Corwin, et al v. Gorilla Companies LLC, et al

Filing 82

ORDER granting in part and denying in part 77 Appellants' Motion for Rehearing. The motion is granted with respect to the $57,986 adjustment to EBITDA for the costs of reclassifying independent contractors to employees and denied as to th e unjust enrichment claim. The Courts March 11, 2011 order (Doc. 75) affirming in part and reversing in part the judgment entered by the bankruptcy court is amended as follows: The bankruptcy court's judgment is reversed with respect to the $57,986 adjustment to EBITDA for employee reclassification. Signed by Judge David G Campbell on 6/14/11.(LSP)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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In re Gorilla Companies LLC, et al.,

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Debtors.

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Robb M. Corwin; Jillian C. Corwin; and 13
Holdings, LLC,

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No. CV-10-01029-PHX-DGC
No. AP-09-00266-RJH
No. BK-09-02898-RJH
No. BK-09-02901-CGC
No. BK-09-02903-GBN
No. BK-09-02905-CGC
ORDER

Appellants,

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vs.

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Gorilla Companies LLC,

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Appellee.

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On March 22, 2010, the bankruptcy court entered final judgment in favor of

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Gorilla Companies LLC on the claims against it and on its own claims for breach of

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contract, breach of the covenant of good faith and fair dealing, negligent

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misrepresentation, fraud, and unjust enrichment. Doc. 1 at 17-21; Appellants’ Excerpt of

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Record Exhibit (“ER”) 112. Gorilla was awarded more than $4.7 million in damages

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(including prejudgment interest) and nearly $1.8 million in attorneys’ fees.

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and Jillian Corwin and 13 Holdings, LLC appealed to this Court. Doc. 1 at 12-16. In an

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order dated March 11, 2011, the Court affirmed in part and reversed in part. Doc. 75.

Id. Robb

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Appellants have filed a motion for rehearing pursuant to Rule 8015 of the Federal
Rules of Bankruptcy Procedure. Doc. 77. The motion is fully briefed.

For reasons stated below, the motion will be granted in part and denied in part.1
I.

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Docs. 78, 79.

Legal Standard.
While Rule 8015 provides a mechanism for rehearing bankruptcy appeals, the rule

does not set forth a standard of review. Courts in this Circuit and others have looked to
Rule 40 of the Federal Rules of Appellate Procedure for guidance. See In re Fowler, 394
F.3d 1208, 1214 (9th Cir. 2005); In re Hessco Indus., Inc., 295 B.R. 372, 375 (B.A.P. 9th
Cir. 2003); In re Lee, 432 B.R. 212, 216 (D.S.C. 2010); Rothrock v. Turner, 435 B.R. 70,
77 (D. Me. 2010) (collecting cases). That rule provides, in pertinent part, that the motion
for rehearing “must state with particularity each point of law or fact that the [movant]
believes the court has overlooked or misapprehended[.]” Fed. R. App. P. 40(a)(2). If the
court “finds that it has not considered an important aspect of the case, then a rehearing is
warranted.” McMullen v. Schultz, 443 B.R. 236, 241 (D. Mass. 2011). “A motion for
rehearing ‘is not a means by which to reargue a party’s case or to assert new grounds for
relief.’”

Forrest Spicewood Dev., LLC, No. 1:10cv096, 2011 WL 915174, at *1

(W.D.N.C. Mar. 3, 2011) (citation omitted); see In re Hessco, 295 B.R. at 375.
II.

Discussion.
Appellants seek a rehearing on two issues:

the viability of Gorilla’s unjust

enrichment claim and the propriety of the $57,986 EBITDA deduction for employee
reclassification costs. Doc. 77 at 2. The Court will address each issue below.
A.

The Unjust Enrichment Claim.

