The CIT Group/Commercial Services, Inc. v. Constellation Energy Commodities Group, Inc. et al

Filing 29

MEMORANDUM OPINION AND ORDER: the appellant's motion for rehearing, R. 22 , is DENIED. Signed by Judge Amul R. Thapar on 1/7/2013. (RCB)cc: COR

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
SOUTHERN DIVISION
PIKEVILLE
THE CIT GROUP/COMMERCIAL
SERVICES, INC.,

)
)
)
Appellant,
)
Civil No. 12-16-ART
)
v.
)
)
MEMORANDUM OPINION
CONSTELLATION ENERGY
)
AND ORDER
COMMODITIES GROUP, INC. and
)
CONSTELLATION ENERGY GROUP,
)
INC.,
)
)
Appellees.
)
*** *** *** ***
“A man should never be ashamed to own he has been in the wrong, which is but
saying, in other words, that he is wiser today than he was yesterday.” Alexander Pope,
Thoughts on Various Subjects, reprinted in 10 THE WORKS OF ALEXANDER POPE 551 (John
Wilson Croker ed., 1886) (1727). Thankfully the bankruptcy rules provide a mechanism by
which judges can correct their mistakes. See Fed. R. Bankruptcy P. 8015. The appellant,
CIT Group/Commercial Services (“CIT Group”), invoked Rule 8015 and asked the Court to
rehear this case. R. 22.1 But a rehearing is not called for in this case because CIT Group has
not shown that this Court’s earlier opinion contained a clear error of fact or law.

1

Citations to the Bankruptcy Court’s record are indicated by “Bankruptcy R. __.” Citations to the bankruptcy
court opinion are indicated in the following form: The CIT Grp./Commercial Servs., Inc. v. Constellation
Energy Commodities Grp. (In re Black Diamond Mining Co., LLC), No. 08-7017, 2011 WL 6202905, at *__
(Bankr. E.D. Ky. Dec. 13, 2011). Citations to this Court’s record are indicated by “R. __.”

BACKGROUND
This opinion only recounts the facts relevant to the motion for rehearing. The full
facts of the case are explained in this Court’s earlier opinion. R. 20.
CIT Group financed the operations of Black Diamond Mining Company, LLC
(“Black Diamond”), a coal company. Through a series of coal supply agreements, Black
Diamond agreed to sell Constellation Energy Commodities Group, Inc. (“Commodities”)
predetermined quantities of coal each month at a fixed price per ton. Commodities’s parent
company Constellation Energy Group, Inc. (“Constellation”) guaranteed Commodities’s
payments to Black Diamond for that coal. Closing the circle, Black Diamond then sold its
interest in those payments (known as accounts receivable) to CIT Group. See id. at 2–3. The
current case pits CIT Group against Commodities and Constellation.
The coal supply agreements contained nearly identical provisions relating to default,
termination damages, liquidated damages for missed deliveries, and payment rights. See id.
at 6. There were more than thirteen possible ways Black Diamond or Commodities could
default on the agreementslisted as “Events of Default”including paying late and going
bankrupt. Id. at 7. If a party defaulted, the other party could stop performing on the contract
until the default was cured or it could end the contract and collect damages. Id. Along with
the written-coal supply agreements, Black Diamond and Commodities entered into a series
of oral agreements for the delivery of coal to Commodities. See R. 16 at 37.
Black Diamond quickly developed cash-flow troubles and was unable to deliver coal
to Commodities as the coal supply agreements required. See R. 20 at 11. On February 19,

