Global Baristas LLC v. DK Retail Co Ltd et al

Filing 12

ORDER denying pltf's 1 Motion to Withdraw Reference by Judge Ricardo S Martinez.(RS)

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UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WASHINGTON
AT SEATTLE

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In re
CASE NO. 2:14-CV-00205-RSM

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TC GLOBAL, INC.

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Debtor.
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GLOBAL BARISTAS LLC, a Washington
limited liability company,
Plaintiff,

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Bankr. Case No. 12-20253-KAO
Adv. Proc. No. 13-01585-KAO

ORDER DENYING PLAINTIFF’S
MOTION TO WITHDRAW THE
REFERENCE

v.
DK RETAIL CO., LTD., et al.,
Defendants.

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THIS MATTER comes before the Court upon Motion to Withdraw the Reference by
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Plaintiff Global Baristas, LLC (“Global Baristas”). Dkt. # 1. Having considered the memoranda
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filed in support of and in opposition to the motion and the remainder of the record, the Court
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denies Plaintiff’s Motion for the reasons stated herein.
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FACTUAL AND PROCEDURAL BACKGROUND
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On October 10, 2012, debtor TC Global, Inc. (“TC Global”), operating formerly as Tully’s
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Coffee, filed a Chapter 11 bankruptcy in order to conduct a going concern sale of substantially all
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ORDER DENYING WITHDRAWAL OF REFERENCE - 1

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of its assets free and clear of liens. See In re TC Global, Inc., No. 12-20253 KAO, Dkt. # 376. On

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January 18, 2013, the Bankruptcy Court entered a Sale Order which, among its provisions,

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approved sale of the debtor’s assets free of liens and encumbrances and authorized assumption and

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assignment of executory contract. Id. at Dkt. # 227; see also Dkt. # 1-10 (the “Sale Order”). The

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Sale Order authorized and directed TC Global to consummate the sale of assets pursuant to and in

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accordance with an attached Asset Purchase Agreement (“APA”). Id. at ¶ 3.

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At issue in the instant adversary proceeding is the effect of the Sale Order on pre-

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bankruptcy licenses. Specifically, in October 2007, TC Global granted a license (the “TCAP

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License”) to Defendant Tully’s Coffee Asia Pacific, Inc. (“TCAPI”), an entity formed by TC

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Global, granting TCAPI exclusive rights to use the Tully’s brand and associated intellectual

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property in designated territories through Asia, excluding Japan. Dkt. # 1-2, ¶ 4. In December

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2007, TCAPI became the general partner of Defendant Tully’s Coffee Asia Pacific Partners, LP

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(“TCAPPLP”), and the two entities entered into an agreement by which TCAPI assigned to

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TCAPPLP the rights under the TCAP License. Id. at ¶ 5. In 2009, subsequent to the grant and

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assignment of the TCAP License, TC Global entered into a series of transactions with Green

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Mountain Coffee Roasters, Inc. (“GMCR”). Pursuant to these agreements, TC Global transferred

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intellectual property to GMCR and received back the rights to use the intellectual property,

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including the “Tully’s” brand. Id. at ¶¶ 7-9. Plaintiff asserts that sublicense agreements, including

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the TCAP License, were made dependent upon this “license back” agreement by GMCR such that

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upon termination of that agreement, all rights granted by TC Global to its sublicensees would also

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immediately terminate. Id. at ¶ 8. Defendant Tully’s Coffee International PTE Ltd. (“TCI”), an

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entity formed by TCAPPLP, later entered into master licenses agreements with Defendants DK

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Retail Co. Ltd. (“DK Retail”) and Agrinurture Inc. (“ANI”), authorizing the right to use the

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“Tully’s” brand and other intellectual property in South Korea and the Republic of the Philippines,

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respectively. Id. at ¶¶ 10 and 11. Global Baristas has also entered into agreements with GMCR to

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obtain rights to use the Tully’s brand and affiliated intellectual property. Dkt. # 1-2, ¶ 22.

ORDER DENYING WITHDRAWAL OF REFERENCE - 2

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On October 18, 2013, Global Baristas commenced the instant Adversary Proceeding in

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King County Superior Court against DK Retail, ANI, TCAPI, TCAPPLP, and TCI. Dkt. # 1-2, Ex.

