Amicus Curiae Brief — Cuker Interactive, LLC, Petitioner v. Pillsbury Winthrop Shaw Pittman, LLP

Supreme Court briefFeb 17, 2023

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No. 22-18

In the Supreme Court of the United States

CUKER INTERACTIVE, LLC, PETITIONER

PILLSBURY WINTHROP SHAW PITTMAN, LLP

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE

ELIZABETH B. PRELOGAR

Solicitor General

Counsel of Record

BRIAN M. BOYNTON

Principal Deputy Assistant

Attorney General

CURTIS E. GANNON

Deputy Solicitor General

SOPAN JOSHI

Assistant to the Solicitor

General

MARK B. STERN

JOSHUA Y. DOS SANTOS

Attorneys

Department of Justice

Washington, D.C. 20530-0001

SupremeCtBriefs@usdoj.gov

(202) 514-2217

QUESTION PRESENTED

Whether a federal court exercising bankruptcy jurisdiction should apply a federal choice-of-law rule or the

forum State’s choice-of-law rules to determine whether

a creditor’s state-law claim is “secured by a lien on property” within the meaning of 11 U.S.C. 506(a)(1).

(I)

TABLE OF CONTENTS

Page

Interest of the United States....................................................... 1

Statement ...................................................................................... 1

Discussion ...................................................................................... 4

Conclusion ................................................................................... 13

TABLE OF AUTHORITIES

Cases:

Already, LLC v. Nike, Inc., 568 U.S. 85 (2013) .................... 6

Alvarez v. Smith, 558 U.S. 87 (2009) ............................... 5, 10

Azar v. Garza, 138 S. Ct. 1790 (2018) .................................... 8

Camreta v. Greene, 563 U.S. 692 (2011) .............................. 10

Cutter v. Wilkinson, 544 U.S. 709 (2005) .............................. 7

Fletcher v. Davis, 90 P.3d 1216 (Cal. 2004) ........................... 2

Ford Motor Co. v. Montana Eighth Judicial

District Court, 141 S. Ct. 1017 (2021) ............................... 12

Hoosier v. Interinsurance Exchange,

451 S.W.3d 206 (Ark. 2014) ................................................ 12

Kingdomware Technologies, Inc. v. United States,

579 U.S. 162 (2016)................................................................ 6

Lane v. Celadon Trucking, Inc.,

543 F.3d 1005 (8th Cir. 2008) ............................................. 12

Lewis v. Continental Bank Corp.,

494 U.S. 472 (1990)................................................................ 7

Lindsay, In re, 59 F.3d 942 (9th Cir. 1995),

cert. denied, 516 U.S. 1074 (1996) ................................... 3, 9

Metropolitan Life Insurance Co. v. Roberts,

411 S.W.2d 299 (Ark. 1967) .................................................. 2

Sterba v. PNC Bank, 138 S. Ct. 2672 (2018) ....................... 11

U.S. Bancorp Mortgage Co. v. Bonner Mall

Partnership, 513 U.S. 18 (1994) ...................................... 8, 9

(III)

Cases—Continued:

Page

United States v. Munsingwear, Inc.,

340 U.S. 36 (1950) ........................................................ 5, 7-10

United States v. Williams, 504 U.S. 36 (1992) ..................... 7

Vortex Fishing Systems, Inc., In re,

277 F.3d 1057 (9th Cir. 2002) ............................................... 3

Constitution and statutes:

U.S. Const. Art. III ................................................................. 7

Bankruptcy Code, 11 U.S.C. 101 et seq.:

Ch. 5, 11 U.S.C. 501 et seq.:

11 U.S.C. 502(b)(1) ..................................................... 11

11 U.S.C. 506(a)(1) ........................................... 2, 11, 12

11 U.S.C. 544(a)(1) ........................................... 2, 11, 12

Ch. 11, 11 U.S.C. 1101 et seq. ................................... 2, 4, 9

Ark. Code Ann. § 16-22-304 (West 2022) ............................... 2

Miscellaneous:

