Phillips
Filing
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MEMORANDUM OPINION and ORDER DENYING 7 MOTION to Dismiss. This case is REMANDED to the bankruptcy court for further findings of fact and conclusions of law consistent with this Memorandum Opinion and Order. Case terminated on 6/15/2016.(Signed by Judge Gray H Miller) Parties notified.(rkonieczny, 4)
United States District Court
Southern District of Texas
ENTERED
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
IN RE:
JOE B. PHILLIPS and DOROTHY J. PHILLIPS
Debtors,
JOE B. PHILLIPS and DOROTHY J. PHILLIPS
Appellants,
v.
RODNEY TOW, CHAPTER 7 TRUSTEE,
Appellee.
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June 15, 2016
David J. Bradley, Clerk
CIVIL ACTION H-15-2706
BANKRUPTCY CASE NO. 09-37654
MEMORANDUM OPINION AND ORDER
Pending before the court are (1) an appeal from an order in the bankruptcy proceedings styled
In re Joe B. Phillips and Dorothy J. Phillips, bankruptcy case number 09-37654, and (2) a motion
dismiss the appeal filed by Rodney Tow, Chapter 7 Bankruptcy Trustee for the Estate of Joe B.
Phillips and Dorothy J. Phillips (“Trustee”). Dkts. 1, 7. Having considered the motion, response,
the parties’ appellate briefs, record evidence, and applicable law, the court is of the opinion that this
case should be REMANDED for further findings of fact and conclusions of law consistent with this
Memorandum Opinion and Order. Trustee’s motion to dismiss is DENIED without prejudice to
refiling.
I. BACKGROUND
In October of 2009, Joe B. Phillips and Dorothy J. Phillips (“the Phillips”) filed for
bankruptcy under chapter 13 of the Bankruptcy Code. Dkt. 11 at 1. The case was later converted
to a chapter 7 case, and Rodney Tow was appointed chapter 7 Trustee of the bankruptcy estate. Id.
In December of 2012, Trustee employed Ashby LLP as special counsel to provide legal services for
the bankruptcy estate. Id. The bankruptcy court issued an order authorizing the employment of
Ashby LLP over the Phillips’s objection. Bankr. Dkt. 194.
On July 21, 2015, Ashby LLP filed its First Interim Application for Compensation and
Reimbursement of Expenses (“Fee Application”) seeking payment in the amount of $44,015.00 for
services that it provided as special counsel for Trustee. Bankr. Dkt. 276 at 2. Joe Phillips
subsequently filed an objection to Ashby LLP’s Fee Application, which was stamped by the Clerk
of Court on August 14, 2015. Bankr. Dkt. 278 at 1. Joe and Dorothy Phillips also filed a joint
objection to Ashby LLP’s Fee Application, which the Clerk of Court stamped on August 24, 2015.
Bankr. Dkt. 279 at 1. On August 25, 2015, the bankruptcy court issued two orders. Bankr.
Dkts. 280, 281. The first order struck the Phillips’s objections (Dkts. 278, 279) as untimely, finding
that the objections were filed more than 21 days after Ashby LLP filed its Fee Application. Bankr.
Dkt. 280. In the second order, the bankruptcy court set a hearing on Ashby LLP’s Fee Application
for August 28 and held that the Phillips “[would] not be allowed to participate because their
objection has been stricken.” Bankr. Dkt. 281 at 1. Accordingly, the Phillips did not participate at
the hearing. On August 28, 2015, the bankruptcy court issued an order approving Ashby LLP’s Fee
Application. Bankr. Dkt. 282. The Phillips subsequently filed their notice of appeal of the
bankruptcy court’s order approving the Fee Application,1 which was stamped by the Clerk of the
Court on September 15, 2015. Bankr. Dkt. 286 at 1. The Phillips contend that they were in prison
during all times relevant to this appeal. Dkt. 16 at 4. Joe Phillips was an inmate in a Bureau of
1
The Phillips have not filed a notice of appeal of either the bankruptcy court’s order striking their objections to the
Fee Application (Bankr. Dkt. 280) or the order that excluded the Phillips from participating in the August 28 hearing
(Bankr. Dkt. 281).
2
Prison Camp (“BOP Camp”) in Bastrop Texas, and Dorothy Phillips was an inmate in a BOP Camp
in Bryan, Texas. Id.