The bankruptcy court found that the $1.4 million prepayment should be repaid
under alternative legal theories: fraud, breach of contract, and unjust enrichment. ER 2

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The requests for oral argument are denied because the issues have been fully
briefed and oral argument will not aid the Court’s decision. See Fed. R. Civ. P. 78; Fed.
R. Bank. P. 8012; In re Branford Partners, LLC, 2010 WL 3521907, at *1 (C.D. Cal.
Sept. 6, 2010).
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at 541, 599; ER 112 at 3480-41. The Court reversed with respect to the fraud and breach
of contract claims, but agreed with the bankruptcy court (ER 2 at 541) that where the
contract itself does not explicitly require repayment of monies not due, the doctrine of
unjust enrichment applies. Doc. 75 at 8.
Because the parties’ relationship was governed by contract, Appellants argue, the
unjust enrichment claim necessarily fails. Doc. 77 at 4-7. Appellants made this same
argument in their opening brief:

“Because a contract exists, the unjust enrichment

judgment should be vacated.” Doc. 52 at 15-16 n.4. The Court considered the argument,
and continues in its view that the $1.4 million prepayment should be repaid under the
doctrine of unjust enrichment. See U.S. Bank Nat’l Ass’n v. Casa Grande Regional Med.
Ctr., No. CV 04-1707-PHXNVW, 2006 WL 1698288, at *6 (D. Ariz. June 16, 2006)
(finding reimbursement of overpayment warranted on unjust enrichment claim where the
parties’ contracts in no way prohibited reimbursement and the claim did not seek to
subvert any express contractual provision). Appellants further argue that no evidence
supports the “enrichment” element of the unjust enrichment claim (Doc. 77 at 7), but
impermissibly make this argument for the first time in their motion for rehearing. See
In re Hessco, 295 B.R. at 375. The motion for rehearing will be denied with respect to
the unjust enrichment claim.
B.

The $57,986 EBITDA Deduction.

The Court affirmed the bankruptcy court’s conclusion (ER 2 at 595) that no audit
was required in order to make the $57,986 adjustment to EBITDA for the costs of
reclassifying independent contractors to employees during the pre-closing period. Doc.
75 at 11. In so holding, the Court found that “Appellants do not dispute that no audit was
performed because, on advice of counsel, the Board decided only two days after the
closing date to reclassify all independent contractors to employees.” Id. (citing Doc. 70
at 22-23).

Appellants argue, correctly, that this factual finding is supported by no

evidence. Doc. 77 at 7-8.

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Appellants have waived this evidentiary challenge, Gorilla contends, by failing to
raise it in their appellate briefs. Doc. 78 at 12. To the contrary, Appellants specifically
argued in their reply brief that “there is no evidence to support” the assertion that “there
was a decision made by the Board of Managers[.]” Doc. 74 at 17.
Gorilla asserts that the trial testimony of Gorilla CEO Brad Kramer establishes
that “Gorilla converted all independent contractors to employees” (Doc. 78 at 12), but
that testimony shows that the decision to reclassify was made not by the Board, but by
Kramer himself. See ER 1 at 36-42, 55-56. Moreover, the reclassification occurred in
July 2008 (id. at 41), more than a year after the closing period (see ER 10 at 982). As
previously explained (Doc. 75 at 10), costs associated with the reclassification of
independent contractors to employees may be deducted from EBITDA only for the period
prior to closing. See ER 10 at 982. The Court will grant the motion for rehearing with
respect to the $57,986 EBITDA deduction.
IT IS ORDERED:
1.

Appellants’ motion for rehearing (Doc. 77) is granted in part and denied

in part. The motion is granted with respect to the $57,986 adjustment to EBITDA for
the costs of reclassifying independent contractors to employees and denied as to the
unjust enrichment claim.
2.

The Court’s March 11, 2011 order (Doc. 75) affirming in part and reversing

in part the judgment entered by the bankruptcy court (Doc. 1 at 17-21; ER 112) is
amended as follows: The bankruptcy court’s judgment is reversed with respect to the
$57,986 adjustment to EBITDA for employee reclassification (see Doc. 75 at 13, ¶ 1).
Dated this 14th day of June, 2011.

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