Restatement (Second) of Conflict of Laws (1971) ................ 2

Stephen M. Shapiro et al., Supreme Court Practice

(11th ed. 2019) ..................................................................... 10

In the Supreme Court of the United States

No. 22-18

CUKER INTERACTIVE, LLC, PETITIONER

PILLSBURY WINTHROP SHAW PITTMAN, LLP

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE

INTEREST OF THE UNITED STATES

This brief is submitted in response to the Court’s order inviting the Solicitor General to express the views

of the United States. In the view of the United States,

the case is moot and the petition for a writ of certiorari

should be denied.

STATEMENT

1. Respondent, a law firm, represented petitioner

in litigation in Arkansas federal court, which resulted

in a favorable judgment for petitioner that required

the defendant to pay damages and more than $2.6 million in attorney’s fees and sanctions. Pet. App. 7a. On

the ground that petitioner had not paid for legal services that respondent had provided, respondent asserted an attorney’s lien for the unpaid portion of its bill

by sending written notice by certified mail to the defendant in the Arkansas litigation. Id. at 5a, 7a, 28a; see

(1)

Ark. Code Ann. § 16-22-304 (West 2022); Metropolitan

Life Insurance Co. v. Roberts, 411 S.W.2d 299, 300 (Ark.

1967). Shortly thereafter, petitioner filed for Chapter

11 bankruptcy protection in the Southern District of

California. See Pet. App. 7a. Respondent filed a proof

of claim for more than $1.6 million in allegedly unpaid

attorney’s fees related to the Arkansas litigation. Ibid.

The disputed proceeds from that litigation were placed

into a segregated account. Id. at 29a.

The Bankruptcy Code generally grants preferential

treatment to claims “secured by a lien on property in

which the estate has an interest.” 11 U.S.C. 506(a)(1).

Respondent asserted that its claim was secured because

respondent had a valid lien under Arkansas law. Petitioner asserted that the lien was invalid—and the claim

was therefore unsecured—under California law, which

provides that an attorney’s lien generally may be created only by contract. See Fletcher v. Davis, 90 P.3d

1216, 1219 (Cal. 2004). Petitioner filed an adversary action against respondent to avoid respondent’s lien under Section 544(a)(1) of the Bankruptcy Code, which

permits a debtor in possession to avoid liens that are not

valid and perfected “as of the commencement of the

[bankruptcy] case,” 11 U.S.C. 544(a)(1). See Pet. App.

7a.

2. a. The bankruptcy court held that respondent’s

claim was unsecured. Pet. App. 17a-33a. The court explained that if Arkansas law applied, respondent’s lien

would be valid and the claim would be secured; but if

California law applied, the lien would be invalid and the

claim unsecured. Id. at 22a. The court observed that

under Ninth Circuit precedent, federal choice-of-law

principles, as reflected in the Restatement (Second) of

Conflict of Laws (1971), applied to the dispute. Pet.

App. 21a; see In re Vortex Fishing Systems, Inc., 277

F.3d 1057, 1069 (9th Cir. 2002). Applying those principles, the court found that California law applied and, as

a result, that “no lien for attorney’s fees was created.”

Pet. App. 25a.

b. The district court reversed. Pet. App. 6a-16a.

Although it also applied the factors set forth in the Second Restatement, the court held that, under those factors, Arkansas law applied to the parties’ dispute, id. at

9a-14a, and that respondent’s lien was valid, id. at 14a16a.

c. The court of appeals affirmed. Pet. App. 1a-5a.

On appeal, petitioner asserted that under California

choice-of-law rules, California law would apply to the

dispute. See Pet. C.A. Br. 32-43. The court explained,

however, that it was bound by circuit precedent holding

that “federal choice-of-law rules determine which

state’s substantive law applies” to a dispute arising in

bankruptcy. Pet. App. 2a (citing In re Lindsay, 59 F.3d

942 (9th Cir. 1995), cert. denied, 516 U.S. 1074 (1996)).