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2008, CIT Group (along with others financing Black Diamond’s operations) filed an
involuntary bankruptcy petition against Black Diamond. On March 11, 2008, the bankruptcy
court entered an order for relief in the involuntary proceeding. The CIT Grp./Commercial.
Servs., Inc. v. Constellation Energy Commodities Grp. (In re Black Diamond Mining Co.,
LLC), No. 08-7017, 2011 WL 6202905, at *15 (Bankr. E.D. Ky. Dec. 13, 2011).
The bankruptcy was an event of default under the coal supply agreements. See R. 20.
at 7. In response, Commodities terminated the agreements and sought over eighty-two
million dollars in damages from Black Diamond. Those damages included the alreadyaccrued debts as well as future losses for undelivered coal, minus the amounts that
Commodities owed to Black Diamond under the agreements. Id. at 12. Commodities filed a
proof of claim during the bankruptcy proceedings to recover those damages. Id.
CIT Group then filed an adversary proceeding against Commodities. Id. CIT Group
claimed (among other things) that Commodities owed Black Diamond over fifteen million
dollars under the coal supply agreements, which belonged to CIT Group as Black Diamond’s
assignee. Id. at 13.
The bankruptcy court granted summary judgment in favor of Commodities. See The
CIT Grp./Commercial Servs., Inc., 2011 WL 6202905, at *28–36 (Bankr. E.D. Ky. Dec. 13,
2011). The bankruptcy court rejected CIT Group’s argument that Commodities defaulted on
the coal supply agreements when it failed to pay for coal invoiced on December 22, 2007.
That delivery was governed by an oral agreement, which the bankruptcy court found set a
payment deadline of February 22, 2008. Id. at *32. Black Diamond’s default on February
19, 2008, occurred before Commodities failed to pay for the December invoices. Thus, the
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bankruptcy court found that Commodities could use its right to damages under the coal
supply agreements to offset what it owed to CIT Group for the outstanding deliveries. Id. at
*33–36.
On appeal CIT Group challenged the bankruptcy court’s determination that the
December invoices were due on February 22, 2008. It argued that the invoices were actually
due on January 21, 2008, and that Commodities defaulted when it failed to pay those
invoices before Black Diamond entered bankruptcy.

As the first party to default,

Commodities could not declare Black Diamond in default and recover damages. See R. 16 at
39.
This court examined the bankruptcy court’s decision de novo and issued a limited
remand. See R. 20. The opinion identified six pieces of evidence cited by the parties relating
to the due date for the December invoices. R. 20 at 24–25. The bankruptcy court considered
only three of those pieces of evidence. Furthermore, the bankruptcy court relied on a piece
of evidence without ever addressing the hearsay issue CIT Group raised in arguing that it
was inadmissible. Id. at 25. The opinion remanded the case for the bankruptcy court to
address the hearsay issue and determine the date the invoices were due. If Commodities
defaulted first, the bankruptcy court was to determine as a matter of law whether Black
Diamond waived the default (a conclusion implied by, but not stated in, the bankruptcy
court’s opinion). Finally, if Commodities committed an unwaived default, the opinion
directed the bankruptcy court to address “what effect that has on Commodities’ ability to
claim that the [damages under the coal supply agreements] offset its obligations to CIT
Group on the outstanding deliveries.” Id. at 26–27.
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CIT Group then filed a motion for rehearing asking this Court to cancel the remand in
the name of judicial economy and instead decide the case fully in its favor. R. 22; R. 22-1
at 5. Not to be outdone, Commodities agreed that a remand is unnecessary but urged this
Court to decide the case in its favor instead. R. 27.
DISCUSSION
Bankruptcy Rule 8015 does not provide a standard for district courts to use when
deciding whether to rehear a bankruptcy appeal. See Fed. R. Bankruptcy. P. 8015. Rule
8015 is based on Rule 40 of the Federal Rules of Appellate Procedure, which governs
motions for panel hearings. See id. advisory committee’s note. So when faced with a Rule
8015 motion, district courts look to the rules governing Rule 40 motions. See PHH Mortg.
Servs. v. Higgason, No. 06-157-DCR, 2006 WL 2135497, at *1 (E.D. Ky. July 28, 2006).
The purpose of a motion for rehearing is to ensure that the district court “properly
considered all relevant information in rendering its decision.” Id. Therefore, motions may
be granted in three cases: (1) when the controlling law changes after the initial opinion; (2)
when previously unavailable evidence becomes available, and (3) when a rehearing is
“necessary to correct a clear error of law or prevent manifest injustice.” Id. A motion for
rehearing is not a chance for a do-over, and the party seeking rehearing bears the burden of
showing that a rehearing is necessary. Id. As the name implies, a motion for rehearing is not
the place for new arguments. See United States v. Shafer, 573 F.3d 267, 275–76 (6th Cir.
2009) (“We typically do not consider arguments raised for the first time in a petition for
rehearing.”); Easley v. Reuss, 532 F.3d 592, 593 (7th Cir. 2008) (“It goes without saying that
[a court] cannot have overlooked or misapprehended an issue that was not presented to it.”)
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(internal quotations omitted); In re CBI Holding Co., Inc., 2010 WL 2287013, at *1
(S.D.N.Y. June 7, 2010) (“Neither new evidence nor new arguments are considered valid
bases for Rule 8015 relief.” (quotation omitted)).
I.

