In re: Ateco, Inc.

FILED JUL 15 2013 SUSAN M SPRAUL, CLERK 1 U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 2 3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. CC-12-1386-DKiPa ) 6 ATECO, INC., ) Bk. No. 10-22623-MT ) 7 Debtor. ) Adv. No. 11-01198-MT ______________________________) 8 ) LAW OFFICES OF JOHN F.L. HEBB,) 9 ) Appellant, ) 10 ) v. ) M E M O R A N D U M1 11 ) ATECO, INC., ) 12 ) Appellee. ) 13 ______________________________) 14 Argued and Submitted on June 20, 2013 at Pasadena, California 15 Filed - July 15, 2013 16 Appeal from the United States Bankruptcy Court 17 for the Central District of California 18 Honorable Maureen A. Tighe, Bankruptcy Judge, Presiding 19 Appearances: John F.L. Hebb argued for Appellant Law Offices of 20 John F.L. Hebb; Steven J. Krause of Ananda & Krause, APLC, argued for Appellee Ateco, Inc. 21 22 Before: DUNN, KIRSCHER and PAPPAS, Bankruptcy Judges. 23 24 1 This disposition is not appropriate for publication. 25 Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. See 9th 26 Cir. BAP Rule 8013-1.

1 For the second time, Appellant Law Offices of John F.L. Hebb 2 (“Hebb”) has invoked the jurisdiction of this Panel in conjunction 3 with his attorney fee dispute with Debtor/Appellee, Ateco, Inc. 4 (“Ateco”). The briefs and the record submitted by the parties 5 obscure the limited issues on appeal, i.e., whether the bankruptcy 6 court erred when it determined that the Federal Arbitration Act2 7 (“FAA”) did not apply to the dispute between the parties, and 8 whether Hebb waived any right he might have had under the California 9 Arbitration Act. We AFFIRM. 10 I. FACTS 11 The dispute between the parties stems from Ateco’s 12 dissatisfaction with the legal services Hebb rendered on its behalf 13 beginning in 2002. In September 2002, Ateco entered into an 14 Attorney-Client Retainer Agreement (“Retainer Agreement”) with Hebb, 15 pursuant to which Hebb was to represent Ateco “in investigating, 16 negotiating, enforcing and/or advising regarding: [Ateco’s] rights, 17 settlement possibilities and any causes of action arising out of 18 [Ateco’s] business dealings with R.A. Hales . . . .” (Emphasis in 19 the original.) The Retainer Agreement provided that Hebb’s hourly 20 rate was $225.00, which represented a “special discount from 21 [Hebb’s] customary $300-$325 hourly rate.” The Retainer Agreement 22 also purported to grant Hebb a lien on Ateco’s claim or recovery 23 against Hales: 24 [Hebb] is hereby given a lien on the said claim or cause 25 2 26 9 U.S.C. §§ 1-16.

1 of action, on any recovery by way of settlement, and on any judgment that may be obtained, for the sum and/or 2 share hereinbefore mentioned due [Hebb], and it is further agreed that [Hebb] shall have all permissible general, 3 possessory, or retaining liens, and all permissible special or charging liens known to common law. 4 5 On Ateco’s behalf, Hebb initiated litigation against Hales 6 (“Hales Litigation”) in the Ventura County (California) Superior 7 Court (“State Trial Court”). Hebb filed three complaints in the 8 Hales Litigation. The first two were dismissed by demurrer. When 9 the second amended complaint was facing a motion for judgment on the 10 pleadings, Ateco retained new counsel (“the Hathaway Firm”) to 11 represent it in the Hales Litigation. Despite the Hathaway Firm’s 12 representation of Ateco in the Hales Litigation, it does not appear 13 that Ateco terminated Hebb’s services. Ateco contends that Hebb’s 14 work product was so defective his services were no longer used after 15 the Hathaway Firm was retained; Hebb disagrees. 16 The Hales Litigation resulted in judgment in Ateco’s favor in 17 the amounts of $333,743 for compensatory damages and $159,000 for 18 punitive damages. Hebb and the Hathaway Firm thereafter filed 19 separate motions for attorney’s fees in the Hales Litigation. 20 Following a hearing, the State Trial Court granted all fees 21 requested by the Hathaway Firm ($334,276.50), but took under 22 submission Hebb’s request for attorneys fees in the amount of 23 $510,873, billed at the rate of $300 per hour. The State Trial 24 Court ultimately determined that the reasonable value of Hebb’s 25 services was $200,000 and granted Hebb’s attorney fee motion in that 26 amount through a minute order entered February 26, 2006.

