Rehab At Work Corp. et al v. Cohen et al

Filing 11

MEMORANDUM OPINION. Signed by Judge Paul W. Grimm on 5/18/2015. Associated Cases: 8:15-cv-00824-PWG, 8:15-cv-00835-PWG(kns, Deputy Clerk)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
Southern Division
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REHAB AT WORK, CORP., et al.,
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Appellants,
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United States District Court
Case Nos.:
PWG-15-824
PWG-15-835

v.
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MERRILL COHEN,
CHAPTER 7 TRUSTEE FOR THE
ESTATE OF RAMOND JOSEPH
HOWAR, JR., et al.,

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Appellees.
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---------------------------------------------------------REHAB AT WORK, CORP., et al.,
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Appellants,

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v.

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MERRILL COHEN,
CHAPTER 7 TRUSTEE FOR THE
ESTATE OF RAMOND JOSEPH
HOWAR, JR., et al.,

Adversary Proc. No. 13-181

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Appellees.
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In re:
RAYMOND JOSEPH HOWAR, JR.
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Debtor.
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Case No. 11-16614-WIL
Chapter 7

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MEMORANDUM OPINION
Appellees, the Chapter 7 trustee and the trustees of a trust in which debtor holds a future
interest, have moved to dismiss this appeal from the denial of a motion to approve a settlement
on the grounds that it constitutes an improper interlocutory appeal and appellants did not
properly seek leave to appeal. Appellant creditors oppose the motion on the ground that the
order appealed from is a “collateral order” and, in any event, that this is an appropriate case for
an interlocutory appeal. Because I agree with the appellees, I grant the motions and dismiss the
appeal.
I.

FACTUAL AND PROCEDURAL BACKGROUND

Debtor Raymond J. Howar, Jr., initiated a voluntary petition under Chapter 7 of the
Bankruptcy Code on March 31, 2011 (the “Bankruptcy Case”), and Trustee Merrill Cohen was
appointed trustee over the bankruptcy estate. See Bankr. Docket Nos. 1, 8, ECF No. 4-16 in
Case No. 15-824. Among the assets scheduled by Debtor are: “9 Shares Rehab at Work Corp.
Inc.” (“RAW”) of unknown value (the “RAW Stock”), Schedule B to Voluntary Chapter 7
Petition, ECF No. 4-2 in Case No. 15-824, various legal claims against Rehab at Work Corp. Inc.
for unpaid profits and other unpaid compensation totaling over one million dollars (the “RAW
Claims”), id., and a remainder interest in “Debtor’s father Trust Raymond J. Howar Estate,
Additional Info: Legacy Trust,” [sic] (the “Howar Trust”), id.
On January 14, 2015, the Trustee filed in the Bankruptcy Case and in Adversary
Proceeding No. 13-181 (the “Adversary Proceeding” and, together with the Bankruptcy Case, the
“Bankruptcy Cases”) a Motion Pursuant to Rule 9019 for Approval of Compromise and
Settlement of Montgomery County Litigation and Adversary Proceeding Against Rehab at Work,
Corp., Howar Family Real Estate and Julie Howar; and for Approval Pursuant to 11 U.S.C.

