Richard et al v. Spradlin
Filing
30
MEMORANDUM OPINION & ORDER: (1) The Bankruptcy Court's Order Overruling Motion to Extend Time, Spradlin v. Pikeville Energy Group, LLC (In re Alma Energy, LLC), No. 7:09-ap-07005-jl (Bankr. E.D. Ky. Oct. 2, 2012), R. 657, is REVERSED; (2) The Pl aintiffs' Motion to Dismiss, Pikeville Energy Group, LLC v. Spradlin, No. 7:12-cv-113 (E.D. Ky. Oct. 4, 2012), R. 2 , is DENIED. (3) The Bankruptcy Court's Order Granting Motion to Dismiss First Amended Cross-Claims, Spradlin v. Pikeville Energy Group, LLC (In re Alma Energy, LLC), No. 7:09-ap-07005-jl (Bankr. E.D. Ky. Aug. 9, 2010), R. 208, is REVERSED. (4) The Bankruptcy Court's Order Granting Motion to Dismiss and Strike Cross-Claim, Spradlin v. Pikeville Energy Group, LLC (In re Alma Energy, LLC), No. 7:09-ap-07005-jl (Bankr. E.D. Ky. Aug. 9, 2010), R. 209, is REVERSED. (5) A separate judgment will issue. Signed by Judge Amul R. Thapar on 4/19/2013.(CMR)cc: COR
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
SOUTHERN DIVISION
PIKEVILLE
PIKEVILLE ENERGY GROUP, LLC,
)
)
Appellant,
)
)
Civil No. 12-113-ART
v.
)
)
PHAEDRA SPRADLIN,
)
as Trustee of Alma Energy, LLC, et al.,
)
)
Appellee.
)
__________________________________ )
)
GARY J. RICHARD, et al.,
)
)
Appellants,
)
)
Civil No. 12-127-ART
v.
)
)
PHAEDRA SPRADLIN,
)
as Trustee of Alma Energy, LLC, et al.,
)
MEMORANDUM OPINION
)
AND ORDER
Appellee.
)
*** *** *** ***
The parties in these appeals have been locked in a long and litigious adversary
proceeding in bankruptcy court. The defendants in that proceeding appeal the Bankruptcy
Court’s order denying them leave to file, after the deadline had passed, their cross
designation of items and statement of additional issues to be raised on appeal. See No. 12127, R. 12.1 They also appeal the Bankruptcy Court’s orders dismissing their cross-claims
1
For brevity’s sake, the Court will use a modified citation system to refer to records from the adversary
proceeding in the Bankruptcy Court and the two appeals in this Court. Records from the adversary proceeding,
Alma Energy, LLC v. Halle, No. 7:09-ap-7005-jl (Bankr. E.D. Ky. May 4, 2009), will be cited as “Adversary
Proceeding, R. __.” Records from the appeal in Pikeville Energy Group, LLC v. Spradlin, No. 7:12-cv-113ART (E.D. Ky. Oct. 3, 2012), will be cited as “No. 12-113, R. __.” Records from the appeal in Richard v.
Spradlin, No. 7:12-cv-127-ART (E.D. Ky. Oct. 31, 2012), will be cited as “No. 12-127, R. __.”
against the plaintiffs and other parties no longer involved in this case. See No. 12-113, R. 1
at 1. The Bankruptcy Court abused its discretion in denying the defendants leave to file their
materials late, and lacked subject-matter jurisdiction to rule on any of the defendants’ crossclaims. Thus, the Court reverses all three of the Bankruptcy Court’s orders.
BACKGROUND
This Memorandum Opinion and Order resolves the second and third appeals from the
parties’ adversary proceeding in bankruptcy court. The adversary proceeding is described in
greater detail in the Court’s two prior opinions addressing the parties’ appeals. See Spradlin
v. Pikeville Energy Grp., LLC, No. 12-cv-111-ART, 2012 WL 6706188, at *1 4 (E.D. Ky.