Applying the factors set forth in the Second Restatement, the court agreed with the district court that Arkansas law applied, id. at 3a-4a, and that respondent

had a valid lien under Arkansas law, id. at 5a.

3. Meanwhile, in the bankruptcy proceedings, petitioner contested the amount of respondent’s claim and

also asserted claims of professional negligence and

breach of fiduciary duty. The bankruptcy court lifted

the automatic stay to permit the parties to arbitrate

those claims. See 18-bk-7363 Bankr. Ct. Doc. 258, at 2

(Mar. 24, 2020).

On November 23, 2022—after this Court had invited

the Solicitor General to express the views of the United

States—petitioner filed an ex parte application in the

bankruptcy court to terminate the segregated account

holding the disputed funds from the Arkansas litigation.

See 18-bk-7363 Bankr. Ct. Doc. 587 (Nov. 23, 2022) (Ex

Parte Appl.). As relevant here, petitioner explained

that the arbitral panel had issued an award denying petitioner’s claims of professional negligence and breach

of fiduciary duty, denying respondent’s claim for attorney’s fees, and awarding respondent $26,127.06 for certain out-of-pocket costs. Id. at 3.

Petitioner informed the bankruptcy court and trustee that it had “paid the amount requested of $26,127.06

utilizing funds from outside the Segregated Account,”

and that respondent had agreed “to waive any interest

on its awarded claim of $26,127.06.” Ex Parte Appl. 45. In this Court, respondent has explained that it

waived the interest “in light of the small amount of the

award,” and that after receiving the $26,127.06 payment

from petitioner, respondent “released the lien it had asserted.” Resp. Supp. Br. 4-5; see 18-bk-7363 Bankr. Ct.

Doc. 589, at 2-3 (Nov. 29, 2022). Petitioner thus stated

in the bankruptcy court that “[respondent’s] claim is

fully retired.” Ex Parte Appl. 5. The court granted petitioner’s application to close the segregated account,

18-bk-7363 Bankr. Ct. Doc. 588 (Nov. 29, 2022), and,

having previously confirmed a reorganization plan, 18bk-7363 Bankr. Ct. Doc. 460 (Dec. 15, 2020), the court

granted petitioner’s subsequent motion to close the

Chapter 11 case, 18-bk-7363 Bankr. Ct. Doc. 600 (Jan.

11, 2023).

DISCUSSION

Whether respondent’s claim for attorney’s fees

stemming from a previous lawsuit was secured by a

valid lien no longer matters because petitioner has fully

satisfied that claim and respondent has released the

lien. This case is therefore moot, and this Court’s review of the question presented is unwarranted. Petitioner suggests (Pet. Supp. Br. 3-4) that the Court

should recognize a new exception to mootness in circumstances like the ones present here, and on that basis

should grant review to address the question presented

on the merits. But no court has ever addressed petitioner’s proposal for a new mootness exception, and this

Court should not do so in the first instance. Petitioner

alternatively asks (id. at 5-7) that the Court summarily

vacate the judgment below under United States v.

Munsingwear, Inc., 340 U.S. 36 (1950). But summary

vacatur under Munsingwear is appropriate only if the

petition would have been granted absent mootness.

Here, there are good reasons to think that the decision

below would not have warranted further review.

1. This case is moot and thus does not warrant this

Court’s plenary review. The question presented asks

which choice-of-law rules—the forum State’s rules or

federal rules—should be used to determine the substantive law to be applied to a state-law question in bankruptcy proceedings. The underlying state-law question

here is whether respondent held a valid lien on its claim

for attorney’s fees. But the answer to that state-law

question no longer matters because petitioner has paid

respondent’s claim in full and the lien at issue has been

released. Accordingly, determining which State’s law

would have governed the lien’s validity (while the lien

existed) is “no longer embedded in any actual controversy about the [parties’] particular legal rights.” Alvarez v. Smith, 558 U.S. 87, 93 (2009). And that is all

the more true for the antecedent question about which

choice-of-law rules should have been applied to determine which State’s law would have governed the lien’s

validity. Accordingly, the dispute is “no longer a ‘Case’

or ‘Controversy’ for purposes of Article III.” Already,

LLC v. Nike, Inc., 568 U.S. 85, 91 (2013).

