Opinion ID: 803883
Heading Depth: 3
Heading Rank: 3

Heading: Application of the McMahon Framework and

Text: Circuit Precedent [4] The district court did not err when it affirmed the bankruptcy court’s denial of Ackerman and Kuriloff’s Motion to Compel Arbitration. Similar to the bankruptcy court in Thorpe Insulation, the bankruptcy court here determined that although Ackerman and Kuriloff were attempting to designate their underlying state law breach of contract, fraud, and breach of fiduciary duty claims as non-core, arbitratable claims, in actuality, they were seeking to arbitrate dischargeaardize’ the objectives of the Bankruptcy Code.” Id. (citing In re United States Lines, Inc., 197 F.3d at 640); see also In re Elec. Mach. Enter., 479 F.3d at 795-96 (explaining that bankruptcy courts lack discretion to deny arbitration of non-core matters, and, if the matters are core, the bankruptcy court must determine if allowing arbitration would conflict with the underlying purpose of the Bankruptcy Code). IN THE MATTER OF EBER 7901 bility under §§ 523(a)(2), (4) and (6), a core bankruptcy issue. See 28 U.S.C. § 157(b)(2)(I) (“Core proceedings include, . . . determinations as to the dischargeability of particular debts.”). [5] We agree with the district court’s conclusion that implicit in the bankruptcy court’s reasoning is the conclusion that allowing an arbitrator to decide issues that are so closely intertwined with dischargeability would “conflict with the underlying purposes of the Bankruptcy Code.” See Thorpe Insulation, 671 F.3d at 1021. Courts must consider the Bankruptcy Code’s objectives, including centralization of disputes concerning a debtor’s legal obligations, and protection of debtors and creditors from piecemeal litigation. See id. at 1022-23. When a bankruptcy court considers conflicting policies as the bankruptcy court did here, we acknowledge its exercise of discretion and defer to its determinations that arbitration will jeopardize a core bankruptcy proceeding. See MBNA Am. Bank, 436 F.3d at 107 (internal citations omitted). We find unpersuasive Ackerman and Kuriloff’s argument that the bankruptcy court inappropriately denied them the opportunity to arbitrate because it was concerned about being collaterally stopped by the arbitrator’s decision. The Supreme Court has stated, indeed, that collateral estoppel applies in bankruptcy dischargeability proceedings. Grogan, 498 U.S. at 285 n. 11 (“We now clarify that collateral estoppel principles do indeed apply in discharge exception proceedings pursuant to § 523(a).”). Moreover, this Court has applied collateral estoppel principles in the context of dischargeability. See, e.g., In re Stasz, 352 F. App’x 154, 155 (9th Cir. 2009) (finding a claim was nondischargeable where the issue of whether conduct was willful and malicious was “actually litigated and necessarily decided on the merits in the confirmed final arbitration award”). But there is an important distinction between collateral estoppel and potential collateral estoppel. Ackerman and Kuriloff were not attempting to enforce a prior arbitration judgment because one did not exist. The bankruptcy judge made a determination—prior to an arbitration beginning 7902 IN THE MATTER OF EBER —that allowing an arbitrator to decide the issues related to dischargeability in this case would conflict with important bankruptcy principles. Our holding in no way extends beyond the particular facts of this case or to all cases in which a bankruptcy judge makes this determination prior to the commence- ment of an arbitration. Appellants also argue that the Supreme Court’s recent decision in KPMG LLP v. Cocchi, 132 S. Ct. 23 (2011) (per curiam) “mandates that arbitration be allowed prior to the bankruptcy court determining nondischargeability.” (Doc. 43 at 2.) In KPMG, the Supreme Court reversed the Court of Appeals, which had refused to compel arbitration on a complaint as a whole because the arbitral agreement did not apply to direct claims, and two of the four claims were direct. Id. at 26. The Court of Appeals said nothing about the other two claims. Id. at 25. The Supreme Court held that “[a] court may not issue a blanket refusal to compel arbitration merely on the grounds that some of the claims could be resolved by the court without arbitration.” Id. at 24. These facts are distinguishable from the case sub judice. First, KPMG was not a bankruptcy case and did not deal with issues related to dischargeability. Second, in this case, we are not presented with some arbitratable and some nonarbitratable claims; rather, the lower courts concluded correctly that Plaintiffs were trying to arbitrate dischargeability, a core matter which bankruptcy courts have special expertise to decide. Nor does this Court find persuasive Appellants’ reliance on In re Hermoyian, 435 B.R. 456 (E.D. Mich. 2010). While it is true Hermoyian also involved a creditor who first filed an adversary proceeding seeking a determination of nondischargeability of debt allegedly owed to him under §§ 523(a)(2), (4), and (6), and then filed a motion for relief from automatic stay to proceed with arbitration, the case is distinguishable for multiple reasons. Id. at 458. IN THE MATTER OF EBER 7903 In Hermoyian the creditor’s motion for relief from the automatic stay alleged that he and the debtor were parties to a state court lawsuit involving various disputes between the creditor and debtor and a number of other business entities. Id. Moreover, the business relationship had extended over a lengthy period of time and involved multiple entities. Id. Just five days prior to trial, the creditor and debtor stipulated entry of an order providing that their disputes in the state court lawsuit would be submitted to arbitration. Id. While the arbitration with the debtor and creditor never began because the debtor filed for Chapter 7 bankruptcy first, the arbitration between the creditor and business entities had proceeded for four and a half days until the business entities filed bankruptcy petitions of their own. Id. at 459. Therefore, although the bankruptcy court granted the creditor’s motion for relief from the automatic stay to allow the parties to proceed with arbitration, judicial economy was served given the particular facts of the case. Id. at 459, 465-66. The arbitrator was already familiar with the facts surrounding the state court lawsuit because the arbitration between the debtor and the business entities had gone forward. In addition, the creditor and debtor stipulated to arbitration just prior to trial in an attempt to resolve their dispute. The same persuasive facts do not exist here where the bankruptcy judge was more familiar with the dispute between Ackerman and Kuriloff and Eber than an arbitrator in an arbitration that had not yet begun.