§ 363(f) of Transfer of Raw Stock Free and Clear of Liens (the “Motion to Approve”), ECF No.
4-3 in Case No. 15-824; ECF No. 4-2 in Case No. 15-835. The Motion to Approve sought to
settle both the Adversary Proceeding and a related case pending in the Circuit Court for
Montgomery County (the “State Court Case”), relating to the RAW Claims. Mot. to Approve 2.
According to the motion, trial in the Circuit Court for Montgomery County had been scheduled
for January 12, 2015 (after initially being rescheduled), before the settlement had been reached.
Id.
According to the terms of the proposed settlement, RAW would make cash payments
totaling $500,000 over the next five years (with certain guarantees to the Estate should RAW
default). Id. ¶¶ 2–4. In exchange, the Trustee agreed that the Estate would convey its RAW
Stock to RAW, and its interest in the Howar Trust to Julie Howar.1 The settlement agreement
was contingent upon the approval of the Bankruptcy Court, and required Trustee promptly to file
a motion seeking approval of the settlement, to be followed by supportive filings from RAW and
Julie Howar, Settlement Agreement ¶¶ 11(i)–(ii), Mot. to Approve Ex. 1, ECF No. 4-3 in Case
No. 15-824; ECF No. 4-2 in Case No. 15-835, which they filed, see Resp. by Julie Howar and
Rehab at Work, Corp. in Support of Trustee’s Mot. Pursuant to Rule 9019 for Approval of
Compromise and Settlement of Montgomery County Litigation and Adversary Proceeding
Against Rehab at Work, Corp., Howar Family Real Estate and Julie Howar; and for Approval
Pursuant to 11 U.S.C. § 363(f) of Transfer of RAW Stock Free and Clear of Liens, ECF No. 4-7
in Case No. 15-824; ECF No. 4-5 in Case No. 15-835.

1

Though not entirely clear from the record, it appears that Julie Howar is the Chief Executive
Officer of RAW. See Why Rehab at Work?, Rehab at Work, http://www.rehabatwork.com/
whyrehab.aspx (last visited May 13, 2015).
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Objections to the settlement were filed by, inter alia, Debtor and the trustees of the
Howar Trust (the “Howar Trust Trustees”), see Adversary Docket Nos. 47, 48, Notice of Appeal
Ex., ECF No. 1-2 in Case No. 15-835; Bankr. Docket No. 352. The primary basis for opposing
the settlement was that the instrument establishing the Howar Trust contained a “spendthrift”
provision that prevented Debtor for transferring his future interest in the Trust. See Opp’n to
Trustee’s Mot. Pursuant to Rule 9019 for Approval of Compromise and Settlement of
Montgomery County Litigation and Adversary Proceeding Against Rehab at Work, Corp.,
Howar Family Real Estate and Julie Howar; and for Approval Pursuant to 11 U.S.C. § 363(f) of
Transfer of RAW Stock Free and Clear of Liens, ECF No. 4-3 in Case No. 15-835; Limited
Objection of Trustees of Pamela H. Howar Marital Trust to Trustee’s Mot. Pursuant to Rule
9019 for Approval of Compromise and Settlement of Montgomery County Litigation and
Adversary Proceeding Against Rehab at Work, Corp., Howar Family Real Estate and Julie
Howar, ECF No. 4-4 in Case No. 15-835. An additional opposition was filed by Al Milanick, a
creditor of Debtor and the brother of Julie Howar, see Trustee’s Mot. to Dismiss Appeal and to
Deny Leave to Appeal (“Trustee’s Mot. to Dismiss”) 3, ECF No. 2 in Case Nos . 15-824 and 15835, raising several technical objections to the settlement, Objection to Proposed Settlement and
Compromise, ECF No. 4-4 in Case No. 15-824.
In response, Appellants RAW and Julie Howar filed a supplemental response supporting
the Motion to Approve. Supp. Resp. by Julie Howar and Rehab at Work, Corp., to Trustee’s
Mot. Pursuant to Rule 9019 for Approval of Compromise and Settlement of Montgomery County
Litigation and Adversary Proceeding Against Rehab at Work, Corp., Howar Family Real Estate
and Julie Howar; and for Approval Pursuant to 11 U.S.C. § 363(f) of Transfer of RAW Stock
Free and Clear of Liens (“Appellants’ Supp. Resp.”), ECF No. 4-11 in Case No. 15-824; ECF

