Living Hope Southeast, LLC v. Williams
MEMORANDUM OPINION AND ORDER affirming the orders of the bankruptcy court denying Pinewood's motions for intervention and continuance and this appeal is dismissed. Further, the Trustee's 52 Motion for judicial notice is DENIED. See Order for specifics. Signed by Honorable P. K. Holmes, III on July 14, 2014. (mll)
IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF ARKANSAS
LIVING HOPE SOUTHWEST
MEDICAL SERVICES, LLC, Debtor
JAMES J. NAPLES
Case No. 4:13-CV-04028
RENEE S. WILLIAMS
OPINION AND ORDER
Before the Court and ripe for consideration on the merits is an appeal from the United States
Bankruptcy Court for the Western District of Arkansas.1 For the reasons stated herein, the Court
affirms the bankruptcy court.
Before delving into the merits of the instant appeal, the Court must address the pending
motion for judicial notice (Doc. 52) filed by the Trustee. Because the Court does not find that the
proffered order is necessary for the Court to consider in ruling on the merits of this appeal, and
because counsel for Dr. Naples has indicated that the order has been appealed, the Court declines
to take judicial notice of the order, and the Trustee’s motion (Doc. 52) is DENIED.
The Court restates, as supplemented, its statement of the procedural and substantive
background of this case from its previous Order (Doc. 44).
The Honorable James G. Mixon, now deceased, United States Bankruptcy Court for the
Western District of Arkansas.
Pinewood Enterprises, L.C. (“Pinewood”)2 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, 2008, 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”) 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 the objections of two unsecured creditors of LHSW,
including Pinewood. The settlement, however, was overturned on appeal. The parties then
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
James J. Naples was substituted as appellant in place of Pinewood by order of the Court
dated December 12, 2013. (Doc. 44). For the sake of consistency, the Court will refer in this
opinion and order to Pinewood. Such references to Pinewood include Naples, as Naples is the
successor-in-interest to Pinewood.
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 time the matter was set for trial on January 15, 2013. Pinewood alleges that it
was not aware that these events had occurred in the AP until the end of 2012.
On January 4, 2013, the Trustee filed a pretrial brief in which the Trustee more explicitly
sought a constructive trust on all current assets of LHSE and on its future net income stream.
Allegedly in response to this pretrial brief, Pinewood filed a motion for relief from the automatic stay
in LHSE’s pending bankruptcy case3 so that it could move to intervene in the AP in the LHSW
bankruptcy. On January 9, 2013, Pinewood filed a motion to continue the AP 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 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
Naples, as successor in interest to Pinewood, now appeals the bankruptcy court’s orders
denying Pinewood’s motions for intervention and continuance as well as the order granting an
To complicate matters further, LHSE filed for bankruptcy in the Eastern District of
Arkansas in 2012.
unsecured claim to LHSW against LHSE.
Standard of Review
A federal district court has jurisdiction, pursuant to 28 U.S.C. § 158, to hear appeals from
the rulings of a bankruptcy court and may “affirm, modify, or reverse” the bankruptcy court’s order
“or remand with instructions for further proceedings.” Fed. R. Bankr. P. 8013. Generally, the Court
examines the bankruptcy court’s findings of fact for clear error and its conclusions of law de novo.
In re Food Barn Stores, Inc., 107 F.3d 558, 561-62 (8th Cir. 1997). This standard was put into place
to “accord the findings of a bankruptcy judge the same weight given the findings of a district judge
under Rule 52 F.R.Civ.P.” Fed. R. Bankr. P. 8013, advisory committee notes. The Court should,
therefore, look specifically to the standard of review applied by the Eighth Circuit as to the issues
raised in this case. “[W]hether or not a person is entitled to intervention as a matter of right is a
question of law that [the Court] review[s] de novo.” Mille Lacs Band of Chippewa Indians v. State
of Minn., 989 F.2d 994, 998 (8th Cir. 1993). “[The Court] review[s] the [bankruptcy] court’s ruling
on the timeliness of a motion to intervene, however, only for abuse of discretion.” Id.
The resolution of this appeal of what should be a relatively simple issue of intervention was
significantly bogged down by the firestorm of early motion practice as well as the amount of
unnecessary and extraneous material injected into the designated record by Pinewood. The Court
in this case, and in a previous appeal from the same AP by Pinewood,4 has found that there is no
procedural mechanism that would allow the Court to strike portions of an appropriately designated
In re Living Hope Sw. Med. Servs., LLC, 2012 WL 79661 at *9-10 (W.D. Ark. Jan. 11,
record on a bankruptcy appeal. It appears that Pinewood took the Court’s previous order as an
invitation to clutter the instant designated record and obfuscate the issues raised in this appeal.