On November 9, 2015, Trustee filed a motion to dismiss the Phillips’s appeal. Dkt. 7. The
Phillips filed their original brief (Dkt. 8) on November 16, their response to Trustee’s motion to
dismiss (Dkt. 10) on November 23, and a second response to the motion to dismiss (Dkt. 12) on
December 7. On December 12, 2015, Trustee filed his appellee brief (Dkt. 13), to which the Phillips
filed a reply brief on March 15, 2016 (Dkt. 16).
II. LEGAL STANDARDS
A.
Standard of Review
A district court has jurisdiction over a bankruptcy appeal under 28 U.S.C. § 158(a)(1), and
in reviewing the findings of a bankruptcy court, a district court acts in an appellate capacity. See
Perry v. Dearing, 345 F.3d 303, 308–09 (5th Cir. 2003). This court reviews a bankruptcy court’s
determination of attorneys’ fees for abuse of discretion. In re Fender, 12 F.3d 480, 487 (5th Cir.
1994). This “abuse of discretion standard includes review to determine that the discretion was not
guided by erroneous legal conclusions.” In re Coastal Plains, Inc., 179 F.3d 197, 205 (5th Cir.
1999) (quoting Koon v. United States, 518 U.S. 81, 100, 116 S. Ct. 2035 (1996)). Consistent with
this review, this court reviews a bankruptcy court’s conclusions of law de novo. In re Tex. Sec., Inc.,
218 F.3d 443, 445 (5th Cir. 2000). A bankruptcy court abuses its discretion when it applies an
improper legal standard or bases its decision on findings of fact that are clearly erroneous. In re
Crager, 691 F.3d 671, 675 (5th Cir. 2012).
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B.
Motion to Dismiss
“Federal Rule of Civil Procedure 8(a)(2) requires only ‘a short and plain statement of the
claim showing that the pleader is entitled to relief.’” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127
S. Ct. 1955, 1964–65 (2007). In considering a Rule 12(b)(6) motion to dismiss a complaint, courts
generally must accept the factual allegations contained in the complaint as true. Kaiser Aluminum
& Chem. Sales, Inc. v. Avondale Shipyards, Inc., 677 F.2d 1045, 1050 (5th Cir. 1982). The court
does not look beyond the face of the pleadings in determining whether the plaintiff has stated a claim
under Rule 12(b)(6). Spivey v. Robertson, 197 F.3d 772, 774 (5th Cir. 1999). “[A] complaint
attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, [but] a
plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels
and conclusions, and a formulaic recitation of the elements of a cause of action will not do.”
Twombly, 550 U.S. at 555 (citations omitted). And, “[f]actual allegations must be enough to raise
a right to relief above the speculative level.” Id. The supporting facts must be plausible—enough
to raise a reasonable expectation that discovery will reveal further supporting evidence. Id. at 556.
III. ANALYSIS
Trustee argues that the Phillips’s appeal should be dismissed because (1) the Phillips did not
timely file their notice of appeal; (2) they failed to timely file their objection to the Fee Application
and therefore waived their ability to raise any potential error on appeal; and (3) they do not have
standing to object to the Fee Application. Dkt. 7 at 2; Dkt. 11 at 5. As more fully explained below,
the court rejects Trustee’s first argument and finds that the Phillips timely filed their notice of appeal.
However, this court is unable to adequately address Trustee’s remaining arguments for dismissal.
The bankruptcy court struck the Phillips’s objections as untimely and excluded them from
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participating in the Fee Application hearing. Bankr. Dkts. 280, 281. However, the bankruptcy court
did not consider whether the objections were timely filed under the “prison mailbox rule.”
Additionally, Trustee did not challenge the Phillips’s standing in bankruptcy court. Because the
bankruptcy court has not made certain findings of fact and conclusions of law relevant to the issues
presented in this appeal, this court refrains from ruling on whether Trustee’s remaining arguments
for dismissal have merit. It is well established in the Fifth Circuit that, in a bankruptcy appeal, a
district court cannot consider issues that were not initially presented to the bankruptcy court. Ferrell
v. Countryman, 398 B.R. 857, 863 (E.D. Tex. 2009) (citing Barron v. Countryman, 432 F.3d 590,
594 n. 2 (5th Cir. 2005); Ginther v. Ginther Trusts (In re Ginther), 238 F.3d 686, 689 (5th Cir.