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No. 4-7 in Case No. 15-835. In their Supplemental Response, Appellants contested the view that
the Howar Trust’s spendthrift provision prevented its transfer and stated their belief that
the Trustee has the burden to defend the Settlement if for no other reason [than]
that the Trustee made the unequivocal representation in the Settlement Agreement
that “The Estate is one of five remainder beneficiaries of a trust created under the
Will of Raymond Howar, Sr., for the benefit of Pamela Howar, as income
beneficiary.” [] However, the [Appellants] are informed that the Trustee will
instead abandon the Settlement Agreement, or else seek to impose a unilateral
change in the Settlement Agreement upon the Defendants.
Appellants’ Supp. Resp. ¶ 2. Appellants further requested that, if the bankruptcy court did not
approve the settlement, it order the parties to return to mediation. Id. ¶ 3.
On February 25, 2015, a hearing on the Motion to Approve was held before Bankruptcy
Judge Wendelin I. Lipp. Bankr. Docket 361; Adversary Docket 49. At that hearing, Judge Lipp
appears to have found both that the agreement put forward by the parties had been withdrawn
and, in any event, that there was no meeting of the minds on the terms of a settlement. Hr’g Tr.,
Trustee’s Mot. to Dismiss Ex. A, ECF No. 2-1 in Case Nos. 15-824 and 15-835. On March 2,
2015, Judge Lipp issued an order denying the Motion to Approve. Order Denying Mot. to
Approve Settlement, Notice of Appeal Ex., ECF No. 1-1 in Case Nos. 15-824 and 15-835.
On March 20, 2015, Appellants RAW and Julie Howar noticed an appeal both in the
Bankruptcy Case, Notice of Appeal, ECF No. 1 in Case No. 15-824, and in the Adversary
Proceeding, ECF No. 1 in Case No. 15-835. Shortly thereafter on March 30, 2015, the Trustee
filed a Motion to Dismiss on the ground that this is an improper interlocutory appeal and
Appellants neither had sought nor had received—nor are entitled to receive—leave to appeal.
Trustee’s Mot. to Dismiss, ECF No. 2 in Case Nos. 15-824 and 15-835. That same day, the
Howar Trust Trustees filed a Joinder in Trustee’s Mot. to Dismiss Appeal and to Deny Leave to

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Appeal, ECF No. 3 in Case Nos. 15-824 and 15-835. Appellants have filed their Opposition
(“Appellants’ Opp’n”), ECF No. 6 in Case Nos. 15-824 and 15-835. Although the Howar Trust
Trustees have filed a brief reply, ECF No. 9 in Case Nos. 15-824 and 15-835, the Trustee has not
filed a reply and his time to do so has passed, Fed. R. Bankr. P. 8013(a)(3)(B); Loc. R. 105.2.
However, on May 4, 2015, the Trustee filed a Notification of Additional Supreme Court
Authority Issued Today, ECF No. 8 in Case Nos. 15-824 and 15-835. Having reviewed the
filings—and notwithstanding Trustee’s request for a hearing, Appellee’s Req. for Hr’g on Mot.
to Dismiss Appeal, ECF No. 7 in Case Nos. 15-824 and 15-835—I find a hearing is not required.
Fed. R. Bankr. P. 8013(c); Loc. R. 105.6.
II.

STANDARD OF REVIEW

The jurisdiction of a district court to hear appeals from bankruptcy courts is conferred by
28 U.S.C. § 158(a), which provides:
(a) The district courts of the United States shall have jurisdiction to hear appeals
(1) from final judgments, orders, and decrees;
(2) from interlocutory orders and decrees issued under section 1121(d) of title 11
increasing or reducing the time periods referred to in section 1121 of such title;
and
(3) with leave of the court, from other interlocutory orders and decrees[.]
28 U.S.C. § 158(a). “Thus, by statute, an appeal of right exists only from a final judgment, and
any other appeal, i.e., from an interlocutory order, may lie only upon obtaining leave of the
court.” Kore Holdings, Inc. v. Rosen (In re Rood), 426 U.S. 538, 546 (D. Md. 2010).
In the context of a bankruptcy case, “the concept of finality . . . has traditionally been
applied ‘in a more pragmatic and less technical way in bankruptcy cases than in other
situations.’” A.H. Robins Co., Inc. v. Piccinin, 788 F.2d 994, 1009 (4th Cir. 1986). As the
Supreme Court recently explained,
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A bankruptcy case involves “an aggregation of individual controversies,” many of
which would exist as stand-alone lawsuits but for the bankrupt status of the
debtor. Accordingly, “Congress has long provided that orders in bankruptcy
cases may be immediately appealed if they finally dispose of discrete disputes
within the larger case.”
Bullard v. Blue Hills Bank, 135 S. Ct. 1686, 1692 (2015) (internal citations omitted). Under this
more relaxed standard, a bankruptcy “order is final and appealable if it (i) finally determines or
seriously affects a party’s substantive rights, or (ii) will cause irreparable harm to the losing party
or waste judicial resources if the appeal is deferred until the conclusion of the bankruptcy case.”
Kore Holdings (In re Rood), 426 B.R. at 547.
III.

