Badami v. AFY et al

Filing 7

MEMORANDUM AND ORDER regarding Order on Findings and Recommendation 2 . Sears Cattle asks that this case be stayed pending the Eighth Circuit's determination on the appeal from judgments entered in In Re: AFY, Inc., 8:10-cv-00214. Sears Cattle has provided only a conclusory allegation that the Eighth Circuit's ruling on the matters before Judge Kopf may give rise to issue or claim preclusion on Sears Cattle's claims for setoff. But it is unclear why or how the ultimate outcome of the case before Judge Kopf could impact this case. The court will request briefing on this issue. Accordingly, Any motion to stay must be filed in accordance with NECivR 7.0.1(a) by January 31, 2012. Responses or replies to such motions shall be fil ed in accordance with NECivR 7.0.1(b) and (c). In the absence of a timely motion to stay, the district court will deem this case fully submitted for de novo review of the bankruptcy courts proposed findings of fact and conclusions of law. Ordered by Magistrate Judge Cheryl R. Zwart. (JAB)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
JOSEPH H. BADAMI,
Plaintiff,
v.
SEARS CATTLE CO.,
Defendant.

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8:11CV288

MEMORANDUM AND ORDER

This case arises from the bankruptcy court. The plaintiff, Joseph H. Badami, in his
capacity as bankruptcy Trustee for debtor AFY, Inc., filed an adversary complaint in the
bankruptcy court against the defendant, Sears Cattle Company (“Sears Cattle”). The adversary
complaint alleged two claims: 1) a claim for recovery of an account receivable ($291,937.00)
allegedly owed to AFY by Sears Cattle; and 2) a claim to recover $40,000 in sanctions for
defendant’s alleged willful refusal to comply with an order requiring Sears Cattle to execute
all documents needed to convey real estate to Rolling Stone Land & Cattle, LLC ("Rolling
Stone"). (Bk. 10-4062, filing no. 1).

Sears Cattle filed an answer, counterclaim, and demand for a jury trial. (Bk. 10-4062,
filing no. 7). The counterclaim alleged the Trustee had collected proceeds from the sale of
Sears Cattle’s real and personal property and had used those proceeds to pay debts owed by
AFY to Farm Credit. Sears Cattle requested an accounting of any proceeds received from the
sale of property belonging to Sears Cattle and requested a money judgment for the full amount
of such proceeds.

After the parties briefed the issue, the bankruptcy court denied Sears Cattle’s jury
demand, explaining that under Langenkamp v. Culp, 498 U.S. 42 (1990), creditors who file
claims against a bankruptcy estate bring themselves within the equitable jurisdiction of the

bankruptcy court and are not entitled to a jury trial. As explained in the bankruptcy court’s
memorandum and order, a counterclaim against a bankruptcy estate is akin to the filing of a
claim, and “by filing a counterclaim seeking damages from the bankruptcy estate, Sears Cattle
Co. has waived any right to a jury trial that it may have had.” (Bk. 10-4062, filing no. 21, p.
3).

A bench trial was held before the bankruptcy judge on June 21, 2011. (Bk. 10-4062,
docket entry 49). After the trial, the bankruptcy judge entered a memorandum and order
finding Sears Cattle owed AFY $291,937.00 on the account receivable; due to the lack of any
supporting evidence, Sears Cattle was not entitled to any recovery on its counterclaim; and
Sears Cattle was not liable for sanctions. (Bk. 10-4062, filing no. 50).

A judgment was

entered stating:

IT IS ORDERED: For the reasons stated in the Order of today’s date,
judgment is hereby entered in favor of the plaintiff and against the defendant on
the first cause of action, the collection of the AFY, Inc. account receivable in the
amount of $291,937.00.
IT IS FURTHER ORDERED that judgment is hereby entered in favor
of the defendant and against the plaintiff on the second cause of action, the
collection of sanctions in connection with the execution of the closing
documents.
(Bk. 10-4062, filing no. 51).

Sears Cattle challenged the judgment on the account receivable claim, stating the
bankruptcy court lacked subject matter jurisdiction under the Court’s ruling in Stern v.
Marshall, 131 S.Ct. 2594, 2011 WL 2472792 (June 23, 2011). Over the Trustee’s objection,
the bankruptcy court vacated the monetary judgment against Sears Cattle, and entered the
following recommendation:

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I RESPECTFULLY RECOMMEND to the United States District Court for the
District of Nebraska that it withdraw the reference of this adversary proceeding
to enter final judgment on the plaintiff’s first cause of action. In that regard, I
respectfully recommend that the district court consider my order of July 6, 2011
(Filing No. 50) as proposed findings of fact and conclusions of law to be
adopted in entering judgment for the plaintiff.
(Bk. 10-4062, filing no. 56). 1

The recommendation was filed in the district court and is pending before Senior Judge
Warren K. Urbom. (Filing No. 1). No objection was timely filed to the Order, Report and
Recommendation. See NEGenR 1.5(b)(2). Judge Urbom accepted the recommendation as
follows:
IT IS ORDERED that:
1.

reference of the adversary proceeding to enter final judgment on the first cause
of action stated in Case No. 10-04062 is withdrawn and I shall consider Chief
Judge Saladino’s order of July 6, 2011, (ECF. filing 50) as proposed findings of
fact and conclusions of law to be adopted in entering judgment for the plaintiff;

2.

