Court Opinion

ID: 9838733
Source: CourtListenerOpinion
Date Created: 2023-09-07 18:01:58.697113+00
Date Added: 2024-06-11T08:55:41.761111
License: Public Domain

FILED
                                                                                  SEP 7 2023
                          NOT FOR PUBLICATION
                                                                             SUSAN M. SPRAUL, CLERK
                                                                               U.S. BKCY. APP. PANEL
          UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT
                    OF THE NINTH CIRCUIT

 In re:                                             BAP No. CC-23-1011-FLS
 ORCHID CHILD PRODUCTIONS, LLC,
             Debtor.                                Bk. No. 2:20-bk-21080-RK

 WHOSE DOG R U PRODUCTIONS,
 INC.,
             Appellant,
 v.                                                 MEMORANDUM*
 EDWARD M. WOLKOWITZ, Chapter 7
 Trustee,
             Appellee.

               Appeal from the United States Bankruptcy Court
                    for the Central District of California
                Robert N. Kwan, Bankruptcy Judge, Presiding

Before: FARIS, LAFFERTY, and SPRAKER, Bankruptcy Judges.

                                 INTRODUCTION

      Chapter 71 debtor Orchid Child Productions, LLC (“Orchid Child”)

had an agreement with actor James E. Franco’s company Whose Dog R U

Productions, Inc. (“Whose Dog”) to produce a documentary about

      *
        This disposition is not appropriate for publication. Although it may be cited for
whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
value, see 9th Cir. BAP Rule 8024-1.88
      Unless specified otherwise, all chapter and section references are to the
      1

Bankruptcy Code, 11 U.S.C. §§ 101-1532.
Mr. Franco’s life. When disputes arose, Whose Dog demanded arbitration.

Before the parties could come to any resolution, Orchid Child filed for

bankruptcy protection. Whose Dog, concerned about what the chapter 7

trustee would do with the footage from the unfinished documentary,

sought relief from the automatic stay to resume the arbitration. The

bankruptcy court denied stay relief, and Whose Dog appealed.

     We agree with the bankruptcy court that Whose Dog did not

establish cause to lift the automatic stay. We therefore AFFIRM.

                                  FACTS

A.   Prepetition events

     1.    The film production agreement

     Mr. Franco is a Hollywood actor, producer, and director. Whose Dog

is the company through which he renders services.

     In June 2013, Orchid Child and Whose Dog entered into a “loanout”

agreement (the “Agreement”) to film, produce, market, and distribute a

documentary about Mr. Franco’s life (the “Documentary”). Orchid Child’s

principal and sole managing member, Lisa Vangellow, agreed to direct and

produce the Documentary. Whose Dog agreed to make Mr. Franco

available for Orchid Child to film, record, and photograph him. Orchid

Child retained approval and control of the Documentary, but Mr. Franco

had the right to approve the final cut of the Documentary. Thereafter,

Orchid Child agreed to assign all unused footage to Mr. Franco.

     Under the Agreement, Orchid Child was the sole and exclusive

                                     2
owner of all right, title, and interest in (1) the results and proceeds of

Mr. Franco’s services, (2) the Documentary and the material upon which it

was based, and (3) all distribution and exhibition rights regarding the

Documentary. It could not assign its rights under the Agreement except for

certain purposes.

      The Agreement required the parties to submit any dispute to binding

arbitration.

      Orchid Child apparently filmed a substantial amount of footage of

Mr. Franco, his friends, and his associates (the “Footage”). However,

Ms. Vangellow never completed the Documentary, Orchid Child never

submitted a final cut of the Documentary to Mr. Franco, and he never

granted his approval of the Documentary.

      2.       Arbitration

      Disputes arose over the Agreement. Among other things, Whose Dog

alleged that Orchid Child breached the Agreement when it failed to submit

a proposed final cut to Mr. Franco and, without Whose Dog’s or

Mr. Franco’s knowledge or approval, secretly assigned the Agreement to

another entity, sought to raise financing, and used or threatened to use

Mr. Franco’s name and likeness. Conversely, Orchid Child alleged that

Mr. Franco breached the Agreement by anticipatorily repudiating his

obligations under the Agreement when he allegedly said that he would

never approve a final cut of the Documentary.