1 Hebb thereafter asserted an attorney’s lien against any payment 2 due Ateco in the Hales Litigation. Ateco disputed Hebb’s right to 3 assert a lien, contending it already had paid him $250,000 in 4 attorney’s fees. Sometime in 2008, Hebb initiated a state court 5 proceeding (“Fee Litigation”) against Ateco and its principal based 6 upon the Retainer Agreement. Trial in the Fee Litigation was 7 scheduled to commence September 20, 2010. On August 17, 2010, the 8 parties stipulated (“Arbitration Stipulation”)3 to submit the Fee 9 Litigation to binding arbitration, notwithstanding the absence of an 10 arbitration provision in the Retainer Agreement, with the result 11 that the imminent trial date in the Fee Litigation was vacated. The 12 Arbitration Stipulation provided that the fee dispute was to be 13 submitted to a private arbitrator using JAMS ADR or ADR Services, 14 Inc., and that arbitration was to be completed no later than 15 November 15, 2010. 16 Ateco filed a chapter 114 petition on October 5, 2010 17 3 18 As relevant to this appeal, the Arbitration Stipulation provides: 19 1. The within case shall be submitted to binding 20 arbitration before a private arbitrator mutually selected 21 by the parties using JAMS ADR or ADR Services, Inc. The parties agree to select an arbitrator and complete the 22 arbitration on or before November 15, 2010. Costs of arbitration are to be borne equally by [Hebb] on the one 23 hand and [Ateco and its principal] on the other 24 hand. . . . 4 25 Unless otherwise indicated, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and 26 (continued...)

1 (“Petition Date”), staying arbitration proceedings under the 2 Arbitration Stipulation.5 Hebb filed a proof of claim (“Claim”) in 3 Ateco’s bankruptcy case, asserting entitlement to $324,546 in unpaid 4 attorney’s fees plus $1,087,867.29 for “interest and alleged future 5 ‘tort causes of action.’” On March 1, 2011, Ateco objected (“Claim 6 Objection”) to Hebb’s Claim, on the bases that (1) Hebb failed to 7 provide any evidence he had a valid secured claim, and (2) that the 8 State Trial Court had determined in the Hales Litigation that Hebb’s 9 attorneys fees were $200,000. Hebb did not respond to the Claim 10 Objection, but instead, on March 2, 2011, filed a motion for relief 11 from the automatic stay (“Relief From Stay Motion”) to allow 12 arbitration proceedings to go forward. On March 17, 2011, Ateco 13 filed an adversary complaint (“Adversary Proceeding”) against Hebb 14 seeking (1) a determination of the validity of Hebb’s asserted lien, 15 and (2) disallowance of Hebb’s claim. Ateco also alleged claims 16 against Hebb based upon breach of fiduciary duty, professional 17 negligence, breach of contract, fraud, and unjust enrichment. 18 The bankruptcy court heard the Relief from Stay Motion on 19 April 7, 2011 (“April 7 Hearing”), at which time it took the 20 position that judicial economy would not be served by sending the 21 22 4 (...continued) 23 all “Local Bankruptcy Rule” references are to the Local Bankruptcy 24 Rules of the Bankruptcy Court for the Central District of California. 25 5 No arbitration proceeding had been initiated as of the 26 Petition Date.