Nor does this case fall into any recognized exception

to mootness. The dispute is not “ ‘capable of repetition,

yet evading review’ ” because that exception applies

only if, among other things, “there is a reasonable expectation that the same complaining party will be subject to the same action again.” Kingdomware Technologies, Inc. v. United States, 579 U.S. 162, 170 (2016)

(brackets and citation omitted). There is no reasonable

expectation that petitioner and respondent will find

themselves in another lien dispute of this type.

This case does not implicate the “voluntary cessation” doctrine, under which “a defendant cannot automatically moot a case simply by ending its unlawful conduct once sued.” Already, 568 U.S. at 91. As a threshold matter, it is questionable whether respondent can

reasonably be described as a “defendant” who was engaged in allegedly “unlawful conduct,” ibid.; as a creditor asserting a claim in petitioner’s bankruptcy proceedings, respondent seems more akin to a plaintiff who

decides a claim is no longer worth pursuing. But even

if respondent’s voluntary decision to waive interest on

the $26,127.06 award and release its lien can be analogized to the actions of a defendant that voluntarily

ceases its allegedly wrongful behavior, the case would

still be moot if “it is absolutely clear the allegedly

wrongful behavior could not reasonably be expected to

recur.” Ibid. (citation omitted). As noted above, it is

clear that another lien dispute of this type between the

parties could not reasonably be expected to recur.

2. Petitioner appears to recognize (Pet. Supp. Br. 35) that the case is moot and that the established excep-

tions to mootness are inapplicable. Petitioner thus proposes that this Court fashion a new exception to mootness based on petitioner’s request for costs and attorney’s fees in the bankruptcy case. Specifically, the proposed exception would apply in circumstances “where a

party unquestionably had standing throughout the case

and pleaded a request for costs and attorney’s fees,”

and “the other party seeks to moot the case for the first

time before this Court.” Id. at 3. That would, petitioner

contends, prevent a party that thinks it may lose in this

Court on the merits from “escap[ing] having to pay

costs and attorneys’ fees at the latest hour.” Id. at 5.

But as petitioner recognizes, this Court already has

held that a claim for costs and attorney’s fees is “insufficient to create an Article III case or controversy

where none exists on the merits of the underlying

claim.” Id. at 3 (quoting Lewis v. Continental Bank

Corp., 494 U.S. 472, 480 (1990)). Petitioner provides no

sound reason why Article III should countenance a different result simply because the “case is already before

this Court.” Id. at 4.

In any event, no court has considered petitioner’s

new proposal, and this Court should not do so in the first

instance. See Cutter v. Wilkinson, 544 U.S. 709, 718 n.7

(2005) (“[ W ]e are a court of review, not of first view.”).

The Court’s “traditional rule * * * precludes a grant of

certiorari” on a question not passed upon below, United

States v. Williams, 504 U.S. 36, 41 (1992), and petitioner

offers no sound basis for this Court to deviate from that

traditional rule here.

3. Petitioner alternatively asks (Pet. Supp. Br. 5-7)

that this Court grant the petition for a writ of certiorari

and summarily vacate the judgment below under Munsingwear, supra. Vacatur, however, is unwarranted be-

cause the case would not have merited further review

had it not become moot.

a. When mootness arises before this Court can review the underlying judgment, vacatur ensures that no

party is “prejudiced by a [lower-court] decision” and

“prevent[s] a judgment, unreviewable because of mootness, from spawning any legal consequences.” Munsingwear, 340 U.S. at 40-41. As this Court has observed, the determination whether to vacate the judgment when a case becomes moot while pending review

ultimately “is an equitable one,” U.S. Bancorp Mortgage Co. v. Bonner Mall Partnership, 513 U.S. 18, 29

(1994), requiring the disposition that would be “most

consonant to justice” in light of the circumstances, id.

at 24 (citation omitted). See Azar v. Garza, 138 S. Ct.

