Davis, Graham & Stubbs LLP et al v. Kapila

Filing 10

Order on Joint Motion (COMPLAINT) for Leave to File Appeal of Bankruptcy Order ; Closing Case. Signed by Judge Robert N. Scola, Jr. on 6/25/2018. (ls)

United States District Court
for the
Southern District of Florida
Davis Graham & Stubbs, LLP, and
others, Appellants,
v.
Soneet Kapila, as Liquidating
Trustee, Appellee.

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) Civil Action No. 18-60526-Civ-Scola
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Order on Joint Motion for Leave to Appeal
This matter is before the Court on the Joint Motion for Leave to Appeal
filed by the Appellants Davis Graham & Stubbs LLP, S. Lee Terry, Jr. (together,
the “Law Firm”), and Grant Thorton LLP (the “Accounting Firm”) (collectively,
the “Appellants”) (ECF No. 1). After careful consideration of the motion, all
opposing and supporting submissions, and the applicable case law, the Court
denies the joint motion (ECF No. 1).
1. Background
This case involves an appeal from interlocutory bankruptcy orders and is
related to two adversary proceedings before this Court arising from the same
underlying bankruptcy concerning SMF Energy Corporation. SMF provided
mobile fuel services to companies that had fleets of vehicles, either by
delivering the fuel to storage tanks, or by directly fueling the vehicles owned by
its customer companies. SMF employed a billing practice called incremental
volumetric allowance (“IVA”), whereby SMF added a charge for fuel it delivered,
by billing certain customers for fuel that the customers did not actually receive.
SMF Energy systematically and intentionally overbilled many of its customers.
The Law Firm was retained to provide advice and opine upon the legality of the
IVA, and the Accounting Firm audited SMF’s financial statements. After many
years of this billing practice, which continued and expanded throughout the
Accounting Firm’s tenure, certain SMF directors eventually became aware of
the scheme. Ultimately, it was determined that the IVA charge was not lawful,
and after eight years of utilizing the billing practice, SMF incurred sufficient
unrecorded liabilities to cause its insolvency.
As a result, SMF filed for bankruptcy under Chapter 11 of the
Bankruptcy Code. The Appellee is the Trustee appointed to spearhead the
liquidation of SMF’s assets. In the first adversarial proceeding, the Trustee
asserted claims for negligence and accounting malpractice against the

Accounting Firm (Case No. 14-cv-61194), and in the second adversarial
proceeding, the Trustee asserted a claim against the Law Firm for legal
malpractice (Case No. 15-cv-61016).
The Law Firm prevailed in the adversarial proceeding against it, and thus
has sought an award of attorney’s fees and costs, which is still pending before
this Court, arising from three offers of judgment made to the Trustee pursuant
to Florida Statutes section 768.79. The Accounting Firm prevailed upon three
of the six claims in the adversarial proceeding against it, and thus contends
that it will be entitled to recover attorney’s fees and costs arising from one offer
of judgment made to the Trustee.1 The Appellants requested that the
Bankruptcy Court give their claims for attorney’s fees and costs administrative
status and priority for recovery from the liquidating trust in the bankruptcy,
which request the Bankruptcy Court denied. (ECF No. 1 at 15-19.) The
Bankruptcy Court also denied the Appellants’ motion for rehearing or
clarification (“Reconsideration Order”) (Case No. 12-19084-BKC-RBR, ECF No.
1681).2
2. Legal Standard
District courts have discretion to hear appeals from interlocutory orders
of the bankruptcy courts. 28 U.S.C. § 158(a)(3). “In determining when to
exercise this discretionary authority, a district court will look to the standards
which govern interlocutory appeals from the district court to the court of
appeals pursuant to 28 U.S.C. § 1292(b).” In re Celotex Corp., 187 B.R. 746,
749 (M.D. Fla. 1995) (citing In re Charter Co., 778 F.2d 617, 620 (11th Cir.
1985)). Under this standard, the district court may permit an appeal of an
interlocutory order, if it presents (1) a controlling question of law, (2) with
respect to which there is substantial ground for difference of opinion, and (3)
the resolution of which would materially advance the ultimate termination of
litigation. 28 U.S.C. 1292(b); In re Celotex Corp., 187 B.R. at 749. However,
even if all of the factors are present in a particular case, a court may still
decline to hear the appeal. McFarlin v. Conseco Servs., LLC, 381 F.3d 1251,
1259 (11th Cir. 2004). “Interlocutory review is generally disfavored for its
Two of the six claims against the Accounting Firm remain. The Trustee
asserts that Count 6 asserted against the Accounting Firm is now moot. (See
Case No. 14-cv-61194, ECF No. 42 ¶ 1.) The Trustee has appealed this Court’s
rulings in both adversarial cases to the Eleventh Circuit.
1

