Seiko Epson Corporation et al v. Koshkalda, No. 5:2018cv03124 - Document 21 (N.D. Cal. 2018)
Court Description: ORDER DENYING PLAINTIFFS' MOTION TO WITHDRAW REFERENCE AND TO TRANSFER THE CASE. Signed by Judge Beth Labson Freeman on 11/14/2018. (blflc3S, COURT STAFF) (Filed on 11/14/2018)
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1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 SAN JOSE DIVISION 7 8 SEIKO EPSON CORPORATION, et al., Plaintiffs, 9 v. 10 United States District Court Northern District of California Case No. 18-cv-03124-BLF 11 ARTEM KOSHKALDA, 12 Defendant. ORDER DENYING PLAINTIFFS’ MOTION TO WITHDRAW REFERENCE AND TO TRANSFER THE CASE [Re: ECF 1-1] 13 Before the Court is Seiko Epson Corporation and Epson America, Inc’s (collectively, 14 15 “Epson” or “Plaintiffs”) motion to withdraw the reference to bankruptcy court for this adversary 16 proceeding and to transfer the Adversary Proceeding to the District of Nevada (“Motion”). See 17 Motion, ECF 1-1. Defendant Artem Koshkalda (“Koshkalda” or “Defendant”) opposes the 18 motion. See Opp’n, ECF 9. For the reasons stated below, Plaintiff’s motion to withdraw the 19 reference and to transfer the case is DENIED. 20 I. BACKGROUND 21 This adversary proceeding and the present motion arise out of default judgment of 22 trademark infringement entered against Defendant in the District of Nevada. On May 25, 2017, 23 Plaintiffs filed a second amended complaint for trademark infringement1 against Defendant (and 24 other co-defendants) in the District of Nevada (“the Infringement Action”). See ECF 1-5. On 25 January 16, 2018, the District of Nevada Court entered default judgment for Plaintiffs, finding that 26 Defendant (and other co-defendants) had infringed Plaintiffs’ trademarks and were liable for 27 28 1 Along with trademark counterfeiting; contributory trademark infringement; vicarious trademark infringement; unfair competition; and false advertising. 1 “Twelve Million Dollars ($12,000,000.00)” in damages. See Default Judgment Order at 4–5, ECF 2 1-23. In its Default Judgment Order, the District of Nevada Court also ordered injunctive relief. 3 Id. On January 18, 2018, Defendant appealed to the Ninth Circuit from the default judgment. See 4 Notice of Appeal, ECF 1-24. On January 5, 2018, in anticipation2 of the Default Judgment Order, Defendant filed for United States District Court Northern District of California 5 6 Chapter 11 bankruptcy in the United States Bankruptcy Court for the Northern District of 7 California (“the Bankruptcy Court”) See ECF 1-22. 8 On May 1, 2018, Plaintiffs brought this adversary proceeding in the Bankruptcy Court, 9 “objecting to the discharge of Debtor [Defendant] and the discharge of Debtor’s [Defendant’s] 10 debts to Plaintiffs.” See ECF 1-30 at 2. Plaintiffs raised seven claims in the adversary proceeding 11 complaint: 12 (1) Denial of Discharge under 11 U.S.C. § 727(a)(2) [Fraudulent Transfers]; 13 (2) Denial of Discharge under 11 U.S.C. § 727(a)(3) [Failure to Preserve Records]; 14 (3) Denial of Discharge under 11 U.S.C. § 727(a)(5) [Failure to Explain Loss of Assets]; 15 (4) Denial of Discharge under 11 U.S.C. § 727(a)(7) [Insider Trading]; 16 (5) Nondischargeability of Debt under 11 U.S.C. § 523(a)(2) [Fraudulent Transfers]; 17 (6) Nondischargeability of Debt under 11 U.S.C. § 523(a)(2) [Fraud]; and 18 (7) Nondischargeability of Debt under 11 U.S.C. § 523(a)(6) [Willful and Malicious Injury]. 19 20 See ECF 1-30 at 15–23. 21 In the adversary proceeding complaint, Plaintiffs also noted they “will move to withdraw 22 the reference as to this Adversary Proceeding and, thus, do not consent to the entry of a final order 23 or judgment by the Bankruptcy Court.” Id. at 3. 