2001); In re Fairchild Aircraft Corp., 6 F.3d 1119, 1128 (5th Cir. 1993); Gilchrist v. Westcott (In
re Gilchrist), 891 F.2d 559, 561 (5th Cir. 1990); Moody v. Empire Life Ins. Co. (In re Moody), 849
F.2d 902, 905 (5th Cir. 1988)). Therefore, the court REMANDS for further findings on these issues
in accordance with the following analysis.
A.
The Phillips Timely Filed their Notice of Appeal
Trustee contends that the Phillips failed to timely file their notice of appeal under the Federal
Bankruptcy Rules of Procedure. Dkt. 7 at 2. The Phillips contend that when a pro se prisoner
deposits his notice of appeal with prison authorities, addressed to the clerk of court with postage
prepared, it is deemed filed at that moment for purposes of Federal Rule of Appellate Procedure 4(a)
and Bankruptcy Rule 8002(a). Dkt. 16 at 5–6. The Phillips cite to the U.S. Supreme Court’s holding
in Houston v. Lack, 487 U.S. 266, 268, 108 S. Ct. 2379 (1988). In Houston, the U.S. Supreme Court
held that a pro se prisoner filed his notice of appeal within the requisite 30-day period under Federal
Rule of Appellate Procedure 4(a)(1) when, three days before the deadline, he delivered the notice
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to prison authorities for forwarding to the district court, even though the court received the notice
one day after the expiration of the 30-day filing period. Houston, 487 U.S. at 271 (noting that
“[u]nlike other litigants, pro se prisoners cannot personally travel to the courthouse to see that the
notice is stamped “filed” or to establish the date on which the court received the notice”). Courts
have extended the Houston decision to apply to bankruptcy appeals. See In re Flanagan, 999 F.2d
753, 759 (3d Cir. 1993) (holding that when a pro se prisoner deposits his notice of appeal with prison
authorities, addressed to the clerk of court with postage prepaid, it is deemed filed at that moment
for purposes of Bankruptcy Rule 8002(a)); In re Taylor, No. BAP EC-11-1341-MKPAD, 2012 WL
1138472, at *2 n.4 (B.A.P. 9th Cir. Apr. 5, 2012) (implicitly adopting the “prison mailbox rule” to
bankruptcy appeals).
Moreover, the prison mailbox rule’s application to bankruptcy appeals appears to have been
codified under the 2014 revisions to Bankruptcy Rule 8002. Fed. R. Bankr. P. 8002 advisory
committee’s note (2014) (noting that “[s]ubdivision (c) mirrors the provisions of F.R.App.P. 4(c)(1)
and (2), which specify timing rules for a notice of appeal filed by an inmate confined in an
institution”). Bankruptcy Rule 8002(a) now provides that “[e]xcept as provided in subdivisions (b)
and (c), a notice of appeal must be filed with the bankruptcy clerk within 14 days after the entry of
the judgment, order, or decree being appealed.” Fed. R. Bankr. P. 8002(a). Rule 8002(c) states “[i]f
an inmate confined in an institution files a notice of appeal from a judgment, order, or decree of a
bankruptcy court, the notice is timely if it deposited in the institution’s internal mail system on or
before the last day for filing.” Fed. R. Bankr. P. 8002(c).
The Bankruptcy Court issued the order approving Ashby LLP’s Fee Application on August
28, 2015. Bankr. Dkt. 282. Therefore, the deadline for filing the appeal was September 11, 2015.
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The Phillips assert that on September 11, 2015, they “file[d] the Notice Of Appeal with the proper
officials of each unit of the U.S. Prison System in Bastrop and Bryan Texas” and that “[s]aid
officials did further certify said filing with the allocated time provided by the policies and provisions
of both the Federal Bureau of Prisons and U.S. Federal Law.” Dkt. 10 at 1–2. They argue that
“[d]ocuments and filings from a Federal Inmate that are posted and officially received by the
appropriate prison staff, and are furthermore stamped as such are determined to have been posted
and received by the court on the same date.” Id. at 2. Trustee does not appear to dispute the
Phillips’s assertion that they delivered their notices of appeal to the proper prison authorities on or
before September 11, 2015. Moreover, the Phillips have filed a notarized certificate of service that
certifies that the notice of appeal was placed in the mail in a postage paid wrapper prior to 5:00 pm
on September 11, 2015. Dkt. 10 at 10. Therefore, the court finds that the Phillips timely filed their
notice of appeal in accordance with Rule 8002.
