Balestri et al v. Hunton & Williams LLP et al

Filing 11

Memorandum Opinion and Order denying 10 Trustee's Motion for Leave to Appeal Order Denying Trustee's Motion to Reconsider Bankruptcy Court's Report and Recommendation and Order Denying Motion to Remand; denying 2 Motion to Certify Appeal of Reconsideration Order for Direct Appeal to the United States Court of Appeals for the Fifth Circuit. (Ordered by Senior Judge A. Joe Fish on 2/11/2013) (axm)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION

IN RE:
HALLWOOD ENERGY, L.P., ET AL.,
Debtors.
-------------------------------------------------------RAY BALESTRI, TRUSTEE OF THE
HALLWOOD ENERGY 1 CREDITORS’
CREDIT,
Appellant,
VS.
HUNTON & WILLIAMS, LLP, ET AL.,
Appellees.

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BANKRUPTCY CASE NO.
09-31253-SGJ-11

CIVIL ACTION NO.
3:12-CV-1902-G

MEMORANDUM OPINION AND ORDER

Before the court are (1) the appellant’s motion for leave to appeal the order
denying the trustee’s motion to reconsider the bankruptcy court’s report and
recommendation and the order denying the motion to remand (docket entry 1-1);
and (2) the appellant’s motion to certify an appeal of the reconsideration order for

direct appeal to the United States Court of Appeals for the Fifth Circuit (docket entry
2). For the reasons stated below, the motions are denied.
I. BACKGROUND
The appellant Ray Balestri (the “trustee”) is the trustee of the Hallwood
Energy I Creditors’ Trust, a litigation trust formed in accordance with the confirmed
plan of reorganization in the jointly-administered bankruptcy case of In re Hallwood
Energy, L.P., et al., Case No. 09-31253-SGJ-11, in the United States Bankruptcy
Court for the Northern District of Texas, Dallas Division. See Motion to Certify
Appeal of Reconsideration Order for Direct Appeal to the United States Court of
Appeals for the Fifth Circuit (“Motion to Certify”) at 1-2 ¶ 1 (docket entry 2). In
July 2010, the trustee filed an action styled Ray Balestri, Trustee of the Hallwood Energy
I Creditors’ Trust v. Anthony J. Gumbiner, et al., No. CC-10-05212-D, in the County
Court at Law No. 4, Dallas County, Texas, against certain former officers, directors
and counsel of the debtors in the underlying bankruptcy case. See Trustee’s Motion
for Leave to Appeal Order Denying Trustee’s Motion to Reconsider Bankruptcy
Court’s Report and Recommendation and Order Denying Motion to Remand
(“Motion”) at 3 ¶ 4 (docket entry 1-1). These officers, directors, and counsel include
Hunton & Williams, LLP, W. Alan Kailer, Andrew E. Jillson, and Michelle A.
Mendez (the “attorney defendants”). Id. The attorney defendants were corporate

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counsel to the debtor Hallwood Energy, L.P. (“Hallwood Energy”) prior to the
bankruptcy filing. Id.
On August 31, 2010, the attorney defendants removed this action to the
bankruptcy court of the Northern District of Texas, commencing Adversary
Proceeding No. 10-3263 (the “adversary proceeding”). Id. ¶ 5. On September 21,
2010, the trustee moved to remand the case (the “remand motion”), asserting that
the claims in the adversary proceeding were not within the scope of the bankruptcy
court’s post-confirmation jurisdiction, since they involved solely state law causes of
action for legal malpractice. Id. ¶ 6. On November 29, 2011, the attorney
defendants filed a conditional motion to withdraw the reference (the “withdrawal
motion”), proposing as an alternative to remand that the United States District Court
for the Northern District of Texas (the “district court”) enter final judgment in the
adversary proceeding, with the bankruptcy court presiding over pre-trial matters. Id.
at 4 ¶ 7.
On February 8, 2012, the bankruptcy court issued a recommendation to the
district court on the withdrawal motion (the “withdrawal recommendation”). Id. at 5
¶ 9. It proposed that the bankruptcy court should hear pre-trial matters, with the
district court conducting any trial and entering any final judgment. Id. This
recommendation was based on the bankruptcy court’s belief that the claims against
the attorney defendants were “heavily intertwined” with other claims then pending