While there may not be a procedural mechanism for striking portions of a designated record (and it
would be time-intensive and an exercise in frustration for a court to attempt to do so at the earliest
stages of appellate litigation), some of the extraneous material designated as a part of the record in
this case steps dangerously close to the line for which an attorney may be sanctioned. Fed. R. Civ.
P. 11(b) (“By presenting to the court a pleading, written motion, or other paper . . . an attorney . . .
certifies that to the best of the person’s knowledge, information, and belief, formed after an inquiry
reasonable under the circumstances it is not being presented for any improper purpose, such as to
harass, cause unnecessary delay, or needlessly increase the cost of litigation.”). The Court notes that,
having waded through the record, it has appropriately limited its review to only those documents that
are relevant to the limited issues raised in this appeal.
This appeal was further convoluted by the fact that the attorneys clearly have issues of
personal animosity that have infiltrated their filings. The facts and law are clouded by personal
attacks and disingenuous, misleading remarks and arguments. Neither side ever gives the Court a
full, clear, sharply defined picture of what actually happened in the bankruptcy court. Because of
the contentious history of this case and this clouding of the issues, the Court frankly did not know
what representations in the filings could be trusted. However, now having reviewed the relevant
portions of the record, the Court has been able to sufficiently piece together the relevant facts to
decide the issues raised in the instant appeal.
“On timely motion, the court must permit anyone to intervene who: (1) is given an
unconditional right to intervene by a federal statute; or (2) claims an interest relating to the property
or transaction that is the subject of the action, and is so situated that disposing of the action may as
a practical matter impair or impede the movant’s ability to protect its interest, unless existing parties
adequately represent that interest.” Fed. R. Civ. P. 24(a) (emphases added). Therefore, besides
timely application, an applicant for intervention must show (1) that the applicant has a recognized
interest in the subject matter of the litigation; (2) that the interest is one that might be impaired by
the disposition of the litigation; and (3) that the interest is not adequately protected by existing
parties. United States v. Union Elec. Co., 64 F.3d 1152, 1160 (8th Cir. 1995).
“Whether a motion to intervene is timely is determined by considering all the circumstances
of the case.” Mille Lacs Band, 989 F.2d at 998. “In determining timeliness, factors that bear
particular consideration are the reason for the proposed intervenor’s delay in seeking intervention,
how far the litigation has progressed before the motion to intervene is filed, and how much prejudice
the delay in seeking intervention may cause to other parties if intervention is allowed.” Id. The
Court finds that the bankruptcy court did not abuse its discretion in finding that Pinewood’s motion
was untimely and the bankruptcy court’s denial of Pinewood’s motion to intervene should be
affirmed on that basis. Although the Court recognizes the unusual and expedited nature of the trial
of the AP, Pinewood was aware of the relief sought by the Trustee at the time that the Trustee herself
sought relief from the automatic stay in the LHSE bankruptcy. Nothing prevented Pinewood from
also filing for relief from the stay at that time and making a more timely motion for intervention in
the LHSW AP. Pinewood’s argument that it did not know of the need to file a motion to intervene
until the Trustee filed the January 4th pre-trial brief is not credible. Pinewood obviously thought its
interests were at risk when it objected to the stay being lifted in the LHSE case. Pinewood saw and
considered the third-amended complaint at least as of the time it was introduced as an exhibit before
the LHSE bankruptcy court on November 27, 2012. Ms. William’s January 4th pre-trial brief did
not, as a legal matter, expand the relief sought in that complaint. Furthermore, the other
parties—LHSW and LHSE—would have been prejudiced by yet another delay in what had already
been a needlessly protracted litigation. The parties would also have been prejudiced, had Pinewood
been allowed to intervene, in that presentation of a straightforward issue of post-petition transfers
would have been needlessly muddled by interjections from Pinewood regarding extraneous litigation.
The Court finds that, given the totality of the circumstances, the bankruptcy court did not abuse its
discretion in finding Pinewood’s motion to intervene to be untimely.