      In May 2020, Whose Dog filed a demand for arbitration seeking

                                        3
declaratory relief that Orchid Child breached the Agreement, Whose Dog

did not, and Orchid Child did not have the right to use Mr. Franco’s name

and likeness without his approval.

      Orchid Child filed a counterclaim against Whose Dog and Mr. Franco

seeking damages for Mr. Franco’s anticipatory breach of contract.

B.    Bankruptcy events

      While the arbitration was pending, Orchid Child filed a chapter 7

bankruptcy petition. It scheduled as its only asset the rights, title, and

interest in the Documentary, including the Agreement. 2

      Creditors filed seven proofs of claim totaling approximately $1.4

million. Whose Dog filed a proof of claim for an undetermined amount for

“declaratory relief and attorneys’ fees.” Mr. Franco filed a proof of claim

for $1 million for “[d]amages resulting from misuse of name and likeness.”

The other claims were: the Franchise Tax Board’s claims for $7,790.84 and

$2,690.58; Ms. Vangellow’s claim for $180,000 for “[s]ervices performed and

loan for production”; Ms. Vangellow’s stepfather’s claim for $191,443.77 for

a business loan; and U.S. Bank’s claim for $26,768.60 for credit card debt.

      In summer 2021, the chapter 7 trustee, Edward M. Wolkowitz

(“Trustee”), filed a motion to set sale procedures for the sale of the Footage.

Whose Dog opposed the sale motion.

      While the sale motion was pending, Whose Dog filed an adversary

      2
        Orchid Child disclosed that it had assigned the Agreement as of April 11, 2015
to another of Ms. Vangellow’s companies, The Mechanical Butterfly, LLC.
                                           4
complaint for declaratory, injunctive, and equitable relief. It sought

declaratory relief that Mr. Franco and Whose Dog owned the Footage and

the Trustee did not have any right to sell or convey the Footage to a third

party. It also sought prospective injunctive relief prohibiting the Trustee

from selling the Footage.

      The adversary proceeding remains open.

C.    Motion for relief from the automatic stay

      Whose Dog also filed a motion for relief from the automatic stay to

resume the arbitration (“Motion”). It argued that cause existed to lift the

automatic stay because arbitration was necessary to “determine ownership

rights” related to the Agreement and that judicial economy favored lifting

the automatic stay.

      It also argued that the bankruptcy court “may not have jurisdiction

over these non-core proceedings” because the dispute involved state law

contract claims. It posited that the bankruptcy court would have to abstain

from adjudicating the non-core matters.

      Whose Dog also took the position that the Federal Arbitration Act

(“FAA”) favors enforcement of arbitration agreements and creates a strong

presumption in favor of arbitration.

      Finally, Whose Dog contended that Orchid Child filed the

bankruptcy petition in bad faith because it only sought to stay the

arbitration and had few non-insider unsecured creditors.

      The Trustee opposed the Motion and argued that there was no cause

                                       5
to lift the automatic stay. He contended that relief from stay would

interfere with the bankruptcy court’s exclusive jurisdiction over estate

property, including Orchid Child’s counterclaims, the Footage, and the

associated copyright. The Trustee also argued that Whose Dog failed to

demonstrate that Orchid Child abused the bankruptcy process.

         In reply, Whose Dog argued that the dispute over ownership of the

Footage should first be decided in arbitration. It contended that the Trustee

should be precluded from marketing any of the estate’s interest in the

Footage until ownership is determined in arbitration. Finally, it argued that

the non-insider claims were minimal.

         After two hearings and supplemental briefing, the bankruptcy court

determined that stay relief was not appropriate. It held that the issues

presented by the parties implicated a core proceeding: whether an asset is

property of the estate and whether an estate asset can be sold under § 363.

It also found that the arbitration provision of the Agreement conflicted

with the Bankruptcy Code.