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against Hallwood Energy’s bankruptcy counsel. Id. Although the bankruptcy court
recognized that the claims against the attorney defendants were not core, it reasoned
that there was a great degree of relatedness to the debtors’ chapter 11 cases and other
litigation in the bankruptcy court and that there would be great efficiency in keeping
the lawsuit against the attorney defendants. Id.
On February 17, 2012, the bankruptcy court also entered an order denying the
remand motion (the “remand denial”). Id. ¶ 10. On April 13, 2012, the trustee filed
a motion with the bankruptcy court requesting that it reconsider both the withdrawal
recommendation and the remand denial. Id. ¶ 11. This motion was premised on the
fact that the trustee’s adversary proceeding against the debtor’s bankruptcy counsel
had been settled and would not be tried by the bankruptcy court. Id. Given that the
bankruptcy court’s prior jurisdictional rulings in the adversary proceeding were
substantially based on the presumption that the bankruptcy court would be trying the
other proceeding against the debtor’s bankruptcy counsel, the trustee argued that
exceptional circumstances under Rule 60(b)(6) existed for reconsideration and relief
from the withdrawal recommendation and the remand denial. Id. The bankruptcy
court denied the trustee’s motion for reconsideration on May 21, 2012 (the
“reconsideration denial”). Id. at 6 ¶ 12.
The trustee subsequently filed in the district court two motions: (1) a motion
for leave to appeal the bankruptcy court’s reconsideration denial; and (2) a motion to

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certify the trustee’s appeal of the reconsideration denial to the Fifth Circuit. See
generally Motion and Motion to Certify. These are the motions under consideration
here.
II. ANALYSIS
A. Motion for Leave to Appeal
1. Legal Standard
28 U.S.C. § 158(a)(3) gives the district court discretion to hear appeals “from
interlocutory orders and decrees, of bankruptcy judges entered in cases and
proceedings referred to the bankruptcy judges under section 157 of this title.” The
standard the district court applies in determining whether to exercise its discretion to
grant leave is not articulated in the statute. Courts in the Fifth Circuit, however, have
applied 28 U.S.C. § 1292(b), the standard governing interlocutory appeals generally.
See, e.g., Ichinose v. Homer National Bank (In re Ichinose), 946 F.2d 1169, 1177 (5th Cir.
1991); Panda Energy International, Inc. v. Factory Mutual Insurance, 2011 WL 610016,
at *3 (N.D. Tex. Feb. 14, 2011) (Kinkeade, J.). The section 1292(b) test requires
consideration of whether the order “involves a controlling question of law as to which
there is substantial ground for difference of opinion and that an immediate appeal
from the order may materially advance the ultimate termination of the litigation . . .”
28 U.S.C. § 1292(b). Generally, interlocutory appeals are “sparingly granted” and
reserved for “exceptional” cases. See Odle v. Wal-Mart Stores Inc., 2013 WL 66035, at