The Court also finds that the bankruptcy court should be affirmed as the Court finds there
was no error in the bankruptcy’s court’s finding that Pinewood was not entitled to intervene in the
AP proceeding as a matter or right. Alternatively, the Court finds that the issues raised in this appeal
are moot given the bankruptcy court’s ultimate ruling on the merits and/or that Pinewood should be
judicially estopped from arguing a basis for intervention contrary to the position it took before the
bankruptcy court. See Gray v. City of Valley Park, Mo., 567 F.3d 976, 981-82 (8th Cir. 2009) (“[t]he
purpose of the doctrine [of judicial estoppel] is to protect the integrity of the judicial process by
prohibiting parties from deliberately changing positions according to the exigencies of the moment”
and is an equitable remedy which a court should apply, in its discretion, on a case-by-case basis).
Finally, the Court finds that the bankruptcy court did not abuse its discretion in denying Pinewood
On December 12, 2013, this Court entered an order that, in part, denied an amended motion
by the Trustee to dismiss the instant appeal. The Trustee moved to dismiss this case based in part
on the argument that the appeal was moot because the bankruptcy court granted the relief sought by
Pinewood in its motion to intervene—the bankruptcy court did not impose a constructive trust on
any assets of LHSE. The Court denied that motion before the parties had briefed this appeal on the
merits and before the Court had the opportunity to conduct a full and thorough review of the record.
In doing so, the Court relied, in part, on the representation of counsel for Pinewood, Judy Henry, that
counsel for Pinewood was not aware at the time Pinewood sought to intervene in the AP that the
Trustee sought a liquidated claim. Having now conducted an exhaustive review of the relevant
portions of the record, the Court finds that Pinewood was aware that the Trustee was seeking a
liquidated claim at the time it sought intervention and nevertheless expressly limited its interest in
intervening in the AP to preventing imposition of a constructive trust on assets of LHSE.
Contrary to Ms. Henry’s assertions in her response (Docs. 37-38) to the Trustee’s amended
motion to dismiss (Doc. 35), the record makes abundantly clear that Ms. Henry was aware—as early
as October of 2012—that Ms. Williams was seeking to liquidate LHSW’s claim to be collected in
the LHSE bankruptcy. Ms. Henry’s response represented as follows:
Pinewood Enterprises, L.C. (“Pinewood”) sought intervention to
contest the Trustee’s request for a constructive trust because that was
the only relief that the Trustee sought in her third amended complaint.
She did not seek an unsecured claim in the [LHSE] bankruptcy case,
so the motion to intervene could not raise that issue, either.
Ultimately, both the request for a judgment by the Trustee and the
liquidation of the Trustee’s claim raised by the bankruptcy court were
made after the court had already denied the motion to intervene.
(Doc. 38, p. 1). This representation was misleading at best.
The Honorable Aubrey R. Evans, United States Bankruptcy Judge for the Eastern District
of Arkansas has been given the unenviable task of presiding over the LHSE Chapter 11 bankruptcy
proceedings. On November 27, 2012, Judge Evans held a hearing on Ms. Williams’s motion for
relief from the automatic stay resulting from the LHSE bankruptcy to pursue its claims against LHSE
in the AP in the LHSW bankruptcy. (Doc. 49-1). Pinewood objected to the Trustee’s motion for
relief from stay. At the hearing, Ms. Henry was present representing Pinewood, and Thomas
Streetman was present as the attorney for the Trustee. Mr. Streetman made clear from the very
beginning of his opening remarks that LHSW was “asking this Court to permit Ms. Williams, as the
Trustee of [LHSW] to have relief from stay for only the limited purpose of reducing to a liquidated
claim a cause of action that she against [LHSE] in a pending adversary proceeding filed in the
[LHSW] Chapter 7 proceeding.” Id. at pp. 7-8. Mr. Streetman repeated this understanding a couple
more times during his opening remarks. Jim Smith was present at the hearing representing LHSE.
