Johnson et al
Filing
20
MEMORANDUM OPINION AND ORDER denying as moot 2 MOTION to Dismiss Putative Cross-Appeal, reversing Bankruptcy Court Ruling (Docket Entry No. 90 in 14-03126). This action is REMANDED to the BankruptcyCourt for further proceedings consistent with this MemorandumOpinion and Order. (Signed by Judge Sim Lake) Parties notified. (aboyd, 4)
United States District Court
Southern District of Texas
ENTERED
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
IN RE:
SBMC HEALTHCARE, LLC,
§
§
§
§
Debtor.
MARTY McVEY, Individually, and
McVEY & CO. INVESTMENTS, LLC,
Plaintiffs,
v.
MILLARD A. JOHNSON,
Individually, and JOHNSON,
DeLUCA KURISKY & GOULD, P.C.,
Defendants.
MILLARD A. JOHNSON,
Individually, and JOHNSON,
DeLUCA KURISKY & GOULD, P.C.,
David J. Bradley, Clerk
BANKRUPTCY NO. 12-33299-H4-11
ADVERSARY NO. 14-03126
§
§
§
§
Appellants,
v.
MARTY McVEY, Individually, and
McVEY & CO. INVESTMENTS, LLC,
Appellees.
§
§
§
§
§
§
§
§
§
§
§
§
March 21, 2016
§
§
§
§
§
§
§
§
CIVIL ACTION NO. 15-1173
MEMORANDUM OPINION AND ORDER
Appellants,
Millard A.
Johnson,
individually,
and Johnson
DeLuca Kurisky & Gould, P.C., appeal two orders of the Bankruptcy
Court entered in Adversary No. 14-03126:
the September 18, 2014, Order: (1) Granting in Part and
Denying in Part the Defendants' Motion to Dismiss;
( 2) Denying the Trust's Motion to Intervene in Its
Entirety; (3) Granting in Part and Denying in Part the
Plaintiffs'
Motion for Remand
(uorder of Partial
Dismissal and Remand," Adversary Docket Entry No. 46);
and
the April 22, 2015, Order Denying Defendants' Motion to
Amend or for Clarification of Judgment of Partial
Dismissal and Remand Order Pursuant to Bankr. R. Pro.
9023 ( uorder Denying Defendants
Motion to Amend or
Clarify," Adversary Docket Entry No. 90) . 1
I
Pending before the court are Appellants' Motion to Dismiss Putative
Cross-Appeal
(Docket
Entry
No.
2),
Appellants'
Opening
Brief
(Docket Entry No. 12), Appellees' Brief (Docket Entry No. 15), and
Appellants' Reply Brief
explained below,
the
(Docket Entry No. 18) . 2
Bankruptcy Court's April
For the reasons
22,
2015,
Order
Denying Defendants' Motion to Amend or Clarify (Adversary Docket
Entry No.
90)
will be reversed,
Appellants'
Motion to Dismiss
Putative Cross-Appeal (Docket Entry No. 2) will be denied as moot,
and
this
action will
be
remanded
to
the
Bankruptcy Court
for
further consideration.
1
Notice of Appeal,
attached thereto.
Docket Entry No.
2
1-1,
and Exhibits A-B
Three designations of record have been filed, i.e., Docket
Entry Nos. 3 (Appellants' Bankruptcy Record on Appeal ( uAppellants'
BROA") ) , 4 (Appellees' Bankruptcy Record on Appeal ( uAppellees'
BROA")), and 7 (Addendum to Bankruptcy Record on Appeal ("Addendum
to Appellants' BROA")).
Page citations to the Bankruptcy Court
documents included in these filings are to the pagination imprinted
by the federal court's electronic filing system at the top and
right of the document.
Page citations to the parties' briefs are
to the native page numbers at the bottom of the page.
-2-
I.
Factual and Procedural Background
This case arises out of the Chapter 11 bankruptcy of SBMC
Healthcare LLC
("SBMC" or "Debtor")
d/b/a Spring Branch Medical
Center.
Marty McVey ("McVey") was SBMC' s president and 100% equity
owner. 3
On April 5, 2012, Harborcove Financial, LLC ("Harborcove")
filed suit
against SBMC and against McVey individually in the BOth
Judicial District Court of Harris County, Texas, Cause Number 201220333,
to collect on a loan obligation that SBMC had pledged and
McVey had personally guaranteed.
Harborcove sought to foreclose on
its lien against SBMC's assets and to set a foreclosure sale for
those assets on May 1,
2012. 4
On April
27,
2012,
Millard A.
Johnson ("Johnson") and his law firm, Johnson, DeLuca, Kurisky &
Gould,
P. C.
( "JDKG")
(collectively,
"Appellants") ,
filed a pre-
petition answer in the Harborcove lawsuit on behalf of McVey. 5
3
Appellants' Opening Brief, Docket Entry
Appellees' Brief, Docket Entry No. 15, p. 4.
No.
12,
p.
On
4 I.
4
0riginal Petition, Application for Temporary Restraining
Order and for Injunctive Relief, attached to Appellants' BROA,
Docket Entry No. 3-2, pp. 434-49.
5
0riginal Answer of Defendant Marty McVey filed in Cause
No. 2012-20333, Harborcove Financial LLC v. SBMC Healthcare, LLC
and Marty McVey, attached to Appellants' BROA, Docket Entry
No. 3-2, pp. 345-47).
See also Counsel for SBMC Healthcare, LLC
and Marty McVey's Motion to Withdraw filed on August 5, 2013, in
Cause No. 2012-20333, attached to Appellants' BROA, Docket Entry
No. 3-2, pp. 349-52 (see especially p. 349 , 1 stating:
"The law
firm of Johnson DeLuca Kurisky & Gould, P.C. ('JDKG'), counsel for
SBMC Healthcare, LLC and Marty McVey, appeared on SBMC Healthcare,
LLC and Marty McVey's behalf on or about April 27, 2012."); Order
on Counsel for SBMC Healthcare, LLC and Marty McVey's Motion to
Withdraw in Cause No. 2012-20333, attached to Appellants' BROA,
Docket Entry No. 3-2, pp. 353-54 (granting JDKG's motion to
withdraw as counsel for SBMC and McVey on August 9, 2013).
-3-
the same date, i.e., April 27, 2012, SBMC entered into a written
agreement with Harborcove
("the Rule 11 Agreement")
pursuant to
which SBMC would receive another 120 days to find a buyer if SBMC
paid
$1,525,000.00
of
its
outstanding
debt
to
Harborcove
by
April 30, 2012 ("the Rule 11 Payment") . 6
On April 30, 2012, McVey met with Johnson and attorney Marilee
Madan
("Madan")
Payment.
because
SBMC
was
unable
to
make
the
Rule
11
Because the foreclosure sale was set for the next day,
i.e., May 1, 2012, Madan advised bankruptcy as SBMC's best option. 7
Later that day SBMC filed for bankruptcy, 8 and McVey signed a
retention agreement with JDKG pursuant to which JDKG agreed to
represent SBMC in the Chapter 11 proceeding styled In re SBMC
Healthcare, LLC, Cause Number 12-33299. 9
On
June
appointment
of
18,
2012,
Madan
as
the
Bankruptcy
general
counsel
Court
and
approved
JDKG
as
the
special
litigation counsel for SBMC. 10
6
April 27, 2012, Letter Agreement, attached to Addendum to
Appellants' BROA, Docket Entry No. 7-6, pp. 71-73.
7
Transcript of Hearing held on December 15, 2014, in Adversary
No. 14-03126-H4-ADV, attached to Addendum to Appellants' BROA,
Docket Entry No. 7-32, pp. 97:15-98:13.
8
Voluntary Petition,
No. 12-33299-H4-11.
Docket Entry No.
1 in Bankruptcy Case
9
April 30, 2012, Retention Agreement, attached to Appellants'
BROA, Docket Entry No. 3-2, pp. 397-400.
10
See Order Granting Amended Application to Employ Johnson
DeLuca Kurisky & Gould P.C. as Special Bankruptcy Counsel to the
Debtor Pursuant to 11 U.S.C. §§ 327 and 328 (a), Docket Entry
No. 179 in Bankruptcy Case No. 12-33299-H4-11.
-4-
On August 1, 2012, Matthew Probus filed a Notice of Appearance
Under Bankruptcy Rule 9010(b)
and Request for Notice Pursuant to
Bankrutpcy Rules 2002, 3017 and 9013 on behalf of Marty McVey, who
was
identified as a party in interest in SBMC' s
bankruptcy . 11
On March 25, 2013, the First Amended Plan of Liquidation by
the Official Committee of Unsecured Creditors and Joint Plan of
Liquidation of the Committee and SBMC Healthcare, LLC ("the Plan")
was filed in SBMC's bankrutpcy. 12
The Plan created a liquidating
trust ("SBMC Liquidating Trust" or the "Trust")
to liquidate the
Debtor's assets, and contained the following release of exculpated
persons ("Release of Exculpated Persons"):
13.4. Releases and Limitation of Liability of Exculpated
Persons. The Exculpated Persons shall not have or incur
any liability to any Person for any act taken or omission
made in good faith in connection with or in any way
related to negotiating,
formulating,
implementing,
confirming, or consummating this Plan, the Disclosure
Statement or any contract, instrument, filing with
governmental agencies, release, or other agreement or
document created in connection with or related to this
Plan, any prior plan or disclosure statement of the
Debtor, or the administration of the Bankruptcy Case, nor
with respect to any liability, claim or cause of action,
whether known or unknown,
asserted or unasserted,
belonging to or assertable by the Debtor, the Estate, or
the Liquidating Trustee against the Exculpated Persons,
from the beginning of time until the Effective Date
unless the act is found to be in violation of the
Bankruptcy Code,
State Law or Federal Law.