         The court rejected Whose Dog’s argument that Orchid Child filed the

bankruptcy petition in bad faith and noted that the non-insider creditors’

claims were “not insubstantial.” It also stated that denying the Motion

would avoid piecemeal litigation and facilitate disposition of the sole estate

asset.

         The bankruptcy court entered an order denying the Motion. Whose

Dog timely appealed.

                                       6
                               JURISDICTION

      The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and

157(b)(2)(A) and (G). We have jurisdiction under 28 U.S.C. § 158.

                                     ISSUE

      Whether the bankruptcy court erred in determining that Whose Dog

failed to establish cause to lift the automatic stay.

                          STANDARD OF REVIEW

      We review for an abuse of discretion the bankruptcy court’s decision

to grant or deny relief from the automatic stay under § 362(d). Gruntz v.

Cnty. of L.A. (In re Gruntz), 202 F.3d 1074, 1084 n.9 (9th Cir. 2000) (en banc);

Kronemyer v. Am. Contractors Indem. Co. (In re Kronemyer), 405 B.R. 915, 919

(9th Cir. BAP 2009). To determine whether the bankruptcy court has

abused its discretion, we conduct a two-step inquiry: (1) we review de

novo whether the bankruptcy court “identified the correct legal rule to

apply to the relief requested” and (2) if it did, we consider whether the

bankruptcy court’s application of the legal standard was illogical,

implausible, or without support in inferences that may be drawn from the

facts in the record. United States v. Hinkson, 585 F.3d 1247, 1263 (9th Cir.

2009) (en banc).

                                DISCUSSION

A.    Section 362(d)(1) allows a court to grant relief from the automatic
      stay “for cause.”

      The filing of a bankruptcy petition creates an automatic stay under

                                        7
§ 362(a), which stays specific acts against the debtor, the debtor’s property,

and the property of the estate, including “commencement or continuation

. . . of a judicial . . . or other action or proceeding against the debtor that

was or could have been commenced before the commencement of the case

under this title, or to recover a claim against the debtor that arose before

the commencement of the case under this title.” § 362(a)(1).

      Section 362(d) allows the court to grant relief from the automatic stay

in certain circumstances. Section 362(d)(1) provides that the bankruptcy

court may grant a creditor relief from stay “for cause.” “What constitutes

‘cause’ for granting relief from the automatic stay is decided on a case-by-

case basis.” In re Kronemyer, 405 B.R. at 921. “Congress left to the judgment

of bankruptcy courts (via the reference) the decision about where a claim or

action should be litigated by leaving the concept of ‘cause’ to terminate,

annul, modify, or condition the stay purposefully undefined and flexible.”

Merriman v. Fattorini (In re Merriman), 616 B.R. 381, 394 (9th Cir. BAP 2020).

In assessing whether relief from stay should be granted to allow state court

proceedings to continue, the bankruptcy court should consider judicial

economy, the expertise of the state court, prejudice to the parties, and

whether exclusively bankruptcy issues are involved. In re Kronemyer, 405

B.R. at 921 (describing nonexclusive factors for the bankruptcy court to

consider and deeming “appropriate” the factors articulated in In re Curtis,

40 B.R. 795, 799-800 (Bankr. D. Utah 1984)). “In weighing the relevant

factors, the bankruptcy court is not required to give equal weight to all

                                         8
factors. In fact, the balancing of potential harm to the creditor on the one

hand and to the debtor and the bankruptcy estate on the other hand

frequently is dispositive.” Lapierre v. Advanced Med. Spa Inc. (In re Advanced

Med. Spa Inc.), BAP No. EC-16-1087-KuMaJu, 2016 WL 6958130, at *4 (9th

Cir. BAP Nov. 28, 2016).

      The movant must “establish a prima facie case that ‘cause’ exists for

relief under § 362(d)(1).” Id. If the movant is successful, “the burden shifts

to the debtor to show that relief from the stay is unwarranted. If the

movant fails to meet its initial burden to demonstrate cause, relief from the

automatic stay should be denied.” Id.