Mr. Smith also made clear in his opening remarks that LHSE had an interesting in having any claims
against it liquidated in order to propose a feasible reorganization plan for LHSE. Id. at p. 12. In her
opening remarks, Ms. Henry clearly acknowledged that the Trustee would be seeking to liquidate
its claim, but appeared unconcerned with this eventuality, objecting only to the fact that the Trustee
also sought to impose a constructive trust on LHSE’s assets: “[LHSW] intends to . . . not simply
liquidate its debt to a judgment, but to liquidate its debt to a judgment and then to seek a trust on all
the assets of [LHSE] . . . And that’s why Pinewood does not believe it is appropriate for the Trustee
to get relief from the stay . . . .” Id. at p. 22. Later in the hearing, the Trustee testified that the
purpose of seeking relief from the stay was “to liquidate the claims of the debtor estate of [LHSW]
against [LHSE].” Id. at p. 31. On cross-examination, Ms. Henry herself asked, after specifically
directing the Trustee’s attention to LHSW’s proposed third amended complaint, “I understood your
testimony on direct to be that you want to liquidate the debt, the alleged debt, of . . . [LHSW] against
[LHSE], correct?” Ms. Williams responded “[t]hat is correct.” Id. at p. 49. Judge Evans also
plainly stated “I am going to make a decision today as to whether I grant relief from stay to
Southwest to liquidate its claim; and by that, I mean to set a money amount of its claim, to liquidate
that in its own bankruptcy where the alleged post-petition transfers took place.” Id. at p. 38. Finally,
Ms. Henry recognized that the testimony at the November hearing may have proved cause for relief
from the stay “but only to the extent to liquidate the claim . . . Pinewood does not believe that the
testimony establishes that [LHSW] should be entitled to litigate in the [LHSW] case to impose a
post-petition constructive trust on the assets of the Chapter 11 debtor, [LHSE].” Id. at p. 76. It is
abundantly clear that all the attorneys, parties, and Judge Evans understood that the Trustee would
be seeking to liquidate its claim against LHSE. This was clear at the time of the hearing in
November 2012, when Judge Evans entered her order granting LHSW relief from the automatic stay,
and at all points thereafter. The citations to other comments evidencing this understanding are too
numerous to list all of them here.
Ms. Henry was keenly aware of, and acknowledged her awareness of, the fact that the Trustee
would be seeking to liquidate her claim. Despite that fact, Pinewood sought to intervene in the AP
only on the basis that it would object to imposition of a constructive trust over LHSE’s assets. In
its motion to intervene, Pinewood clearly stated its position that it should be permitted to intervene
as a matter of right in order to prevent the Trustee from imposing a constructive trust on all assets
of LHSE. Pinewood specifically stated that “Pinewood’s interest in . . . LHI5 assets, as a judgment
creditor of LHI, and as asserted in pending litigation in the Miller County Action by Pinewood to
recover those assets and award a judgment, will be impaired unless Pinewood is allowed to
Living Hope Institute, an entity against which Pinewood has a consent judgment in a state
court case out of Miller County, Arkansas
intervene.” (Doc. 2-9, ¶ 4). At the hearing on Pinewood’s motion to intervene, Ms. Henry made
clear to Judge Mixon that Pinewood was not asking the bankruptcy court for anything “other than
to protect the assets of [LHI] that went into [LHSE].” (Doc. 2-38, p. 15). Because the bankruptcy
court did not impose a constructive trust on any assets of LHSE, Pinewood’s stated interest in
intervening in the AP is moot. Additionally, Pinewood is judicially estopped from arguing in this
appeal that it should have been allowed to intervene to challenge the Trustee seeking a liquidated
claim, contrary to the position taken in the bankruptcy court that Pinewood only sought to intervene
to protect against the imposition of a constructive trust.
Alternatively, the Court finds that the bankruptcy court should be affirmed on the basis that
Pinewood did not have a protectable interest in the subject matter of the AP that was not adequately
protected by the existing parties to the proceeding. To have a cognizable interest as contemplated
by Rule 24 of the Federal Rules of Civil Procedure, an applicant for intervention’s interest in the
subject matter of the litigation must be direct (as opposed to tangential or collateral), substantial, and
legally protectable. Union Elec. Co., 64 F.3d at 1161. “The purpose of intervention is to promote
the efficient and orderly use of judicial resources by allowing persons, who might otherwise have
to bring a lawsuit on their own to protect their interests or vindicate their rights, to join an ongoing
lawsuit instead.” United States v. Metro. St. Louis Sewer Dist., 569 F.3d 829, 840 (8th Cir. 2009)
(quotation omitted). “Typically, persons seeking intervention need only carry a minimal burden of
showing that their interests are inadequately represented by the existing parties.” Mille Lacs Band,
989 F.2d at 999 (internal quotation omitted). After reviewing the relevant record, the Court finds
that the only arguably protectable interest Pinewood had in the AP was the one it asserted in moving
to intervene—to protect against the imposition of a constructive trust on all assets of LHSE.
