Ritzen Group, Inc. v. Jackson Masonry, LLC
Filing
38
MEMORANDUM AND ORDER: For the reasons set forth herein, Jackson's Motion for Disbursement (Doc. No. 29) is DENIED, and Ritzen's Motion to Stay (Doc. No. 31) is GRANTED, but without prejudice to Jackson's ability to file a motion to increase the amount of the bond in accordance with the terms of the Agreed Bond Order. Otherwise, the terms of the stay set forth in the parties' Agreed Bond Order will remain in effect pending the resolution of Ritzen's appeal of the judgment in this case to the Sixth Circuit Court of Appeals. Signed by District Judge Aleta A. Trauger on 5/14/2018. (DOCKET TEXT SUMMARY ONLY-ATTORNEYS MUST OPEN THE PDF AND READ THE ORDER.)(jw)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF TENNESSEE
NASHVILLE DIVISION
RITZEN GROUP, INC.,
Appellant,
v.
JACKSON MASONRY, LLC,
Appellee.
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Case No. 3:17-cv-00807
Judge Aleta A. Trauger
MEMORANDUM and ORDER
Before the court are (1) appellee Jackson Masonry, LLC’s Motion for Disbursement of
Supersedeas Bond Funds to Appellee and Setting Case Management Conference for Hearing on
Bond Damages Owed to Appellee (“Motion for Disbursement”) (Doc. No. 29) and (2) appellant
Ritzen Group, Inc.’s Motion for Stay Pursuant to Currently-Posted Supersedeas Bond Funds
(“Motion to Stay”) (Doc. No. 31). Both motions have been exhaustively briefed and are ripe for
review. For the reasons set forth herein, the court will deny the Motion for Disbursement and
grant the Motion to Stay.
I.
Factual and Procedural History
In May 2017, appellant Ritzen Group, Inc. (“Ritzen”) appealed to this court from an
order entered by the United States Bankruptcy Court for the Middle District of Tennessee (the
“Bankruptcy Court”) in the Chapter 11 case filed by Jackson Masonry, LLC (“Jackson”), Case
No. 3:16-bk-02065, resolving two consolidated adversary proceedings (the “Property Dispute”)
between Ritzen and Jackson. More specifically, the Bankruptcy Court, after conducting a trial on
the matter, entered a final judgment disallowing Ritzen’s claim, ruling that Ritzen had materially
2
breached the terms of a contract between Ritzen and Jackson for the purchase of a piece of real
estate (the “Property”) owned by Jackson for $1.55 million, and awarding damages to Jackson in
the amount of $248,311.83, plus additional costs and expenses. (B’cy Doc. Nos. 375, 413, 423. 1)
While briefing on the appeal in this court was proceeding, the parties filed a Joint Motion
to Stay Execution and Establish Supersedeas Bond. (Doc. No. 15.) The Joint Motion proposed
that Ritzen post a bond in the amount of $277,070.69, which reflected the amount of damages
awarded by the Bankruptcy Court in the Property Dispute, plus $29,250 “in projected United
States Quarterly Fees for the approximate 18-month appellate period” and an additional
“$20,000 in projected amounts the Debtor will expend in attorney fees and costs to defend the
appeal,” but minus “$20,491.14 for amounts due and owing to Ritzen related to an allowed claim
in Jackson Masonry’s bankruptcy case.” (Doc. No. 15, at 1.) The parties also agreed that Jackson
maintained the right to request an increase of the Bond Amount under certain circumstances. (Id.
at 2.) The court granted the Joint Motion by entering the parties’ Agreed Order Granting Joint
Motion to Stay Execution and Establish Supersedeas Bond (“Agreed Bond Order”) (Doc. No.
16), and Ritzen deposited the sum of $277,070.69 with the court.
On January 25, 2018, the court issued a Memorandum and Order (Doc. Nos. 24, 25)
affirming the Bankruptcy Court’s disposition of the Property Dispute in all respects. 2 Ritzen filed
its Notice of Appeal to the Sixth Circuit Court of Appeals on February 8, 2018. (Doc. No. 27.)
1
Documents filed in Case No. 3:16-bk-02065 will be referred to herein by their docket
number in that case, denoted as “B’cy Doc. No. ___.” Documents filed in this court are referred
to simply by docket number in this case (e.g., “Doc. No. ___”).