Dec. 26, 2012), R. 15 at 2 8; No. 12-127, R. 27 at 1 3. The second appeal addresses the
Bankruptcy Court’s decision to deny the defendants leave to file, after the deadline, their
cross designation of items and their statement of additional issues to be raised on appeal. See
No. 12-127, R. 1 at 1 ¶ 2.2 The third appeal addresses the Bankruptcy Court’s decision to
dismiss the defendants’ first amended cross-claims against the plaintiffs as well as the
defendants’ cross-claims against parties no longer involved in this case. See No. 12-113,
R. 1 at 1 ¶¶ 1 4.
DISCUSSION
I.
The Bankruptcy Court’s Order Denying an Extension of Time in Pikeville Civil
Action No. 7:12-cv-127
The defendants filed a notice of cross appeal on September 8, 2012, indicating that
they planned to challenge several of the Bankruptcy Court’s decisions by appealing to the
2
The Court already resolved the defendants’ appeal of the Bankruptcy Court’s sanctions order. See
No. 12-127, R. 27.
2
district court. See Adversary Proceeding, R. 647. Under Bankruptcy Rule 8006, they had
until September 24, 2012, to file their cross designation of items to be included in the record
on appeal and their statement of additional issues to be raised. The defendants missed that
deadline. See No. 12-127, R. 1-4 at 1. Two days later, they filed a motion seeking leave to
file their cross designation and statement of the issues. See Adversary Proceeding, R. 651.
They explained that their designated appellate counsel’s father had died on September 7,
2012, and his struggles in the wake of his father’s death caused him to miss the deadline. See
Adversary Proceeding, R. 654 at 2. The Bankruptcy Court determined that this was not the
kind of “excusable neglect” that merits an extension of time under Bankruptcy Rule
9006(b)(1), and denied their motion. No. 12-127, R. 1-4.
The issue on appeal is whether the Bankruptcy Court abused its discretion by denying
the motion. The Bankruptcy Court clearly erred in finding bad faith under the equitable
factors and, in turn, abused its discretion in balancing the equitable factors at play. Thus, the
Court will reverse the Bankruptcy Court’s order.
A.
Rule 9006(b)(1) and the Standard of Review
The Bankruptcy Court denied the defendants’ motion pursuant to Rule 9006(b)(1)’s
excusable-neglect standard. No. 12-127, R. 1-4 at 2. Rule 9006(b)(1) requires courts to
make factual findings and then consider those facts under five equitable factors. 3
3
See
Other circuits collapse the third and fourth factors into one and treat Pioneer as a four-factor test. See,
e.g., Silivanch v. Celebrity Cruises, Inc., 333 F.3d 355, 366 (2d Cir. 2003). And the Sixth Circuit has at times
numbered the factors differently. Compare In Re Eagle-Picher Indus., 131 F.3d at 1188 (listing “the length of
the delay and its potential impact on the proceedings” as 2, “the reason for the delay” as 3, and “whether the
delay was within the reasonable control of the late party” as 4), with Jinks v. AlliedSignal, Inc., 250 F.3d 381,
386 (6th Cir. 2001) (listing “the length of delay” as 2, “its potential impact on judicial proceedings” as 3, and
“the reason for the delay” as 4). These are differences of form, not substance. For continuity’s sake, the Court
adopts the numbering that the Bankruptcy Court used. The Court will collectively refer to the reason and
reasonable control factors as the “excuse” factors.
3
Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P’ship, 507 U.S. 380, 395 (1993)
(articulating the five factors). Courts must weigh: (1) the risk of prejudice to the nonmoving
party; (2) the delay’s length and potential impact on the judicial proceedings; (3) the moving
party’s reason for the delay; (4) whether the delay was within the moving party’s reasonable
control; and (5) whether the moving party acted in good faith. Id.; see also Norpak Corp. v.
Eagle-Picher Indus., Inc. (In re Eagle Picher Indus., Inc.), 131 F.3d 1185, 1188 (6th Cir.
1997) (identifying the same five factors).