DISCUSSION

As a threshold issue, it is clear that the denial of a motion to approve a settlement is an
interlocutory order. The denial of the motion “did not resolve the litigation. Indeed, it sustained
the suit. It established neither liability nor damages.” Guyther v. Hebb (In re Hebb), 53 B.R.
1003, 1005 (D. Md. 1985). The adversary proceeding—and the State Court Case—both remain
ongoing as a direct result of the bankruptcy court’s decision, which “demonstrates that the order
did not finally determine the substantive rights of the [parties] in the bankruptcy case, nor did it
‘finally dispose of discrete disputes within the larger case.’” Kore Holdings (In re Rood), 426
B.R. at 547. This conclusion is even clearer in the wake of Bullard v. Blue Hills Bank, which
held that declining to confirm a plan under Chapter 13 of the Bankruptcy Code was not a final,
appealable decision because it
changes little. The automatic stay persists. The parties’ rights and obligations
remain unsettled. The trustee continues to collect funds from the debtor in
anticipation of a different plan’s eventual confirmation. The possibility of
discharge lives on. ‘Final’ does not describe this state of affairs. An order
denying confirmation does rule out the specific arrangement of relief embodied in
a particular plan. But that alone does not make the denial final any more than,

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say, a car buyer’s declining to pay the sticker price is viewed as a ‘final’
purchasing decision by either the buyer or seller. ‘It ain’t over till it’s over.’”
Bullard, 135 S. Ct. at 1093.
Appellants argue that the Fourth Circuit has recognized a more flexible approach than
many other circuits in McDow v. Dudley, 662 F.3d 284 (4th Cir. 2011), which held that the
denial of a motion to dismiss a Chapter 7 case as abusive under 11 U.S.C. § 707(b) was a final,
appealable order even though the denial of a motion to dismiss typically is not considered final.
However, McDow is not so broad as Appellants suggest: it found that a motion to dismiss under
§ 707(b) was unusual because it must be disposed of according to a strict schedule and its
erroneous denial without immediate review would “‘frustrate both principles of judicial economy
and Congress’s goal of ensuring that debtors allocate as much of their resources as possible
toward repaying their debts.’” McDow, 662 F.3d at 290 (quoting In re Rudler, 576 F.3d 37, 43
(1st Cir. 2009). But—assuming that the holding in McDow remains valid after Bullard—its
reasoning does not apply to any order that leaves an issue in a bankruptcy proceeding
unresolved. To read McDow so broadly would allow the exception to swallow the rule. Without
the settlement, the claims of the party may move forward as before. No liability has attached to
any party, no debts have been discharged, and no money or property has been awarded to any
party. As in Bullard, it may be that the specific settlement that the bankruptcy court declined to
approve (because it found there was no meeting of the minds) may be foreclosed, but the
potential for a settlement remains; the parties merely have been sent back to the drawing-board.
The order of the bankruptcy court cannot be viewed as anything other than interlocutory.
Appellants also argue that their appeal falls into the “small class [of decisions] which
finally determine claims of right separable from, and collateral to, rights asserted in the action,
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too important to be denied review and too independent of the cause itself to require that appellate
consideration be deferred until the whole case is adjudicated,” recognized in Cohen v. Beneficial
Industrial Loan Corp., 337 U.S. 541, 546 (1949). This class comprises those collateral orders
that “conclusively determine the disputed question, resolve an important issue completely
separate from the merits of the action, and [are] effectively unreviewable on appeal from a final
judgment.” Coopers & Lybrand v. Livesay, 437 U.S. 463, 468 (1978) (citations omitted); see
also Cobra Natural Res., LLC v. Fed Mine Safety & Health Review Comm’n, 742 F.3d 82, 86
(4th Cir. 2014) (same). But however important the “fruits of the Settlement Agreement” may be