2
The court specifically held that the Bankruptcy Court did not err in (1) its construction
of the parties’ purchase contract as requiring Jackson to provide adequate documents only at the
time of closing rather than at some earlier time, based on the unambiguous language of the
contract; (2) finding that Ritzen failed to establish that Jackson breached a duty of good faith and
fair dealing; or (3) concluding that Ritzen materially breached the purchase agreement by failing
to secure financing and was unable to tender the purchase price on the closing date.
3
On February 26, 2018, Jackson filed its Motion for Disbursement and supporting Memorandum
(Doc. Nos. 29, 30), in which it argues that, under Rule 8025 of the Federal Rules of Bankruptcy
Procedure, any order or final judgment in the district court that affirms a decision of the
bankruptcy court on an appeal is automatically stayed for fourteen days after its entry, but that an
appellant who wishes to extend the stay of execution of such a judgment beyond that fourteen
days must file a motion for such a stay within the fourteen-day window and before filing its
notice of appeal. Otherwise, Jackson contends, the district court loses jurisdiction to consider a
motion to extend a stay of execution. (Doc. No. 30, at 2–3 (citing In re AWC Liquidation Corp.,
292 B.R. 239, 241–42 (D. Del. 2003)).) Because more than fourteen days had passed since entry
of this court’s Judgment by the time Jackson filed its Motion for Disbursement, and Ritzen filed
its Notice of Appeal without seeking to extend the stay, according to Jackson, “this Court cannot
consider any further stay.” (Id. at 3.) Jackson therefore requests an order compelling the
immediate disbursement of $248,311.83 3 and setting a briefing schedule and hearing on the
question of what additional damages Jackson may be entitled to recover. (Id.)
Ritzen responded to the Motion for Disbursement by contesting Jackson’s interpretation
of Rule 8025 and by filing a Motion to Stay. (Doc. No. 31.) It argues that the case cited by
Jackson, AWC Liquidation, is an anomaly and that a majority of courts that have considered the
question have held that a district court retains jurisdiction to consider a motion to stay even after
the filing of a notice of appeal. (Id. at 4–5 (citing In re Imperial Real Estate Corp., 234 B.R. 760
3
This is the amount of damages awarded by the Bankruptcy Court, but it is unclear from
the record why Ritzen would owe the full amount of the damages award, rather than that amount
reduced by $15,000. The Agreed Order Granting Joint Motion Dispensing with Damages
Hearing states that the $15,000 earnest money deposit previously paid by Ritzen and held in
escrow by the escrow agent would be disbursed to Jackson upon entry of the Agreed Order, upon
which the damages award would accordingly be reduced to $233,311.83. (Bankr. Doc. No. 413,
at 1–2.) Jackson’s demand for payment of the full $248,311.83 suggests that it did not actually
receive the $15,000 deposited in escrow.
4
(9th Cir. B.A.P. 1999); Vill. Green I, GP v. Fed. Nat’l Mortg. Ass’n, No. 14-2351-STA-tmp,
2015 WL 73632 (W.D. Tenn. Jan. 6, 2015); In re Lambert Oil Co., 375 B.R. 197 (W.D. Va.
2007)).) Ritzen further argues that the supersedeas bond already posted is sufficient security to
protect Jackson’s interests and that the court should extend the stay of execution under the terms
set forth in the parties’ Agreed Bond Order pending resolution of its appeal of the Property
Dispute to the Sixth Circuit. (Id. at 5.)
In its Response to Ritzen’s Motion to Stay, Jackson repeats its argument that the court
lacks jurisdiction to consider the stay and further adds that, even if the court does consider the
motion, Ritzen is not entitled to a stay of the monetary aspects of the judgment against it because
the existing bond is “grossly insufficient.” (Doc. No. 33, at 2.) It insists that the court should not
grant a further stay of Jackson’s right to collect the judgment unless Ritzen supplements the
already posted bond by at least an additional $100,000. (Id. at 9–10.) It also argues that a stay of
the non-monetary aspects of the judgment against Ritzen is unwarranted, because Ritzen has
failed to establish any of the requisite factors for extending the stay. Thus, Jackson argues, the
court should not extend the stay of Jackson’s right to sell the Property or to close its bankruptcy
case. (Id. at 10–11.)