1790, 1792 (2018) (per curiam) (observing that because

Munsingwear vacatur “is rooted in equity, the decision

whether to vacate turns on ‘the conditions and circumstances of the particular case’ ”) (citation omitted).

Equitable considerations would not foreclose Munsingwear vacatur here. Petitioner correctly observes

(Pet. Supp. Br. 6-7) that if respondent had not unilaterally waived its entitlement to interest on the award, the

dispute about the lien’s validity would have remained

live because of the different interest rates applicable to

secured (10.0%) and unsecured (2.69%) claims under the

reorganization plan. See Fourth Amended Chapter 11

Plan §§ III, IV.A.2(e)(1)-(2), IV.B.1-IV.B.4, at 7, 18, 22.

In that sense, the mootness was most directly caused by

the “unilateral action of the party who prevailed in the

lower court,” U.S. Bancorp, 513 U.S. at 23, which is a

common circumstance that generally triggers the “established practice” of vacatur, Munsingwear, 340 U.S.

at 39. But that is not to say that respondent acted im-

properly or inequitably. Respondent quite reasonably

concluded—after the amount at stake dropped from approximately $1.6 million to just over $26,000—that “it

would be unproductive to litigate over the interest”

given that “the interest on the award of costs would be

minimal whether or not [respondent’s] lien is valid.”

Resp. Supp. Br. 4-5.

Moreover, there are reasons counseling against

Munsingwear vacatur here. Petitioner’s voluntary decision to use its own funds to pay respondent’s claim in

full in order to close the segregated account (and, ultimately, the Chapter 11 case), and respondent’s acceptance of that payment in full satisfaction of its claim,

might be viewed as a sort of settlement, and “mootness

by reason of settlement does not justify vacatur of a

judgment under review,” U.S. Bancorp, 513 U.S. at 29.

In addition, one justification for vacatur is that it “clears

the path for future relitigation of the issues between the

parties.” Id. at 22 (quoting Munsingwear, 340 U.S. at

40). As explained above, there is no reasonable prospect

that the parties will need to relitigate the issue of this

(or any other) lien’s validity. And given that the court

of appeals’ decision not only is unpublished but also

simply applied decades-old precedent without further

analysis, see Pet. App. 2a (citing In re Lindsay, 59 F.3d

942 (9th Cir. 1995), cert. denied, 516 U.S. 1074 (1996)),

there is no apparent need to vacate the judgment below

in order to prevent it “from spawning any legal consequences,” Munsingwear, 340 U.S. at 41.

Nevertheless, both petitioner’s voluntary decision to

satisfy respondent’s claim in full and respondent’s voluntary decision to forgo the interest on that claim were

eminently rational responses to the arbitration panel’s

98% reduction in the size of respondent’s claim against

petitioner. Accordingly, the unusual situation here

“more closely resembles mootness through ‘happenstance’ than through ‘settlement.’ ” Alvarez, 558 U.S. at

94; see id. at 95-96 (contrasting the mooting events in

that case, which resulted from parallel cases proceeding

“through a different court system” that “terminated on

substantive grounds in the ordinary course,” with the

circumstances in U.S. Bancorp, where the parties “settled their differences in the Bankruptcy Court” such

that “the reorganization plan that the Bankruptcy

Judge confirmed in the case amounted to a settlement

that mooted the case”). Nor have the parties identified

any apparent considerations of fairness that would tilt

in either direction. On balance, therefore, equitable

considerations alone would not foreclose Munsingwear

vacatur—though they would not compel it either.

b. Nevertheless, vacatur of a lower court’s decision

because of intervening mootness is generally available

only to “those who have been prevented from obtaining

the review to which they are entitled.” Camreta v.

