United States District Court, C.D. California
OPINION ON APPEAL FROM BANKRUPTCY COURT
ANDERSON UNITED STATES DISTRICT JUDGE.
the Court are two appeals filed by Coverlaw, PC and James
Cover (collectively “Cover”) challenging
decisions by the United States Bankruptcy Court for the
Central District of California.
Factual and Procedural Background
to the parties, Cover was employed by Fantasea Enterprises,
Inc., doing business as Pacific Avalon Charters
(“Fantasea”), as its bankruptcy counsel when
Fantasea filed a Chapter 11 bankruptcy petition on December
23, 2014. Following the filing of the petition, Fantasea had
120 days, through April 22, 2015, to protect a dock lease for
Fantasea's boat chartering business. Fantasea and its
president, John Gueola, contend that Cover failed to protect
the dock lease despite knowing of its importance to Fantasea.
Fantasea replaced Cover as its bankruptcy counsel on July 31,
being replaced as bankruptcy counsel, Cover filed, on January
13, 2016, an Application for Compensation and Reimbursement
of Costs in the Bankruptcy Court seeking compensation for
$81, 525.74 in fees for services performed from December 2014
through July 2015 on behalf of Fantasea. Fantasea filed an
Opposition to Cover's fee application, in which it
contended, among other arguments, that Cover acted
imprudently in failing to assume the dock lease and billed an
unreasonably excessive amount of time. The Bankruptcy Court
eventually granted Cover's Application and awarded $60,
000 in fees in a February 8, 2016 order.
and Gueola commenced a legal malpractice again against Cover
in Orange County Superior Court on April 18, 2016. Cover,
alleging that the malpractice action “arises under
Title 11, ” filed a Notice of Removal with the
Bankruptcy Court removing the malpractice action based on 28
U.S.C. §§ 1334 and 1452. The removed malpractice
action became adversary proceeding number 8:16-ap-01143-TA.
removal, Cover filed a Motion to Dismiss the malpractice
action. Relying on In re Iannochino, 242 F.3d 36
(1st Cir. 2001), Cover argued in the Motion to Dismiss that
principles of res judicata and judicial estoppel bar the
malpractice action because the Bankruptcy Court's order
granting Cover's fee application impliedly determined
that Cover's fees were reasonably and necessarily
incurred in the bankruptcy proceeding and Fantasea did not
timely disclose the malpractice claim as an asset of the
bankruptcy estate. After briefing by the parties and a
hearing, the Bankruptcy Court eventually denied Cover's
Motion to Dismiss on October 4, 2016. (Excerpts of Record
(“ER”) Tab 30:1430-43.) Cover's appeal in
Case No. SACV 16-1931 PA seeks leave to challenge that
Cover's Motion to Dismiss was pending, Fantasea and
Gueola filed a Motion for Permissive Abstention and Remand.
The parties briefed that Motion and the Bankruptcy Court
conducted a hearing. The Bankruptcy Court issued an order
granting the Motion for Permissive Abstention and Remand and
remanded the action to Orange County Superior Court on
October 7, 2016. (ER Tab 32:1464-74.) Cover's appeal in
Case No. SACV 16-1932 PA, seeks appellate review of the
Bankruptcy Court's order granting the Motion for
Permissive Abstention and Remand.
Standard of Review
Cover's Motion to Certify Orders for Interlocutory Appeal
in Case No. SACV 16-1931 PA indicates, that appeal seeks
review of the Bankruptcy Court's interlocutory order
denying the Motion to Dismiss. Under 28 U.S.C. §
158(a)(3), district courts have discretion to review a
bankruptcy court's interlocutory orders. Oliner v.
Kontrabecki, 305 B.R. 510, 527 (N.D. Cal. 2004).
Granting leave to consider an interlocutory appeal “is
appropriate if the order involves a controlling question of
law where there is substantial ground for difference of
opinion and when the appeal is in the interest of judicial
economy because an immediate appeal may materially advance
the ultimate termination of the litigation.” In re
Kashani, 190 B.R. 875, 882 (B.A.P. 9th Cir. 1995)
(citing 28 U.S.C. § 1292(b)). “Although district
courts have discretion to hear interlocutory appeals from
bankruptcy courts, § 158(d) does not grant courts of
appeal similar discretion to review interlocutory decisions.
‘The courts of appeals do not have jurisdiction to hear
interlocutory appeals in bankruptcy cases.'” In
re Rains, 428 F.3d 893, 900-01 (9th Cir. 2005) (quoting
Silver Sage Partners, Ltd. v. City of Desert Hot
Springs, 339 F.3d 782, 787 (9th Cir. 2003).
“‘Under 28 U.S.C. § 158(d), [a court of
appeal's] appellate jurisdiction exists when the
bankruptcy court order and the decision of the district court
acting in its bankruptcy appellate capacity are both final
orders.'” Id. at 901 (quoting In re
Bonham, 229 F.3d 750, 761 (9th Cir. 2000); see also
In re Four Seas Center, Ltd., 754 F.2d 1416, 1418 (9th
Cir. 1985); Matter of King City Transit Mix, Inc.,
738 F.2d 1065, 1067 (9th Cir. 1984).
statutory standard for remand under 28 U.S.C. § 1452(b)
is ‘any equitable ground.'” In re
McCarthy, 230 B.R. 414, 417 (B.A.P. 9th Cir. 1999)
(quoting 28 U.S.C. § 1452(b)). A bankruptcy court's
“decision to remand under that provision can be
reviewed by a district court or a bankruptcy appellate panel,
and not by a court of appeals or by the Supreme Court.”
Id. (citing 28 U.S.C. § 1452(b) and Things
Remembered, Inc. v. Petrarca, 516 U.S. 124, 116 S.Ct.
494 (1995)). The “‘any equitable ground'
remand standard is an unusually broad grant of authority. It
subsumes and reaches beyond all of the reasons for remand
under nonbankruptcy removal statutes.” Id.
“At bottom, the question is committed to the sound
discretion of the bankruptcy judge. It follows that the
standard of review is abuse of discretion.”
Id. Discretionary rulings should not be disturbed
without a definite and firm conviction that the bankruptcy
court committed a clear error of judgment. See In re
Lowenschuss, 67 F.3d 1394, 1399 (9th Cir. 1995).
exercising their discretion to remand actions under section
1452(b)'s “any equitable ground” standard,
courts have borrowed the standards for permissive or
discretionary abstention under 28 U.S.C. § 1334(c)(1).
See Fed. Home Loan Bank v. Banc of America Securities
LLC, 448 B.R. 517, 525 (C.D. Cal. 2011). The factors a
court should consider when deciding if permissive abstention
and remand are appropriate are:
(1) the effect or lack thereof on the efficient
administration of the estate if the Court recommends [remand
or] abstention; (2) extent to which state law issues
predominate over bankruptcy issues; (3) difficult or
unsettled nature of applicable law; (4) presence of related
proceeding commenced in state court or other nonbankruptcy
proceeding; (5) jurisdictional basis, if any, other than
§ 1334; (6) degree of relatedness or remoteness of
proceeding to main bankruptcy case; (7) the substance rather
than the form of an asserted core proceeding; (8) the
feasibility of severing state law claims from core bankruptcy
matters to allow judgments to be entered in state court with
enforcement left to the bankruptcy court; (9) the burden on
the bankruptcy court's docket; (10) the likelihood that
the commencement of the proceeding in bankruptcy court