I invite counsel to inform Magistrate Judge Zwart on or before
November 10, 2011, of their individual or collective thoughts of the
procedure that should be followed in the resolution of the remaining
issue or issues.

Filing No. 2. The parties have now done so.

Sears Cattle asks that this case be stayed pending the Eighth Circuit’s determination on
the appeal from judgments entered in In Re: AFY, Inc., 8:10-cv-00214, filing nos. 74 and 75

1

The second claim, which denied the Trustee’s request for sanctions, was neither
challenged in the bankruptcy proceedings nor vacated by the bankruptcy judge, and it was not
referred to this court. Therefore, this court need not enter a judgment of dismissal on the
sanctions issue. The bankruptcy court’s judgment on that issue remains in effect.
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(Kopf, J., presiding). Sears Cattle states “Sears Cattle should be allowed to not proceed until
the Eighth Circuit Court decides the Appeal . . ., which may vindicate Sears Cattle’s right to
set off under the doctrines of claim or issue preclusion.” As an alternative to staying this case,
Sears Cattle asks this court to first determine “whether subject matter jurisdiction exists,”
(filing no. 6. p. 1), and whether Sears Cattle was deprived of its right to a jury trial on the
Trustee’s account receivable claim and Sears Cattle’s counterclaim. Sears Cattle is essentially
requesting a “do over” regarding “whether Badami or Sears Cattle are entitled to recover on
the merits.” (Filing No. 6, p. 1).

Regarding Sears Cattle’s request to stay these proceedings, Sears Cattle has provided
only a conclusory allegation that the Eighth Circuit’s ruling on the matters before Judge Kopf
may give rise to issue or claim preclusion on Sears Cattle’s claims for setoff. But it is unclear
why or how the ultimate outcome of the case before Judge Kopf could impact this case. The
court will request briefing on this issue.

Sears Cattle challenges whether the bankruptcy court had subject matter jurisdiction
over the account receivable and setoff claims. The defendant claims the pending appeal of the
case held before Judge Kopf removed jurisdiction from the bankruptcy court. The case before
Judge Kopf and the above-captioned case were filed separately, and there is no explanation of
how the appeal of Judge Kopf’s ruling could divest the bankruptcy court, and now this court,
of subject matter jurisdiction.

The defendant also argues that the bankruptcy court lacked jurisdiction under the
Court’s ruling in Stern v. Marshall, 131 S.Ct. 2594, 2011 WL 2472792 (June 23, 2011). Stern
held that a bankruptcy judge lacks authority under the Constitution to issue a dispositive ruling
on a non-core state law claim. Therefore, after becoming aware of the Court’s recent ruling
in Stern, and in accordance with 28 U.S.C. § 157(c)(1), the bankruptcy judge submitted
“proposed findings of fact and conclusions of law to the district court,” with any final order
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or judgment to be entered “by the district judge after considering the bankruptcy judge's
proposed findings and conclusions and after reviewing de novo those matters to which any
party has timely and specifically objected.” The bankruptcy court acted upon referral from the
district court when it convened and presided over the parties’ trial, (see NEGenR 1.5(a)), and
then issued a proposed ruling. There is no merit to the defendant's claim that the bankruptcy
court lacked subject matter jurisdiction in carrying out these functions.

The defendant claims it was denied its right to a jury trial, and the district court must
convene a jury trial to determine whether Badami or Sears Cattle are entitled to recover on the
merits. However, the defendant did not timely object to the bankruptcy judge’s proposed
findings of fact and conclusions of law. By failing to object, Sears Cattle waived any challenge
to the bankruptcy court’s proposed ruling, including any demand for a new trial before a jury.

Accordingly,
IT IS ORDERED:
1)

Any motion to stay must be filed in accordance with NECivR 7.0.1(a) by
January 31, 2012. Responses or replies to such motions shall be filed in
accordance with NECivR 7.0.1(b) and (c).

2)

In the absence of a timely motion to stay, the district court will deem this case
fully submitted for de novo review of the bankruptcy court’s proposed findings
of fact and conclusions of law.
January 17, 2012.

BY THE COURT:
s/ Cheryl R. Zwart
United States Magistrate Judge

*This opinion may contain hyperlinks to other documents or Web sites. The U.S. District
Court for the District of Nebraska does not endorse, recommend, approve, or guarantee any third
parties or the services or products they provide on their Web sites. Likewise, the court has no
agreements with any of these third parties or their Web sites. The court accepts no responsibility for
the availability or functionality of any hyperlink. Thus, the fact that a hyperlink ceases to work or
directs the user to some other site does not affect the opinion of the court.

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