24 On July 6, 2018, the Bankruptcy Court lifted the automatic stay3 of action in 25 nonbankruptcy forum, retroactive to January 5, 2018 (the bankruptcy petition date), as to “the 26 27 28 2 The District of Nevada Court orally stated at a December 18, 2017 hearing that it would be entering default judgment against Defendant. See Hearing Transcript at 41:4-5, 8, ECF 1-32. 3 Provided by 11 U.S.C. § 362(a). 2 1 entry of judgment and through any appeals arising from the Infringement Action [in the District of 2 Nevada].” See Order Granting Relief from Automatic Stay at 1, Ex. A to Rougeau Decl., ECF 11. 3 On July 12, 2018, the Bankruptcy Court stayed the adversary proceeding “as to issues related to 4 whether [Defendant] infringed the trademarks of [Plaintiffs] . . . includ[ing] . . . Plaintiffs’ Sixth 5 and Seventh Claims for Relief in their Complaint in this adversary proceeding.” See Order 6 Granting in Part and Denying in Part Plaintiffs’ Motion to Stay, Ex. B to Rougeau Decl., ECF 11. United States District Court Northern District of California 7 II. LEGAL STANDARD 8 A. 9 District courts have original jurisdiction over “all civil proceedings arising under title 11,” 10 which is the Bankruptcy Code, as well as over cases “arising in or related to cases under title 11.” 11 28 U.S.C. § 1334(a)–(b). However, the district court’s jurisdiction is not exclusive, and each 12 district court may refer such proceedings to a bankruptcy judge. 28 U.S.C. § 157(a); see 13 also Security Farms v. Int’l Bhd. of Teamsters, 124 F.3d 999, 1008 (9th Cir. 1997). In the 14 Northern District of California, all cases and proceedings arising in or related to a bankruptcy case 15 are automatically referred to the Bankruptcy Court. Bankr. L.R. 5011-1(a). Withdrawal of Reference to the Bankruptcy Court 16 There are two circumstances under which an automatic reference to bankruptcy court is 17 withdrawn for the case to proceed in district court. First, withdrawal is mandatory “if the court 18 determines that resolution of the proceeding requires consideration of both title 11 and other laws 19 of the United States regulating organizations or activities affecting interstate commerce.” 28 20 U.S.C. § 157(d). In other words, withdrawal is required “in cases requiring material consideration 21 of non-bankruptcy federal law.” Security Farms, 124 F.3d at 1008. While the Ninth Circuit has 22 not further defined what constitutes “material consideration of non-bankruptcy federal law,” other 23 courts have found that mandatory withdrawal is proper only where the question of non-bankruptcy 24 federal law “require[s] the interpretation, as opposed to mere application, of the non-title 11 25 statute.” Matter of Vicars Ins. Agency, Inc., 96 F.3d 949, 954 (7th Cir. 1996); see also In re 26 Ionosphere Clubs, Inc., 922 F.2d 984, 995 (2d Cir. 1990) (“[Mandatory withdrawal] is reserved 27 for cases where substantial and material consideration of non-Bankruptcy Code federal statutes is 28 3 1 necessary for the resolution of the proceeding.”); In re Tamalpais Bancorp, 451 B.R. 6, 8 (N.D. 2 Cal. 2011) (collecting cases). United States District Court Northern District of California 3 Second, withdrawal may be permissive. “[T]he district court may withdraw, in whole or in 4 part, any case or proceeding . . . on timely motion of any party, for cause shown.” 28 U.S.C. 5 § 157(d). “In determining whether cause exists, a district court should consider the efficient use of 6 judicial resources, delay and costs to the parties, uniformity of bankruptcy administration, the 7 prevention of forum shopping, and other related factors.” Security Farms, 124 F.3d at 1008. 