The
11
Notice of Appearance Under Bankruptcy Rule 9010 (b) and
Request for Notice Pursuant to Bankruptcy Rules 2002, 3017 and
9013, attached to Appellants' BROA, Docket Entry No.
3-2,
pp. 658-59.
12
Appellants' BROA, Docket Entry No. 3-2, pp. 541-89.
id. at 590-639 (copy of Plan signed by McVey) .
-5-
See also
Exculpated Persons shall have no liability to any Person
for actions taken in good faith under or relating to this
Plan or in connection with the administration of the
Bankruptcy Case including, without limitation, failure to
obtain confirmation of this Plan or to satisfy any
condition or conditions precedent, or waiver of or
refusal to waive any condition or conditions precedent to
Confirmation or to the occurrence of the Effective Date.
Further, the Exculpated Persons shall not have or incur
any liability to any Person for any act or omission in
connection with or arising out of their administration of
this Plan. The releases contained in this paragraph do
not apply to violations of the Bankruptcy Code, egregious
conduct, gross negligence or willful misconduct as
determined by the Bankruptcy Court .
The Commit tee
Members and its Counsel are fully exculpated from any all
claims. 13
On April 4, 2013, the Bankruptcy Court confirmed the Amended
Plan of Liquidation in SBMC's bankrutpcy case. 14
On March 10,
2014,
McVey and McVey & Co.
Investments,
LLC
("MCI," collectively, "Appellees"), filed suit against Appellants
in the 270th District Court of Harris County,
claims
for
legal
malpractice,
breach
of
Texas,
fiduciary
violations of the Texas Deceptive Trade Practices Act. 15
asserting
duty,
and
Asserting
that SBMC was sold for an amount that was not sufficient to cover
13
First Amended Plan of Liquidation by the Official Committee
of Unsecured Creditors and Joint Plan of Liquidation of the
Committee and SBMC Healthcare, LLC, attached to Appellants' BROA,
Docket Entry No. 3-2, pp. 581-82.
14
0rder Confirming First Amended Plan of Liquidation by the
Official Committee of Unsecured Creditors and Joint Plan of
Liquidation of the Committee and SBMC Healthcare, LLC, attached to
Appellants' BROA, Docket Entry No. 3-2, pp. 2007-29.
15
Plaintiffs' Original Petition & Request for Disclosure,
attached to Addendum to Appellants' BROA, Docket Entry No. 7-6,
pp. 57-69.
-6-
all of its debts, Appellees alleged that Appellants' advice that
SBMC file for bankruptcy caused them to suffer personal injury when
creditors of SBMC sued them in their individual
capacities as
guarantors of SBMC' s debts. 16
On April 21,
2014, Appellants initiated an adversary action
(Adversary No. 14-03126) by removing Appellees' state court suit to
Bankruptcy Court pursuant to 28 U.S.C.
§
1452,
Federal Rule of
Bankruptcy Procedure 9027, and Bankruptcy Local Rule 9027-1. 17
On April
25,
2014,
Appellants
filed
a
Motion
to Dismiss
Adversary No. 14-03126 arguing that (1) Appellees lacked standing
because their claims belonged to the Debtor,
i.e., SBMC, and any
damages Appellees suffered were derivative of damages suffered by
SBMC;
and
( 2)
Appellees'
claims were barred by the Release of
Exculpated Persons contained in SBMC's confirmed Plan. 18
responded that the claims at
Appellees
issue were not derivative of the
Debtor's claims because Appellants had individual attorney-client
relationships with Appellees, Appellants breached their individual
duties
16
to
Appellees,
and
those
breaches
proximately
caused
Id.
17
Notice of Removal, attached to Addendum to Appellants' BROA,
Docket Entry No. 7-2, pp. 1-7.
18
Defendants' Motion to Dismiss Pursuant to Bankruptcy Rule of
Procedure 7012(b) (1) and (6), and Memorandum in Support of
Defendants' Motion to Dismiss Pursuant to Bankr. R. P. 7012(b) (1)
and {6), attached to Addendum to Appellants' BROA, Docket Entry
No. 7-3.
-7-
Appellees to suffer damages separate and distinct from damages
suffered by SBMC. 19
On April 29, 2014, the SBMC Liquidating Trust ("Trust") filed
a Motion to Intervene arguing that the Trust, as owner, successorin-interest, and holder of all causes of action of the Debtor, and
former
debtor-in-possession,
owns
the
causes
of
action
that
Appellees asserted in the state court action. 20
On May 8, 2014, Appellees filed a Motion to Remand, arguing
that the Bankruptcy Court lacked subject matter jurisdiction over
the
claims
that
alternatively,
they
that
asserted
in
the
state
court
action
or,
the Bankruptcy Court should mandatorily or
permissively abstain from hearing the dispute. 21
On June 4, 2014, and June 12, 2014, the Bankruptcy Court held
hearings on Appellants' motion to dismiss,
the Trust's motion to
intervene, and Appellees' motion to remand. 22
19
Plaintiffs' Response to Defendants' Motion to Dismiss
Pursuant to Bankruptcy Rule of Procedure 7012(b) (1) and (6) and
Plaintiffs' Memorandum in Support of Plaintiffs' Response to
Defendants' Motion to Dismiss Pursuant to Bankruptcy Rule of
Procedure 7012(b) (1) and (6), attached to Addendum to Appellants'
BROA, Docket Entry No. 7-7.
20
SBMC Liquidating Trust's Motion to Intervene, Docket Entry
No. 10 in Adversary No. H-14-03126.
21
Plaintiffs' Motion to Remand or, Alternatively, Motion to
Abstain, attached to Addendum to Appellants' BROA, Docket Entry
No. 7-5.
22
Transcript of Hearing held on June 4, 2014, in Adversary
No. 14-03126-H4-ADV, Docket Entry No. 3-3; Transcript of Hearing
held on June 12, 2014, in Adversary No. 14-03126-H4-ADV, Docket
Entry No. 3-4.
-8-
On September 18, 2014,
the Bankrutpcy Court granted in part
and denied in part Appellants'
motion to remand. 23
motion to dismiss and Appellees'
The Bankruptcy Court granted Appellants' motion
to dismiss "all causes of action brought by [Appellees]
alleging
injury due to the devaluation of SBMC stock, " 24 dismissed those
claims with prejudice, and denied Appellees' motion to remand those
claims.
The Bankruptcy Court denied Appellants' motion to dismiss
"all causes of action brought by the
injury to them due to negligence,
violation
of
the
Texas
Deceptive
[Appellees] alleging direct
breach of fiduciary duty and
Trade
remanded those claims to state court. 26
Practices
Act," 25
and
On September 22, 2014, the
clerk mailed the order of partial remand to the state court. 27
On September 24, 2014, Appellants moved the Bankruptcy Court
to reconsider its September 18, 2014, Order to clarify
23
0rder:
(1) Granting in Part and Denying in Part the
Defendants' Motion to Dismiss; (2) Denying the Trust's Motion to
Intervene in Its Entirety; (3) Granting in Part and Denying in Part
the Plaintiffs' Motion for Remand, attached to Addendum to
Appellants' BROA ("Order of Partial Dismissal and Remand"), Docket
Entry No. 7-20. See also Memorandum Opinion Regarding Defendants'
Motion to Dismiss, the Trust's Motion to Intervene, and Plaintiffs'
Motion for Remand, attached to Addendum to Appellants' BROA, Docket
Entry No. 7-19.
24
0rder of Partial Dismissal and Remand, attached to Addendum
to Appellants' BROA, Docket Entry No. 7-20, p. 2.
2sid.
27
Docket Entry No. 49 in Adversary No. 14-03126.
-9-
(1) that any claim by [Appellees] that they have become
or will become liable to creditors by virtue of SBMC
Healthcare LLC's inability to pay or have incurred cost
in defending such claims is a derivative claim which is
dismissed; and (2) that the [Appellants'] decision to
advise [Appellees] to commence a bankruptcy filing for
SBMC Healthcare LLC is released by the Plan of
Reorganization. 28
Appellants acknowledged that "[o]ther narrower claims implied by
the pleading are presumed to be true for now and appear to still
require remand. " 29
Appellees' responded that if the Plan's Release
was broad enough to cover pre-petition advice,
the Release
is
invalid because Appellants negotiated it while they had attorneyclient
relationships
with Appellees
without making disclosures
required by the Texas Disciplinary Rules of Professional Conduct. 30
On October 30,
granting
in part
reconsideration.
2014,
and
the Bankruptcy Court entered an order
carrying
in part Appellants'
motion
for
The Bankruptcy Court stated:
Defendants ask this Court to reconsider:
(1)
its
classification of certain of Plaintiffs' claims as
direct,
as
opposed
to
derivative;
and
(2)
its
interpretation of a provision that limits the liability
of the Defendants (the Exculpatory Provision) in the
Plan.