With the court’s permission, Ritzen filed a Reply in support of its Motion to Stay, which
also constitutes a surreply to Jackson’s Motion for Disbursement. (Doc. No. 37.) Ritzen contends
that: (1) the negotiated Joint Motion and Agreed Bond Order, by their terms, contemplate a
continued appeal and grant Jackson a limited right to seek an increase in the bond amount under
certain circumstances; (2) Jackson’s arguments regarding its entitlement to additional costs and
attorney’s fees associated with this dispute have been mooted in part by the Bankruptcy Court’s
recent ruling in favor of Ritzen on another adversary proceeding between the parties (the “Lis
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Pendens Adversary Proceeding”), as a result of which Ritzen will be entitled to recover
attorney’s fees from Jackson, effectively offsetting any additional amount of fees to which
Jackson believes it is entitled in connection with the appeal of the Property Dispute; (3) Jackson
should not be able to recover attorney’s fees associated with litigating the amount of the bond
and the stay; and (4) the court should extend the stay under the terms set forth in the Agreed
Bond Order.
II.
Discussion
The first matter to be resolved is whether the court has jurisdiction to consider the Motion
to Stay. As set forth below, the court concludes that it does have jurisdiction and, further, that
extending the stay of execution under the terms of the Agreed Bond Order is appropriate.
A.
Jurisdiction to Consider Ritzen’s Motion to Stay
The United States District Court for the District of Delaware has held a number of times
that a district court reviewing a bankruptcy court’s final judgment loses jurisdiction to consider a
motion to stay filed after the movant filed its notice of appeal. In re AWC Liquidation Corp., 292
B.R. at 241 (concurring with “minority precedent,” citing In re One Westminister Co., 74 B.R.
37, 38 (D. Del. 1987)); see also In re Peregrine Sys., Inc., 312 B.R. 755, 756 (D. Del. 2004). One
court outside of Delaware has followed suit. In re Netfax, Inc., 335 B.R. 85, 95 (D. Md. 2005).
To this court’s knowledge, every other court to consider the issue directly has reached the
opposite conclusion. See, e.g., In re Miranne, 852 F.2d 805, 806 (5th Cir. 1988) (per curiam)
(“After reviewing the pertinent authorities in this area, we are persuaded that the district court
retained jurisdiction to grant appellant’s request for a stay despite the fact that a notice of appeal
to this Court was filed prior to the request for a stay. Such a conclusion is consistent with the
general principle that an application for a stay of the judgment or order of a district court should
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ordinarily be made in the first instance in the district court.” (citing Fed. R. Civ. P. 62, 8(a); 9
Moore’s Federal Practice ¶ 208.05)); In re Imperial Real Estate Corp., 234 B.R. at 762
(recognizing split of authority but holding that it could rule on a motion to stay despite the earlier
filing of a notice of appeal, stating: “While Rule 8017(b) [now Rule 8025(b)] clearly
contemplates that a stay may be requested before the notice of appeal to the court of appeals is
filed, there is nothing in Rule 8017(b) that prohibits the issuance of a stay after the notice of
appeal is filed. This conclusion is consistent with the practice under both Fed. R. Bankr. P. 8005
and Fed. R. App. P. 8(a)); In re W.R. Grace & Co., No. 01-1139, 2008 WL 5978951, at *3 (D.
Del. Oct. 28, 2008) (“After examining, the history and purpose of Rule 8017, this Court sides
with the majority in concluding that jurisdiction is retained to hear [the movant’s] Motion to
Stay.”); In re Olick, CIV. A. 96-784, 1996 WL 287344, at *1 (E.D. Pa. May 29, 1996)
(following In re Miranne and “more recent district court decisions” to find that it had jurisdiction
to consider post-appeal motion to stay); In re KAR Dev. Assocs., 182 B.R. 870, 872 (D. Kan.
1995) (same); In re Winslow, 123 B.R. 647, 647–48 n.1 (D. Colo. 1991) (same); see also Vill.
Green I, GP, 2015 WL 73632, at *2–4 (granting motion to stay filed after a notice of appeal,
without discussion of the timing, citing Fed. R. Bankr. P. 8025); In re Lambert Oil Co., 375 B.R.
at 199 (same). 4
In the absence of binding authority from the Sixth Circuit adopting either position, this
court, following the majority, holds that it has jurisdiction to consider Ritzen’s Motion to Stay,
filed after its Notice of Appeal.
4
Except for Village Green, each of the above-cited decisions applied Rule 8017 of the
Federal Rules of Bankruptcy Procedure. That rule was supplanted by Rule 8025 on December 1,
2014, but the Advisory Committee Notes indicate that the differences between the two rules
were intended to be stylistic, except for the addition of subsection (c), which has no application
here.