Greene, 563 U.S. 692, 712 (2011) (quoting Munsingwear, 340 U.S. at 39). It has therefore been the longstanding position of the United States that when a case

becomes moot after the court of appeals enters its judgment, but before this Court acts on the petition for a

writ of certiorari, Munsingwear vacatur is appropriate

only if the question presented would have merited this

Court’s review but for the mootness. See, e.g., U.S. Br.

in Opp. at 5-8, Velsicol Chemical Corp. v. United States,

cert. denied, 435 U.S. 942 (1978) (No. 77-900); Gov’t Pet.

for Cert. at 16-17, Yellen v. United States House of Representatives, 142 S. Ct. 332 (2021) (No. 20-1738); see

also Stephen M. Shapiro et al., Supreme Court Practice

§ 19-28 & n.34 (11th ed. 2019) (listing cases).

It is doubtful that the question presented in the petition would have warranted further review were it not

moot. The Court denied review of a materially similar

question in Sterba v. PNC Bank, 138 S. Ct. 2672 (2018)

(No. 17-423). That case involved a dispute about

whether a state-law claim was “unenforceable against

the debtor and property of the debtor, under any agreement or applicable law.” 11 U.S.C. 502(b)(1). The government explained that whether a claim is “unenforceable” within the meaning of Section 502(b)(1) is a federal question that in turn depends on “whether the

claim could be enforced under the laws of any State

* * * in which the claim might have been asserted outside of bankruptcy in a suit brought by the creditor.”

U.S. Amicus Br. at 8, Sterba, supra (No. 17-423). That

approach, the government explained, “ensures that a

state-law claim that could be brought and heard outside

of bankruptcy does not become unenforceable ‘merely

by reason of the happenstance of bankruptcy,’ or the

debtor’s decision to file his bankruptcy petition in a particular State.” Id. at 9 (citation omitted).

This case involves the question whether respondent’s state-law claim was “secured by a lien on property

in which the estate has an interest.” 11 U.S.C. 506(a)(1);

see 11 U.S.C. 544(a)(1) (permitting a debtor in possession to avoid any lien that is not perfected at the time

the bankruptcy case commences). Whether a claim is

“secured by a lien” within the meaning of Section

506(a)(1) likewise is a federal question that in turn depends on whether the lien would have been held valid in

any State in which the lien might have been sought to

be enforced outside of bankruptcy in a suit brought by

the creditor. Here, respondent could have attempted to

enforce its lien on the proceeds of the Arkansas judg-

ment in Arkansas itself, cf. Ford Motor Co. v. Montana

Eighth Judicial District Court, 141 S. Ct. 1017, 1026

(2021), and Arkansas courts likely would have applied

Arkansas law, especially given that Arkansas’s choiceof-law rules (like the Ninth Circuit’s federal choice-oflaw rules) generally consider which State has the more

“significant relationship,” see Hoosier v. Interinsurance Exchange, 451 S.W. 3d 206, 209 (Ark. 2014); Lane

v. Celadon Trucking, Inc., 543 F.3d 1005, 1007-1011 (8th

Cir. 2008) (applying Arkansas law). Accordingly, the

court of appeals’ determination that the lien was valid

in Arkansas—and therefore that respondent’s claim

was “secured by a lien” within the meaning of the Bankruptcy Code, 11 U.S.C. 506(a)(1), and that the lien was

perfected by the time the bankruptcy case was commenced, see 11 U.S.C. 544(a)(1)—was likely correct.

In addition, the choice-of-law question is rarely, if

ever, outcome-determinative. See U.S. Amicus Br. at

17, Sterba, supra (No. 17-423). Although petitioner asserts (Pet. 21) that “California’s choice-of-law rules

clearly require the bankruptcy court to apply California

law” in this case, none of the courts below actually addressed that issue, and the assertion is highly contestable, see Br. in Opp. 14-17. Furthermore, petitioner

acknowledges (Pet. 22) that it relies on “the same circuit

split” that the petitioner in Sterba identified. Accordingly, the Court’s reasons for denying the petition in

Sterba should apply with equal force here.

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.