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*2 (N.D. Tex. Jan. 7, 2013) (O’Connor, J.), citing United States v. Garner, 749 F.2d
281, 286 (5th Cir. 1985). Furthermore, the decision whether to grant them is firmly
within the district court’s discretion. Panda Energy, 2011 WL 610016 at *3, citing
Ryan v. Flowserve Corporation, 444 F.Supp.2d 718, 722 (N.D. Tex. 2006) (Boyle, J.).
Relevant here, courts have found there is “substantial ground for difference of
opinion” about the controlling law if
‘a trial court rules in a manner which appears contrary to
the rulings of all Courts of Appeals which have reached the
issue, if the circuits are in dispute on the question and the
Court of Appeals of the circuit has not spoken on the
point, if complicated questions arise under foreign law, or if
novel and difficult questions of first impression are
presented.’
Ryan, 444 F.Supp.2d at 723-24, quoting 4 Am. Jur. 2d Appellate Review § 128 (2005).
Furthermore, substantial ground for difference of opinion “must arise out of
genuine doubt as to whether the Bankruptcy Court applied the correct legal standard”
and “it is not sufficient that the relevant case law is less than clear or allegedly not in
accord.” In re Enron Corporation, 2006 WL 2548592, at *4 (S.D.N.Y. Sept. 5, 2006)
(internal quotations omitted).
2. Application
The court agrees with the trustee that the post-confirmation jurisdictional
question he wishes to appeal involves a controlling question of law, appeal from
which may materially advance the termination of the litigation. See Motion at 9-10

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¶¶ 16, 18. However, the court disagrees that the trustee’s appeal involves a question
of law on which there is “substantial ground for difference of opinion.”
The trustee argues that “[t]he proper scope of post-confirmation jurisdiction
poses an unsettled issue within this district (as well as the federal court system).
Disagreements on the breadth and exercise of post confirmation jurisdiction abound.”
Motion at 9 ¶ 17. However, as Judge Scheindlin noted in In re Enron, the mere fact
that the relevant case law is “not in accord” is not enough to show “substantial
ground for difference of opinion.” See In re Enron, 2006 WL 2548592 at *4.
In determining whether there is substantial ground for difference of opinion
about the controlling law, courts have looked to whether there is doubt about the
bankruptcy court’s application of the proper standard. Id. In this case, there is no
doubt (and no dispute from the trustee) that the bankruptcy court both identified
and applied the proper standard governing post-confirmation jurisdiction, the
standard set forth in the Fifth Circuit’s Craig’s Stores case. See In re Craig’s Stores of
Texas, Inc., 266 F.3d 388, 390 (5th Cir. 2001); see also Motion at 6 ¶ 12; see also
Motion to Certify at 6 ¶ 11. In addition, the trustee points to no “novel and difficult
questions of first impression” that would create a need for immediate resolution in an
interlocutory appeal. See Ryan, 444 F.Supp.2d at 724. The mere fact that
application of the Craig’s Stores standard has led to some varying results in case law,
see Motion at 9 ¶ 17 and Motion to Certify at 3-5 ¶¶ 5-8, is not enough to suggest

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there is “substantial ground for difference of opinion” that would justify this court
interrupting the pre-trial procedures that are ongoing in the bankruptcy court. See
Ryan, 444 F.Supp.2d at 729 (declining to find a substantial ground for difference of
opinion about loss-causation pleading requirements, in spite of some variation in
application of the standard articulated by the Supreme Court in the Dura
Pharmaceuticals case). The trustee gives no other reason why this appeal creates the
“exceptional” circumstance in which this court should exercise its discretion to hear
an interlocutory appeal. See Odle, 2013 WL 66035 at *2.
For these reasons, the court will not exercise its discretion to grant the trustee
leave to appeal the bankruptcy court’s denial of its reconsideration motion.
B. Motion to Certify Appeal
1. Legal Standard
28 U.S.C. § 158(d)(2)(A) states that
The appropriate court of appeals shall have jurisdiction of
appeals described in the first sentence of subsection (a) if
the bankruptcy court, the district court, or the bankruptcy
appellate panel involved, acting on its own motion or on
the request of a party to the judgment, order, or decree
described in such first sentence, or all the appellants and
appellant (if any) acting jointly, certify that -(i) the judgment, order, or decree involves a
question of law as to which there is no
controlling decision of the court of appeals for
the circuit or of the Supreme Court of the
United States, or involves a matter of public
importance;
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(ii) the judgment, order, or decree involves a
question of law requiring resolution of
conflicting decisions; or
(iii) an immediate appeal from the judgment,
order, or decree may materially advance the
progress of the case or proceeding in which
the appeal is taken;
and if the court of appeals authorizes the direct appeal of
the judgment, order, or decree.
28 U.S.C. § 158(d)(2)(A).
2. Application
The trustee argues that his appeal involves a question of law requiring
resolution of conflicting decisions, though he does not specifically identify any
question of law he wishes this court to certify to the Fifth Circuit.1 See Motion to
Certify at 2 ¶ 4. The trustee asserts that, although all bankruptcy courts agree that
the governing jurisdictional standard is articulated in Craig’s Stores (the bankruptcy
court has post-confirmation jurisdiction of “matters pertaining to the implementation
or execution of the plan”), there is a split of authority among Fifth Circuit courts
regarding the precise application of this standard. Id. The trustee points to varying
1