1 fee dispute to arbitration. The bankruptcy court set a further 2 briefing schedule on the Relief From Stay Motion, giving Hebb until 3 May 5, 2011, to submit a further brief on the issue, and Ateco until 4 June 16, 2011, to respond. At the April 7 Hearing, the Bankruptcy 5 Court also joined the Claim Objection with the Adversary Proceeding 6 (“Substantive Proceedings”) and set a schedule for filing documents 7 which would allow a summary judgment motion from Ateco to be heard 8 on July 26, 2011 (“July 26 Hearing”) in the Substantive Proceedings 9 in conjunction with the further hearing on the Relief From Stay 10 Motion. 11 On April 27, 2011, prior to the deadline for filing his 12 additional brief on the Relief From Stay Motion, Hebb filed his 13 first appeal to this Panel (“First Appeal”), requesting that the 14 Panel direct the bankruptcy court to grant the Relief From Stay 15 Motion to allow immediate arbitration of the fee dispute. On 16 June 23, 2011, the Panel in the First Appeal granted a stay of the 17 Substantive Proceedings and remanded to the bankruptcy court to 18 determine “whether the [Arbitration Stipulation] made in the state 19 court proceedings is subject to the [Federal Arbitration Act], and 20 if so, is there any valid basis to deny arbitration.” The 21 bankruptcy court held the July 26 Hearing, and in light of the 22 remand from the Panel, orally granted the Relief From Stay Motion 23 and continued the summary judgment proceedings on the Substantive 24 Proceedings to November 9, 2011 (“November 9 Hearing”) to allow 25 arbitration proceedings to conclude before ruling on Ateco’s summary 26 judgment motion.

1 Ultimately the Panel dismissed the First Appeal as moot because 2 the bankruptcy court had granted the Relief From Stay Motion.6 3 However, it was a complicated process getting to that dismissal 4 based substantially on the action, or more precisely, the inaction, 5 of Hebb. As the prevailing party, Hebb was required by Local 6 Bankruptcy Rule 9021-1(1) to prepare and submit an order granting 7 the Relief From Stay Motion. He did not. On December 29, 2011, the 8 Panel, noting that no order had yet been entered granting the Relief 9 From Stay Motion, issued a remand order (“Remand Order”), which 10 directed Hebb to file a written response stating why the First 11 Appeal should not be dismissed as moot in light of the bankruptcy 12 court’s July 26, 2011 ruling on the Relief From Stay Motion. The 13 Remand Order also informed Hebb he could request and obtain an order 14 granting the Relief From Stay Motion so that he could proceed with 15 binding arbitration. Despite the Remand Order, Hebb still did not 16 submit an order for the bankruptcy court to sign as required by 17 Local Bankruptcy Rule 9021-1(1). Instead, on January 17, 2012, 18 after learning of the Remand Order, the bankruptcy court entered its 19 own order (“Relief From Stay Order”). 20 The Relief From Stay Order provided that it applied to “the 21 following non-bankruptcy case or administrative proceeding” and 22 identified the Fee Litigation as follows: 23 Case name: Hebb vs. Ateco, Inc., et al. Court or agency where pending: LA County 24 25 6 26 The First Appeal was dismissed on February 7, 2012.

1 The Relief From Stay Order further provided: 2 5. Movant may proceed in the non-bankruptcy forum to final judgment (including any appeals) in accordance with 3 applicable non-bankruptcy law. . . . 4 6.a. Movant is granted leave to continue with arbitration and liquidate the amount of the claim. 5 6 The state court held a status hearing in the Fee Litigation on 7 September 14, 2011, at which time the state court dismissed the Fee 8 Litigation based upon (1) the existence of the Arbitration 9 Stipulation and (2) the bankruptcy court’s grant of relief from stay 10 to allow the parties to proceed to arbitration. Hebb did not appear 11 at the status hearing in the Fee Litigation but contends that he was 12 aware of the intended disposition of the Fee Litigation, having 13 “consulted with” the state court prior to the hearing. Thereafter, 14 Hebb requested the assistance of the bankruptcy court in selecting 15 an arbitrator and compelling arbitration, which the bankruptcy court 16 ultimately denied because (1) relief from stay had been granted to 17 proceed to arbitration in the Fee Litigation, and (2) Hebb had 18 provided no authority for the bankruptcy court to compel the 19 arbitration where relief from stay had been granted. 20 When the bankruptcy court issued a show cause order why both 21 the bankruptcy case and the adversary proceeding should not be 22 dismissed since the parties were making no attempt to resolve the 23 dispute through arbitration, Hebb moved the state court to vacate 24 the dismissal of the Fee Litigation. 25 The state court held a hearing on the motion on April 18, 2012. 26 At that time the state court clarified that the Relief From Stay

