Living Hope Southeast, LLC v. Williams
MEMORANDUM OPINION AND ORDER denying as moot 7 Motion to Dismiss filed by Renee S. Williams, denying 15 Motion to Strike filed by Renee S. Williams, granting 17 Motion to Substitute Party filed by Pinewood Enterprises, L.C. and denying 35 Motion to Dismiss filed by Renee S. Williams. Signed by Honorable P. K. Holmes, III on December 12, 2013. (mll)
IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF ARKANSAS
LIVING HOPE SOUTHWEST
MEDICAL SERVICES, LLC, Debtor
PINEWOOD ENTERPRISES, L.C.
Case No. 4:13-CV-04028
RENEE S. WILLIAMS
MEMORANDUM OPINION AND ORDER
Currently before the Court are the following motions and related pleadings which are ripe
Appellee Renee S. Williams’s motion to dismiss appeal (Doc. 7) and supporting brief
(Doc. 8), Appellant Pinewood Enterprises, L.C.’s (“Pinewood”) response (Doc. 25)
and brief in support (Doc. 26), and Williams’s reply (Doc. 32);1
Williams’s motion to strike, in part, Pinewood’s designation of record on appeal
(Doc. 15) and brief in support (Doc. 16), and Pinewood’s response (Doc. 30) and
brief in support (Doc. 31);
Pinewood’s motion to substitute party (Doc. 17) and brief in support (Doc. 18),
Williams’s response (Doc. 21), Pinewood’s reply (Doc. 27), and Williams’s sur-reply
(Doc. 28) and brief in support (Doc. 29); and
Williams’s amended motion to dismiss notice of appeal (Doc. 35) and brief in
Although numerous replies and sur-replies were filed without leave of Court, they have
nevertheless been considered, in the Court’s discretion. Counsel are cautioned to comply with Local
Rule 7.2(b) (contemplating the filing of a reply as a matter of course only for summary judgment
motions) in the future when litigating in this Court.
support (Doc. 36), Pinewood’s response (Doc. 37) and brief in support (Doc. 38), and
Williams’s reply (Doc. 39).
The Court first finds that Williams’s first motion to dismiss (Doc. 7) should be DENIED AS
MOOT in light of the fact that Williams subsequently filed an amended motion to dismiss.
For the reasons stated herein, Williams’s motion to strike (Doc. 15) is DENIED; Pinewood’s
motion to substitute (Doc. 17) is GRANTED; and Williams’s amended motion to dismiss (Doc. 35)
is DENIED. The Court will address each motion in turn.
The instant matter has a long and complex litigation history involving state court, bankruptcy
court, and various appeals from bankruptcy court to federal district court. The Court will attempt
to state the facts and procedural history of this case relevant to the motions at hand.
Appellant Pinewood is an unsecured creditor of debtor Living Hope Southwest Medical
Services, LLC (“LHSW” or “the Debtor”). In 1998 Pinewood, as landlord, and LHSW entered into
a lease of certain real property located in Texarkana, Arkansas. LHSW breached the lease
agreement, and in the spring of 2006 Pinewood filed a complaint in the Circuit Court of Miller
County, Arkansas to recover the property, for a judgment on past-due lease payments, and to pierce
the corporate veil of LHSW. On July 18, 2006, the Miller County Circuit Court entered an Order
for Immediate Possession. LHSW filed a petition for relief under Chapter 11 of the bankruptcy code
on that same date. LHSW’s Chapter 11 case was later converted to a case under Chapter 7 of the
bankruptcy code on August 15, 2006, and Renee S. Williams (“Williams” or “the Trustee”) was
appointed as the Chapter 7 Trustee.
In February 2009, the Trustee filed several adversary proceedings (“AP’s”) against numerous
defendants related to the Debtor (LHSW), including Living Hope Southeast, LLC (“LHSE”), seeking
to recover pre-petition and post-petition transfers by LHSW. The Trustee entered into a Settlement
Agreement with several of the AP defendants on May 27, 2009 (“the Settlement”). The bankruptcy
court granted approval of the Settlement over Pinewood’s objections. The Settlement, however, was
overturned on appeal. The parties, again over the objections of Pinewood, attempted to amend the
settlement agreement. The amended settlement was again overturned on appeal. The adversary
proceeding was administratively closed on July 19, 2011, but reopened on November 30, 2012. The
same day the proceeding was reopened, the Trustee filed a motion to amend the complaint in the
proceeding, which the bankruptcy court granted on December 3, 2012. The Trustee then filed her
third amended complaint, against LHSE only, on December 4, 2012, requesting the bankruptcy court
to avoid certain post-petition transfers from LHSW to LHSE and to impose a constructive trust on
the avoided transfers. A pre-trial hearing was held on December 18, 2012, at which the matter was
set for trial on January 15, 2013. Pinewood alleges that it was not aware that these events had
occurred in the adversary proceeding until the end of 2012.