This Court reviews the Bankruptcy Court’s factual findings for clear error and its
equitable determinations for an abuse of discretion. See Pioneer, 507 U.S. at 398 (reviewing
decision under Fed. R. Bankr. P. 9006(b)(1) for an abuse of discretion); In re Eagle-Picher
Indus., Inc., 285 F.3d 522, 527 (6th Cir. 2002).
B.
The Bankruptcy Court’s Findings and Determinations
Here, the Bankruptcy Court held that the first two factors favored the defendants, but
the last three tipped the balance against granting an extension. The Bankruptcy Court found
that the defendants were only two days late and determined that such a small delay would not
prejudice the plaintiffs (factor one). No. 12-127, R. 1-4 at 3. Similarly, it concluded that two
days would not significantly delay or impact the judicial proceedings (factor two). Id. But
the Bankruptcy Court examined the reason for the delay (factor three) and the defendants’
control over it (factor four), and concluded that the defendants could have easily avoided an
untimely filing. While the Bankruptcy Court noted that the death of appellate counsel’s
father was a sad occasion, it found that he had been able to file notice of the cross-appeal the
day after his father’s death. Id. If he had been able to make that filing in the immediate
aftermath of his father’s death, the Bankruptcy Court reasoned, then surely he could have
4
filed the cross designation and the statement of issues within the next sixteen days. Id. The
Bankruptcy Court also pointed out that appellate counsel could have easily asked co-counsel
to make the filings. Id. From these facts, it determined that the defendants’ delay had been
within their control and that their reason did not mitigate their culpability. Id. Finally, the
Bankruptcy Court found that the defendants had shown bad faith throughout the proceedings,
and concluded that their prior bad faith justified finding that the good-faith factor (factor
five) did not favor the defendants. Id. Thus, the Bankruptcy Court denied the defendants’
motion for an extension of time. The defendants object to the Bankruptcy Court’s finding
that there was no good faith, No. 12-127, R. 12 at 20 22, and its determination that there was
no excusable neglect under the Pioneer factors, id. at 20 22.
Factual Finding of Bad Faith: The Bankruptcy Court clearly erred in finding that
the defendants acted in bad faith here. No. 12-127, R. 1-4 at 3. The Bankruptcy Court
addressed the good-faith factor in a single sentence:
As to Defendants’ good faith, they have consistently been before the Court for
sanctions and derailed the court-ordered mediation, the details of which are
described in the Court’s Order Granting Motion for Sanctions.
No. 12-127, R. 1-4 at 3. Merely referencing past behavior, without more, does not speak to
whether the defendants acted in bad faith in making the late filing at issue. The Bankruptcy
Court, in essence, relied on irrelevant facts to make its finding. That was error.
The excusable neglect standard is meant to assess the act or omission that led to the
party’s late filing; using prior, unrelated acts to make a finding under the standard
contravenes its basic purpose. The Pioneer Court made it clear that the five factors it
articulated were meant to help “tak[e] account of all the relevant circumstances surrounding
5
the party’s omission.” Pioneer, 507 U.S. at 395 (emphasis added); see also id. at 382 (“Rule
9006(b)(1) empowers a bankruptcy court to permit a late filing if the movant’s failure to
comply with an earlier deadline ‘was the result of excusable neglect.’”). And the Sixth
Circuit has consistently focused on the act or omission that created the delay when assessing
the good-faith factor. See, e.g., Morgan v. Gandalf, Ltd., 165 F. App’x 425, 430 (6th Cir.