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B.
What Standard Applies to the Motion to Stay
Courts have recognized three types of stays that may be applied to an intermediate
appeal: “one fully secured by a supersedeas bond, another that is unsecured and discretionary,
and ‘a third that combines features of the first two.’” In re Horne, No. No. 13-00258-CB-B, 2014
WL 2178159, at *1 (S.D. Ala. May 22, 2014) (quoting In re Wymer, 5 B.R. 802, 804 (9th Cir.
BAP 1980)). The Horne court described the difference between the first and second types:
A discretionary stay, which is part of the court’s inherent power to preserve the
status quo, is in the nature of a preliminary injunction. A party seeking . . . a stay
of judgment that cannot be secured by a supersedeas bond must meet the criteria
applicable to a motion for preliminary injunction [i.e., (1) a likelihood of success
on the merits; (2) irreparable injury to the movant if the stay is not granted; (3) no
substantial harm to the opposing party if a stay is granted; and (4) a stay would
serve the public interest]. When a monetary judgment is fully secured by a
supersedeas bond, the injunctive test is unnecessary because the status quo is
maintained.
Id. The appeal at issue in Horne fell within the third category, because it involved “a partiallysecured money judgment”—that is, the supersedeas bond was sufficient to secure the amount of
the bankruptcy court’s judgment, but not sufficient to secure the district court’s judgment
awarding attorney’s fees. Id. at 2. The court nonetheless found that, because the attorney’s fee
award was adequately secured by a lien on the appellant’s real property, “‘good cause’ for a stay
pending appeal [was] satisfied by the supersedeas bond posted in the bankruptcy court and the
judgment lien filed against Appellant’s property.” Id. It therefore granted the motion for stay of
execution of the judgment and held that the supersedeas bond previously filed by the appellant
would remain in the bankruptcy court during the pendency of the appeal.
Jackson argues, in essence, that the type of stay sought in this case falls in the third
category identified by Horne, because it involves a judgment providing for monetary damages,
which can be fully secured by a supersedeas bond, as well as non-monetary elements that cannot
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be secured by a bond. As set forth above, it argues that the bond currently in place is insufficient
to secure the monetary aspects of the judgment and that Ritzen cannot show that the relevant
criteria support a stay of the non-monetary aspects of the judgment.
1.
The Sufficiency of the Bond Amount
With respect to that portion of the judgment that is admittedly secured by an existing
bond, Jackson insists that the bond is “grossly insufficient.” (Doc. No. 33, at 2.) In particular,
Jackson argues that the amount is “woefully inadequate” in light of the attorney’s fees and costs
incurred in litigating the appeal in this court, litigating the Lis Pendens Adversary Proceeding,
and litigating the appeal now before the Sixth Circuit. Particularly with regard to the Lis Pendens
Adversary Proceeding, Jackson posits that the parties already expended substantial sums on the
trial of that matter in the Bankruptcy Court and anticipates that “it will be successful and that
Ritzen will appeal that decision, leading to even higher legal expenses.” It anticipates that it will
be entitled to additional fees and costs in an amount not less than $100,000.
In response, Ritzen argues that (1) the Agreed Order itself specifically contemplated the
possibility of a continued appeal and grants Jackson the right to request an increase of the bond
in certain limited circumstances; (2) the Lis Pendens Adversary Proceeding has now been
resolved by the Bankruptcy Court in Ritzen’s favor, thus obviating Jackson’s argument that it
will be entitled to a substantial amount of additional fees relating to that controversy, which also
means, according to Ritzen, that any additional fees it would owe to Jackson related to the appeal
in this court and the continued appeal to the Sixth Circuit would be offset by the fees Jackson
owes Ritzen in connection with the Lis Pendens Adversary Proceeding; and (3) the other costs
Jackson contends justify increasing the bond were all either anticipated by the terms of the
Agreed Order or are attributable to Jackson.
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The court rejects Jackson’s arguments. Based on the resolution of the Lis Pendens
Adversary Proceeding in Ritzen’s favor, it does not appear that the amount of additional
attorney’s fees that Ritzen may owe Jackson will be substantial, and it is also not clear that
Jackson would be entitled to recover attorney’s fees associated with litigating the extension of
the stay. Moreover, the Agreed Bond Order contemplates that Jackson has the ability, under
certain circumstances, to seek an increase in the bond amount. It has not followed the procedure
articulated by the Agreed Order or affirmatively demonstrated, at this juncture, that those
circumstances warrant an increase in the bond.
