In re: Energy Future Holdings Corp., et al.
Filing
31
MEMORANDUM OPINION regarding 1 Bankruptcy Appeal. Signed by Judge Richard G. Andrews on 9/14/2016. (nms)
IN THE UNITED STATES DISTRICT COURT
-FORTHE DISTRICT OF DELAWARE
INRE:
ENERGY FUTURE HOLDINGS, et al.,
Chapter 11
Bankr. No. 14-10979(CCS)
Jointly Administered
Debtors.
KENNETH R. STEWART,
Civ. No. 15-1213-RGA
Appellant,
v.
ENERGY FUTURE HOLDINGS, et al.,
Appellees.
Kenneth R. Stewart, Dallas, Texas; Pro Se Appellant.
.Jason Michael Madron, Esq., Richards, Layton & Finger, PA, Wilmington, Delaware;
Counsel for Appellees.
MEMORANDUM OPINION
l4 ,
2016
September
Wilmington, Delaware
Appellant Kenneth R. Stewart filed this bankruptcy appeal on December 29,
2015. He appears pro se. His appeal arises from 1wo orders entered by the United
States Bankruptcy Court for the District of Delaware on December 16, 201.5 in In re:
Energy Future Holdings Corp., Bankr. No. 14-10979 (CSS) (Bankr. D. Del.) at D.I.
7381, D.I. 7382.
I. BACKGROUND
Debtors/Appellees filed respective voluntary petitions for relief under Chapter 11
of the Bankruptcy Code. The matters are under the jurisdiction of the United States
Bankruptcy Court for-the District of Delaware. On May 2, 2014, the Bankruptcy Court
entered an order that established October 27, .2014, as the final bar date to file proofs
of claim for certain customer claimants holding or asserting a claim against Debtors
arising on or before the petition date. (See Bankr. No.14.;10979 (CSS) at D.I. 307).
Written notice of the bar date was mailed to current and certain former customers of
Debtors, including Claimant Kuk Ja Stewart in her capacity as a former customer of
TXU-Energy. (See D.l.20Ex. Nat 16).
Claimant Stewart, who it appears is the mother of Appellant Kenneth R. Stewart,
filed proof of claim No. 5739 for an unliquidated amount, proof of claim No. -10003 for
$1.8 billion, and-proof of claim No. 109821 for an unliquidated amount. (Id. at Exs. A, 8,
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Claim No. 10982 is filed on behalf of Claimant, but is signed by Appellant as
"Prose Kenneth Stewart." (D.I. 20 Ex. C). During the December 16, 2015 hearing,
Appellant stated, "they want to say this is a claim for Mrs. Stewart. That's incorrect. On
.the backside of it it says -Kenneth Stewart, Pro Se. " (Id. at Ex. N .at 108). The
Bankruptcy Court replied, "Well, the exhibit sort of speaks for itself. It says what it says.
And I'll take it based on what it says and we can discuss what it means later." (Id.).
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C; see also id. at Ex. N at 16). The proofs of claim seem to be for "unpaid mineral
leases." (Id. at Ex. A at 2; see Ex. B at .2). Appellant also filed numerous documents in
Debtors' Chapter 11 cases. (Id. at Exs. H-L).
The claims all relate to the same set of alleged facts regarding certain mineral
rights related to parcels of land that Claimant asserts are owned or controlled by
Debtors and certain pipelines and transmission lines wherein Claimant asserts
ownership interests. Appellant asserts the property interests were fraudulently taken
from Claimant and himself.