In the conclusion to his motion, the trustee highlights “the undeniably
crucial question of which court has subject matter jurisdiction and when.” See
Motion to Certify at 7 ¶ 12. Such a broadly phrased “question” is inappropriate for
certification. The trustee also points to the fact that bankruptcy and district courts in
the Fifth Circuit sometimes inconsistently apply the standard articulated in the
Craig’s Stores opinion. Id. at 3-5 ¶¶ 5-8. Mere inconsistent application of a standard
is not precise enough a “question of law”, however, to certify for appeal to the circuit
court.
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decisions among the district and bankruptcy courts with regard to (1) whether the
fact that litigation proceeds will be paid to creditors pursuant to a confirmation plan
automatically confers post-confirmation jurisdiction on the bankruptcy court, id. at 34 ¶ 6; (2) whether the presence of a litigation trustee automatically confers postconfirmation jurisdiction on the bankruptcy court, id. at 4 ¶ 7; and (3) whether the
mention of a cause of action in the plan of reorganization automatically confers postconfirmation jurisdiction on the bankruptcy court, id. at 5 ¶ 8.
The trustee’s inability to point to a single precise question of law only
emphasizes that he cannot demonstrate the decisions he cites are truly “conflicting.”
The application of a standard such as the Fifth Circuit has articulated in Craig’s Stores
is inherently a matter of judgment that will be influenced by a variety of factors. The
court agrees with the trustee that none of the factors he cites (litigation proceeds, a
litigation trustee, the mention of a cause of action in the plan) should probably ever
be dispositive for the post-confirmation jurisdictional question. But the trustee has
also not been able to show clearly that there is true conflict among Fifth Circuit
courts about whether these factors are dispositive.2 Given that the trustee can point
2

For example, when discussing whether the presence of a litigation trustee
is a dispositive factor, the trustee notes that “other courts seem to stop only just short
of holding . . . that post-confirmation jurisdiction is the norm when a litigation
trustee is involved,” he cites only one case from the bankruptcy court of the Northern
District of Texas. See Motion to Certify at 4 ¶ 7 and 4 n. 9. The fact that there is
one case that does not even directly hold what the trustee suggests it does (i.e.,that
the presence of a litigation trustee is dispositive) is not enough to show there is
(continued...)
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to no single, precise “question of law requiring resolution of conflicting decisions,” the
court refuses to certify the appeal to the Fifth Circuit.
III. CONCLUSION
For the reasons stated above, the trustee’s motions are DENIED.
SO ORDERED.

February 11, 2013.

___________________________________
A. JOE FISH
Senior United States District Judge

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(...continued)
“substantial ground for difference of opinion.” As another example, when discussing
the significance of post-confirmation litigation proceeds, the trustee states that one
court declined to find post-confirmation jurisdiction “even though post-confirmation
litigation proceeds would be paid to creditors,” whereas another court “emphasized
the fact that net recoveries . . . would be distributed to creditors . . . and found postconfirmation jurisdiction.” See Motion to Certify at 3-4 ¶ 6. The fact that courts
emphasize different facts in applying a standard is not enough to show conflict that
rises to the level of “substantial ground for difference of opinion.”
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