This Court may reconsider its Memorandum
Opinion under Federal Rule of Civil Procedure 59 (e),
28
Defendants' Motion to Amend or for Clarification of Judgment
of Partial Dismissal and Remand Pursuant to Bankr. R. Pro. 9023
("Appellants' Motion to Amend or Clarify") , attached to Addendum to
Appellants' BROA, Docket Entry No. 7-21, p. 10.
29Id.
30
Plaintiffs' Response to Defendants' Motion to Amend or for
Clarification of Judgment of Partial Dismissal and Remand Pursuant
to Bankr. R. Proc. 9023, attached to Addendum to Appellants' BROA,
Docket Entry No. 7-22.
-10-
which is incorporated by Bankruptcy Rule of Procedure
9023.
Rule 59 (e) allows courts to reconsider a
judgment either to account for new facts or to correct a
manifest error of law.
. After considering the Motion
to Amend, the Response, and the Reply, this Court
concludes that the Memorandum Opinion contained a
manifest error of law in its conclusion that the
Exculpatory Provision was unambiguous. 1131
The Bankruptcy Court reopened the record to develop "extrinsic
evidence
on
the
[exculpatory]
provision's
meaning,
1132
and held
hearings on December 12 and 15, 2014, and January 27 and 28, 2015. 33
At the initial hearing held on December 12, 2014, Appellees'
counsel argued that the Bankruptcy Court had no jurisdiction to
amend its Order of Partial Dismissal and Remand because Appellees'
direct claims had already been remanded. 34
On March 9, 2015, the
31
0rder: (1) Granting in Part and Carrying in Part Defendants'
Motion to Amend or for Clarification of Judgment of Partial
Dismissal and Remand Pursuant to Bankr. R. Pro. 9023; (2) Reopening
the Record to Allow the Parties to Introduce Exhibits and Adduce
Testimony; and (3) Setting a Hearing for 9:30A.M. on December 12,
2014, attached to Addendum to Appellants' BROA, Docket Entry
No. 7-24, p. 3 (citations omitted).
32
Id. at 6.
33
See Hearing Transcripts, attached to Addendum to Appellants'
BROA, Docket Entry Nos. 7-29 (December 12, 2014, Testimony of Ruth
Van Meter Only); 7-32 (December 15, 2014, #SO - Continued Hearing
on Motion to Amend or for Clarification of Judgment); 7-34
(January 27, 2015, #50 - Continued Hearing on Motion to Amend or
for Clarification of Judgment); 7-35 (January 28, 2015, #50
Continued Hearing on Motion to Amend or for Clarification of
Judgment); and 7-36 (December 12, 2014, Complete Hearing Transcript
on #SO - Motion to Amend or for Clarification of Judgment) .
34
See December 12, 2014, Complete Hearing Transcript on #50 Motion to Amend or for Clarification of Judgment, attached to
Addendum to Appellants' BROA, Docket Entry No. 7-36, pp. 13-14
(Appellees' counsel argued: "First of all, we would object to this
(continued ... )
-11-
parties submitted post-hearing briefs. 35
On April 22,
Bankruptcy Court issued its Order Denying Defendants'
2015,
the
Motion to
Amend or Clarify, and vacated its October 30, 2014, Order. 36
II.
Appellants' Motion to Dismiss Putative Cross-Appeal
Asserting that Appellees failed to timely file a cross-notice
of appeal of any part of the Bankruptcy Court's final orders issued
in Adversary Case No.
14-03126 but,
instead,
"merely designated
certain issues on appeal which might have been the subject of a
properly filed cross-appeal," 37 Appellants argue that
34
"Appellees
continued)
hearing even going forward because the Court in its first Order,
Document 45, entered 9/18/2004 [sic],
. stated that it has no
subject matter jurisdiction.
After the Motion for Clarification
was filed, the Court came out with another Order and confirmed the
fact that the Court has no subject matter jurisdiction with regard
to Mr. McVey's personal claims. So quite frankly, I'm confused as
to why we're even here on a Motion to Dismiss, when the Court lacks
subject matter jurisdiction over these claims.").
( •••
35
See Plaintiffs' Post-Hearing Brief Concerning Defendants'
Motion to Amend or for Clarification of Judgment of Partial
Dismissal and Remand Pursuant to Bankr. R. Pro. 923, attached to
Addendum to Appellants' BROA, Docket Entry No. 7-37; Defendants'
Post-Hearing Brief Related to Motion to Amend or for Clarification
of Judgment of Partial Dismissal and Remand Pursuant to Bankr. R.
Pro. 9023 [Dkt. 50], attached to Addendum to Appellants' BROA,
Docket Entry No. 7-38.
36
0rder
Denying
Defendants'
Motion
to
Amend
or
for
Clarification of Judgment of Partial Dismissal and Remand Order
Pursuant to Bankr. R.
Pro.
9023,
attached to Addendum to
Appellants' BROA, Docket Entry No. 7-39.
See also Transcript of
Hearing held on April 22, 2015, in Adversary No. 14-03126-H4-ADV,
Docket Entry No. 3-5.
37
Appellants' Motion to Dismiss Putative Cross-Appeal, Docket
Entry No. 2, p. 2.
-12-
purported cross-appeal should be dismissed and its original and
amended 'Statement of Issues'
11),
(Adv. Docs. 100 at 9 and 106 at 10-
that advance issues separate from those identified by the
Appellant [ s] , should be stricken.
1138
In response to Appellants'
Motion to Dismiss Putative Cross-Appeal,
"Appellees withdraw the
cross-issues previously asserted 1139
and expressly agree that "the
only
this
issues
to
be
presented
designated by Appellants.
1140
in
appeal
Accordingly,
are
the
Appellants'
issues
Motion to
Dismiss Putative Cross-Appeal will be denied as moot.
III.
Issues on Appeal and Standard of Review
Appellants raise three issues on appeal:
( 1)
Did the Bankruptcy Court err when it determined
that it did not have jurisdiction to reconsider the
scope of its own remand order?
(2)
Did the Bankruptcy Court err in its interpretations
of the release language of the Confirmed Plan?
(3)
Did the Bankruptcy Court err by not dismissing
Appellees['] malpractice claims based on creditors'
claims against Appellees allegedly caused by
effects of the loss in value of SBMC through the
filing of bankruptcy? 41
Appellants'
first
issue
seeks
reversal
of
the
Bankruptcy
Court's April 22, 2015, Order Denying Defendants' Motion to Amend
38
Id. at 7.
39
Appellees' Response to Appellants' Motion to Dismiss Putative
Cross-Appeal, Docket Entry No. 6, p. 2.
41
Appellants' Opening Brief, Docket Entry No. 12, p. 3.
-13-
or Clarify (Docket Entry No. 7-39).
Appellants' second and third
issues seek clarification and/or partial reversal of the Bankruptcy
Court's September 18, 2014, Order of Partial Dismissal and Remand
(Docket Entry No. 7-20).
Because for the reasons stated in
§
IV,
below, analysis of the first issue leads the court to conclude that
the Bankruptcy Court's April 22,
2015, Order Denying Defendants'
Motion to Amend or Clarify should be reversed and this action
remanded, the court does not reach the second and third issues on
appeal.
Final judgments, orders, and decrees of a bankruptcy court may
be appealed to a
28
federal district court.
u.s.c.
§
158 (a).
Because the district court functions as an appellate court,
it
applies the same standard of review that federal appellate courts
use
when
modify,
reviewing
reverse,
proceedings.
F.2d
1103-04
Court's
questions of
McLain v.
or
court
remand
decisions,
with
law,
Newhouse
(5th
Cir.
findings
1992).
of
fact
This
for
or mixed questions of
(In re McLain),
and
may
for
instructions
See Webb v. Reserve Life Ins. Co.
1102,
Bankruptcy
district
affirm,
further
(In re Webb), 954
court
clear
reviews
error
and
the
its
law and fact de novo.
516 F.3d 301,
307
(5th Cir.
2008); Wooley v. Faulkner (In re SI Restructuring, Inc.), 542 F.3d
131, 135 (5th Cir. 2008).
Appellants based their motion to amend or for clarification of
the
Bankruptcy
Court's
September
-14-
18,
2014,
Order
of
Partial
Dismissal and Remand on Federal Rule of Civil Procedure 59 (e),
which applies
to Bankruptcy Cases
Bankruptcy Procedure 9023.
pursuant
to Federal Rule of
District Courts review bankrutpcy court
denials of Rule 9023 motions for abuse of discretion.
Bohlin Co.,
Cir. 1993)
Inc. v. The Banning Co.,
Inc.,
6 F.3d 350,
Edward H.
353
(5th
(citing Midland West Corp. v. F.D.I.C., 911 F.2d 1141,
1145 n.4 (5th Cir. 1990)).
A court abuses its discretion when its
decision is based on an erroneous legal conclusion or on a clearly
erroneous finding of fact.
See Daniels v. Barron (In re Barron),
325 F.3d 690, 692 (5th Cir. 2003).
IV.
Analysis
Appellants argue that the Bankrutpcy Court's determination in
its September 18, 2014, Order of Partial Dismissal and Remand that
the
Appellees
alleged
harm
had personal
to
SBMC
was
standing
to
incorrect
bring
and
claims
should
be
based on
reversed.