CIT Group’s Arguments for Rehearing
CIT Group asks this Court to simply enter judgment in its favor in lieu of the remand.

Each of the three arguments CIT Group is either new or a repackaged version of an argument
already addressed in this Court’s earlier opinion. Thus, CIT Group has not shown that a
rehearing is necessary to correct a “clear error of law or prevent manifest injustice.”
Higgason, 2006 WL 2135497, at *1.
Throughout this appeal CIT Group stated that Black Diamond first defaulted on the
coal supply agreements on February 19, 2008. The Coal Supply Agreements specified more
than thirteen “Events of Default,” including: (A) filing for bankruptcy; (B) being forced into
bankruptcy; and (C) becoming otherwise insolvent. Bankruptcy R. 117-4 at 13–14, Ex. 9 at
CIT0546–47 ¶ 12(a)(viii). The Bankruptcy Court specifically found that Black Diamond
defaulted on February 19, 2008, due to insolvency. See The CIT Grp./Commercial Servs.,
Inc., 2011 WL 6202905, at *33 (“Black Diamond’s insolvency on February 19, 2008,
constituted an event of default under each of the Coal Supply Agreements . . . .”). During the
appeal before this Court, CIT Group consistently used February 19, 2008, as the date of
breach for Black Diamond. See R. 16 at 38 (“Commodities would likely allege that Black
Diamond defaulted on February 19, 2008 when an order for relief was entered in Black
Diamond’s bankruptcy case.”); R. 19 at 14–15 (“[T]he first chronological breach by Black
Diamond that Commodities has raised and [CIT Group] concedes for purposes of this appeal
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is the February 19, 2008 involuntary bankruptcy filing.”); id. at 19 (“February 19, 2008
(Black Diamond’s First Breach): An involuntary petition was filed against Black Diamond,
which is its first alleged breach.”).
In its motion for reconsideration CIT Group argues for the first time that the earliest
Black Diamond could have defaulted was March 4, 2008, not February 19, 2008. CIT Group
and others forced Black Diamond into bankruptcy on February 19, 2008. See Bankruptcy R.
117-8 Ex. 45. On March 4, 2008, Black Diamond voluntarily filed for bankruptcy. 2 On
March 11, 2008, an order for relief was entered in the involuntary proceeding. CIT Group
says that Black Diamond first defaulted when it voluntarily filed for bankruptcy on March 4,
2008, not on February 19, 2008. R. 22-1 at 8. This new argument cannot be considered on a
motion for rehearing. See Shafer, 573 F.3d at 275–76.
CIT Group argues that this case falls within an exception to the no-new-arguments
rule, but it is incorrect. A new argument may be heard on rehearing “if extraordinary
circumstances are present.” Id. at 276 (quotation omitted). In Shafer, the Sixth Circuit found
extraordinary circumstances because: (1) the case presented an issue of first impression in
the federal appellate courts and would have persuasive force in other circuits; (2) the decision
would bind future Sixth Circuit panels; (3) the new legal argument related directly to the
Court’s holding; and (4) the failure to raise the argument earlier was likely accidental rather
than strategic. Id. at 277. Only one of those four factors is arguably present here. This case
2

CIT Group states that Black Diamond voluntarily filed for bankruptcy on March 11, 2008. In support, it
points to a letter from Commodities informing Black Diamond that an event of default had occurred based on
the filing of the order of relief and the involuntary petition. That letter does not provide a date for the
voluntary filing. See Exhibit 24, Bankruptcy R. 119-10 at 37. The voluntary petition was actually filed on
March 4, 2008. See Chapter 11 Voluntary Petition, In re Black Diamond Mining Co., LLC, No. 08-70109
(Bankr. E.D. Ky. 2008), at R. 1. This opinion uses the correct date, but the difference in dates does not affect
the outcome of the motion.