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A (“Compl.”). The Complaint seeks declaratory judgment that all rights under the TCAP License,

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DK Retail License, ANI License, and other subsidiary licenses have been terminated by the Sale

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Order, as well as injunctive relief to preclude further use by Defendants of the “Tully’s” brand and

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related intellectual property. Id. at pp. 13-15. TCAPPLP and TCI removed the Complaint to

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Bankruptcy Court, which denied Global Baristas’ motion to remand on January 9, 2014. Id. at

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Dkt. B. On November 26, 2013, TCAPPLP and its limited partner Asia Food Culture

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Management PTE Ltd. (“AFCM”) filed a suit in Bankruptcy Court, Adv. No. 13-01579, asserting

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claims for declaratory and injunctive relief that are the mirror image of those asserted in the instant

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adversary proceeding. See Dkt. # 1-5.

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At issue in both adversary proceedings is the possible conflict between various provisions

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of the Sale Order, including paragraphs 10 and 11. Paragraph 10 terminates the license agreement

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between GMCR and TC Global. Dkt. # 1-10, p. 15, ¶ 10. Paragraph 11 authorizes and directs TC

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Global to assume and assign to Global Baristas “Assumed Executory Contracts,” which are set

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forth in Exhibit B to the Sale Order. Id. at p. 10, ¶ S.2; Id. at p. 16, ¶ 11. Among the delineated

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Assumed Contracts is the “Tully’s Coffee Exclusive License Agreement” with “Tully’s Coffee

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Asia Pacific, Inc/Tully’s Coffee Asia Pacific Partners, LP.” Id. at Ex. B, p. 3. This same agreement

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is also listed in Schedule 2.2 of the APA, which similarly provides that TC Global shall assume

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and assign to Global Baristas all Executory Contracts set forth on Schedule 2.2. Id. at Ex. A, § 2.2

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& Schedule 2.2.

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Despite the pendency of the mirror-image adversary proceeding in Bankruptcy Court,

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Global Baristas through the instant Motion seeks the withdrawal of the reference of the instant

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adversary proceeding, contending that the Bankruptcy Court lacks jurisdiction to enter final

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judgment.

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ORDER DENYING WITHDRAWAL OF REFERENCE - 3

DISCUSSION

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It is undisputed that the instant adversary proceeding either arises in or relates to a case

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under Title 11. See Dkt. # 1, p. 8. As such, it is automatically referred to a bankruptcy judge, who

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is empowered to “hear and determine all cases under title 11 and all core proceedings arising

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under title 11, or arising in a case under title 11.” LCR 87; 28 U.S.C. § 157(b)(1). If a proceeding

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is not a core proceeding, as defined under the Bankruptcy Code, 28 U.S.C. § 157(b)(2), but is

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“otherwise related to a case under title 11,” the bankruptcy judge shall submit proposed findings

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of fact and conclusions of law to the district court, which shall enter final order and judgment

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upon de novo review. 28 U.S.C. § 157(c). On its own or on timely motion, the district court may

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withdraw any referred proceeding for cause shown. 28 U.S.C. § 157(d).
In determining whether cause exists to withdraw the reference under § 157(d) of the

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Bankruptcy Code, courts consider: “the efficient use of judicial resources, delay and costs to the

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parties, uniformity of bankruptcy administration, the prevention of forum shopping, and other

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related factors.” Security Farms v. International Broth. of Teamsters, Chauffer, Warehousemen, &

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Helpers, 124 F.3d 999, 1008 (9th Cir. 1997) (citing In re Orion Pictures, Corp., 4 F.3d 1095, 1101

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(2d Cir. 1993)). Questions of efficiency and uniformity turn largely on the district court’s

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evaluation of whether the claim is “core” or “non-core.” In re Orion, 4 F.3d at 1101; Sec. Farms,

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124 F.3d at 1008 (considering whether non-core issues predominate). The motion to withdraw

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must also be “timely,” that is filed “as promptly as possible in light of the developments in the

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bankruptcy proceeding,” Sec. Farms, 124 F.3d at 107 n. 3, though the court may still withdraw a

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reference “on its own motion” at any time. 28 U.S.C. § 157(d); In re Hall, Bayoutree Assocs., Ltd.,

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939 F.2d 802, 805 (9th Cir. 1991).