2006) (focusing on the party’s “late filing of the answer”); In re Eagle Picher Industries,
Inc., 131 F.3d at 1188 (asking “whether the late party acted in good faith” (citing Pioneer,
507 U.S. at 381)). Thus, the Bankruptcy Court should have made a finding as to whether the
defendants’ failure to file their materials on time was a good faith mistake. Instead, the
Court simply cited an earlier opinion listing prior instances in which it sanctioned the
defendants, doing so without linking those acts to the present late filing. See No. 12-127, at
R. 1-4 at 3. That finding was clearly erroneous.
While the Sixth Circuit has yet to precisely define how to review bad-faith findings
under the Pioneer factors, its precedent has always required some factual evidence that the
specific act at issue was taken in bad faith. In some contexts, the district court must make a
specific finding of bad faith. See, e.g., (reversing a dismissal under Fed. R. Civ. P. 41(b)
because, in part, “the district court did not make a specific finding of either bad faith [] or
prejudice”). In others, some evidence in the record supporting the district court’s conclusion
suffices. See, e.g., Metz v. Unizan Bank, 655 F.3d 485, 490 (6th Cir. 2011) (holding that “an
express finding of [] bad faith” is not necessary to affirm a district court’s sanctions pursuant
to its inherent authority, so long as “the record sets forth sufficient evidence to support [the
district court’s] decision” (internal quotation marks omitted)). But there must always be
some factual basis for the reviewing court to find that the specific act at issue was taken in
6
bad faith. Here, there was none. The Bankruptcy Court’s did not identify any, and neither
do the plaintiffs.
The plaintiffs argue that the Sixth Circuit’s decision in Kloian justifies the
Bankruptcy Court’s bad-faith finding. See No. 12-127, R. 19 at 36 (citing Kloian v. Simon
(In re Kloian), 137 F. App’x 780, 783 (6th Cir. 2005)). In Kloian, the district court found
that the party’s failure to file a statement of issues was itself an act of “persistent neglect [] or
indifference toward the procedural rules.” 137 F. App’x at 783 (quoting the district court’s
opinion). The district court supported the finding that the failure to file was in bad faith by
citing the party’s past behavior as circumstantial evidence. See id. Here, the Bankruptcy
Court did not explicitly find that the defendants’ failure to meet the filing deadline was itself
an act of bad faith. See No 12-127, R. 1-4 at 3. The Bankruptcy Court simply noted that the
defendants had been sanctioned in the past and used that fact to find that no good faith
favoring the defendants’ late filing. See id. In essence, it continued hold past misbehavior
against them. Neither Kloian or Pioneer support such an approach to bad-faith findings.
Therefore, the Bankruptcy Court’s finding that the defendants did not act in good
faith was clear error.
Equitable Determinations: The Bankruptcy Court’s error in finding bad faith does
not end the inquiry. See Bazzi v. City of Dearborn, 658 F.3d 598, 606 (6th Cir. 2011)
(holding that abuse of discretion standard allows the reviewing court to affirm a decision
based on “any ground supported by the record” even if it is not in the prior decision
(quotation omitted)).
The ultimate question is whether the Bankruptcy Court erred in
determining there was no “excusable neglect” under the Pioneer factors. See R. 1-4 at 2 3.
7
That determination was “a clear error of judgment.” In re Wingerter, 594 F.3d 931, 936 (6th
Cir. 2010) (quotation omitted).
The only factors that support the Bankruptcy Court’s
decision, the reason for the delay and the defendant’s reasonable control over the delay,
weigh only slightly against the defendants. Given that the other three Pioneer factors clearly
favor allowing a late filing, the Bankruptcy Court abused its discretion by denying the
defendants leave to file their materials late.
The Sixth Circuit has held that, when balancing the Pioneer factors, the “excuse given
for the late filing must have the greatest import.” United States v. Munoz, 605 F.3d 359, 372
(6th Cir. 2010) (quotation omitted).4 Thus, in the average case the “excuse” factors—the
reason for the delay and the party’s control over the delay—will be of primary importance.
Id.; see also Jackson v. Chandler, 463 F. App’x 511, 514 (6th Cir. 2012) (citing Munoz and
holding that “the district court did not abuse its discretion by focusing on the proffered
reason for the delay”). The Sixth Circuit has cautioned, however, that while the “excuse”
factors will decide the average case, the three other factors will carry greater weight “in a
closer case.” Munoz, 605 F.3d at 372. This was clearly such a case.
Here, the first two factors clearly favor the defendants. Given that the defendants
filed their materials just two days after the deadline, there was no risk of prejudice to the
plaintiffs.