On January 4, 2013, the Trustee filed a pretrial brief seeking a constructive trust on all current
assets of LHSE and on its future net income stream. In response, Pinewood filed a motion for relief
from the automatic stay in LHSE’s pending bankruptcy case2 so that it could move to intervene in
the adversary proceeding in the LHSW bankruptcy. On January 9, 2013, Pinewood filed a motion
to continue the adversary proceeding in order to have sufficient time to gain relief from the stay in
the LHSE bankruptcy. Pinewood obtained relief from the stay in the LHSE bankruptcy on January
To complicate matters further, LHSE filed for bankruptcy in the Eastern District of
Arkansas in 2012.
14, 2013 and filed its motion to intervene in the LHSW adversary proceeding on the same day. The
bankruptcy court denied both the motion for continuance and the motion to intervene on January 15,
2013, and then proceeded to trial on the Trustee’s third amended complaint against LHSE.
Ultimately, the bankruptcy court denied the Trustee’s request for a constructive trust but awarded
the Trustee an unsecured claim against LHSE in the amount of $1,190,000.
Prior to seeking intervention in the adversary proceeding, Pinewood’s interests in the
litigation had been transferred, as part of a larger transaction, to Dr. James J. Naples, formerly the
sole equity owner of Pinewood,. Pinewood did not, however, seek to have Naples substituted as a
party to the bankruptcy litigation prior to seeking intervention in the adversary proceeding. Rather,
intervention was sought in Pinewood’s name.
Pinewood now appeals the bankruptcy court’s orders denying its motions for intervention and
continuance as well as the order granting an unsecured claim to LHSW against LHSE.
Motion to Strike
Williams moves to strike portions of the record designated by Pinewood. The Court has
addressed this issue in a previous appeal by Pinewood from the LHSW bankruptcy. The Court
denied a motion to strike by Williams in the previous appeal, and Williams cites to no authority that
would convince the Court to deviate from that prior ruling. The Court, therefore, re-asserts in large
part its previous ruling on this issue.
Federal Rule of Bankruptcy Procedure 8006 allows a bankruptcy appellant (Pinewood) to file
and serve on the appellee (the Trustee) “a designation of the items to be included in the record on
appeal and a statement of the issues to be presented.” The appellee may then serve on the appellant
“a designation of additional items to be included in the record on appeal . . . .” Id. “The record on
appeal shall include the items so designated by the parties . . . .” Id. (emphasis added). The rule
therefore does not provide a mechanism for excluding designated documents from the record on
appeal. See In re Berge, 37 B.R. 705, 708 (Bankr. Wis. 1983) (reviewing the language of Rule 8006
and finding that the “only kind of modification permitted under R. 8006 would . . . be addition to,
and not exclusion from, the record”). Furthermore, the record should contain the documentation
necessary to afford the reviewing court a complete understanding of the case. See, e.g., Landmark
Fin. Corp. v. Cox, 2 B.R. 739, 740 (S.D. Ga. 1980). Nevertheless, the scope of Pinewood’s appeal
should be “limited to a review of the matters which were before the trial court at the time it entered
the order from which the appeal is taken.” Matrix IV, Inc. v. Am. Nat’l Bank & Trust Co. of
Chicago, Inc., 2003 U.S. Dist. LEXIS 23280 at *6 (N.D. Ill. 2003). The record on appeal “should
contain all documents and evidence bearing on the proceedings below and considered by the
bankruptcy judge in reaching his decision.” Id. (citations omitted).
Under Federal Rule of Bankruptcy Procedure 8006, the Court finds that the Trustee’s motion
to strike should be denied as procedurally defective. While the Court might like to de-clutter the
record, it does not seem that the Court can or should entertain a motion to strike portions of an
appropriately-filed designated record. The Trustee does not argue that Pinewood was untimely in
its filings or that the filings were otherwise procedurally inappropriate. Furthermore, ruling on a
motion to strike in a bankruptcy appeal at this juncture would require the Court to wade through the
lengthy designated record in an attempt to discern what documents might be considered, before even
having been briefed on the merits.
The Trustee’s motion to strike is therefore DENIED. The Court will keep in mind, however,
that “the fact that a document is included in the relevant record does not mean that . . . the reviewing
district court judge is entitled to use it for any purpose.” Nantucket Investors II v. Cal. Fed. Bank,
61 F.3d 197, 205 (3rd Cir. 1995). The Court also has every intent to limit its use, where appropriate,
of any designated records filed by the parties. The Court also remains cognizant of the order by the
bankruptcy judge, Judge Mixon, setting forth his opinion as to the appropriateness of certain
documents included in the designated record on this appeal. If Williams believes that a document
is inappropriately used as support in the briefs on the merits of this appeal, Williams should
succinctly address that issue as a part of her responsive pleading.
Motion to Substitute
Pinewood moves to substitute James J. Naples as the appellant in place of Pinewood based
on the fact that Pinewood’s interests in the bankruptcy litigation were transferred to Naples on
December 31, 2012. Williams opposes substitution and argues that Pinewood inappropriately sought
intervention knowing that it no longer had any interest in the bankruptcy litigation. Williams argues
that substitution at this time would not be appropriate and that the appeal should be dismissed for
lack of standing.