On April 2, 2015, Debtors filed the fourteenth omnibus objection, objecting
'
to proof of claim Nos. -5739 and 10003. (Id. at Ex. D). Proof of claim No. 10982 was
filed after Debtors had filed the fourteenth omnibus objection. (Id. at Ex. -E). Next, on
October 16, 2015, Debtors filed the thirty.,third omnibus objection, objecting to .proof of
claim No. 10982. (Id.). The objections are .supported by the declaration of Debtors'
restructuring advisor, Steven Kotarba, managing director of Alvarez & Marsal North
America, LLC. (Id. at Exs. F, G). Debtors investigated the claims at issue and informed
·claimant's counsel and Appellant that none of the thousands of pages of materials
submitted to the Bankruptcy Court evidenced any relationship between the claims and
Debtors. (Id. at Ex. N at 18). Thereafter, Claimant's counsel propounded discovery
requests on Debtors and requested any documents that related to any leases,
easements, or agreements between Debtors and Claimant and her family, or the
parcels of land identified by Claimant and her purported agents. (Id. at-Ex. M, Ex.Nat
18). Debtors responded to the discovery requests and explained they were unaware of
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any responsive documents and that no such documents were in Debtors' possession.
(Id. at Ex. M).
Hearing on the claim objections was held on December 16, 2015. It was noted
that Claimant's counsel of record had withdrawn.2 (Id. at Ex. N at 16). Claimant did not
appear at the hearing, but Appellant appeared with his attorney, Charles Montemayor.-
(Id. at 17). Montemayor, on behalf of Appellant, asked that Appellant be given an
opportunity to submit information to substantiate his claim. (Id. at21 ). Appellant
advised the Bankruptcy Court that he objected to Debtors' evidence, stating, "They
haven't done their due diligence. I have the documentations that I actually submitted in
the proof [of] claim at the very beginning and I have a list of easements that go across
our properties." (Id. at 22). Debtors advised the Bankruptcy Court that Stewart (i.e., the
mother) was the only actual claimant and that Appellant had not filed any proofs of
claim. (Id. at 28).
Debtors-advised the Bankruptcy Court that: (1) they reviewed the proofs of claim
and appended material and then rechecked their books and records and confirmed
independently that there was no relationship to the land, the mining operations, the
transmission lines, or the pipelines; (2) members of Debtors' legal team engaged in
telephonic and in-person meetings with Marco Montemayor, Appellant's "agent;" and (3)
2
The Bankruptcy Court stated that Claimant's attorney "has purported to
withdraw without notice to the Court, without motion and without a court order. And
under our local rule ... , if you have a matter pending before the Court, which he does,
and you are not substituting an attorney admitted before the bar, which he has not, your
representation continues until the Court says it doesn't." (Id. at 31 ). The matter was
postponed until later in the day and counsel _appeared telephonically and explained to
the Bankruptcy Court the circumstances of his withdrawal as counsel for Claimant. (Id.
at 88-91 ).
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they performed another search of the books and records in response to discovery
served upon them and found no relationship between the claims and Debtors. (Id. at
.28-30).
Kotarba testified and was cross-examined by Appellant. (Id. at 92-124). Kotarba
testified as to the accuracy of his declaration, the process used in reviewing the claims
filed, the claims that were investigated, and the results of his review. (Id.) Kotarba
testified that he and his team were unable to find any connection between any of the
parties identified, .parcels of land identified, or Debtor's operations that purportedly
touched the property, and Debtors. (Id. at 104-06). Ruling from the bench, the
presiding Bankruptcy Court judge stated:
I'm going to rule. I'm going to grant the objection. I'm going to disallow all
the claims. The claims are prima facie valid underthe law. It's the burden
of the Debtors-to rebut that presumption. They've done that through the
submission of evidence today that indicates thatthere is no_ connection
between the Debtors and any of the allegations you have made. I find ·
that evidence to be credible and complete. It would then shift to you to try
to convince me otherwise, and I've looked at your documents, I've read
what you've submitted to the Court, both previously, and in preparation for
today.... So I'm going to sustain the claim objection, and disallow your
claims.
(Id. at 128-29).