8 For either permissive or mandatory withdrawal, “[t]he burden of persuasion is on the party seeking 9 withdrawal.” In re Tamalpais, 451 B.R. at 8. Title 28 U.S.C. § 157 classifies matters in 10 bankruptcy cases as either “core proceedings,” in which the bankruptcy court “may enter 11 appropriate orders and judgments,” or “non-core proceedings,” which the bankruptcy court may 12 hear but for which it may only submit proposed findings of fact and conclusions of law to the 13 district court for de novo review. Security Farms, 124 F.3d at 1008 (quoting 28 U.S.C. § 157). 14 “A district court considering whether to withdraw the reference should first evaluate whether the 15 claim is core or non-core, since it is upon this issue that questions of efficiency and uniformity 16 will turn.” In re Orion Pictures Corp., 4 F.3d 1095, 1101 (2d Cir. 1993). 17 B. 18 The Court may take judicial notice of documents referenced in the complaint, as well as Request for Judicial Notice 19 matters in the public record. See Lee v. City of LA., 250 F.3d 668, 688–89 (9th Cir. 20 2001), overruled on other grounds by Galbraith v. Cty. of Santa Clara, 307 F.3d 1119, 1125–26 21 (9th Cir. 2002). Public records, including judgments and other court documents, are proper 22 subjects of judicial notice. See, e.g., United States v. Black, 482 F.3d 1035, 1041 (9th Cir. 2007). 23 However, “[j]ust because the document itself is susceptible to judicial notice does not mean that 24 every assertion of fact within that document is judicially noticeable for its truth.” Khoja v. 25 Orexigen Therapeutics, Inc., 899 F.3d 988, 999 (9th Cir. 2018). 26 Here, both sides request judicial notice of various filings and orders in proceedings 27 involving the parties. See ECF 1-3, 12, 15. Because these are court documents properly subject 28 to judicial notice, the Court hereby GRANTS the parties’ requests for judicial notice. 4 1 III. DISCUSSION As a preliminary matter, both sides acknowledged on the record at the Motion to Withdraw 2 3 4 Reference Hearing (“the Hearing”) before the Court on November 1, 2018, that all claims before the Bankruptcy Court in this action are “core” claims. See also Opp’n at 11, ECF 9; Reply at 12, ECF 14. Thus, the Bankruptcy Court “may enter appropriate orders and judgments” in this action 5 without district court review. Security Farms, 124 F.3d at 1008 (quoting 28 U.S.C. § 157). 6 However, the parties nonetheless dispute whether this action should be withdrawn from the 7 Bankruptcy Court on either (a) mandatory or (b) permissive grounds. Each issue is discussed in 8 turn, followed by brief discussion of Plaintiffs’ request to transfer this action to the District of 9 Nevada. 10 11 A. Mandatory Withdrawal United States District Court Northern District of California Plaintiffs argue that mandatory withdrawal of the reference to bankruptcy court is 12 13 14 15 16 17 warranted because “Plaintiffs’ nondischargeability claims . . . require substantial and material consideration of federal trademark law.” Memorandum in Support of Plaintiffs’ Motion (“Memorandum”) at 6, ECF 1-2 (internal quotation omitted). Defendant counters that mandatory withdrawal “should be construed narrowly” and that “[a]s to the [only] two claims that do concern trademark law, those claims are already [being litigated elsewhere].” Opp’n at 10. Indeed, claims 6 and 7 of Plaintiffs’ adversary proceeding complaint in the Bankruptcy 18 Court are the only two claims concerning trademark infringement. See ECF 1-30 at 15–23. And, 19 the question of trademark infringement has already been answered by the District of Nevada Court 20 in its Default Judgment Order. See Default Judgment Order at 4–5, ECF 1-23. Moreover, the 21 parties are free to continue to litigate Defendant’s appeal to the Ninth Circuit from the default 22 judgment of trademark infringement, see Notice of Appeal, ECF 1-24, as the Bankruptcy Court 23 has lifted the automatic stay in other fora “through any appeals arising from the Infringement 