptcy court, and the record

discloses no exceptional circumstances for not having raised

the issue below. Int’l Union of Bricklayers & Allied

Craftsman Local Union No. 20 v. Martin Jaska, Inc.,

752 F.2d 1401, 1404 (9th Cir. 1985) (holding that we do not

review an issue not raised below unless necessary to prevent

manifest injustice; proponent must show exceptional

circumstances why the issue was not raised below). 

Accordingly, this issue was waived.

AFFIRMED.

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