The issue before the Court at this time is not whether Pinewood did or did not have standing
to intervene—or to be more precise, to file a motion to intervene—in the adversary proceeding. That
is an issue that would potentially be tied up in the merits of the appeal. Rather, the issue before the
Court is simply whether Pinewood could appropriately file an appeal in this Court in its name rather
than that of Naples and then seek substitution.
The parties argue as to whether Rule 17 or Rule 25 of the Federal Rules of Civil Procedure,
or neither or both, would apply in this instance. Rule 17 allows for substitution of the real party in
interest when an action is being prosecuted by a different party. Rule 25(c) applies in the event an
interest in a pending litigation is transferred and allows for an action to be “continued by or against
the original party unless the court, on motion, orders the transferee to be substituted in the
action . . . .”
Although the parties focus primarily on Rule 17 in their briefings, the Court finds that Rule
25 applies, given the procedural history of this case, and that substitution should be allowed at this
time. At the time Pinewood moved to intervene in the adversary proceeding, the underlying
bankruptcy action had been ongoing for years, and Pinewood was looking to intervene in the
adversary proceeding as a party creditor in the underlying bankruptcy case. Therefore, the issue
before the bankruptcy court would have been whether Pinewood could pursue intervention as the
original party creditor in the underlying bankruptcy proceeding. Rule 25 clearly allows for
Pinewood—the original party—to continue the action in its own name even where Pinewood had
transferred its interests in the litigation to Naples. In fact, it is not clear that it would have been
procedurally appropriate for Naples to seek to intervene in the adversary proceeding without a prior
motion for substitution under Rule 25 or without first seeking to intervene in the general bankruptcy
proceeding. See Fed. R. Bankr. P. 7024, advisory committee notes (“Intervention in a case and
intervention in an adversary proceeding must be sought separately.”). And, under Rule 25, no prior
motion for substitution was required, as Pinewood could continue to litigate its interests in the
underlying bankruptcy proceeding as the original party in interest.
Now, on appeal, Pinewood seeks to substitute Naples in its place. Because Pinewood has
transferred its interest in the bankruptcy litigation to Naples, the Court finds that substitution is
appropriate pursuant to Rule 25(c). As this Court is acting as an appellate court in this matter, the
Court recognizes that Federal Rule of Appellate Procedure 43 also allows for substitution of parties
on appeal. Pinewood’s motion to substitute will be granted, and Naples will be substituted as the
appellant in this matter.
Motion to Dismiss
Williams argues several bases for dismissal: (1) the basis for Pinewood’s appeal is moot
because the bankruptcy court granted the relief sought by Pinewood in its motion to intervene and
removed Pinewood’s stated basis for intervention; (2) Pinewood lacked standing to file a notice of
appeal, because it did not have a stake in the outcome, as its interests had been previously transferred
to Naples; and (3) neither Rule 17 nor Rule 25 provide a procedural avenue to cure Pinewood’s lack
of standing. The Court has already found that it was appropriate for Pinewood to seek intervention
in the adversary proceeding as an original party/creditor in the bankruptcy case and that it is now
appropriate for Pinewood to seek substitution of Naples. Williams’s only remaining argument is that
this appeal should be dismissed on the basis that it is moot. The Court does not agree.
Pinewood sought to intervene in the adversary proceeding in order to argue against the relief
sought by LHSW, which was a constructive trust on the assets of LHSE. The Court is aware of no
rule or case law, nor have the parties cited to any, that would have limited Pinewood’s intervention
in the adversary proceeding to only those arguments set forth in its motion to intervene. Federal
Rule of Civil Procedure 24, as applied to bankruptcy proceedings by Federal Rule of Bankruptcy
Procedure 7024, does not do so. An intervening party seeks to intervene in order to protect its
interests. As the litigation proceeds, it would be understandable and expected that an intervening
party would be allowed to defend its interests in light of the ever-changing context of a litigation.
Had Pinewood been allowed to intervene in the adversary proceeding, it might have objected to the
granting of a liquidated claim to the Trustee.
The Court cannot find that this case should be dismissed at this juncture. Instead the case
should proceed to a review on the merits.
For all the reasons stated above IT IS ORDERED that Williams’s motion to dismiss (Doc.
7) is DENIED AS MOOT.
IT IS FURTHER ORDERED that Williams’s motion to strike (Doc. 15) is DENIED.
IT IS FURTHER ORDERED that Pinewood’s motion to substitute (Doc. 17) is GRANTED.
The clerk is directed to substitute James J. Naples as the appellant in this matter in place of
Pinewood Enterprises, L.C.
IT IS FURTHER ORDERED that Williams’s second motion to dismiss (Doc. 35) is
IT IS FURTHER ORDERED that any stay previously imposed in this matter (Doc. 20) is
lifted. An amended scheduling order will be entered so that this case can proceed to a review on the
merits. The parties are cautioned to abide by the local rules. The Court will not consider any future
replies or sur-replies not filed in accordance with the rules. Furthermore, the parties should strive
to be precise in their pleadings and focus on the issues in this particular appeal without getting
bogged down in extraneous matters.
IT IS SO ORDERED this 12th day of December, 2013.
/s/P. K. Holmes, III
P.K. HOLMES, III
CHIEF U.S. DISTRICT JUDGE
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