Appellants argue that the Bankruptcy Court's later determination
that it lacked jurisdiction to reconsider its admittedly erroneous
interpretation of the Release of Exculpated Persons in SBMC's Plan
is also incorrect and urge this court either (1)
merits of their appeal and make a
to take up the
final determination that the
Bankrutpcy Court erred by not dismissing all claims based on the
alleged diminution of value to SBMC because the exculpatory release
in SBMC' s
Plan bars all of Appellees'
matter of law,
or
(2)
malpractice claims as a
to remand this action so that Bankruptcy
-15-
Court can complete its reconsideration of its September 18, 2014,
Order of Partial Dismissal and Remand. 42
Appellees argue that this appeal should be dismissed because
the
court
lacks
remand order.
jurisdiction to
review the
Bankruptcy Court's
Alternatively, Appellees argue that the court should
affirm the Bankruptcy Court's Order Denying Defendants' Motion to
Amend or Clarify, and dismiss Appellants' appeal of the Bankruptcy
Court's Order of Partial Dismissal and Remand as untimely filed.
A.
This Appeal Need Not Be Dismissed for Lack of Jurisdiction
Appellees argue that this appeal should be dismissed for lack
of
subject
matter
jurisdiction because
remand order is not subject to appeal,
the
Bankruptcy Court's
and because even if the
Bankruptcy Court's remand order is subject to appeal, Appellants'
notice of appeal was not timely filed.
1.
This Court Has Jurisdiction to Review the Bankruptcy
Court's Remand Order
Citing Things Remembered,
(1995),
Inc.
v.
Petrarca,
and Telluride Asset Resolution,
LLC v.
116 S.
Ct.
494
Telluride Global
Development, LLC (In re Telluride Income Growth LP), 364 B.R. 390,
399
(lOth Cir.
B.A.P.
2007),
Appellees argue
should be dismissed because 28 U.S.C.
§
1447(d)
that
this
appeal
bars this court
from reviewing the Bankruptcy Court's order of remand for lack of
42
Appellants' Opening Brief, Docket Entry No.
Appellants' Reply Brief, Docket Entry No. 18, p. 30.
-16-
12,
p.
25;
subject matter jurisdiction. 43
Appellants argue that the court has
jurisdiction over this appeal because§ 1447(d) 's bar to review of
remand orders does not apply to district courts reviewing orders
issued by bankruptcy courts, and because even if § 1447(d) 's bar
does apply,
Court's
this court has jurisdiction to review the Bankruptcy
order
of
partial
dismissal
pursuant
to
a
judicially
recognized exception to that bar for collateral orders. 44
(a)
28 U.S.C. § 1447 (d) Does Not Prevent This Court
from Reviewing the Bankruptcy Court's Remand Order
The authority of district courts to review bankruptcy court
remand orders has been recognized by the Fifth Circuit Court of
Appeals.
550
See Hawking v. Ford Motor Credit Co., 210 F.3d 540, 544,
(5th Cir.
2000)
(recognizing that the District Court could
affirm the Bankruptcy Court's judgment remanding certain claims to
state
§
court
1452 (b)
action) .
on equitable
precluded
grounds,
appellate
but
review
holding
of
the
that
28
district
U.S.C.
court's
The authority of district courts to review bankruptcy
court remand orders arises from 28 U.S.C. § 158(a), which provides
for appeal to district courts of judgments,
issued by bankruptcy courts, and
and decrees
§ 1452, which governs "Removal of
claims related to bankruptcy cases."
43
orders,
Section 1452 states:
Appellees' Brief, Docket Entry No. 15, pp. 13-19.
44
Appellants' Opening Brief, Docket Entry No. 12, pp. 11-15;
Appellants' Reply Brief, Docket Entry No. 18, pp. 1-12, esp.
pp. 7-9.
-17-
(a)
A party may remove any claim or cause of action in
a civil action other than a proceeding before the
United States Tax Court or a civil action by a
governmental unit to enforce such governmental unit's
police or regulatory power, to the district court for the
district where such civil action is pending, if such
district court has jurisdiction of such claim or cause of
action under section 1334 of this title.
(b)
The court to which such claim or cause of action is
removed may remand such claim or cause of action on any
equitable ground. An order entered under this subsection
remanding a claim or cause of action, or a decision to
not remand, is not reviewable by appeal or otherwise by
the court of appeals under section 158(d), 1291, or 1292
of
this
title or by the Supreme Court of
the
United States under section 1254 of this title.
28
u.s.c.
§ 1452.
The language of§ 1447(d) is similar to the language of§ 1452
because in relevant part it provides:
"An order remanding a case
to the State court from which it was removed is not reviewable on
appeal or otherwise.
II
28
u.s.c.
§ 1447(d).
Before being
amended in 1990, § 1452(b) contained language identical to that of
28 U.S.C. § 1447(d).
Section 1452(b), however, was amended in 1990
to allow district court review of bankruptcy court remand orders in
order to address constitutional concerns raised by the previous
lack of district court review.
See In re Federal-Mogul Global,
Inc., 300 F.3d 368, 389 n.14 (3d Cir. 2002), cert. denied sub nom.
DaimlerChrysler Corp. v. Official Comm. of Asbestos Claimants, 123
S. Ct. 884 (2003)
(citing Judicial Improvements Act of 1990, Pub.
L. No. 101-650, § 309, 104 Stat. 5089, 5113
45
(1990)). 45
As detailed in In re Federal-Mogul, 300 F.3d at 388-89, the
legislative history of§ 1452(b) confirms that Congress intended to
(continued ... )
-18-
45
( • • • continued)
give district courts jurisdiction to review bankrutpcy court remand
orders when that section was amended to its current form as part of
the Judicial Improvements Act of 1990:
On behalf of the Courts Subcommittee of the Senate
Judiciary Committee, Senator Charles Grassley,
the
ranking member of the subcommittee, read into the record
its section-by-section analysis of the act. The relevant
portions of its analysis read as follows:
[The purpose of these changes is] to clarify that,
with respect to certain determinations in bankruptcy
cases,
appeals from the district courts to the
courts of appeals [are forbidden but appeals are] not
[forbidden] from bankruptcy courts to the district
courts.
The statutes [as written before the changes] provide
that bankruptcy judges' orders deciding certain motions
(motions to abstain in favor of, or remand to, state
courts) are unreviewable "by appeal or otherwise."
Because bankruptcy judges may enter trial orders only if
there is appellate review in an Article III court, one
result of this limitation is that bankruptcy judges
cannot make final judgments in such cases even when they
clearly involve "core" proceedings.
[The changes] would authorize bankruptcy judges to
enter binding orders in connection with abstention
determinations under Title 11 or Title 28 and remand
determinations under Title 28, subject to review in the
district court.
The statutory language under each of
these sections now provides that the decision of the
bankruptcy court
(to abstain or remand)
"is not
reviewable by appeal or otherwise."
The proposed
amendment would modify these three sections to provide
that the decision of the bankruptcy court is not
reviewable "by the court of appeals
or by the
Supreme Court of the United States
"
Such
determinations would therefore be reviewable by the
district court.
Id. (quoting 136 Cong. Rec. 36,290 (1990)).
As observed by the
Third Circuit, Senator Grassley's comments show
(continued ... )
-19-
The language of § 1452(b) specifies that appellate review of
remand orders entered in bankruptcy cases is limited only when
appellate jurisdiction arises under§ 158(d), 1291, or 1292.
28 U.S.C. § 1452(b).
See
These three sections speak exclusively to the
jurisdiction of the courts of appeals, not to the district courts
acting in an appellate capacity.
1292.
Because
a
district
See 28 U.S.C.
court's
§§ 158(d), 1291,
jurisdiction
to
review
a
bankruptcy court's remand order does not arise under any of the
sections enumerated in§ 1452(b), § 1452(b) does not preclude this
court from reviewing the Bankruptcy Court's remand order.
re
Midgard
Corp.,
204
B.R.
764,
768
(lOth
Cir.
See In
B.A.P.
1997)
("[T]his Court is not the court of appeals referred to in
[§]
1452 (b) .
Since the Court's jurisdiction does not arise
under 28 U.S.C. §§ 158(d), 1291 or 1292, our jurisdiction is not
limited by .
[§] 1452(b).").
Courts holding that § 1452 does not preclude a district court
from
reviewing
45
a
bankruptcy
court's
decision
to
remand
have
continued)
that these 1990 changes [to § 1452] were intended to make
explicit that a district court, but not the Supreme Court
or a court of appeals, could review a bankruptcy court's
decision to remand and that decisions by a district court
to remand were not reviewable.
( •••
Id. at 389. See In re D'Angelo, 479 B.R. 649, 655 (E.D. Pa. 2012)
(citing Senator Grassley's comments from the Congressional Record
as evidence that the present version of§ 1452(b) enacted December
1, 1990, "forbid[s] only appeals from the district courts to the
courts of appeals, not from bankruptcy courts to the district
courts").
-20-
explained that the terms "by appeal" and "by the court of appeals"
used in
§
1452 do not include district courts acting in their
appellate capacity to review orders issued by bankruptcy courts.
See also Dickinson v. Duck (In re Borelli), 132 B.R. 648, 652 (N.D.
Cal.
1991)
("Because
[§]
1452 (b),
as amended,
retains district
court review of remand decisions, there are . . . no constitutional
impediments to the bankruptcy court's authority to enter a final
order denying a motion to remand.
the
constitutional
standard
District court review satisfies
set
forth
in
[Northern
Pipeline
Construction Co. v. Marathon Pipe Line Co., 102 S. Ct. 2858, 2876,
2880
(1982)].