B.    Whose Dog did not establish cause to lift the automatic stay.

      Whose Dog argues that the bankruptcy court erred by refusing to

grant stay relief to let the arbitration proceed. We disagree; the arbitration

raised core bankruptcy issues that were within the jurisdiction of the

bankruptcy court, and lifting the stay would result in substantial

“interference with the bankruptcy case” and hinder “judicial economy.” In

re Curtis, 40 B.R. at 799-800. The bankruptcy court did not abuse its

discretion when it decided that its adjudication of these issues was best and

did not run afoul of the federal policy favoring arbitration.

      1.    Core bankruptcy issues

      Whose Dog argues at length that the arbitration did not raise “core”

bankruptcy issues.

      In the first place, we reject any contention that the bankruptcy court

                                        9
must always grant relief from the stay to permit arbitration of “non-core”

issues. Although the distinction between core and non-core proceedings is

a relevant factor, it is not dispositive. Whether “exclusively bankruptcy

issues are involved” is only one of the factors the bankruptcy court may

weigh when deciding whether to grant stay relief. See Benedor Corp. v.

Conejo Enters., Inc. (In re Conejo Enters., Inc.), 96 F.3d 346, 353 (9th Cir. 1996)

(holding that the bankruptcy court has discretion to deny stay relief, even

when faced with non-core state claims).

      In any event, the bankruptcy court correctly held that the arbitration

claims presented “core” issues. To understand this issue, one must

consider the bankruptcy court’s complicated jurisdictional structure.

            a.     “Core” versus “non-core”

      28 U.S.C. § 1334 confers bankruptcy jurisdiction on the federal district

court. Subsection (a) gives the district court exclusive subject matter

jurisdiction over “all cases under title 11.” Subsection (b) gives the district

court nonexclusive jurisdiction over “all civil proceedings arising under

title 11, or arising in or related to cases under title 11.” Subject to an

exception that does not apply here, 28 U.S.C. § 1334(e)(1) gives the district

court “exclusive jurisdiction” of all property of the debtor as of the filing

date and of all property of the estate.

      Section 157(a) permits the district court to refer to the bankruptcy

court any cases and proceedings that are within the grant of bankruptcy

jurisdiction. The Central District of California has exercised this authority.

                                         10
See United States District Court for the Central District of California

General Order 13-05 (July 1, 2013).

      But the district court’s reference of cases and proceedings to the

bankruptcy court does not always give the bankruptcy court power to

enter final judgment in such cases and proceedings. Rather, the authority to

enter final judgment rests sometimes with the district court and sometimes

with the bankruptcy court.

      28 U.S.C. § 157(b)(1) provides that “[b]ankruptcy judges may hear

and determine all cases under title 11 and all core proceedings arising

under title 11, or arising in a case under title 11” that are referred to it by

the district court. This means that the bankruptcy court can enter final

judgments if the dispute is a “core proceeding,” i.e., it either “arises under”

the Bankruptcy Code or “arises in” a bankruptcy case.

      28 U.S.C. § 157(b)(2) contains a non-exclusive list of core bankruptcy

proceedings. Some of the broadest categories on the list are called the

“catchall” categories: 28 U.S.C. § 157(b)(2)(A) (“matters concerning the

administration of the estate”) and (O) (“other proceedings affecting the

liquidation of the assets of the estate or the adjustment of the debtor-

creditor . . . relationship”).

      We have stated that

      [a] proceeding “arises under” title 11 if it presents claims for
      relief created or controlled by title 11. In contrast, the claims for
      relief in a proceeding “arising in” a title 11 case are not
      explicitly created or controlled by title 11, but such claims

                                        11
      nonetheless would have no existence outside of a bankruptcy
      case.

Certain Underwriters at Lloyds v. GACN, Inc. (In re GACN, Inc.), 555 B.R. 684,

693 (9th Cir. BAP 2016) (citation omitted). Stated another way, “a core

proceeding is one that ‘invokes a substantive right provided by title 11 or a

proceeding that, by its nature, could arise only in the context of a

bankruptcy case.’” Battle Ground Plaza, LLC v. Ray (In re Ray), 624 F.3d 1124,

1131 (9th Cir. 2010) (quoting In re Gruntz, 202 F.3d at 1081).

