Thursday, June 01, 2006

Haberbush v. Cummins (Cal. Ct. App. - May 31, 2006)

I don't have a strong feeling about whether this opinion is right or wrong. But I do have a fairly strong feeling about what should happen at this point: the California Supreme Court should review the case, and potentially the United States Supreme Court as well. Especially if the California Supreme Court affirms.

The underlying issue is one about which I know virtually nothing (not that this typically stops me): Whether an action to avoid and recover preferential transfers under state law -- in particular, Cal. Civ. Code sect. 1800 -- is preempted by the federal Bankruptcy Code. A fairly important issue. Early last year, the Ninth Circuit, in an opinion called Sherwood Partners v. Lycos, 394 F.3d 1198 (9th Cir. 2005 written by Judge Kozinksi -- over the dissent of Judge Dorothy Nelson -- answered "Yes," concluding that Section 1800 was indeed preempted. But, in this case, Justice Boland, joined by the rest of the panel, disagrees with Sherwood Partners, and holds that Section 1800 is not preempted.

As a result, at present, you have a square conflict between state and federal law, and on an issue that is case-dispositive. Federal courts in California won't permit Section 1800 claims, whereas state courts will. And the Ninth Circuit won't change its mind, since the request for a rehearing en banc was denied in early 2005, and certiorari denied in October.

This is precisely the type of federal-state conflict that cries out for resolution by the California (and perhaps United States) Supreme Court. You can't have resolution of a critical issue such as this one depend entirely upon the fortuity of the existence of either diversity or supplemental jurisdiction. The conflict should not be allowed to continue.

The California Supreme Court should take this one up.

P.S. - After writing this post, I recalled that I previously said that the California Supreme Court should take up a couple of other cases as well, and was interested in whether the Court agreed with me. So I looked the stuff up. I've said that the California Supreme Court should/would grant review in only two prior cases: O'Connell v. City of Stockton back in April 2005 (a taxpayer standing case) -- to which I said "[Y]ou're almost certainly looking at the California Supreme Court taking up the case." -- and Viva! v. Adidas in November 2004 (a case about potential preemption of state protections against using products from endangered animals), which prompted me to say "I definitely think the California Supreme Court should take this one up."

And, wouldn't you know it, the California Surpeme Court did indeed grant review in both cases: to O'Connell in September 2005 and to Viva! in March 2006. Let's here it for external validation!