24 Action [in the District of Nevada],” see Order Granting Relief from Automatic Stay at 1, Ex. A to 25 Rougeau Decl., ECF 11. Therefore, the question of trademark infringement need not be answered 26 by the Bankruptcy Court, as the default judgment of trademark infringement will either be 27 affirmed by the Ninth Circuit or sent back to the Nevada trial court. Thus, the Court does not find 28 5 1 that Plaintiffs have met their burden of showing this case “requir[es] material consideration of 2 non-bankruptcy federal law.” Security Farms, 124 F.3d at 1008. Accordingly, mandatory 3 withdrawal of the reference to bankruptcy court is not warranted. 4 B. 5 Plaintiffs next argue that the Court should exercise its discretion to permissively withdraw 6 the reference to bankruptcy court based on consideration of the following four factors: (1) efficient 7 use of judicial resources; (2) delay and costs to the parties; (3) uniformity of bankruptcy 8 administration; and (4) prevention of forum shopping. Memorandum at 8; see also Security 9 Farms, 124 F.3d at 1008 (listing factors). Defendant counters that none of the factors weigh in 10 United States District Court Northern District of California Permissive Withdrawal favor of withdrawal of the reference. Opp’n at 10. The Court agrees with Defendant. 11 First, as the parties acknowledge, all claims before the Bankruptcy Court in this action are 12 “core” claims, and thus district court review is not required. The Bankruptcy Court can therefore 13 enter final judgment in the adversary proceedings as to Plaintiffs’ denial of discharge and 14 nondischargeability claims. Second, withdrawing the reference to bankruptcy court would 15 substantially delay the claims not presently stayed in the adversary proceeding, and likely increase 16 costs to the parties. Third, the Bankruptcy Court’s knowledge of bankruptcy law and familiarity 17 with the underlying facts of the action weigh in favor of keeping the matter with the bankruptcy 18 judge. See, e.g., In re Heller Ehrman LLP, 464 B.R. 348, 359 (N.D. Cal. 2011). In light of the 19 bankruptcy record before the Court, it is evident that withdrawal of the reference at this point in 20 the case “would result in this court losing the benefit of the bankruptcy court’s experience in both 21 the law and facts, resulting in an inefficient allocation of judicial resources.” Id. (quoting In re The 22 Mortg. Store, Inc., 464 B.R. 421, 429 (D. Haw. 2011)). Fourth, and finally, prevention of forum 23 shopping does not weigh in favor of finding cause to withdraw the reference. 24 For either permissive or mandatory withdrawal, “[t]he burden of persuasion is on the party 25 seeking withdrawal.” In re Tamalpais, 451 B.R. at 8. Plaintiffs—the party seeking withdrawal— 26 have simply not met their moving burden to show that permissive withdrawal is warranted. 27 C. 28 As stated above, Plaintiffs’ motion to withdraw the reference to bankruptcy court is denied. Request to Transfer 6 1 This renders transfer of the case inapposite. The Bankruptcy Court will await the decision of the 2 Ninth Circuit on the trademark claims and consider the effect of bankruptcy law on that final 3 determination. Accordingly, Plaintiffs’ motion to transfer this action to the District of Nevada is 4 DENIED. 5 IV. 6 7 8 CONCLUSION For the foregoing reasons, Plaintiffs’ motion to withdraw the reference to the bankruptcy court for this adversary proceeding and to transfer the case is DENIED. IT IS SO ORDERED. 9 10 United States District Court Northern District of California 11 12 Dated: November 14, 2018 ______________________________________ BETH LABSON FREEMAN United States District Judge 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 7
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