Ultimately, that interest was adequately protected and no constructive trust was imposed. The
interests Pinewood now asserts on appeal—an interest in challenging any liquidated claim granted
to LHSW or its valuation—do not rise to the level of a significant, protectable interest under Rule
24 and, in any event, were adequately aligned with the interests of LHSE and protected by counsel
At the hearing on Pinewood’s motion to intervene, as a point of clarification, Ms. Henry
stated that Pinewood was seeking to intervene, not as a creditor of LHSW,6 but as a judgment
creditor of LHI and as “a creditor for [LHSE].” (Doc. 2-38, p. 7). Ms. Henry acknowledged that the
reason she believed Pinewood’s interests were not aligned with LHSE’s was because Pinewood was
concerned about protecting a different “pot of assets” (any transfers from LHI to LHSE) than LHSE
(assets that LHSE has independently generated not from the assets of either LHSW or LHI). Id. at
pp. 11-12. Indeed, this is the only basis for mandatory intervention that Pinewood alleged in its
motion to intervene before the bankruptcy court. (Doc. 2-9, ¶ 4 (“This competing claim to the same
assets warrants mandatory intervention.”)). Assuming, without finding, that this interest as a
judgment creditor of LHI would have mandated that Pinewood be able to intervene in the AP, it is
the only arguably protectable interest that the Court can find Pinewood had in the AP—an interest
in not encumbering all the assets of LHSE. Apart from that interest, the Trustee for LHSW must be
able to litigate the claims belonging to her as Trustee, just as the Court has previously decided in the
prior appeals that Pinewood should be able to litigate the claims belonging to Pinewood. Pinewood
had no legally protectable interest in obstructing the Trustee’s ability to liquidate the claims
The Trustee, presumably, would have adequately represented Pinewood’s interests as an
belonging to the Trustee against LHSE. In fact, Ms. Henry explicitly acknowledged that a third “pot
of assets”—assets going solely from LHSW to LHSE—“would be assets over which the Trustee of
[LHSW] would have the right to construct a trust upon or recover under the 549 causes of action
she’s brought.” Id. at p. 11. There was never an argument that Pinewood had an independent
interest in protecting against the Trustee liquidating its claim against LHSE.
In the hearing on Pinewood’s motion to intervene, Ms. Henry went so far as to say that
Pinewood likely would not have moved to intervene based solely on the third amended complaint
in the AP (which is what the bankruptcy court would have looked to in determining what relief, if
any, to grant). (Doc. 2-38, pp. 21-22). Rather, Pinewood only felt compelled to intervene upon
reading a pre-trial brief filed by the Trustee in which the Trustee stated that she sought a constructive
trust on all assets of LHSE. Id. Ms. Henry stated “[i]t was the brief on January 4th that changed
everything.” Id. at p. 22. It is painfully clear to the Court that Pinewood’s only interest in
intervening in the AP was to argue against imposition of a constructive trust over all assets of LHSE.
As the Court has already found, these interests were adequately protected by counsel for LHSE in
that the bankruptcy court did not ultimately impose a constructive trust on any assets of LHSE, and
Pinewood has no basis to appeal denial of intervenion on those grounds. The record makes clear that
Pinewood acknowledged the Trustee’s right to pursue the causes of action belonging to her and even
to liquidate a claim or seek a constructive trust over some assets of LHSE if the evidence supported
such relief. It is disingenuous for Pinewood to now come before this Court, burdening the Court
with a voluminous record and litigating an issue which Pinewood has essentially already won, only
to further delay an already hopelessly protracted litigation. Ultimately, no constructive trust was
imposed over any assets of LHSE; Pinewood can seek to bring its disputed claim against LHSE to
judgment; and, assuming Pinewood secures a judgment, Pinewood and LHSW can both seek to
recover on their claims in the LHSE bankruptcy. The assets Pinewood sought intervention to protect
have not been encumbered. Pinewood had no other protectable interest in the AP.
The only additional interest that Pinewood now asserts on appeal is an interest in litigating
the value of any liquidated claim obtained by LHSW. The valuation of any liquidated claim granted
to LHSW is a matter of litigation strategy. Pinewood takes issue with the fact that counsel for LHSE
stipulated to a valuation report. Presumably, however, LHSE could have settled with the Trustee
without even taking the issue to trial. The Court will not assume that any sort of collusion occurred
to the detriment of LHSE’s (or Pinewood’s) interests, nor does the record support any such finding.
While Pinewood can second-guess the LHSE’s litigation strategy in hindsight, such criticisms do
not support an argument that Pinewood should have been allowed to intervene in the first instance.