The Court subsequently entered two orders on December ·16, 2015, which
sustained Debtors' fourteenth and thirty-third omnibus (substantive) objections to
certain no liability Claims pursuant to Section 502(b) of the Bankruptcy Code,
Bankruptcy Rule 3001, 3003, and 3007, and Local Bankruptcy Rule 3007-1. (See
Bankr. No. 14-10979 at D.I. 7381, D.I. 7382). Appellant filed a timely notice of appeal
onDecember29, 2015. (Id. at 7462)
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·11. STANDARD OF REVIEW
This court has jurisdiction to hear an appeal from the bankruptcy court pursuant
to 28 U.S.C. § 158(a). District courts have mandatory jurisdiction to hear appeals "from
final judgments, orders, and decrees" and discretionary jurisdiction over appeals "from
other interlocutory orders and decrees." 28 U.S.C. § 158(a)(1) and (3). Disallowance
of a proof of claim is a final order, since it resolves the dispute between the claimant
and the debtor. See In re Allegheny Intern., Inc., 954 F.2d 167, 172 (3d Cir. 1992). In
conducting its review of the issues on appeal, this Court reviews the Bankruptcy Court's
findings of fact for clear error and exercises plenary review over questions of law. See
American Flint Glass Workers Union .v. Anchor Resolution Corp., 197 F.3d 76, 80 (3d
Cir. 1999). "A finding is 'clearly erroneous' when although there is evidence to support
it, the reviewing court on the entire evidence is left with the definite and firm conviction
that a mistake has been committed." United States v. U.S. Gypsum Co., 333 U.S: 364,
395 (1948). The Court must "break down mixed questions of law and fact, applying the
appropriate standard to each component." Meridian Bank v. A/ten, 958 F.2d 1226,
1229 (3d Cir. 1992).
Ill.
ISSUES PRESENTED FOR REVIEW
While not setforth specifically, Appellant appears to raise the following issue for
review: whether he was denied his right to due process as the bankruptcy case has
been "blindly ruled" upon. (D.I. 10 at 1). Debtors/Appellees phrase the issue for review
as whether the Bankruptcy Court clearly erred when it ruled that (i) Debtors presented
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credible and complete evidence that there is no connection between Debtors and any
of the claims asserted on behalf of Claimant and Appellant, and (ii) neither Claimant nor
her purported agents submitted evidence tending to show a relationship between the
claims and Debtors. (D.I. 20, pp. 7-8).
IV.
DISCUSSION
Appellant contends that the bankruptcy case has been "raced through the court
process with no intervention on a multitude of unlawful and criminal acts." (D.I. 10). He
lists a number of items that he contends justify his, and his mother's, claims. (See D.I.
10, 18, 19, 21, 23). Appellees argue that the Bankruptcy Court's orders should be
affirmed because they rebutted the prima facie validity of the filed claims and that
Appellant, arguing on behalf of the Claimant and himself, did not carry his burden to
prove the validity of the claims. (D.I. 20). Appellees further argue that Appellant
offered nothing in his statement or addenda, and has not pointed to a single piece of
evidence in the record, to show that the Bankruptcy Court's factual findings were clearly
erroneous. (Id. at p.15).
Standing
Although the issue of Article Ill standing was not raised by the parties, the Court
is "required to raise issues of standing sua sponte if such issues exist." Steele v.
Blackman, 236 F.3d 130, 134 n.4 (3d Cir. 2001 ). To have constitutional standing,
Appellant must demonstrate: (1) a concrete and particularized injury, (2) a causal
connection between the injury and the conduct complained of, and (3) redressability.
See Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992). To have prudential
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standing, Appellant "must assert his own legal rights and interests, and cannot rest his
claim to relief on the legal rights or interests of third parties." Warth v. Seldin, 422 U.S.
490, 499 (1975); see also Pitt News v. Fisher, 215 F.3d 354, 359 (3d Cir..2000). To
have appellate standing, Appellant must be a "person .aggrieved," that is a party "whose
rights or interests are directly and adversely affected pecuniarily" by the bankruptcy
court's order. In re PWS Holding Corp., 228 F.3d 224, 248-49 (3d Cir. 2000).