      Proceedings in which the bankruptcy court cannot enter final

judgment (i.e., proceedings that are not “core proceedings,” but are still

within the bankruptcy jurisdiction because they are “related to” the

bankruptcy case) are called “non-core” proceedings. 28 U.S.C. § 157(c).

Proceedings are “related to” a bankruptcy if “they do not depend on the

Bankruptcy Code for their existence and they could proceed in another

court.” Dunmore v. United States, 358 F.3d 1107, 1114 (9th Cir. 2004). In a

non-core proceeding, the bankruptcy court can enter a final judgment only

if all parties consent; otherwise, the bankruptcy court must enter proposed

findings and a recommended judgment for the district court’s de novo

review. 28 U.S.C. § 157(c).

            b.    Whose Dog’s claims

      With this structure in mind, we have no difficulty concluding that

Whose Dog’s claims constituted a core proceeding: they concerned

administration of the bankruptcy estate, the sale of estate assets, and the

                                      12
claims allowance process.

       Whose Dog’s demand for arbitration sought, among other things, a

determination that Orchid Child “does not have the right to advertise,

distribute, sell and/or otherwise exploit the [Documentary]” and “does not

have the right to use Franco’s name and likeness . . . .” A decision in the

arbitration in favor of Whose Dog would directly affect the Trustee’s ability

to administer the estate and liquidate estate assets; because the claims

literally fall under 28 U.S.C. § 157(b)(2)(A) and (O), they are core

proceedings.3 See In re Harris, 590 F.3d at 740; see also John Hancock Mut. Life

Ins. Co. v. Watson (In re Kincaid), 917 F.2d 1162, 1165 (9th Cir. 1990) (holding,

in a turnover context, that “[s]ince an action to obtain property of the estate

would necessarily involve a determination regarding ‘the nature and extent

of property of the estate,’ the action would also be a matter ‘concerning the

       3
         The Ninth Circuit stated that “state law contract claims that do not specifically
fall within the categories of core proceedings enumerated in 28 U.S.C. § 157(b)(2)(B)-(N)
are related proceedings under § 157(c) even if they arguably fit within the literal
wording of the two catchall provisions, sections § 157(b)(2)(A) and (O).” Piombo Corp. v.
Castlerock Props. (In re Castlerock Props.), 781 F.2d 159, 162 (9th Cir. 1986). But the “state
law claims” at issue in Castlerock were claims by the debtor against a third party, not
claims by a creditor against the debtor. There are serious constitutional concerns when a
court lacking Article III status decides garden-variety state law claims by a debtor
against another person. See Stern v. Marshall, 564 U.S. 462, 487 (2011); N. Pipeline Const.
Co. v. Marathon Pipe Line Co., 458 U.S. 50, 87 (1982). These concerns do not arise when a
creditor is asserting a claim against a debtor and a bankruptcy estate. In any event, the
Ninth Circuit has subsequently clarified that, while ”the otherwise broad ‘catchall’
provisions of bankruptcy court core jurisdiction should be interpreted narrowly,” the
catchall provisions suffice if a particular matter literally falls within them. Harris v.
Wittman (In re Harris), 590 F.3d 730, 740 (9th Cir. 2009). “[T]he sale of bankruptcy estate
assets is an administrative activity of the bankruptcy trustee.” Id.
                                             13
administration of the estate,’ and, therefore, a core proceeding”).

      Furthermore, such a proceeding is a “core” proceeding because it

implicates “orders approving the sale of property” and falls literally under

28 U.S.C. § 157(b)(2)(N). One of the Trustee’s main responsibilities is to

administer the estate by marshaling assets of the estate and selling the

assets to pay creditors. See In re KVN Corp., 514 B.R. 1, 5 (9th Cir. BAP 2014)

(“Under § 704(a)(1), . . . the trustee’s primary job is to marshal and sell the

assets, so that those assets can be distributed to the estate’s creditors.