Bankruptcy
In Marathon the Supreme Court found part of the
Act
Article
I
Article
III
of
1978
because
it
permitted
bankruptcy judges to decide cases without review by
judges.");
Alabama v. Robertson
Ala. 2001)
unconstitutional
The
Farmers
National
(In re Robertson),
Bank
258 B.R.
of
470,
Opelika,
472
(M.D.
("[T]here are many cases recognizing that a bankruptcy
court's order remanding a case to state court is appealable to the
district court
[under 2 8 U.S. C.
§
14 52 (b)] ,
but not beyond.") ;
In re D'Angelo, 479 B.R. at 655 ("[Section 1452] does not preclude
review of a Bankruptcy Court's remand order by a United States
District Court, nor could it do so without running afoul of the
Supreme Court's decision in [Marathon, 102 s. Ct. at 2878] .").
Appellees'
argument that
this
court
lacks
jurisdiction to
review the Bankruptcy Court's remand order rests on cases that have
-21-
interpreted the Supreme Court's conclusion in Things Remembered,
116 S. Ct. at 497, that "[t]here is no reason§§ 1447(d) and 1452
cannot comfortably coexist in the bankruptcy context," to deprive
district courts of jurisdiction to review bankruptcy court remand
orders
when
those
orders
are
based on
lack of
jurisdiction or procedural defects in removal,
~'
subject matter
Telluride, 364
B.R. at 399-401, Auto-Owners Insurance v. Rossi (In re Rossi), 444
B.R. 170,
173
(6th Cir. B.A.P.
B.R. 724 (S.D. Fla. 2005).
2011),
and In re Richardson,
319
The Bankruptcy Court concluded that the
cases Appellees cite in support of their argument that district
courts lack jurisdiction to review bankruptcy court remand orders
"are based on a misunderstanding of the Supreme Court's Things
Remembered decision." 46
In Things Remembered, 116 S. Ct. at 494, the defendant removed
a state court action both to the federal district court based on 28
U.S. C.
§ 1441 and to the bankruptcy court based on 28
§ 1452 (a)
Id.
at
496.
The district
proceedings before the bankruptcy court.
court
U.S. C.
consolidated all
The bankruptcy court
found the removal timely under § 1441, but untimely under § 1452
and Bankruptcy Rule 9027.
Id.
The bankruptcy court's decision was
appealed to the district court, which remanded the action to state
court after finding that the bankruptcy court lacked jurisdiction
46
0rder Denying Defendants' Motion to Amend or Clarify,
attached to Addendum to Appellants' BROA, Docket Entry'No. 7-39,
p. 4.
-22-
because removal had been untimely under both § 1441 and § 1452.
Id.
The district court's opinion was appealed to the Sixth Circuit
Court of Appeals.
Id.
In an unpublished opinion the Sixth Circuit
held that it was barred from reviewing the district court's remand
order under both§§ 1447(d) and 1452(b).
Things
Remembered,
dismissing appeal)).
Inc.,
65
F.3d
169
Id.
(6th
(citing Petrarca v.
Cir.
1994)
(Order
The Supreme Court granted certiorari,
115
S. Ct. 1821 (1995), to consider "whether a federal court of appeals
may review a district court order remanding a bankruptcy case to
state court on grounds of untimely removal."
116
Things Remembered,
s. Ct. at 496.
The Supreme Court began its analysis with the general rule
prohibiting review of remand orders set forth in § 1447,
which
states in pertinent part:
(c) A motion to remand the case on the basis of any
defect other than lack of subject matter jurisdiction
must be made within 30 days after the filing of the
notice of removal under section 1446(a). If at any time
before final judgment it appears that the district court
lacks subject matter jurisdiction, the case shall be
remanded.
. A certified copy of the order of remand
shall be mailed by the clerk to the clerk of the State
court. The State court may thereupon proceed with such
case.
(d) An order remanding a case to the State court from
which it was removed is not reviewable on appeal or
otherwise, except that an order remanding a case to the
State court from which it was removed pursuant to section
1442 or 1443 of this title shall be reviewable by appeal
or otherwise.
28
u.s.c. § 1447 (c)- (d)
Recognizing that
the Court had long
before decided that "§ 1447(d) must be read in pari materia with
-23-
§ 1447 (c),
§ 1447 (c)
so that only remands based on grounds
specified in
are immune from review under § 1447 (d),"
id.
at 497
(citing Thermtron Products, Inc. v. Hermansdorfer, 96 S. Ct. 584,
590-91 (1976)), the Court explained that read together, § 1447(c)
and (d) foreclosed appellate review of the district court's remand
order because that order was based on a defect in removal procedure
which is one of the grounds specified in§ 1447(c).
Id.
The Court
explained:
We reach the same conclusion regardless of whether
removal was effected pursuant to § 1441 (a) or § 1452 (a) [,
because §] 1447(d) applies anot only to remand orders
made in suits removed under
[the general removal
statute] , but to orders of remand made in cases removed
under any other statutes, as well.
. Absent a clear
statutory command to the contrary, we assume that
Congress is aaware of the universality of th[e] practice"
of denying appellate review of remand orders when
Congress creates a new ground for removal."
Id.
(quoting United States v. Rice,
66 S. Ct.
835,
839
(1946)).
The Court also explained:
There is no express indication in § 1452 that Congress
intended that statute to be the exclusive provision
governing removals and remands in bankruptcy.
Nor is
there any reason to infer from§ 1447(d) that Congress
intended to exclude bankruptcy cases from its coverage.
The fact that § 1452 contains its own provision governing
certain types of remands in bankruptcy, see § 1452(b)
(authorizing remand on "any equitable ground" and
precluding appellate review of any decision to remand or
not to remand on this basis), does not change our
conclusion.
There is no reason §§ 1447 (d) and 1452
cannot comfortably coexist in the bankruptcy context. We
must, therefore, give effect to both.
Id.
(citing Connecticut National Bank v. Germain, 112 S. Ct. 1146,
1149 (1992)).
Thus, after analyzing the question of whether the
-24-
district court's remand order could be reviewed by a
§ 1452(b),
appeals under both § 1447(d)
and
upheld
holding
the
Sixth
Circuit's
that
court of
the Supreme Court
both
§
1447(d)
and
§ 1452(b) barred appellate review, stating:
If an order remands a bankruptcy case to state court
because of a timely raised defect in removal procedure or
lack of subject-matter jurisdiction, then a court of
appeals lacks jurisdiction to review that order under
§ 1447(d), regardless of whether the case was removed
under§ 1441(a) or§ 1452(a). The remand at issue falls
squarely within § 1447(d), and the order is not
reviewable on appeal.
Things Remembered, 116 S. Ct. at 497.
In Telluride,
364 B.R.
which Appellees rely,
at 399-401,
and the other cases on
the courts have read Things Remembered to
preclude district courts from reviewing orders of remand issued by
bankruptcy
courts
jurisdiction.
Supreme
for
procedural
defects
and
subject
matter
But these courts have overlooked the fact that the
Court's
ruling
in
Things
Remembered
addressed
the
jurisdiction of the court of appeals over an order of remand issued
by a district court and, thus, is inapposite and does not control
the outcome of a case in which the remand order at issue was not
entered by a district court but, instead, by a bankruptcy court.
See In re D'Angelo,
479 B.R.
at 655
&
n.4.
Courts that have
interpreted Things Remembered as precluding district courts from
reviewing bankruptcy court remand orders also overlook the fact
that
their
district
interpretation
courts
of
the
impermissibly
right
to
-25-
deprives
oversee Article
Article
I
III
bankruptcy
courts.
See id. at 655
("[§ 1452] does not preclude review of a
Bankruptcy Court's remand order by a United States District Court,
nor could it do so without running afoul of the Supreme Court's
decision
in
[Marathon,
102
S.
Ct.
at
2876,
2880]. ");
Biglari
Import & Export, Inc. v. Nationwide Mutual Fire Insurance Co.
(In
re Biglari Import & Export, Inc.), 142 B.R. 777, 781 (Bankr. W.D.
Tex.
1992)
("[T]he
provision
in
§
1447(d)
that
'[a]n
order
remanding a case to the State court from which it was removed is
not reviewable on appeal or otherwise .
.'
requirement that the decisions of Article I
some sort of review by an Article
runs counter to the
judges be subject to
III court
in order to avoid
violating Article III of the Constitution.").
Accordingly,
this
court is not persuaded that this appeal is subject to dismissal
because 28 U.S.C.
remand order
§
1447(d) bars a district court from reviewing a
issued by a
bankruptcy court
for
lack of
subject
matter jurisdiction.
(b)
An Exception to § 1447(d) Allowing Review of
Collateral Orders Allows This Court to Review the
Bankruptcy Court's Order of Partial Dismissal
Alternatively, citing Regan v. Starcraft Marine, LLC, 524 F.3d
627, 631-32 (5th Cir. 2008), Appellants argue that even if pursuant
to 28 U.S.C.
Bankruptcy
§
1447(d) this court has no jurisdiction to review the
Court's
remand
order,
the
Bankruptcy
Court's
dual
rulings on their motion to dismiss qualify for review under the
collateral order doctrine:
-26-
Before beginning its analysis on its remand
decision, the Bankruptcy Court correctly determined it
had: ( 1) jurisdiction to determine whether the claims
asserted by Appellees belonged to the Debtor; and
(2) continuing jurisdiction to interpret the Plan's
exculpatory clause to determine whether Appellees' state
law claims were barred.