B.
Whether the Phillips Timely Filed Their Objections to the Fee Application
Trustee also claims that the appeal must be dismissed because the Phillips failed to timely
object to Ashby LLP’s Fee Application. Dkt. 7 at 2. Trustee asserts that the Phillips’s failure to
timely object waived their ability to raise any potential error on appeal. Id. (citing Trs. of Sabine
Area Carpenter’s Health & Welfare Fund v. Don Lightfoot Home Builder, Inc., 704 F.2d 822, 828
(5th Cir. 1983) (“Normally, a party who fails to object to trial court errors waives the right to
complain of them on appeal.”)).
On August 25, 2015, the bankruptcy court issued two sua sponte orders (1) striking the
Phillips’s objections to the Fee Application, (2) setting a hearing on Ashby LLP’s Fee Application
for August 28, and (3) prohibiting the Phillips from participating in that hearing. Bankr. Dkts. 280,
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281. If, in fact, the Phillips timely objected to the Fee Application, then they did not waive their
right to raise potential errors on appeal. Moreover, if the objections were timely filed and the
Phillips had standing to object (discussed below), then it appears that the Phillips should have been
allowed to participate in the Fee Application hearing.
The order striking the Phillips’s objections as untimely states that they failed to comply with
the “applicable Bankruptcy Local Rule.” Bankr. Dkt. 280. Although the order does not cite to a
specific rule, the applicable rule appears to be Bankruptcy Local Rule 2016-19(c), entitled
“Professional Fees,” which provides that objections to a fee application must be made within 21 days
of the filing of the application. B.L.R. 2016-19(c). Ashby LLP filed its Fee Application on July 21,
2015. Bankr. Dkt. 276. Under Rule 2016-19(c), the deadline to object was August 11, 2015.
Although the Phillips’s objections (Bankr. Dkts. 278, 279) were not stamped by the Clerk of Court
until August 14 and August 24 (respectively), they claim that they timely filed their objections with
the proper prison officials at their respective BOP Camps on or before the August 11 deadline.2
Dkt. 16. at 4. The bankruptcy court does not appear to have applied the prison mailbox rule in
considering whether the objections were timely. See Bankr. Dkt. 280 (finding that the Phillips filed
their objection to the Fee Application on August 17, 2015, the date on which the first objection was
docketed). Moreover, because the Phillips were not allowed to participate in the hearing on the Fee
Application, the Phillips were unable to present any evidence or arguments in support of their
objections.
As mentioned above, courts have extended the prison mailbox rule to notices of appeal of
bankruptcy court orders under Bankruptcy Rule 8002(a). Although the Phillips have not cited to any
2
Both objections certify that they were filed and served on August 10, 2015. Bankr. Dkt. 278 at 10; Bankr. Dkt. 279
at 10.
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cases that have held that the prison mailbox rule applies to this specific situation (i.e., the filing of
objections to a bankruptcy court order), the Fifth Circuit has applied the prison mailbox rule in
several different contexts.3 Myers v. Swindle, 454 F. App’x 322, 323 (5th Cir. 2011) (applying the
prison mailbox rule to the filing of § 1983 complaints and remanding the case for “further factual
development regarding whether the filing was . . . a timely filing”); Spotville v. Cain, 149 F.3d 374,
378 (5th Cir. 1998) (holding § 2254 applications deemed filed on date the inmate tenders petition
to prison officials for mailing). Perhaps most analogous to the case at hand, the Fifth Circuit has
held that the prison mailbox rule applies to the filing of objections to a magistrate judge’s report and
recommendation. Thompson v. Rasberry, 993 F.2d 513, 515 (5th Cir. 1993) (per curiam) (holding
that “for purposes of F.R.C.P. 72(b), a pro se prisoner’s written objections to a magistrate’s report
and recommendations must be deemed filed and served at the moment they are forwarded to prison
officials for delivery to the district court”); see also Walker v. Savers, 583 F. App’x 474, 475 (5th
Cir. 2014) (applying the holding in Thompson and remanding the case to the district court to
determine whether the pro se prisoner’s written objections to the magistrate’s report and
recommendation were timely filed under the prison mailbox rule). In deciding to extend the prison
mailbox rule, the court reasoned that “pro se prisoners filing written objections to a magistrate
judge’s report and recommendation . . . are subject to the same conditions and limitations of
confinement as a prisoner filing a notice of appeal. . . . There is thus no reasonable basis upon which
to distinguish the ruling in Houston from the facts of this case.” Thompson, 993 F.2d at 515.