Indeed, a core power of a bankruptcy trustee under § 363(b) is the right to

sell ‘property of the estate’ for the benefit of a debtor’s creditors.” (cleaned

up)). Section 363(b)(1) provides that “[t]he trustee, after notice and a

hearing, may use, sell, or lease, other than in the ordinary course of

business, property of the estate . . . .” The trustee’s power to sell estate

assets stems from the Bankruptcy Code, not state law, and does not exist

outside of the bankruptcy context. See In re GACN, Inc., 555 B.R. at 698

(holding that the sale of bankruptcy estate assets is an administrative

activity of the bankruptcy trustee and is therefore a core proceeding).

Therefore, sales of estate property both “arise under” the Code and “arise

in” the bankruptcy case.

      Some of the issues presented in the arbitration are central to the

bankruptcy case because, under this Panel’s precedents, the bankruptcy

court must determine whether an asset is property of the estate before

permitting the trustee to sell it. See Darby v. Zimmerman (In re Popp), 323

                                        14
B.R. 260, 268-70 (9th Cir. BAP 2005) (reversing the sale order because “the

bankruptcy court should have insisted that the Trustee finish determining

ownership before stepping outside the [adversary proceeding] to sell the

Property”);4 Hey v. Silver Beach, LLC (In re Silver Beach, LLC), BAP No. NV-

09-1049, 2009 WL 7809002, at *7 (9th Cir. BAP Nov. 3, 2009) (stating that,

“[b]efore the bankruptcy court may authorize a sale under authority of

section 363(b)(1), the court must determine whether the estate actually has

an interest in the property to be sold” and reversing the sale order because

“interests of [third parties] should have been determined by the

bankruptcy court before authorizing the sale”). The issues raised in the

arbitration – namely, the estate’s rights under the Agreement – were

intertwined with the Trustee’s ability to sell estate assets under § 363 and

thus “arise in” the bankruptcy case.

      Additionally, Whose Dog’s proof of claim subjected it to the

bankruptcy court’s core jurisdiction under 28 U.S.C. § 157(b)(2)(B). The

Ninth Circuit has explained that “[t]he allowance and disallowance of

      4
         Popp relied largely on the Ninth Circuit’s decision in Warnick v. Yassian (In re
Rodeo Canon Development Corp.), 362 F.3d 603 (9th Cir. 2005), which held that a
bankruptcy court could not authorize a sale of property under § 363 until the court
determined whether the estate had an ownership interest in the property. However, the
Ninth Circuit withdrew that opinion on March 8, 2005 because “[t]he ownership
dispute over the property appears to have been resolved.” Warnick v. Yassian (In re
Rodeo Canon Dev. Corp.), Case Nos. 02-56999, 02-57203, 2005 WL 663421, at *1, 126 F.
App’x 353 (9th Cir. Mar. 8, 2005), as amended on denial of reh'g (Apr. 1, 2005).
Nevertheless, Popp appears to remain sound law and has been subsequently cited in our
circuit and other jurisdictions.

                                           15
claims against the estate is a core proceeding. . . . Once [creditor] filed its

proof of claim, it subjected its claim to the core jurisdiction of the

bankruptcy court. It was within the sound discretion of the bankruptcy

court to deny relief from the automatic stay.” In re Conejo Enters., Inc., 96

F.3d at 353. Similarly, in this case, Whose Dog filed a proof of claim in the

bankruptcy court, attaching the demand for arbitration and Agreement as

the basis of its claim. Under Conejo Enterprises, this subjected the arbitration

claims to the bankruptcy court’s core jurisdiction.

      Whose Dog argues the arbitration could not be a “core” proceeding

because ownership of the Footage was not at issue in the arbitration. This

is an unduly narrow view. Whose Dog wants to limit the marketing and

sale of Orchid Child’s rights in the Agreement. Those rights belong to

Orchid Child’s bankruptcy estate. Resolving the estate’s “right to advertise,

distribute, sell and/or otherwise exploit the [Documentary]” and “right to

use Franco’s name and likeness” is necessary to the adjudication of the

Trustee’s “sale of estate property” and is a core proceeding under 28 U.S.C.