The Bankruptcy Court initially determined first that
the exculpatory clause did not bar the Appellees' claims,
but now admits that determination was a manifest error of
law.
Furthermore, the Bankruptcy Court determined
that part of the Appellees' claims survived Appellants'
Rule 12(b) (6) Motion to Dismiss and expressly held that
some of these claims were individual rather than
corporate claims . . . . Both of these determinations were
substantive, and were independent of the later remand
determination both
"in logic
and in fact,"
and
significantly altered the rights of the parties.
An order is sufficiently conclusive when "it will
have a preclusive effect in the state-court litigation
and will not be subject to review there."
Regan, 524
F.3d at 631.
A state court cannot act as a court of
appeals for a federal court and, without appropriate
review, these final orders would bind Appellants but give
them no redress on appeal. Furthermore, the language of
the Bankruptcy Court's final order shows its preclusive
effect as the parties were expressly warned they would be
sanctioned for making claims or arguments "inconsistent"
with the Order' s terms. 47
In Regan,
524
F.3d at
631-32,
the
Fifth Circuit
found a
portion of the district court's dismissal order reviewable even
though it was coupled with a remand order that was not reviewable.
The Fifth Circuit's holding in Regan was based, in pertinent part,
on a severability exception to§ 1447(d) recognized by the Supreme
Court in City of Waco, Tex. v. United States Fidelity & Guaranty
Co.,
55
47
S.
Ct.
6,
7
( 1934) .
See
Doleac
ex
rel.
Doleac
Appellants' Reply Brief, Docket Entry No. 18, pp. 8-9.
-27-
v.
Michalson,
courts
264 F.3d 470,
apply City of Waco
"doctrine
§
478
that
(5th Cir.
in support
partially
restrains
2001)
of
a
the
(recognizing that
judicially created
otherwise
preclusive
1447(d)").
In City of Waco, 55 S. Ct. at 7, the district court entered a
single decree embodying three separate orders, including one order
dismissing a cross-complaint against one party, and another order
remanding because there was no diversity of citizenship in light of
the dismissal.
existed
to
The Supreme Court held that appellate jurisdiction
review
the
order
of
The
dismissal.
Court
explained:
True, no appeal lies from the order of remand; but in
logic and in fact the decree of dismissal preceded that
of remand and was made by the District Court while it had
control of the cause.
Indisputably this order is the
subject of an appeal; and, if not reversed or set aside,
is conclusive upon the petitioner.
Id.
The Court cautioned, however,
aside the remand order.
of
remand,
but
it
Id.
will
that a reversal could not set
("A reversal cannot affect the order
at
least,
if
the
dismissal
of
the
petitioner's complaint was erroneous, remit the entire controversy,
with
the
.").
Fidelity
Company
still
a
party,
to
the
state
court
See also Powerex Corp. v. Reliant Energy Services, Inc.,
127 s. Ct. 2411, 2419 (2007)
(stating that the City of Waco Court
"cautioned that the remand order itself could not be set aside").
The Fifth Circuit has recognized that courts applying the
City of
Waco
exception generally
-28-
conduct
"a
two-step
inquiry
involving
both
separability
from
the
Inc., 718 F.3d 518, 521 (5th Cir. 2013)
therefore,
The second question is whether there
not encompassed
Regan, 524 F.3d at
is some procedural
mechanism for an appeal of the separable order.
where
the
exception applies,
" [t] he
Id. at 632.
focus
is
not
alleged error in remanding for lack of jurisdiction
on
an
the
(citing Doleac, 264 F.3d at
within§ 1447(d) 's bar to review of a remand.
cases
and
The first question is whether the order is distinct and
separable from the remand order and,
631.
itself
Fontenot v. Watson Pharmaceuticals,
collateral order doctrine."
479, 485).
remand
alleged
remand] "
underlying
error
[that
Doleac, 264 F.3d at 478.
caused
In
on an
. but .
the
decision
to
See also Powerex Corp., 127
S. Ct. at 2419 (recognizing that the applicability of the City of
Waco
(1)
exception
have
a
has
been
preclusive
restricted
effect
upon
to
the
reviewable
parties
orders
in
that
subsequent
proceedings and (2) are severable, both logically and factually,
from the remand order).
Carlson,
896
F.2d
The Fifth Circuit's opinion in Mitchell v.
128
(5th
Cir.
1990),
provides
guidance
in
applying the two-step inquiry.
In Mitchell
the
plaintiff
was
an
employee
at
a
federal
military facility who sued her supervisor, Carlson, in state court
for
claims
arising
from
a
work-related
altercation.
The
United States filed a notice of substitution under the Westfall
Act,
Id.
28 U.S.C.
at 130.
§
2679, and removed the action to federal court.
The district court concluded the substitution was
-29-
improper,
resubstituted Carlson,
and remanded the case to state
On appeal the Fifth Circuit held
court.
§
1447(d)
barred
consideration of the remand order because it was based on lack of
jurisdiction, id. at 131 & n.3, but held that the resubstitution
order was reviewable under City of Waco and its progeny because the
resubstitution order was separable from the remand order, and had
the district court dismissed the action against the United States
without resubstituting Carlson, there would have been no action to
Id. at 131-32
remand.
("the resubstitution order being prior to
and separable from the remand order,
review
of
question
the
of
resubsti tution
appealability,
§
1447(d) does not bar .
order.") .
the
Fifth
Upon
Circuit
considering
held
that
the
the
collateral order doctrine allowed appeal because the resubstitution
order effectively denied Carlson immunity and could not be reviewed
by the state court.
was
in error,
Id. at 133.
Holding that the resubstitution
and that after dismissing the United States the
district court should have dismissed the action, the Fifth Circuit
reversed and dismissed.
Id. at 135.
Mitchell is analogous to the present case because like the
Bankruptcy Court's order of partial dismissal in which the court
determined
that
the
Release
of
Exculpated
Persons
in
SBMC's
confirmed Plan did not bar Appellees' claims, the separable order
at issue in Mitchell subjected an otherwise immune party to suit,
and had the
court not erred,
no case would have
remand.
-30-
remained for
The first question before the court is whether the Bankruptcy
Court's order of partial dismissal is separable from its remand
order.
"An order is 'separable' if it precedes the remand order
'in logic and in fact' and is 'conclusive.'"
Regan,
524 F.3d at
631 (citing First National Bank v. Genina Marine Services, Inc.,
136 F.3d 391, 394 (5th Cir. 1998)
at 7) ) .
(quoting City of Waco, 55 S. Ct.
The Bankrutpcy Court's Order of Partial Dismissal and
Remand is based on the court's determination that Appellees' claims
were not barred by the Release of Exculpated Persons in SBMC's
confirmed Plan.
Because that determination necessarily preceded
the remand order,
and will have preclusive effect in the state-
court litigation, the Bankruptcy Court's order of partial dismissal
is
both
separable
from
its
remand
order
and
conclusive
of
Appellants' contention that the Release of Exculpated Persons in
SBMC's Plan bar Appellees'
this court,
motion
to
claims.
Unless subject to review in
the Bankruptcy Court's partial denial of Appellants'
dismiss
has
unreviewably determined
that
Appellees'
claims are not barred by the Release of Exculpated Persons
SBMC's
confirmed
Plan.
Thus,
the
court
concludes
that
in
the
Bankruptcy Court's order partially denying Appellants' motion to
dismiss
is
a
applicability
separate
of
the
order
Release
that
of
conclusively
Exculpated
determined
Persons
in
the
SBMC' s
confirmed Plan to Appellees' claims.
The second question is whether the Bankrutpcy Court's order of
partial dismissal is appealable under the rule of finality or under
-31-
the
collateral order exception to
Supreme Court in Cohen v.
S.
Ct.
1221
S.
Ct.
1712,
(1949) .
that
recognized by the
Beneficial Industrial Loan Corp.,
In Quackenbush v.
1718-20
rule
(1996),
the
Court
Allstate Ins.
described
the
Co.,
69
116
rule of
finality and the collateral order exception as follows:
[A]
decision
is
ordinarily considered final
and
appealable under § 1291 only if it "ends the litigation
on the merits and leaves nothing for the court to do but
execute the judgment."
We have .
recognized,
however, a narrow class of collateral orders which do not
meet this definition of finality,
but which are
nevertheless immediately appealable under § 1291 because
they "'conclusively determine [a] disputed question'"
that is "'completely separate from the merits of the
action, '" "'effectively unreviewable on appeal from a
final judgment,'"
. and "too important to be denied
review."
The Bankruptcy Court's order of partial dismissal did not end
the litigation on the merits and leave nothing for the court to do
but execute the
disputed
judgment,
question,
Exculpated Persons
i.e.,
but it did conclusively determine a
the
in SBMC' s
applicability
of
confirmed Plan to
the
Release
of
the Appellees'
claims.
The disputed question concerning the applicability of the
Release
of
Exculpated
Persons
in
SBMC's
confirmed
Plan
to
Appellees' claims is an issue that is completely separate from the
merits of the action, effectively unreviewable on appeal from final
judgment, and too important to be denied review.
Moreover, when
Appellants moved the Bankruptcy Court to amend or clarify its Order
of Partial Dismissal and Remand,
the Bankruptcy Court agreed to
reopen the record upon concluding that its original determination
-32-
that the Release of Exculpated Persons in SMBC's confirmed Plan did
not bar Appellees'
Thus,
the
court
claims was based on a manifest error of law.
concludes
that
the
Bankruptcy
Court's
order
partially denying Appellants' motion to dismiss is appealable under
the
collateral order exception to
the
rule
of
finality.