1 Order was broad enough to encompass resolution of the fee dispute 2 outside of the bankruptcy court, construed the motion to vacate as a 3 request to set a trial date on the merits, and offered a trial date 4 of July 2, 2012, contending that the parties should have been nearly 5 ready for trial at the time they entered the Arbitration 6 Stipulation. Hebb declined to proceed to trial, insisting instead 7 upon arbitration, and withdrew his motion to vacate on the record. 8 Hebb apparently was acting under the impression that a motion to 9 compel arbitration could be a separate proceeding such that he no 10 longer needed the Fee Litigation in light of the existence of the 11 Arbitration Stipulation. 12 Hebb finally initiated arbitration proceedings through JAMS on 13 April 20, 2012. Thereafter, Ateco took the position that the 14 Arbitration Stipulation was ineffective in the face of the dismissal 15 of the litigation in which it arose. Ateco alternatively asserted 16 that the Arbitration Stipulation expired on its own terms when 17 arbitration was not completed by November 15, 2010, and that Hebb, 18 through his delay in initiating arbitration, had waived his right to 19 arbitrate the fee dispute. 20 On May 9, 2012 (“May 9 Hearing”), the bankruptcy court, 21 apprised of the recent proceedings in the State Trial Court, held a 22 status hearing and took under advisement the issue of whether the 23 bankruptcy case should be dismissed where the fee dispute, 24 resolution of which was central to confirmation of any chapter 11 25 plan, had stalled the case for more than 21 months. 26 On June 27, 2012, the bankruptcy court entered its Memorandum

1 Re: Whether This Case Should Be Dismissed (“Memorandum”). In the 2 Memorandum, the bankruptcy court determined (1) the FAA did not 3 apply to the Arbitration Stipulation, and (2) to the extent the CAA 4 might apply to the Arbitration Stipulation, Hebb, through his delay, 5 had waived any right to enforce the Arbitration Stipulation. In 6 light of that waiver, the bankruptcy court set the Substantive 7 Proceedings for resolution through summary judgment proceedings, 8 with oral argument to be held September 5, 2012. A contemporaneous 9 status hearing was set so that once the fee dispute was resolved, 10 “it will be clear whether the proposed plan can proceed or not, and 11 each of the remaining motions can be addressed in order.” 12 On July 11, 2012, Hebb filed a timely motion for 13 reconsideration of the Memorandum, which the bankruptcy court denied 14 by its order entered July 31, 2012. In the interim, on July 30, 15 2012, Hebb filed a premature Notice of Appeal from the Memorandum. 16 On July 31, 2012, the bankruptcy court denied Hebb’s motion for stay 17 pending appeal. On August 1, 2012, Hebb filed an emergency motion 18 for stay pending appeal with the Panel, which also was denied. 19 On August 29, 2012, our Clerk issued an “Order re Finality” 20 which required Hebb to establish that the bankruptcy court’s order 21 was final such that the Notice of Appeal could confer jurisdiction 22 on the Panel. The Panel thereafter deemed Hebb’s response to the 23 Order re Finality to be a motion for leave to appeal, which it 24 granted by order entered October 25, 2012, in order to determine 25 whether any alleged right Hebb had to arbitration was implicated by 26 continuing the Substantive Proceedings in the bankruptcy court.

