Machine Zone, Inc. v. Peak Web LLC (In re Peak Web LLC)

559 B.R. 738
CourtUnited States Bankruptcy Court, D. Oregon
DecidedAugust 24, 2016
DocketBankruptcy Case No. 16-32311-pcm11; Adversary No. 16-3083
StatusPublished
Cited by4 cases

This text of 559 B.R. 738 (Machine Zone, Inc. v. Peak Web LLC (In re Peak Web LLC)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, D. Oregon primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Machine Zone, Inc. v. Peak Web LLC (In re Peak Web LLC), 559 B.R. 738 (Or. 2016).

Opinion

MEMORANDUM OPINION

PETER C. McKITTRICK, U.S. Bankruptcy Judge

Debtor Peak Web LLC moves for re-mand of this consolidated action that was removed from California state court to this court by defendants Machine Zone Inc. and Epic War LLC. For the reasons that follow, the motion will be granted.

PROCEDURE

Debtor supported its motion for remand with declarations. At an August 4, 2016, hearing on a motion in the main case, Case No. 16-32311, the court discussed with counsel the parties’ intention with regard to presenting evidence on this motion for remand. Counsel for Machine Zone indi-cated that he would either simply file a responsive brief or a brief and declaration. Transcript of August 4, 2016, hearing at 11:16-17, Docket #219. Debtor’s counsel indicated that he would talk to litigation counsel about presentation of evidence. Id. at 11:4-6. The court left it to the parties to decide whether they wanted to present evidence by declarations, and set a dead-line for submission of any further declara-tions. Id. at 12:6-11.

After the August 4 hearing, Machine Zone filed an objection to the motion, which it supported with a declaration. Debtor filed a reply and two additional declarations. Machine Zone did not file any [740]*740objections to the declarations submitted by-debtor.

The court held a hearing on the motion on August 17, 2016. After counsel for Ma-chine Zone had argued its position for more than an hour and had responded to the argument by debtor’s counsel, Machine Zone’s counsel for the first time objected to the court’s consideration of the declara-tions filed by debtor, arguing that they were inadmissible hearsay if the declarant was not in court and subject to cross-examination.

The court continued the hearing to give Machine Zone an opportunity to cross-examine declarants who were not available for cross-examination at the August 17 hearing, and required Machine Zone to advise debtor and the court by close of business on August 18 which declarants it sought to cross-examine. On August 18, Machine Zone informed the court and debtor that it did not need to cross-exam-ine any of the declarants. Thus, the contin-ued hearing was cancelled. Pursuant to an agreement reached at the hearing, debtor submitted ’one additional declaration after the hearing that attaches a document Ma-chine Zone wanted in the record. The court has considered the declarations in support of and in opposition to the motion, with the exception of the declaration of Ava Schoen, which debtor withdrew as un-necessary.

Counsel for the creditors’ committee in-formed the court at the hearing that it supported trial of the case in whatever forum debtor prefers.

FACTS

Debtor and Machine Zone were parties to an agreement under which debtor pro-vided network hosting services for a mo-bile gaming application developed by Ma-chine Zone. In November 2015, Machine Zone filed a complaint against debtor in the Superior Court of California, Santa Clara County. The complaint alleges causes of action for (1) breach of contract; (2) declaratory relief regarding the right to terminate a services agreement; (3) breach of the covenant of good faith and fair dealing; (4) fraudulent inducement and re-scission under California state law; (5) neg-ligent misrepresentation; and (6) promisso-ry estoppel. Shortly thereafter, debtor filed a complaint against Machine Zone and its subsidiary Epic War in the same state court, alleging claims for (1) misap-propriation of trade secrets; (2) breach of contract; (3) breach of the covenant of good faith and fair dealing; (4) negligent misrepresentation; (5) fraudulent inducement; (6) unfair competition; (7) promisso-ry estoppel; (8) conversion; and (9) declar-atory relief regarding the parties’ rights, obligations, and duties under their agree-ments. Both parties demanded a jury trial.

The state court consolidated the two ac-tions for all purposes and assigned the case to the complex civil litigation department. This resulted in the assignment of a single judge for all purposes of the case, including discovery and trial, and meant that the trial date would not be postponed due to the priority of criminal trials. An early mediation attempt failed. The state court allowed discoveiy to proceed, and set a trial date for early March 2017, over Machine Zone’s objection.

After debtor filed its chapter 11 case, Machine Zone removed the consolidated action to this court. The court understands that, as a result of Machine Zone’s removal of the case to federal court, the state court has vacated the March 2017 trial date.

Debtor seeks remand of the consolidated action to the Santa Clara County Califor-nia state court.

DISCUSSION

Debtor’s motion seeks permissive ab-[741]*741stention under 28 U.S.C. § 1334(c),1 or in the alternative equitable remand under 28 U.S.C. § 1452(b).

As the court explained in Security Farms v. Internat’l Brotherhood of Teamsters, 124 F.3d 999, 1009 (9th Cir. 1997), abstention is not applicable where the case has been removed from state to federal court. “Abstention can exist only where there is a parallel proceeding in state court.” Id. There is no state court action pending that this court could abstain from hearing. Accord In re Lazar, 237 F.3d 967, 981 (9th Cir. 2001).

Equitable remand is governed by 28 U.S.C. § 1452(b), which allows the court to remand “on any equitable ground.” This statute provides “an unusually broad grant of authority”' to remand on equitable grounds. In re McCarthy, 230 B.R. 414, 417 (9th Cir. BAP 1999). Although courts have stated the test for equitable-remand in various ways, the court should generally consider the factors set out in In re Cedar Funding, Inc., 419 B.R. 807, 820 (9th Cir. BAP 2009), as well as “judicial economy and ‘the effect of bifurcating the claims and parties’ and ‘the possibilities of inconsistent results.’ ” Cox v. Holcomb Family Ltd. P’ship, 2015 WL 128001 at *1 (Bankr. D. Or. 2015) (quoting In re Sequoia Village, LLC, 2012 WL 478926 at *1 (Bankr. D. Or. 2012)). The Cedar Funding factors are:

(1) the effect or lack thereof on the efficient administration of the estate if the Court recommends [remand or] ab-stention; (2) the 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) ju-risdictional basis, if any, other than § 1334; (6) degree of relatedness or re-moteness of proceeding • to main bank-ruptcy case; (7) the substance rather than the form of an asserted core pro-ceeding; (8) the feasibility of severing state law claims from core bankruptcy matters to allow judgments to be en-tered in state court with enforcement left to the bankruptcy court; (9) the burden on the bankruptcy court’s dock-et; (10) the likelihood that the com-mencement of the proceeding in bank-ruptcy court involves forum shopping by one of the parties; (11) the existence of a right to a jury trial; (12) the presence in the proceeding of nondebtor parties; (13) comity; and (14) the possibility of preju-dice to other parties in the action.

Cedar Funding, 419 B.R.

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559 B.R. 738, Counsel Stack Legal Research, https://law.counselstack.com/opinion/machine-zone-inc-v-peak-web-llc-in-re-peak-web-llc-orb-2016.