See
Quackenbush, 116 S. Ct. at 1718-20; Mitchell, 896 F.2d at 132-33.
2.
Appellants' Notice of Appeal Was Timely Filed
Asserting that the Bankrutpcy Court was divested of subject
matter jurisdiction either on September 18, 2014 -- the date that
the Bankruptcy Court issued its remand order -- or at the latest on
September 22, 2014
the date that the clerk of the court mailed
a
the
certified
copy of
remand
order
to
the
state
court
Appellees argue that Appellants' notice of appeal was not timely
filed because Appellants' motion to amend filed on September 24,
2014, did not toll the deadline for filing an appeal. 48
Appellants
counter that their notice of appeal was timely filed because the
Bankruptcy Court did not deny their motion to amend or clarify
until April 22, 2015, and the timeliness of the notice of appeal
must be measured from that date and not, as the appellees contend,
from the date of the remand order or the date the clerk mailed a
certified copy of the remand order to the state court. 49
48
Appellees' Brief, Docket Entry No. 15, p. 22.
49
Appellants' Opening Brief, Docket Entry No. 12, pp. 11-15;
Appellants' Reply Brief, Docket Entry No. 18, pp. 1-12.
-33-
Federal Rule of Bankruptcy Procedure 8002(a) provides that a
notice of appeal in a bankruptcy proceeding must be filed "within
14
days
after
appealed."
entry
of
the
judgment,
order,
or
decree
being
However, Rule 8002(b) provides that:
If a party timely files in the bankruptcy court any of
the following motions, the time to file an appeal runs
for all parties from the entry of the order disposing of
the last such remaining motion:
(A) to amend or make additional findings under
Rule 7052, whether or not granting the motion would
alter the judgment;
(B)
to alter or amend the judgment under Rule 9023;
(C) for a new trial under Rule 9023; or
(D) for relief under Rule 9024 if the motion is filed
within 14 days after the judgment is entered.
A district court lacks jurisdiction to entertain an appeal that is
not filed within the fourteen-day period prescribed by Federal Rule
of
Bankruptcy
situation is
Procedure
to vacate
8002.
"The
proper
the decision of
remedy
in
such
a
the district court and
remand with instructions to dismiss the appeal."
Berman-Smith v.
Gartley (In re Berman-Smith),
(5th Cir. 2013)
737 F.3d 997, 1003
("Since the statute defining jurisdiction over bankruptcy appeals,
28 U.S.C.
§
158, expressly requires that the notice of appeal be
filed under the time limit provided in Rule 8002, we conclude that
the time limit is jurisdictional.
Accordingly . . . the failure to
file a timely notice of appeal in the district court leaves the
district court .
. without jurisdiction to hear the appeal.").
-34-
There is no dispute that Appellants'
Notice of Appeal was
timely filed less than fourteen days after the Bankruptcy Court
entered its April 22, 2015, order denying their Motion to Amend or
Clarify the September 18,
remand.
tolled
2014,
order of partial dismissal and
At issue is whether Appellants' Motion to Amend or Clarify
the
period
for
filing
their
notice
of
appeal
for
the
Bankrutpcy Court's September 18, 2014, Order of Partial Dismissal
and Remand.
Resolution of
this
issue
depends
on whether
the
Bankruptcy Court had jurisdiction to consider Appellants' Motion to
Amend or Clarify.
Asserting that they filed their Motion to Amend
or Clarify on September 24,
2014,
less than one week after the
Bankrutpcy Court issued its Order of Partial Dismissal and Remand
on September 18, 2014, Appellants argue that pursuant to Bankruptcy
Rule 8002(b) their Motion to Amend or Clarify tolled the period for
filing a notice of appeal until fourteen days after the Bankruptcy
Court issued the order denying their motion on April 22, 2015.
Appellees' argument that Appellants' notice of appeal was not
timely filed is based on their contention that 28 U.S.C.
§
1447(d)
barred the Bankruptcy Court from considering Appellants' Motion to
Amend or Clarify because when Appellants
filed
that
motion on
September 24, 2014, jurisdiction had already been divested from the
Bankruptcy Court
to
reasons set forth in
Bankruptcy Court
the
§
state
court.
Since,
however,
for
the
IV.B, below, the court has concluded that the
erred when
it
determined
-35-
that
it
was
without
jurisdiction to consider Appellants' motion to amend or clarify, the
filing of that motion within fourteen days of the Bankruptcy Court's
September 18, 2014, Order of Partial Dismissal and Remand tolled the
period for filing notice of appeal until April 22,
the Bankruptcy Court disposed of Appellants'
clarify.
Because Appellants'
2015, the date
motion to amend or
notice of appeal was filed within
fourteen days of the April 22, 2015, order denying their motion to
amend or clarify, Appellants' notice of appeal was not untimely, and
this appeal is not subject to dismissal for that reason.
B.
The Bankruptcy Court Erred By Denying Appellants' Motion to
Amend or Clarify for Lack of Subject Matter Jurisdiction
Citing 28 U.S.C.
Browning v.
Navarro,
§
1447 and the Fifth Circuit's opinion in
743
F.2d 1069,
1078
(5th Cir.
1984),
the
Bankruptcy Court denied Appellants' motion to amend or clarify on
the basis that its partial granting of Appellees' motion to remand
and/or the clerk's mailing of a certified copy of the remand order
to the state court divested it of
Appellants'
jurisdiction to consider the
Motion to Amend or Clarify.
The Bankru t pcy Court
explained its reasoning as follows:
Because of this broad language in 28 U.S.C. § 1447
preventing review on appeal or otherwise, district courts
are prohibited from reconsidering their own remand
orders. New Orleans Pub. Serv., Inc. v. Majoue, 802 F.2d
166, 167 (5th Cir. 1986).
In dicta, the Fifth Circuit
has extended this prohibition to bankruptcy courts.
Browning v. Navarro, 743 F.2d 1069, 1078 (5th Cir. 1984).
In Browning, the Fifth Circuit held that a bankruptcy
court could not issue a conditional remand order because
it was tantamount to reconsidering its remand decision on
the occurrence of a specified condition.
Id. at 1083.
-36-
The Fifth Circuit reasoned that "[i] f we held that a
remand could be revoked by its issuing court via an
automatic revocation provision which the court itself
concocted, we would be authorizing a bankrutpcy court to
do indirectly that which it is prohibited from doing
directly":
"review [ing]
and
revok [ing]
the
order
subsequent to the occurrence of the condition." Id. The
Fifth Circuit further noted that "[i]t is axiomatic that
remanding a
case
to state court
terminates
the
jurisdiction of a federal bankruptcy or district court
over that case."
Id. at 1078.
The jurisdictional
divestiture becomes effective at least by the time that
the remand order is certified and mailed to state court
by the clerk of the district court. Arnold v. Garlock,
Inc., 278 F.3d 426, 438 (5th Cir. 2001).
In the suit at bar, the Partial Dismissal and Remand
Order was sent by certified mail to the state court on
September 22, 2014, and the Motion for Reconsideration
was filed on September 24, 2014.
Consequently, based
upon Browning v. Navarro, this Court concludes that it
does not have jurisdiction to reconsider the Partial
Dismissal and Remand Order. 50
1.
The Bankruptcy Court Retained Jurisdiction to Consider
Appellants' Motion to Amend or Clarify
Appellants argue that the Bankruptcy Court erred by denying
their Motion
to Amend
or
Clarify
for
lack
of
subject
matter
jurisdiction because the law on which the Browning court based its
holding
that
prohibited
review of
"on
appeal
a
or
bankruptcy court's
otherwise,"
(superseded in 1984 by§ 1452),
i.e.,
remand order was
28
U.S.C.
§
1478
has since been amended for the
express purpose of allowing district courts to review bankruptcy
court
remand orders . 51
Asserting
that
"if
this
Court
is
not
50
0rder Denying Defendants' Motion to Amend or Clarify, Docket
Entry No. 7-39, pp. 5-6.
51
Appellants' Opening Brief, Docket Entry No. 12, pp. 11-15.
-37-
precluded from reviewing the Bankruptcy Court's remand order, there
is no reason why the Bankruptcy Court could not first reconsider
its own order," 52 Appellants argue that the Bankruptcy Court had
jurisdiction to
reconsider
its
order of
partial
remand, and erred by concluding otherwise. 53
dismissal
and
Thus, Appellants urge
this
Court
[to]
reverse
the
Bankruptcy
Court's
determination that it was without jurisdiction to
reconsider its prior remand order .
. and remand this
matter back to the Bankruptcy Court to permit that court
to finalize all findings and proceedings consistent with
that Court's October 30, 2014 Order Reopening the
Record. 54
Appellees argue that the Bankruptcy Court correctly ruled that it
lacked jurisdiction to reconsider its own remand order. 55
In Browning, 743 F.2d at 1076, the Fifth Circuit observed that
the text of 28 U.S.C. § 1478(b) --superseded in 1984 by§ 1452
stated
that
remand
orders
were
"not
reviewable
by
appeal
or
otherwise."
