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