See Curry v. Eaton Corp., 400 F. App’x 51, 56 57 (6th Cir. 2010) (finding no
prejudice where notice of appeal was filed five days late). Similarly, the length of the delay
4
Of course, the Sixth Circuit’s holding must be read in light of Pioneer’s admonishment that “any
evidence of prejudice to [the non-moving party] or to judicial administration in this case, or any indication at
all of bad faith” will prevent a reviewing court from saying that “the Bankruptcy Court abused its discretion in
declining to find the neglect to be ‘excusable.’” Pioneer, 507 U.S. at 398.
8
was minimal and there was no potential negative impact on the proceedings. See id. The
Bankruptcy Court acknowledged this. See No. 12-127, R. 1-4 at 3.
The good-faith factor also strongly supports the defendants. As the Court explained
above, there is no evidence in the record that the defendants’ late filing was an act of bad
faith. That fact alone puts the good-faith factor in the defendants’ column. See, e.g.,
Williams v. Hollingsworth Grp., Inc., 238 F.3d 426, *1 (6th Cir. 2000) (unpublished table
decision) (treating absence of evidence of bad faith as sufficient under the Pioneer test
(citation omitted)). Furthermore, the defendants moved to correct their omission as soon as
they discovered it.
See No. 12-127, R. 1-4 at 1; see also Curry, 400 F. App’x at 57
(emphasizing that the omission was “corrected as soon as the appellant’s counsel discovered
the error”); Morgan, 165 F. App’x at 430 (same). And the plaintiffs do not contend that the
defendants intentionally missed the deadline. See In re M.J. Waterman & Assocs., 227 F.3d
604, 612 (2000) (emphasizing counsel’s lack of intent in finding that “counsel acted in
complete good faith”). Thus, the good-faith factor clearly weighed in the defendants’ favor
as well.
That leaves the “excuse” factors. While the Bankruptcy Court did not err in finding
that the “excuse” factors weighed against the defendants, those factors did not decisively
count against them.
The Bankruptcy Court’s reasoning was straightforward.
The
defendants’ appellate counsel lost his father on September 7, 2012, but managed to file the
defendants’ notice of cross appeal the next day. See Adversary Proceeding, R. 654; No. 12127, R. 1-4 at 3. There were then sixteen more days in which: (1) co-counsel could have
stepped in and made the filing; (2) appellate counsel could have prepared the filings himself;
or (3) appellate counsel could have called on co-counsel for assistance. See id. Defendants’
9
counsel therefore could have made a timely filing if they had exercised reasonable diligence,
and the reason for their delay as well as their control over that delay counted against them.
See id.
To be sure, the defendants were not faultless in missing the deadline. Their own brief
acknowledges that appellate counsel neglected his duties in the wake of his father’s death.
See No. 12-127, R. 12 at 22. But excusable neglect, as its name implies, does not require that
the late-filing party be free of all blame. The Pioneer Court specifically cautioned that
excusable neglect “is a somewhat elastic concept and is not limited strictly to omissions
caused by circumstances beyond the control of the movant.” 507 U.S. at 392 (internal
quotation marks omitted). Indeed, in Pioneer the Supreme Court excused counsel’s failure
to meet a bar date for filing late proofs of claim—an inadvertent act—because the bar date
was not prominently announced. Id. at 398 99. This is not a case where counsel missed the
deadline due to simple “inadvertence, ignorance of the rules, or mistakes construing the
rules.” Id. at 391. Appellate counsel allowed the death of his father to distract him from his
duties to his clients. See No. 12-127, R. 1-4 at 2 3.5 That failing does not provide a
sufficient justification to tip the “excuse” factors in his favor. But it does make his failure to
meet the deadline more understandable. In other words, the fact that the defendants have an
explanation, as opposed to no explanation whatsoever, matters. Pioneer made it clear that its
factors were not to be mechanically applied; they are simply a means to “tak[e] account of all
5
The plaintiffs argue that the Court should not accept any “fact” in the defendants’ brief that is not
accompanied by a citation to the record. See No. 12-127, R. 19 at 19 20. The Court does not. Rather, it
accepts the Bankruptcy Court’s determination that, while the death of appellate counsel’s father may have been
a distraction, that distraction was not so great as to tip the “excuse” factors in the defendants’ favor. See id.,
R. 1-4 at 2 3. The Court simply concludes that the Bankruptcy Court’s findings do not put as much behind the
“excuse” factors as in a run-of-the-mill case.