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does not present a novel legal question and will have little, if any, precedential effect. The
Sixth Circuit can correct any actual legal or factual errors in this Court’s earlier opinion.
And there is simply no good reason (offered or imaginable) why CIT Group could not have
raised this argument in its initial appeal. The who-breached-first issue has been present since
the start of this litigation. See, e.g., Bankruptcy R. 155 at 47–50; Bankruptcy R. 171 at 9–12.
And this Court allowed the parties to file eighty-page briefs—double the normal length of
briefs in this district—so CIT certainly had the space to make this argument. R. 17. Indeed,
CIT Group’s motion implies that it deliberately chose not to make the argument on appeal.
See R. 28 at 6 (claiming that CIT Group conceded the date for the purposes of the appeal but
not “the entire case”). CIT Group argues that there is no need for a remand if it is correct
that March 11, 2008, is the date of default. Perhaps. But allowing a new argument just
because it relates to the basis for an earlier decision cannot be right. If that were the case,
parties would simply wait to see how an opinion shakes out and then, if it does not go their
way, offer the court a new, alternate way to decide the case. Such a system would render the
initial appeal moot, a mere test case for the parties. This is simply an ordinary case of an
appellant seeking a second shot at its appeal, which Rule 8015 does not permit.
Next CIT Group argues that this Court failed to address its “account stated” argument,
but that argument was the subject of this Court’s remand. In its briefs before the bankruptcy
court and this Court, CIT Group pointed to New York’s account stated doctrine.

See

Bankruptcy R. 171 at 9; R. 16 at 73–74. Under the doctrine a party is bound by an invoice
that it receives, examines, and agrees to pay. A party’s agreement can be implied if it fails to
object to an invoice within a reasonable amount of time. See, e.g., Liddle & Robinson, LLP
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v. Garrett, 720 F. Supp. 2d 417, 426 (S.D.N.Y. 2010) (collecting cases). CIT Group faults
this Court for not using the term “account stated” in the earlier opinion, as if those words
alone have some talismanic significance.

But the Court’s remand clearly covers the

argument. CIT Group’s account stated argument can be summarized as follows. First, CIT
e-mailed Commodities stating that the payment deadline for the December invoices was
January 21, 2008, but the bankruptcy court did not consider that piece of evidence. Second,
that e-mail triggers the account stated doctrine resulting in a January 21, 2008, due date. On
remand, the Court directed the bankruptcy court to (1) consider all admissible pieces of
evidence related to the December invoices (including the CIT e-mail), and (2) determine
whether there is a genuine issue of material fact as to when the December invoices were due.
See R. 20 at 24–27. So while CIT Group’s account stated argument may not be mentioned
by name, it clearly falls within the scope of the remand.
CIT Group’s final argument is that a remand is unnecessary because Black Diamond
could not have waived any breach by Commodities because it had assigned that right to CIT
group. This argument is also new. The bankruptcy court accepted Commodities’ argument
that Black Diamond waived any possible breach by Commodities when Black Diamond
failed to issue written notice of a default.

See Bankruptcy R. 155 at 49 (making the

argument); The CIT Grp./Commercial Servs., Inc., 2011 WL 6202905, at *33 (accepting the
argument). On appeal CIT Group argued that Black Diamond did not waive any breach by
Commodities. See R. 16 at 73. CIT Group never argued that Black Diamond could not
waive a breach by Commodities because it had assigned that right to CIT Group. This new
argument cannot be considered on a motion for rehearing. See Shafer, 573 F.3d at 275–76.
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Because CIT Group has not pointed to “a manifest error of fact or law,” Higgason,
2006 WL 2135497, at *1 (quotation omitted), made by this Court, a rehearing is unnecessary.
II.

Commodities’s Argument for Rehearing
Like CIT Group, Commodities also asks the Court to enter judgment in its favor.

Commodities made this request in its response brief rather than a cross-motion. Because
both of Commodities’s arguments are new they would not support a rehearing even if raised
in a cross-motion. First, Commodities says that a breach of the oral agreements covering the
December invoices does not constitute a default of the written-coal-supply agreements.
R. 27 at 11–16. But Commodities’s argument has always been that it did not breach the oral
agreements at all. See Bankruptcy R. 155 at 47–451; R. 18 at 71–74. This is the first time
Commodities has argued that a breach of the oral agreements cannot be an event of default
under the written coal supply agreements. Second, Commodities argues that even if it
defaulted on the written coal supply agreements, nothing changes. Commodities interprets
the default provision as allowing a party to terminate and recover damages after the other
party defaults, whether or not the terminating party is also in default. R. 27 at 18–20. This
argument is also new. Because both of Commodities’s arguments for rehearing are new,
they cannot be considered on a motion for rehearing. See Shafer, 573 F.3d at 275–76.

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CONCLUSION
Accordingly, it is ORDERED that the appellant’s motion for rehearing, R. 22, is
DENIED.
This the 7th day of January, 2013.

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