to Appellants, see Appellants’ Opp’n ¶ 15.b, their argument squarely is foreclosed by Digital
Equipment Corp. v. Desktop Direct, Inc., in which the Supreme Court held that “an order
denying effect to a settlement agreement does not come within the narrow ambit of collateral
orders” recognized by Cohen. Digital Equipment, 511 U.S. 863, 865 (1992). To the contrary,
“rights under private settlement agreements can be adequately vindicated on appeal from final
judgment.” Id. at 869.
In the alternative, Appellants ask me to consider their improper Notice of Appeal as a
motion for leave to appeal under 28 U.S.C. § 158(a)(3). Whether to do so at all is a matter of
my discretion. See Morgantown Excavators, Inc. v. Huntington Nat’l Bank (In re Morgantown
Excavators, Inc.), 507 B.R. 126, 132 (N.D.W. Va. 2014). But even were I to consider their
notice of appeal as a request for leave to do so, I would not find it appropriate to grant leave.
The criteria for granting leave to appeal an interlocutory order are set forth in 28 U.S.C.
§ 1292(b):
When a district judge, in making in a civil action an order not otherwise
appealable under this section, shall be of the opinion that such order involves [1] a
controlling question of law [2] as to which there is substantial ground for
difference of opinion and [3] that an immediate appeal from the order may
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materially advance the ultimate termination of the litigation, he shall so state in
writing such order.
28 U.S.C. § 1292(b). I find that at least the first and third of these conditions are not met here.
There is no controlling question of law at issue because the bankruptcy court rested its
denial of the Motion to Approve on the factual determination that the original settlement
agreement was withdrawn and there was no deal to approve because there was no meeting of the
minds. See Hr’g Tr. Though Appellants argue that the relevant controlling question of law is
“whether the bankruptcy court may allow a Chapter 7 trustee to convey an interest in a debtor’s
spendthrift trust when the debtor owes claims for both child support and federal taxes,”
Appellants’ Opp’n ¶ 17, they admit that the “court did not resolve that question one way or the
other,” id. Accordingly there is no decision on that issue to appeal and no controlling legal issue
validly before me.
I also find that immediate appeal of the order denying settlement is unlikely to materially
advance the ultimate termination of the litigation. Appellants argue that “if this Court were to
reverse the bankruptcy court’s denial of approval of the Settlement Agreement, the Circuit Court
litigation would end.” Appellants’ Opp’n ¶ 20. Even assuming that this were true—that the
result of a ruling in Appellants’ favor would be the immediate approval of the settlement
agreement and conclusion of the State Court Case, rather than remand for further proceedings—
it disregards the fact that this case currently is set for trial to commence on June 22, 2015,
slightly over one month from today. Docket, Cohen v. Rehab at Work, Corp., No. 378975V
(Md.

Cir.

Ct.

Montgomery

Cnty.

filed

July

11,

http://casesearch.courts.state.md.us/casesearch/inquiryByCaseNum.jis.

2013),

available

Accordingly,

at
this

represents the rare case in which an interlocutory appeal not only would not advance the
termination of the litigation, but where the litigation, if left alone, is likely to terminate of its own
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accord before the interlocutory appeal could be fully briefed and resolved. And the mere fact
that Appellants would prefer the Settlement Agreement to the possibility of a trial is not a
sufficient basis to grant leave to appeal. See Digital Equipment, 511 at 873. It is apparent that
the most efficient way to resolve this case is to allow it to proceed to trial without further delay,
and not to bring it to a halt in order to resolve this interlocutory appeal.
IV.

CONCLUSION

For the aforementioned reasons, both of Appellants’ appeals shall be DISMISSED, and
the Clerk shall CLOSE both cases.
A separate Order follows.

Dated: May 18, 2015

/S/
Paul W. Grimm
United States District Judge

dsy

11