2.
The Stay of Non-Monetary Relief
Jackson insists that the Bankruptcy Court’s judgment resolving the Property Dispute, in
addition to monetary damages, granted non-monetary relief insofar as it “quieted Jackson
Masonry’s title to the Property.” (Doc. No. 33, at 8–9.) Jackson also claims that the Agreed Bond
Order, besides staying execution of the monetary judgment, incorporated a stay of the nonmonetary aspects of the judgment insofar as it “barr[ed] Jackson Masonry from (a) selling or
marketing the Property, or (b) substantially consummating its confirmed plan of reorganization
and rendering the appeal equitably moot.” (Id. at 9.)
The court is not persuaded that the judgment at issue involved non-monetary relief. In
resolving the Property Dispute, the Bankruptcy Court entered judgment in Jackson’s favor on all
claims set forth in Ritzen’s breach of contract lawsuit and awarded monetary damages in
accordance with an Agreed Order submitted by the parties. (B’cy Doc. Nos. 375, 413, 423.) In
the Agreed Order Granting Joint Motion Dispensing with Damages Hearing and Granting Other
Relief, the parties themselves agreed that Ritzen would be liable for additional attorney’s fees
associated with the appeal of the ruling on the Property Dispute, assuming its appeal was
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unsuccessful, but that Jackson would need to apply to the Bankruptcy Court for approval of
additional damages. Ritzen also waived the right to contest Jackson’s March 1, 2017 Plan of
Reorganization except under very limited circumstances. (B’cy Doc. No. 413 ¶ 4.)
In the Agreed Bond Order submitted to, and entered by, this court, the parties agreed to
the amount of a supersedeas bond and also agreed, as relevant here, that (1) Jackson was not
currently considering sale of the Property and would not market or sell the Property “unless, in
the exercise of ordinary diligence and its business judgment, its continuing reorganization efforts
require liquidation of the Property” (Doc. No. 16 ¶ 3); (2) Jackson would promptly notify
counsel for Ritzen if it decided to sell or market the Property and would seek approval from the
Bankruptcy Court prior to consummating any sale (id. ¶ 4); (3) if the Bankruptcy Court permits
the sale, Jackson agreed that, in the event of a successful appeal by Ritzen, its claim for specific
performance would be converted to a claim for money damages (id.); (4) in exchange for
Ritzen’s posting the bond amount, Jackson waived any right to argue that Ritzen’s appeal is
equitably moot, including in the event that Jackson commences payments pursuant to
confirmation of the Plan, sells the Property in accordance with paragraph 4, “or pursues any
other administration of its bankruptcy estate” (id. ¶ 6).
In other words, contrary to Jackson’s representations, the Bankruptcy Court’s orders say
nothing about “quieting title,” and the Agreed Bond Order does not absolutely bar Jackson from
selling or marketing the Property or from substantially consummating its confirmed plan of
reorganization. Moreover, it does not actually preclude Jackson from taking action that might
render Ritzen’s appeal equitably moot. Rather, Jackson agreed to waive the right to argue
equitable mootness, in exchange for Ritzen’s posting of the agreed-upon bond amount.
The court also finds that, under the terms of the Agreed Bond Order, Jackson effectively
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conceded that, to the extent the judgment resolving the Property Dispute incorporated nonmonetary aspects, Jackson was adequately protected by the terms of the Agreed Bond Order and
the amount of the bond. The court therefore finds it unnecessary to apply the test for an
injunction to Ritzen’s request for a stay. Instead, the supersedeas bond submitted by Ritzen in
accordance with the terms of the parties’ agreement was intended to be, and apparently remains,
adequate to secure Jackson’s interests.
III.
Order
For the reasons set forth herein, Jackson’s Motion for Disbursement (Doc. No. 29) is
DENIED, and Ritzen’s Motion to Stay (Doc. No. 31) is GRANTED, but without prejudice to
Jackson’s ability to file a motion to increase the amount of the bond in accordance with the terms
of the Agreed Bond Order. Otherwise, the terms of the stay set forth in the parties’ Agreed Bond
Order will remain in effect pending the resolution of Ritzen’s appeal of the judgment in this case
to the Sixth Circuit Court of Appeals.
It is so ORDERED.
ENTER this 14th day of May 2018.
ALETA A. TRAUGER
United States District Judge
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