§ 157(b)(2)(N). This factor weighs against granting relief from the

automatic stay. 5

      2.     Judicial economy

      Whose Dog also argues that judicial economy dictates that the

      5
        Whose Dog filed an adversary proceeding seeking essentially the same relief as
that sought in the arbitration. This is another way in which Whose Dog voluntarily
subjected the adjudication of its claims to the jurisdiction of the bankruptcy court.
                                          16
bankruptcy court should have lifted the stay. It contends that the parties

were well into discovery in the arbitration, the dispute involved matters of

state law, the issues were best adjudicated in arbitration, and the parties

would not be unduly prejudiced by litigating in the arbitration.

      The bankruptcy court did not abuse its discretion when it held that

deciding all issues concerning the scope of estate property, the Trustee’s

ability to sell that property, and the sale of that property in the bankruptcy

court promotes judicial economy. See, e.g., In re Conejo Enters., Inc., 96 F.3d

at 353. (“By staying the state action, the bankruptcy court promoted judicial

economy and efficiency by minimizing the duplication of litigation in two

separate forums and preventing litigation of a claim that may have been

discharged in bankruptcy proceedings.”). The court did not err when it

held that this factor also weighs against granting stay relief.

      3.    Prejudice

      Whose Dog does not argue that it will suffer prejudice if forced to

litigate the arbitration issues in the bankruptcy court. Conversely, the

Trustee represented that arbitration would be prohibitively expensive and

the estate had no resources to participate in the arbitration. The bankruptcy

court did not err in holding that this favors denying stay relief.

      4.    Expertise of the arbitrator

      Neither party takes issue with the expertise of the arbitrator. Notably,

neither party challenges the ability of the bankruptcy court to adjudicate

the issues. This factor is neutral.
                                       17
      Therefore, we agree with the bankruptcy court that the balance of

factors weighs in favor of denying stay relief, and there was no cause to lift

the automatic stay.

C.    Federal policy favoring arbitration does not mandate stay relief.

      Whose Dog argues that the FAA favors resolution through

arbitration, which is cause to lift the automatic stay. We disagree.

      As a general rule, courts favor agreements to arbitrate and enforce

them to the extent possible. The Ninth Circuit has acknowledged that “a

court must stay a proceeding if it is satisfied that an issue in the proceeding

is arbitrable under such an agreement.” Ackerman v. Eber (In re Eber), 687

F.3d 1123, 1129 (9th Cir. 2012) (citing 9 U.S.C. § 3).

      But the Ninth Circuit has also stated that, “[l]ike any statutory

directive, the [FAA’s] mandate may be overridden by a contrary

congressional command.” Id. (quoting Shearson/Am. Express, Inc. v.

McMahon, 482 U.S. 220, 226 (1987)). It directed that “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.” Id. at 1130 (quoting Cont’l Ins. Co. v. Thorpe

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

2012)). In Eber, the court held that the bankruptcy court was within its

discretion to deny a motion to compel arbitration because the appellants

“were attempting to designate their underlying state law . . . claims as non-

core, arbitrable claims, in actuality, they were seeking to arbitrate
                                       18
dischargeability under § 523(a)(2), (4) and (6), a core bankruptcy issue.” Id.

It instructed that

      [c]ourts 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. 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.

Id. at 1131 (citation omitted); see also In re Thorpe Insulation Co., 671 F.3d at

1022 (declining to enforce an arbitration provision where the arbitration

would conflict with bankruptcy policy of having the debtor’s claims

resolved in bankruptcy court, as well as policies of “[c]entralization of

disputes concerning a debtor’s legal obligations” and “protect[ing]

creditors and reorganizing debtors from piecemeal litigation” (citations

omitted)).