1 II. JURISDICTION 2 The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 3 and 157(b)(2)(A) and (O). We have jurisdiction under 28 U.S.C. 4 § 158. 5 III. ISSUES7 6 Whether the bankruptcy court erred when it determined that the 7 FAA did not apply to the Arbitration Stipulation. 8 Whether the bankruptcy court abused its discretion when it 9 determined that Hebb had waived any right to arbitration he might 10 have had under the CAA. 11 IV. STANDARDS OF REVIEW 12 Whether a dispute is subject to the Federal Arbitration Act is 13 a question of law we review de novo. See Dean Witter Reynolds, Inc. 14 v. Byrd, 470 U.S. 213, 218 (1985)(by its terms the Arbitration Act 15 leaves no place for the exercise of discretion by a trial court). 16 De novo review requires that we consider a matter afresh, as if no 17 decision had been rendered previously. United States v. Silverman, 18 861 F.2d 571, 576 (9th Cir. 1988); B-Real, LLC v. Chaussee (In re 19 Chaussee), 399 B.R. 225, 229 (9th Cir. BAP 2008). 20 We review the bankruptcy court’s determination that Hebb waived 21 his right to arbitrate under the CAA for an abuse of discretion. 22 “‘[T]he question of waiver is one of fact, and an appellate court's 23 7 Hebb did not raise any issue in this appeal with respect 24 to the denial of the motion for reconsideration. Accordingly, any 25 such issue is waived. See Arpin v. Santa Clara Valley Transp. Agency, 261 F.3d 912, 919 (9th Cir. 2001) (issues not specifically 26 argued in opening brief are waived).

1 function is to review a trial court's findings regarding waiver to 2 determine whether [they] are supported by substantial evidence.’ 3 ‘The appellate court may not reverse the trial court's finding of 4 waiver unless the record as a matter of law compels finding 5 nonwaiver.’” (Internal citations omitted). Augusta v. Keehn & 6 Assocs., 193 Cal. App. 4th 331 (2011) (quoting Berman v. Health Net, 7 80 Cal. App. 4th 1359, 1363–1364 (2000)). 8 We apply a two-part test to determine whether the bankruptcy 9 court abused its discretion. United States v. Hinkson, 585 F.3d 10 1247, 1261-62 (9th Cir. 2009)(en banc). First, we consider de novo 11 whether the bankruptcy court applied the correct legal standard to 12 the relief requested. Id. Then, we review the bankruptcy court’s 13 fact findings for clear error. Id. at 1262 & n.20. We must affirm 14 the bankruptcy court’s fact findings unless we conclude that they 15 are “(1) ‘illogical,’ (2) ‘implausible,’ or (3) without ‘support in 16 inferences that may be drawn from the facts in the record.’” Id. 17 This standard of review is similar to that applied by 18 California appellate courts. Under California law, “[a]n abuse of 19 discretion is shown if there is no substantial basis for the trial 20 court's ruling or the court applied an incorrect legal standard.” 21 Ibarra v. Super. Ct., ___ Cal. Rptr. 3d ___, 2013 WL 3242955 (Cal. 22 App. 2d Dist. 2013)(citation omitted). 23 V. DISCUSSION 24 I. The FAA Does Not Apply to the Fee Dispute. 25 The FAA applies to maritime transactions or contracts 26 “evidencing a transaction involving commerce. . . .” 9 U.S.C. § 2.

1 The FAA defines “commerce” to exclude purely intrastate contracts. 2 9 U.S.C. § 1 (“‘[C]ommerce,’ as defined herein, means commerce among 3 the several States or with foreign nations, or in any Territory of 4 the United States or in the District of Columbia and any State or 5 Territory or foreign nation. . . .”). Thus, the bankruptcy court 6 did not err when it determined the FAA did not apply to the 7 Arbitration Stipulation. 8 The dispute underlying the Arbitration Stipulation arises out of wholly intrastate legal services between a 9 California attorney and a California client, conducted solely in a California state court. No portion of this 10 transaction affects interstate commerce. It is inappropriate to apply the FAA to the Arbitration 11 Stipulation. 12 Memorandum at 11:20-23. 13 II. Hebb Waived Any Right He Might Have Had to Compel Arbitration Under the CAA. 14 15 The CAA provides: 16 A written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, 17 enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract. 18 19 Cal. Code Civ. Proc. § 1281. As noted by the bankruptcy court, 20 waiver not only is a ground for revocation of contracts generally, 21 it is an explicit basis upon which the right to arbitration may be 22 denied. 23 On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate 24 a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the 25 petitioner and respondent to arbitrate the controversy if it determines than an agreement to arbitrate the 26 controversy exists, unless it determines that:

1 (a) The right to compel arbitration has been waived by the petitioner. . . . 2 3 Cal. Code Civ. Proc. § 1281.2 (emphasis added). 4 The issue of waiver under the CAA is not novel. The Supreme 5 Court of California has identified the factors a trial court must 6 consider in determining whether a right to arbitration has been 7 waived: 8 In determining waiver, a court can consider: (1) whether the party’s actions are inconsistent with the right to 9 arbitrate; (2) whether the litigation machinery has been substantially invoked and the parties were well into 10 preparation of a lawsuit before the party notified the opposing party of an intent to arbitrate; (3) whether a 11 party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking 12 a stay; (4) whether a defendant seeking arbitration filed a counterclaim without asking for a stay of the 13 proceedings; (5) whether important intervening steps [e.g. taking advantage of judicial discovery procedures not 14 available in arbitration] had taken place; and (6) whether the delay affected, misled, or prejudiced, the opposing 15 party. 16 St. Agnes Med. Ctr. v. PacifiCare of Cal., 31 Cal. 4th 1187, 1196 17 (2003)(internal quotation marks and citations omitted). 18 The bankruptcy court observed that waiver under the CAA is 19 commonly found “where the party seeking arbitration has . . . 20 unreasonably delayed in seeking arbitration.” Memorandum at 21 12:25-26 (citing Augusta, 193 Cal. App 4th at 337). However, the 22 bankruptcy court also noted the existence of a strong public policy 23 favoring arbitration as a counterpoint to waiver. Memorandum at 24 12:15-18 (citing St. Agnes Med. Ctr., 31 Cal. 4th at 1195). 25 Under the unreasonable delay standard, Hebb was responsible to 26 “timely seek relief either to compel arbitration or dispose of the

1 lawsuit.” Lewis v. Fletcher Jones Motor Cars, Inc., 2012 Cal. App. 2 LEXIS 489 *10 (Cal. App. 4th Dist. 2012). The bankruptcy court 3 reviewed Hebb’s actions in seeking arbitration and concluded that 4 they supported a finding that Hebb had waived his right to 5 arbitration under the CAA. 6 First, Hebb waited approximately five months after Ateco filed 7 its bankruptcy case to file the Relief From Stay Motion. Second, 8 after the Panel issued its remand in the First Appeal, the 9 bankruptcy court orally granted the Relief From Stay Motion at the 10 July 26 Hearing. Hebb thereafter failed completely to pursue the 11 entry of an order which would allow him to proceed with arbitration. 12 He was on notice through the bankruptcy court’s local rules that, as 13 the prevailing party, the responsibility to submit an order was his. 14 Hebb did not act as required under the local rules. Neither did he 15 act when, in the First Appeal, we brought the lack of an order to 16 his attention and reminded him that he could request the order from 17 the bankruptcy court. Ultimately, the bankruptcy court itself 18 prepared and entered the Relief From Stay Order on January 17, 2012. 19 Hebb is accountable for the nearly six-months delay in the entry of 20 the Relief From Stay Order. 21 Even then, Hebb took no appropriate action to pursue 22 arbitration until the bankruptcy court issued its order to show 23 cause. While during this time Hebb did request that the bankruptcy 24 court compel arbitration, that action was not within the realm of 25 the bankruptcy court’s authority where relief from stay had been 26 granted to proceed to arbitration through the Fee Litigation and