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Upon consideration of the relevant factors, the Court finds that cause does not exist to

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withdraw the reference of this proceeding. In particular, withdrawal of this proceeding will be

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markedly inefficient. First, it hinges on interpretation of a Sale Order entered by the Bankruptcy

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Court from which Global Baristas wishes to wrest jurisdiction. There can be no question that the

ORDER DENYING WITHDRAWAL OF REFERENCE - 4

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Bankruptcy Court is the judicial body most familiar with the Order and issues underlying this

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proceeding. In addition, withdrawal of this proceeding would result in two mirror-image actions

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proceeding before different courts. Beyond constituting a waste of judicial resources, this

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anomalous circumstance could result in inconsistent determinations of rights and obligations. By

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contrast, maintaining this proceeding in Bankruptcy Court allows for the uniform adjudication of

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the two closely related proceedings. It also prevents Global Baristas’ rather transparent attempt to

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shop for another forum following its unsuccessful attempt to secure adjudication in state court.

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The Court disagrees with Global Baristas that the Bankruptcy Court lacks statutory and

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constitutional authority to enter final judgment in this adversary proceeding. The Ninth Circuit has

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affirmed that bankruptcy courts possess “corollary jurisdiction to interpret and enforce their own

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orders carrying out the provisions of the Bankruptcy Code” and that such proceedings are properly

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classified as “core.” In re Karykeion, Inc., 2013 WL 1890626, *3 (9th Cir. 2013). The Sale Order

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at issue here was entered in a Title 11 case, involving the application of powers under the

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Bankruptcy Code to adjust creditor rights under 11 U.S.C. § 363 (authorizing sale or estate

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property “free and clear of liens) and 11 U.S.C. § 365 (authorizing the rejection, assumption, or

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assumption and assignment of executory contracts). Notwithstanding Plaintiff’s attempt to

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characterize it as a run-of-the-mill state law contract dispute, the instant proceeding, like In re

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Karykeion, stems from and turns on interpretation of this Sale Order. Examination of its terms, as

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provided supra, and the very fact of this adversary proceeding contradicts Plaintiff’s assertion that

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there is nothing about the Order that requires interpretation or presents potential contradiction.

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This proceeding is quintessentially one that belongs before the Bankruptcy Court. See also In re

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Franklin, 802 F.2d 324, 326 (9th Cir. 1986) (“[B]ankruptcy courts must retain jurisdiction to

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construe their own orders if they are to be capable of monitoring whether those orders are

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ultimately executed in the intended manner.”); In re Traveler’s Indem. Co., 557 U.S. 137, 151

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(2009) (holding that “the Bankruptcy Court plainly had jurisdiction to interpret and enforce its

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own prior orders”).

ORDER DENYING WITHDRAWAL OF REFERENCE - 5

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Global Baristas has failed to show that the Bankruptcy Court lacks constitutional authority

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to adjudicate this proceeding because it does not involve a matter of public rights. The cases on

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which it relies are distinguishable, as they concern prototypical state law claims that did not derive

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from or depend on the federal bankruptcy scheme. Cf. Stern v. Marshall, 131 S.Ct. 2594 (2011)

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(bankruptcy judge may not enter final judgment on a state law tortious interference counterclaim);

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In re Bellingham Ins. Agency, Inc., 702 F.3d 553 (9th Cir. 2012), affirmed by Executive Benefits

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Ins. Agency v. Arkison, 134 S.Ct. 2165 (2014) (bankruptcy courts lack constitutional authority to

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enter final judgment on fraudulent conveyance action, at least absent waiver); In re Ray, 624 F.3d

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1124, 1131 (9th Cir. 2010) (proceeding did not arise under the bankruptcy code where it instead

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arose out of sellers’ “purported failure to comply with the right of first refusal”). Instead, this

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proceeding “arises under” the Bankruptcy Code in that it involves exercise of the powers created

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through the Bankruptcy Code to sell assets free and clear of liens and to assume or reject

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executory contracts. See id.; 11 U.S.C. §§ 363, 365. Unlike the cases on which Plaintiff relies, this

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proceeding could not have existed but for Bankruptcy Code provisions. And unlike those

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controversies, the instant dispute falls within the bankruptcy court’s “ancillary jurisdiction….to

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vindicate its authority and effectuate its decrees.” In re Ray, 624 F.3d at 1130 (internal quotation

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omitted).

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CONCLUSION
For the foregoing reasons, the Court hereby ORDERS that Plaintiff’s Motion to Withdraw
the Reference (Dkt. # 1) is DENIED. This withdrawal proceeding shall be CLOSED.
Dated this 21st day of November 2014.

A

RICARDO S. MARTINEZ
UNITED STATES DISTRICT JUDGE

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ORDER DENYING WITHDRAWAL OF REFERENCE - 6

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ERROR! NO TEXT OF SPECIFIED STYLE IN
DOCUMENT. - 1
CASE NO. Adv. Proc. No. 13-01585-KAO

4820-0497-2568.v1

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