      Whose Dog similarly characterizes the arbitration claims as purely

state law claims, while ignoring the fact that they implicate a trustee’s

power to administer and sell estate assets and the resolution of claims,

which are core issues under 28 U.S.C. §§ 157(b)(2)(A), (B), (N), and (O). In

other words, for the reasons discussed above, the arbitration claims are “so

closely intertwined with” issues of a § 363 sale and claims resolution that

allowing arbitration to proceed would “conflict with the underlying

purposes of the Bankruptcy Code.” In re Eber, 687 F.3d at 1131.

                                        19
D.    The bankruptcy court did not abuse its discretion when it rejected
      Whose Dog’s bad faith filing argument.

      Finally, Whose Dog argues that stay relief was appropriate because

Orchid Child filed the bankruptcy petition in bad faith. We again disagree.

      The Ninth Circuit recognizes that “[t]he debtor’s lack of good faith in

filing a bankruptcy petition has often been used as cause for removing the

automatic stay.” Idaho v. Arnold (In re Arnold), 806 F.2d 937, 939 (9th Cir.

1986). “The existence of good faith depends on an amalgam of factors and

not upon a specific fact. The bankruptcy court should examine the debtor’s

financial status, motives, and the local economic environment.” Id.; see

generally Ho v. Dowell (In re Ho), 274 B.R. 867, 876 (9th Cir. BAP 2002)

(discussing four factors for a finding of bad faith in the context of a

dismissal of a chapter 13 case). Ultimately, “[g]ood faith is lacking only

when the debtor’s actions are a clear abuse of the bankruptcy process.” In

re Arnold, 806 F.2d at 939.

      We reject Whose Dog’s position that the bankruptcy court abused its

discretion. “Petitions in bankruptcy arising out of a two-party dispute do

not per se constitute a bad-faith filing by the debtors. Courts that find bad

faith based on two-party disputes do so where it is an apparent two-party

dispute that can be resolved outside of the Bankruptcy Court’s

jurisdiction.” Sullivan v. Harnisch (In re Sullivan), 522 B.R. 604, 616 (9th Cir.

BAP 2014) (cleaned up). The claims here implicate and were intertwined

with core proceedings that must be decided in the bankruptcy court.

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      In any event, we agree with the bankruptcy court that there were

substantial non-insider claims to be administered in the bankruptcy case:

the Franchise Tax Board’s unsecured claim and administrative claim, U.S.

Bank’s unsecured claim, and Mr. Franco’s claim. It thus appears that the

bankruptcy filing was intended to address Orchid Child’s debts and was

not attempting “unreasonably to deter and harass creditors . . . .” In re

Arnold, 806 F.2d at 939 (quoting Meadowbrook Investors’ Grp. v. Thirtieth

Place, Inc. (In re Thirtieth Place, Inc.), 30 B.R. 503, 505 (9th Cir. BAP 1983)).

Whose Dog has not established otherwise.

      We similarly reject Whose Dog’s argument that the timing of the

petition – filed during arbitration – indicates bad faith. The timing of a

bankruptcy filing meant to frustrate an existing state court action can

amount to bad faith. See Eisen v. Curry (In re Eisen), 14 F.3d 469, 470-71 (9th

Cir. 1994). However, that alone is not a dispositive factor; we have held

that the bankruptcy court abused its discretion when it considered only the

timing of the filing “and did not base its bad faith finding on the totality of

the circumstances.” In re Ho, 274 B.R. at 877. Additionally, “bad faith exists

where the debtor’s only purpose is to defeat state court litigation.” Id.

      In this case, the bankruptcy court did not err in finding that the

timing of the bankruptcy filing did not amount to bad faith. Orchid Child

represented that it was facing mounting debt and could not afford to

continue with arbitration. Additionally, there was no dispute that Orchid

Child was in financial distress. It was not error for the bankruptcy court to

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find that the petition was filed for a legitimate bankruptcy purpose. We

defer to its judgment.

                             CONCLUSION

     The bankruptcy court did not abuse it discretion in denying Whose

Dog relief from the automatic stay. We AFFIRM.

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