Jenkins by Jenkins v. State of Mo., 78 F.3d 1270, 1275 (8th Cir. 1996) (“A difference of opinion
concerning litigation strategy or individual aspects of a remedy does not overcome the presumption
of adequate representation.”). In any event, any interest that Pinewood may have had (as a potential
claimant in the LHSE bankruptcy) as to valuation were aligned with LHSE’s, and the ultimate
valuation of $1,190,000 appears to have been reasonable.7
As to Pinewood’s request for permissive intervention, permissive intervention likewise
requires a timely motion. Fed. R. Civ. P. 24(b). The Court has already found that the bankruptcy
court did not abuse its discretion in finding Pinewood’s motion to be untimely. Furthermore, the
Court finds no abuse of discretion in the bankruptcy’s court’s denial of Pinewood’s motion for
In fact, in previously challenging the overturned settlements in the AP, Pinewood put on
expert testimony arguing that the value of LHSE should have been 2.6 to 2.8 million dollars. (Doc.
3-11. p. 260).
“In exercising its discretion, the court must consider whether the
intervention will unduly delay or prejudice the adjudication of the original parties’ rights.” Fed. R.
Civ. P. 24(b)(3). Even assuming that Pinewood met one of the criteria for which permissive
intervention would have been allowed under Rule 24(b), it is beyond legitimate dispute that allowing
Pinewood to intervene would have unduly delayed the already hopelessly protracted litigation of, at
that point in time, a narrow issue involving claims belonging solely to the Trustee that ultimately did
not result in a resolution that infringed upon Pinewood’s ability to pursue its own claims in state
court. Again, the only basis for permissive intervention stated by Pinewood in its motion to
intervene before the bankruptcy court was that “LHSE was formed for the purpose of evading
payment of creditors of both LHSW and LHI. Therefore, Pinewood has a claim that shares with the
main action with [sic] common questions of law and fact. Intervention is necessary to protect and
preserve Pinewood’s claim for a determination by the Circuit Court of Miller County, Arkansas in
the Miller County Action, not here.” (Doc. 2-9, ¶ 5). Pinewood’s state-court claim was never
legitimately threatened by the Trustee’s claims in the AP—which by law would have been limited
to recovery of fraudulent post-petition transfers or the value thereof8—and was, in any event, fully
preserved and protected as a result of the bankruptcy court’s denial of imposition of a constructive
trust on LHSE’s assets.
This was at least implicitly recognized by the Trustee and Mr. Streetman. Their asserted
basis for attempting to impose a constructive trust on all assets of LHSE was that LHSE was created
exclusively from LHSW’s resources, not from LHI’s resources. This was argued at trial of the AP
(Doc. 2-38, p. 36) and in the Trustee’s post-trial brief (Doc. 2-22, ¶¶ 24-26). Whether or not
Pinewood intervened, the Court must assume that the bankruptcy court would hold the Trustee to
her burden of proof as to fraudulent transfers from LHSW to LHSE and the appropriateness of
imposing a trust over any assets of LHSE. It appears the bankruptcy court did just that in denying
imposition of a constructive trust. (Doc. 2-34, p. 1 (“there is no proof that [LHSE] is in possession
of any of [LHSW’s] assets”)).
The bankruptcy court did not abuse its discretion in finding Pinewood’s motion to intervene
to be untimely; the bankruptcy court correctly found that Pinewood had no basis for intervention as
a matter of right; the bankruptcy court did not abuse its discretion in denying permissive intervention
by Pinewood; and, any arguably legitimate interest Pinewood may have had for intervening in the
AP was adequately protected such that Pinewood’s current challenge to the bankruptcy court’s denial
of intervention is moot. Pinewood is also judicially estopped from arguing a basis for intervention
on appeal contrary to the basis argued before the bankruptcy court. Because the Court affirms the
bankruptcy court’s denial of Pinewood’s motion to intervene, the Court does not need to reach
Pinewood’s challenges to the merits of the judgment and findings rendered by the bankruptcy court
in the AP. It is well settled “that only parties to a lawsuit, or those that properly become parties, may
appeal an adverse judgment.” Marino v. Ortiz, 484 U.S. 301, 304 (1988).
For all of the those reasons, IT IS ORDERED that the orders of the bankruptcy court denying
Pinewood’s motions for intervention and continuance are AFFIRMED, and this appeal is
IT IS FURTHER ORDERED that the Trustee’s motion for judicial notice (Doc. 52) is
IT IS SO ORDERED this 14th day of July, 2014.
/s/P. K. Holmes, III
P.K. HOLMES, III
CHIEF U.S. DISTRICT JUDGE
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