10
relevant circumstances surrounding the party’s omission.” 507 U.S. at 395. A proper
consideration of the equities here must therefore account for the fact that counsel’s reason for
the delay was understandable, though not fully adequate under the “excuse” factors.
Weighing the Pioneer factors together makes it clear that the Bankruptcy Court
should have found excusable neglect here. Three factors clearly favor the defendants: the
lack of prejudice to the plaintiffs; the extremely short period of delay and negligible impact
on the judicial proceedings; and the defendants’ good faith. The two remaining “excuse”
factors weigh against them only slightly and therefore cannot be given decisive weight. See
Munoz, 605 F.3d at 372 73 (acknowledging that the “excuse” factors will not weigh as
heavily in a “closer case” where the “excuse” factors favor one result, and the remaining
Pioneer factors are “clearly in favor” of the opposite result). Given that the defendants’
culpability was somewhat diminished, and the other factors heavily favor them, the
Bankruptcy Court abused its discretion by failing to find excusable neglect. See Bateman v.
U.S. Postal Serv., 231 F.3d 1220, 1225 (9th Cir. 2000) (finding an abuse of discretion under
Fed. R. Civ. P. 60(b)’s excusable neglect standard where the reason for delay was “weak”
but the other factors clearly favored the late-filing party); Ahanchian v. Xenon Pictures, Inc.,
624 F.3d 1253, 1262 (9th Cir. 2010) (same).6
Finally, the Court did not consider the defendants’ argument that the Court should not
punish the clients for their counsel’s shortcoming. See No. 12-127, R. 12 at 22. It is
6
The plaintiffs urge an affirmance of the Bankruptcy Court based on the fact Pioneer gave “little weight
to the fact counsel was experiencing upheaval in his law practice.” No. 12-127, R. 19 at 35 (quoting Pioneer,
507 U.S. at 398). This statement does not counsel the result that the plaintiffs claim. Quite the contrary, it
supports the Court’s determination that the “excuse” factors should not be given their normal weight here. The
fact that an attorney’s personal struggles received some “weight” in Pioneer demonstrates that they matter—
albeit not that much. The Court gives appellate counsel’s personal struggles “little weight” as well,
considering it only as mitigation under a factor weighing against the defendants, rather than tipping the factor
affirmatively in their favor.
11
commendable that counsel would emphasize their blame in an effort to spare their client.
However, this Court is bound by Pioneer, which firmly declared that “clients must be held
accountable for the acts and omissions of their attorneys.” 507 U.S. at 396 (citation omitted);
see also United States v. Reyes, 307 F.3d 451, 456 (6th Cir. 2002) (collecting cases for the
same proposition).
II.
Pikeville Energy Group’s Appeal in Pikeville Civil Action No. 7:12-cv-113
All that remains is the cross-appeal for which the defendants sought leave to file their
materials. See No. 12-113, R. 1. During the telephone conference, both parties agreed that
the cross-appeal is a foregone conclusion based on the Court’s judgment in favor of the
defendants in Pikeville Civil Action No. 7:12-cv-127.7 They also agreed that briefing would
not be necessary. A quick review of the facts in Pikeville Civil Action No. 7:12-cv-113
confirms that.
The defendants’ cross-appeal challenges two decisions by the Bankruptcy Court. The
first dismissed the amended cross-claims that the defendants filed against the plaintiffs in
response to the plaintiffs’ first amended complaint.