1 therefore was meaningless other than to delay and confuse the 2 proceedings. We also note that the state court was prepared to try 3 the Fee Litigation by July 2, 2012, which would have “disposed of 4 the lawsuit.” Instead, Hebb chose to withdraw the dispute from the 5 purview of the state court and initiate an arbitration despite 6 protestations from Ateco regarding the continuing validity of the 7 Arbitration Stipulation, thus again delaying any ultimate resolution 8 of the dispute.8 9 The bankruptcy court cited numerous California state court 10 decisions in which a party was found to have waived its right to 11 arbitration based on delays significantly shorter than the 12 twenty-one months involved in the fee dispute here. See, e.g., 13 Lewis, 2012 Cal. App. LEXIS 489 (less than five months); Augusta, 14 193 Cal. App 4th 331 (six-and-one-half months); Adolph v. Coastal 15 Auto Sales, Inc., 184 Cal. App. 4th 1443 (2010) (six months); 16 Guess?, Inc. v. Super. Ct., 79 Cal. App. 4th 553, 556 (2000) (less 17 than four months); Kaneko Ford Design v. Citipark, Inc., 202 Cal. 18 App. 3d 1220, 1228-29 (1988) (five-and-one-half months). These 19 cases adequately support the bankruptcy court’s fact finding that 20 Hebb’s delay in exercising his right to arbitrate under the CAA was 21 8 22 An additional, affirmative, waiver of his right to arbitrate the fee dispute under the CAA is reflected in Hebb’s 23 argument to the bankruptcy court at the November 9 Hearing, where he states his understanding that only the FAA applied to the 24 Arbitration Stipulation. See Tr. of November 9, 2011 Hr’g at 25 10:13-11:19. It appears this also was the basis for Hebb’s withdrawal of his motion to vacate dismissal of the Fee Litigation 26 in the state court.

1 unreasonable. 2 In evaluating whether a delay is sufficient to support a 3 finding that a party has waived its rights under the CAA, California 4 courts also consider not only whether the delay was unreasonable, 5 but whether it was prejudicial to the other party. See Augusta, 6 193 Cal. App 4th at 337, 340-42. Here, Ateco has pending a 7 relatively small chapter 11 case. It is self-evident that the 8 prospects for a reorganization do not get better the longer a case 9 lingers. As the bankruptcy court stated numerous times, until the 10 Fee Dispute is resolved, no determination can be made whether 11 Ateco’s reorganization efforts ultimately will be viable. Ateco has 12 been further prejudiced by the excessive cost it has incurred in 13 responding to Hebb’s uncertainty about how, and even where, to 14 proceed to enforce the Arbitration Stipulation. 15 Under these circumstances, we cannot determine that the 16 bankruptcy court abused its discretion when it found that Hebb had 17 waived his right to arbitration under the CAA.9 18 19 9 Hebb filed his proof of claim in Ateco’s bankruptcy case, 20 and Ateco objected to the claim. Pursuant to 28 U.S.C. § 157(b)(2)(B), allowance or disallowance of Hebb’s claim is a core 21 proceeding, notwithstanding that state law might be applied to resolve the fee dispute. Under Ninth Circuit precedent, the 22 bankruptcy court had discretion to decline to enforce the 23 Arbitration Stipulation in a core proceeding if arbitration would conflict with the underlying purposes of the Bankruptcy Code. 24 Cont’l Ins. Co. v. Thorpe Insulation Co. (In re Thorpe Insulation Co.), 671 F.3d 1011 (9th Cir. 2012). Thorpe Insulation stands as an 25 alternative basis upon which the bankruptcy court could have 26 proceeded to resolve the fee dispute, independent of any waiver by Hebb under the CAA.

1 VI. CONCLUSION 2 The bankruptcy court correctly determined that the Arbitration 3 Stipulation was not subject to the FAA, where it did not implicate 4 interstate commerce. The bankruptcy court did not abuse its 5 discretion when it determined that Hebb waived his right to enforce 6 the Arbitration Stipulation under the CAA through his dilatory lack 7 of action over a prolonged period. We AFFIRM. 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26