There is no dispute that Claim Nos. 5739 and 10003 were filed by Claimant, not
Appellant. It is evident from the record that, as to those two claims, Appellant does not
have appellate standing. With regard to Claim No. 10982, Appellant appears to have
standing given that he contends that he was an individual creditor, and the Bankruptcy
Court "combined the two separate creditors as one, when they .are definitely not." (D.I.
10 at 3). Since I ultimately conclude that the Bankruptcy Court committed no reversible
error in sustaining the objections to the proofs of claims, and there is a colorable
argument that Appellant has standing on at least one of the proofs of claim, I will not
dismiss the appeal for lack of appellate standing.
Proof of Claims
The burden of proof for claims f!led under the Bankruptcy Code "rests on
different parties at different times." In re Allegheny Int'! Inc., 954 F .2d 167, 173 (3d Cir.
1992). The initial burden is on the claimant to allege sufficient facts to support the
claim. Id. ·The burden of going forward then shifts to the objector to produce evidence
sufficient to negate the prima facie validity of the filed claim. Id. The objector must
produce evidence which, if believed, would refute at least one of the allegations that is
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essential to the claim's legal sufficiency. Id. at173-74. If the objector produces
sufficient evidence to negate one or more of the sworn facts in the proof of claim, the
burden reverts to the claimant to prove the validity of the claim by a preponderance of
the evidence. Id.
at 174. "The burden of persuasion is always on the claimant." Id.
Upon reviewing the findings of fact and conclusions of law rendered by the ·
Bankruptcy Court on the record in connection with the hearing on this matter, the Court
concludes thatthe Bankruptcy Court did not err in sustaining Debtors' objections to the
proofs of claims at issue. The Bankruptcy Court thoroughly considered the evidence
before it and concluded that there was insufficient evidence to support a finding of a
connection between Debtors and the claims. 3 The Bankruptcy Court further found that
Appellant failed to convince it otherwise. In doing so, it sustained the claim objections,
and disallowed the claims. The evidence of record clearly indicates that there is no
evidence of a relationship between Debtors and the claims and supports the
Bankruptcy Court's findings.
Further, Appellant's supporting brieffails to point this Court to evidence that
support his claims or that support reversal of the decisions of the Bankruptcy Court.
3
After the Bankruptcy Court ruled from the bench, the judge noted that he had
looked at Appellant's documents, read what he submitted to the Court, both previously
and in preparation for the hearing, and that he took binders home and read them. (D.I.
20, Ex. N at 128). It appears that when Appellant then sought to submit additional
papers, the Bankruptcy Court stated, "well, you're going to submit paper to the Court at
9:00 before a 9:30 hearing, they're not going to be read." (Id.). Appellant responded
that he had asked his attorney to submit them the week before and he resigned. (Id.)
Wherein, the Bankruptcy Court replied, "that's a question between you and [your former
attorney] .... as your agent, didn't do what he was supposed to do, then you may or
may not have claims against him. I'm not saying you do, but the Court can't be held
responsible for any miscommunication between a client and counsel. (Id. at 128-29).
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would expect that if there were unpaid mineral leases, that there would be some
evidence that such an obligation was once acknowledged in writing. Yet, the record
contains no documents that support Appellant's arguments. Appellant's numerous
submissions on appeal contain conclusory and unsupported allegations, without
reference to the law. While Appellant included exhibits with his brief, they do not
support reversal of the Bankruptcy Court's rulings. (See D.I. 18, Ex.; D.I. 21, Exs. A, B,
C, D).
In light of the record and the testimony adduced at the hearing, the Court cannot
conclude that the findings of fact were clearly erroneous or that the conclusions of law
were erroneous. Thus, the Bankruptcy Court did not err in sustaining Debtors'
objections to Claim Nos. 5739, 10003, and 10982.
V.
CONCLUSION
-For the reasons explained, that the bankruptcy court's December 16, 2015
Orders will be affirmed.
An order consistent with this opinion will be issued.
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