See Adversary Proceeding, R. 208
(granting plaintiffs’ motion to dismiss defendants’ cross-claims); id., R. 305 (denying
defendants’ motion to reconsider R. 208). The second dismissed the defendants’ crossclaims against parties that are no longer involved in this case. See id., R. 209 (dismissing
7
The plaintiffs have filed a motion to dismiss the cross-appeal because there was no designation of the
record or statement of issues to be presented on appeal. See No. 12-113, R. 2. Since the Court reverses the
Bankruptcy Court’s decision to deny the defendants’ motion for leave to file their cross designation of items to
be included in the record on appeal and their statement of additional issues to be raised, see No. 12-127, R. 1-4,
there is now a designation of items and statement of issues, undermining the basis for the motion to dismiss.
And even if the Court had weighed the Pioneer factors in the plaintiffs’ favor in Pikeville Civil Action No. 12cv-127, the Court would still deny the motion to dismiss the appeal on account of the defendants’ lack of bad
faith in their late filing. See In re Winner Corp. (Third National Bank v. Winner Corp.), 632 F.2d 658, 661
(6th Cir. 1980).
12
cross-claims against Consol Capital, LLC and Tony Gannacone, III); id., R. 306 (denying
defendants’ motion to reconsider R. 209).
The Bankruptcy Court lacked subject-matter jurisdiction to dismiss the defendants’
cross-claims. Federal courts must have subject-matter jurisdiction to pass judgment on the
merits of a claim. See Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 89, 94 95 (1998).
The Bankruptcy Court lacked subject-matter jurisdiction after the plaintiffs filed the first
amended complaint. See Spradlin, 2012 WL 6706188 at *5 9.8 Yet the Bankruptcy Court
judged the merits of the defendants’ cross-claims by finding that they failed to state a claim
under Federal Rule of Civil Procedure 12(b)(6).
See Adversarial Proceeding, R. 208.
Passing judgment on those claims, without the power to do so, was error. See Citizens for a
Better Env’t, 523 U.S. at 94. Similarly, ruling on the defendants’ cross-claims against the
now-absent parties, when the case should have been dismissed for want of jurisdiction, was
error. See id. (explaining that a federal court must dismiss a case as soon as its subjectmatter jurisdiction no longer exists (quoting Ex parte McCardle, 7 Wall. 506, 514 (1868)).
CONCLUSION
For the reasons stated on the record and provided in this Minute Entry Order, it is
ORDERED as follows:
(1)
The Bankruptcy Court’s Order Overruling Motion to Extend Time, Spradlin v.
Pikeville Energy Group, LLC (In re Alma Energy, LLC), No. 7:09-ap-07005-jl
(Bankr. E.D. Ky. Oct. 2, 2012), R. 657, is REVERSED.
8
While the Court’s opinion focuses on the second amended complaint, the first amended complaint had
the same basic dynamic: the estate had no stake in the amended complaint that would create subject-matter
jurisdiction. See Adversary Proceeding, R. 610 at 18 (explaining that the plaintiffs replaced the estate in the
first amended complaint and remained in the estate’s place in the second amended complaint).
13
(2)
The Plaintiffs’ Motion to Dismiss, Pikeville Energy Group, LLC v. Spradlin,
No. 7:12-cv-113 (E.D. Ky. Oct. 4, 2012), R. 2, is DENIED.
(3)
The Bankruptcy Court’s Order Granting Motion to Dismiss First Amended
Cross-Claims, Spradlin v. Pikeville Energy Group, LLC (In re Alma Energy,
LLC), No. 7:09-ap-07005-jl (Bankr. E.D. Ky. Aug. 9, 2010), R. 208, is
REVERSED.
(4)
The Bankruptcy Court’s Order Granting Motion to Dismiss and Strike CrossClaim, Spradlin v. Pikeville Energy Group, LLC (In re Alma Energy, LLC),
No. 7:09-ap-07005-jl (Bankr. E.D. Ky. Aug. 9, 2010), R. 209, is REVERSED.
(5)
A separate judgment will issue in both cases.
This the 19th day of April, 2013.
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