Analogizing the rule of nonreviewabili ty applicable to
bankruptcy
cases
nonreviewability
in
in
§
§
1478 (b)
1447(d),
to
the
the
Fifth
general
Circuit
rule
held
of
that
"§ 1478(b), which contains language paralleling that of§ 1447(d),
bars our review, however indirect, of a bankruptcy court's order of
remand."
52
Id. at 1078.
The Court also held that "[t]he federal
Id. at 15.
53
Appellants' Reply Brief, Docket Entry No. 18, pp. 1-12, esp.
pp. 7-9.
54
Appellants' Opening Brief, Docket Entry No. 12, p. 15.
55
Appellees' Brief, Docket Entry No. 15, pp. 19-22.
-38-
court
is
completely divested of
jurisdiction once
it mails
a
certified copy of the order to the clerk of the state court."
Id.
In both Arnold, 278 F.3d at 438, and Majoue, 802 F.2d at 167,
the
Fifth Circuit interpreted 28 U.S.C.
§
1447(d) and held that once a
district court mails a certified copy of a remand order to a state
court,
the district court is divested of jurisdiction to review
that remand order.
Observing that the clerk of the court mailed a certified copy
of
the
remand
order
to
the
clerk
of
the
state
court
on
September 22, 2014, two days before Appellants filed their Motion
to Amend or Clarify on September 24,
judge read Browning,
Arnold,
2014,
and Majoue to mean that he lacked
jurisdiction to consider Appellants'
because
Appellants'
motion
the Bankruptcy Court
had
motion to amend or clarify
not
been
filed
until
after
jurisdiction had been divested from the bankruptcy court to the
state court.
Since, however, Browning was decided before Congress
passed the 1990 Judicial Improvements Act amending
§
1452(b)
to
allow district court review of bankruptcy court remand orders,
Browning is no longer good law insofar as it treats bankruptcy
court remand orders as non- reviewable "by appeal or otherwise."
Because unlike Arnold and Majoue the present case does not involve
a remand order issued by a district court but, instead, a remand
order issued by a bankruptcy court,
stated in
§
§
IV.A.,
above,
and because for the reasons
the court has already concluded that
1447(d) does not prevent this court from reviewing the Bankruptcy
-39-
Court's
remand
order,
Arnold
and
Maj oue
are
inapposite.
Accordingly, the court concludes that the Bankruptcy Court erred by
relying on Browning, Arnold, and Majoue and, therefore, abused its
discretion by concluding that it lacked jurisdiction to consider
Appellants' Motion to Amend or Clarify. 56
F.3d 690, 692 (5th Cir. 2003)
See In re Barron,
325
(recognizing that a court abuses its
discretion when that discretion is guided by an erroneous legal
conclusion) .
Because for the reasons stated in§ IV.A, above, the court has
concluded that the Bankruptcy Court's remand order is reviewable by
this court, the remand order is a final order subject to treatment
like any other final order.
20.
See Quackenbush, 116 S. Ct. at 1718-
See also Thomas v. LTV Corp., 39 F.3d 611, 616 (5th Cir. 1994)
(remand orders not subject to§ 1447(d) are "treated like any other
final judgment"); Firefighters' Retirement System v.
Citco Group
Ltd.,
denied,
796
F.3d 520,
S. Ct. 896 (2016)
524-25
(5th Cir.
2015),
cert.
136
(holding that when§ 1447(d) 's statutory bar to
review does not apply, a remand order is a final order for purposes
of 28 U.S. C.
§ 1291,
district courts").
the statute governing "Final decisions of
As the Fifth Circuit stated in In re Shell Oil
56
See Appellants' Opening Brief, Docket Entry No. 12, p. 11
("The Bankruptcy Court did not permit the Appellants to respond
before issuing its ruling, and that court never had the benefit of
this briefing before arriving at its decision.
The Browning
decision does not control this matter and, in no way, prevented the
Bankruptcy Court from reconsidering its earlier remand order that
contained an admitted manifest error of law.").
-40-
Co.,
932 F.2d 1523
reviewability
(5th Cir.
exists,
1991),
'an appellate
"where an exception to noncourt
has
jurisdiction
to
review the remand order, and a district court has jurisdiction to
review its own order, and vacate or reinstate that order. '"
1528
(quoting In re Shell Oil Co.,
1980)
631 F.2d 1156, 1158
Id. at
(5th Cir.
Moreover, the exception to non-reviewability applies even
though the certified copy of the remand order has been mailed to
the clerk of the state court.
Id.
A bankruptcy court is similarly free to reconsider any of its
final
orders,
subject
to
Bankruptcy Procedure 9023.
875 (5th Cir. 1988)
the
limitations
of
Federal
See Matter of Aguilar,
(per curiam)
("We
Rule
of
861 F.2d 873,
. hold that a motion to
reconsider, brought before the time to appeal has expired, is . . .
properly treated as a Rule 9023 motion which tolls the . . . period
for appeal[].")
When a remand order is subject to treatment like
any other final order the issuing court "retains jurisdiction until
the time for filing an appeal has expired or until a valid notice
of appeal is filed.
When a
timely Rule 59 (e)
filed, the district court retains jurisdiction
ruling
on
the
motion."
Thomas,
39
F.3d
motion has been
[until] after
at
616.
Because
Appellants' Motion to Amend or Clarify the Bankruptcy Court's Order
of Partial Dismissal and Remand was filed less than fourteen days
after entry of that order, Appellants' motion was filed before the
time to appeal expired and, therefore, must be treated as a motion
-41-
filed under Bankruptcy Rule 9023, which the Bankruptcy Court had
jurisdiction to consider.
2.
See Fed. R. Bankr. P. 8002(a).
Remand is Appropriate
Having
determined
the
that
Bankruptcy
Court
retained
jurisdiction to adjudicate Appellants' Motion to Amend or Clarify,
the court must decide whether to proceed to the merits of the case
or reverse and remand to the Bankruptcy Court.
When a lower court
has failed to reach a question that becomes critical to review on
appeal,
an appellate court may sometimes
appeal instead of remanding.
See,
~'
resolve
the
issue on
Chase Manhattan Bank, N.A.
v. American National Bank and Trust Co. of Chicago, 93 F.3d 1064,
1072
(2d Cir.
1996)
This
procedure
is
appropriate
when
the
factual record is developed and the issues provide purely legal
questions, upon which an appellate court exercises plenary review.
In such a case an appellate court can act just as a trial court
would, and nothing is lost by having the reviewing court address
the disputed issue in the first instance.
See Otto v. Variable
Annuity Life Ins. Co., 814 F.2d 1127, 1138 & n.11 (7th Cir. 1986).
Such a procedure is not appropriate, however, when the issue to be
addressed
is
not
a
purely
legal
question but
requires exercise of discretion or fact-finding.
a
question
that
In such cases it
is inappropriate and unwise for an appellate court to step in.
See
Curtiss-Wright Corp. v. General Electric Co., 100 S. Ct. 1460, 1466
( 1980)
(" [T] he proper role of
the
-42-
court of
appeals
is
not
to
reweigh the equities or reassess the facts but to make sure that
the conclusions derived from those weighings and assessments are
juridically sound and supported by the record.").
This is such a
case.
Because
a
decision
to
grant
or
deny
a
motion
for
reconsideration is a discretionary decision, factual determinations
supporting such a decision are reviewed under a clearly erroneous
standard.
See Edward H. Bohlin, 6 F.3d at 353; In re Barron, 325
F.3d at 692.
Bankruptcy
Appellants'
Court
to
Motion to Amend or Clarify asked the
reconsider
its
classification
of
some
of
Appellees' state law claims as direct instead of derivative and its
interpretation of
confirmed Plan.
the
Release
of
Exculpated Persons
in SBMC' s
The Bankruptcy Court agreed to reopen the record
to develop extrinsic evidence on the meaning of the Release of
Exculpated Persons.
The merits of Appellants' Motion to Amend or
Clarify thus fall within the zone of discretion and judgment that
is best addressed initially by the Bankruptcy Court.
the court will not reach the merits of Appellants'
instead,
Accordingly,
motion and,
will remand this case to the Bankruptcy Court so that
court can take whatever steps are necessary to resolve Appellants'
post-judgment
Motion
to
Amend
or
Clarify.
If
Appellants'
reconsideration motion is granted,
and if the Bankrutpcy Court
decides to amend its September 18,
2014,
Memorandum Opinion and
Order, the Bankruptcy Court may need to vacate its Order of Partial
-43-
Dismissal and Remand and give appropriate notification to the state
court.
If Appellants' motion is denied,
will be necessary.
Of course,
however,
no such steps
this court does not express any
opinion as to the merits of Appellants' motion, leaving it to the
sound discretion of the Bankruptcy Court.
v.
Conclusions and Order
For the reasons stated in
§
Dismiss Putative Cross-Appeal
For the
MOOT.
reasons
II, above, Appellants' Motion to
(Docket Entry No.
stated in
§
IV,
above,
2)
is DENIED AS
the
Bankruptcy
Court's April 22, 2015, Order Denying Defendants' Motion to Amend
or for Clarification of Judgment of Partial Dismissal and Remand
Order Pursuant
No.
90)
Court
to Bankr.
is REVERSED.
for
further
R.
Pro.
9023
(Adversary Docket Entry
This action is REMANDED to the Bankruptcy
proceedings
consistent
with
this
Memorandum
Opinion and Order.
SIGNED at Houston, Texas, on this 21st day of March, 2016.
'SIMiJAKE
UNITED STATES DISTRICT JUDGE
-44-
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