Although the Appellants are also seeking leave to appeal the Bankruptcy
Court’s Reconsideration Order, the Appellants have not attached the order to
their motion for leave.
2

piecemeal effect on cases.” Figueroa v. Wells Fargo Bank N.A., 382 B.R. 814,
823 (S.D. Fla. 2007) (Gold, J.). “Because permitting piecemeal appeals is bad
policy, permitting liberal use of § 1292(b) interlocutory appeals is bad policy.”
McFarlin, 381 F.3d at 1259. Through this lens, the Court considers the instant
motion.
3. Analysis
At the outset, the Court notes that if the Appellants fail to establish any
one of the factors, the Court may deny leave to appeal. Figueroa, 382 B.R. at
824. In their motion, the Appellants argue that all three factors are met in this
case; however, their assertion is belied first and foremost by their inability to
clearly articulate a controlling question of law in this case. “An issue is
characterized as a controlling question of law if it deals with a question of ‘pure’
law, or matters that can be decided quickly and cleanly without having to
study the record.” Id. (citing McFarlin, 381 F.3d at 1258, 1260-62).
Indeed, in their motion, the Appellants state that the controlling question
of law is, “whether the Bankruptcy Court erred in denying the Motions for
Allowance of Admin Claims and whether the Bankruptcy Court could and did
make a ruling on the merits of such claims prematurely.” (See ECF No. 1 at 7.)
Upon review, it is difficult to envision any circumstances in which the issue
posed by the Appellants could be considered a question of law, and much less,
a controlling question of law. Perhaps recognizing this difficulty, the Appellants
in their reply characterize the issue as follows – “whether defendants who
prevail in adversary proceedings and may recover fees under an applicable
state statute are entitled to administrative status and priority for that fees
claim.” (See ECF No. 8 at 4.) While certainly an interesting question, this
articulation of the issue fares no better. In order to understand why, the Court
examines the two orders of the Bankruptcy Court for which the Appellants seek
leave to appeal.
The Bankruptcy Court denied the Appellants’ motions for allowance of
contingent administrative claims for two principal reasons. First, the
Bankruptcy Court determined that because the Appellants had not yet filed
motions for attorney’s fees and costs, their claims were contingent and too
speculative, and in any event, such fees and costs were incurred in the course
of defending claims for their own benefit and not to benefit the estate. (See ECF
No. 1 at 18.) Second, the Bankruptcy Court determined that the Appellants, as
interested parties, are bound by the amended joint plan of liquidation of SMF,
which excludes such claims. (See id. at 19.) Nevertheless, the Bankruptcy
Court explicitly stated that the motions were denied without prejudice. (Id.)

Thereafter, the Appellants sought reconsideration or clarification of the
Bankruptcy Court’s order denying their motions. While the Bankruptcy Court
ultimately denied the Appellants’ request for reconsideration, it did clarify “that
the Court entered the Prior Order ‘without prejudice’ to allow Movants to file a
new motion in the future, if the facts as presented change.” (Reconsideration
Order at 2.) Presumably, the changed facts would include that the Appellants
filed and obtained a ruling upon their motions for fees and costs before this
Court. The Appellants have now indeed filed those motions, however, they are
still pending before this Court.
Even so, it is difficult to comprehend how the Appellants honestly
contend that they should be permitted to appeal an order, which the
Bankruptcy Court specified not once, but twice, to have been entered without
prejudice—meaning that they will have another opportunity for the Bankruptcy
Court to consider their claims once such claims are procedurally proper. The
Appellants have, at best, misapprehended the Bankruptcy Court’s orders. The
Appellants fall woefully short of demonstrating that this case involves a
controlling question of law; and because there is no controlling question of law,
“there can be no substantial ground for difference of opinion among courts.”
Amador v. Calderin, No. 17-23502-Civ-COOKE, 2017 WL 5749580, at *2 (S.D.
Fla. Nov. 28, 2017) (Cooke, J.) (internal citation omitted). Even assuming for
the moment that the first factor for interlocutory review were satisfied here, the
Appellants fail to show that there is a substantial ground for difference of
opinion because none of the cases they rely on discuss the existence of terms
in a plan of liquidation, nor did the cases involve denials of motions without
prejudice. Therefore, the Court need not devote additional precious time in
analyzing the remaining factor.
4. Conclusion
Accordingly, the Court denies the joint motion for leave to appeal (ECF
No. 1). The Clerk of Court shall close this case.
Done and ordered at Miami, Florida on June 25, 2018.

________________________________
Robert N. Scola, Jr.
United States District Judge