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Moreover, other courts have extended the prison mailbox rule to contexts outside notices of appeal. See Ortiz v.
Cornetta, 867 F.2d 146, 148–49 (2d Cir. 1989) (extending the mailbox rule to the filing of complaints for statute of
limitation purposes); Smith v. Evans, 853 F.2d 155 (3rd Cir. 1988) (finding the reasoning in Houston to be
indistinguishable in the context of Rule 59(e)); Moskovits v. Drug Enforcement Admin., 774 F. Supp. 649, 653
(D.D.C. 1991) (extending the mailbox rule to the filing of an affidavit with the Drug Enforcement Administration for
forfeiture purposes).
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Likewise, pro se prisoners filing written objections to bankruptcy court orders are subject to the same
conditions and limitations of confinement as a prisoner filing a notice of appeal. Therefore, based
on Thompson’s reasoning, a pro se prisoner’s written objection to a bankruptcy court order must be
deemed filed and served at the moment it is forwarded to prison officials for delivery to the district
court. Accordingly, on remand, the bankruptcy court is instructed to determine whether the
Phillips’s objections were timely filed under the prison mailbox rule.4
C.
Whether the Phillips Have Standing to Object to the Fee Application
Trustee argues that the Phillips do not have standing to object to the fee application because
the Phillips do not have an interest in the estate. Dkt. 7 at 3. This argument was not presented to
the bankruptcy court. However, “[t]he question of standing is not subject to waiver[.]” United
States v. Hays, 515 U.S. 737, 742, 115 S. Ct. 2431 (1995). Moreover, because it derives from the
“case or controversy” requirement of Article III of the Constitution, the lack of standing issue may
be raised at any time by any party or by the court sua sponte. Johnson v. City of Dall., Tex., 61 F.3d
442, 443–44 (5th Cir. 1995) (finding that although the standing issue was “raised for the first time
on appeal, standing is jurisdictional, and may be raised at any time”). The Supreme Court has held:
Every federal appellate court has a special obligation to satisfy itself not only of its
own jurisdiction, but also that of the lower courts in a cause under review, even
though the parties are prepared to concede it. And if the record discloses that the
lower court was without jurisdiction this court will notice the defect, although the
parties make no contention concerning it. When the lower federal court lacks
jurisdiction, we have jurisdiction on appeal, not of the merits but merely for the
purpose of correcting the error of the lower court in entertaining the suit.
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If, of course, the bankruptcy court finds that the Phillips lack standing to object to the Fee Application, it need not
determine whether the objections were timely.
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Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 95, 118 S. Ct. 1003 (1998) (citations and
brackets omitted). Therefore, whether the Phillips have standing to object to the Fee Application
is a threshold issue that must be resolved.
Debtors that do not have an interest in the bankruptcy estate do not have standing to object
to fee applications. See Matter of Zeda, 169 B.R. 605, 607 (Bankr. E.D. La. 1994) (finding that the
debtors did not have an interest in the estate and therefore lacked standing to oppose any fee
applications); Matter of Stable Mews Assocs., 49 B.R. 395, 397 (Bankr. S.D.N.Y. 1985) (finding
that the debtor did not have standing to oppose a fee application because the debtor was “truly
disinterested in the amount awarded”); In re George, 23 B.R. 686, 686 (Bankr. S.D. Fla. 1982)
(finding that where creditors’ claims exceeded the amount available for distribution, debtors had no
interest in the estate and therefore lacked standing to oppose any attorney fee applications). The
Fourth and Eighth Circuits state the general rule as follows:
Thus, since the bankrupt is normally insolvent, he is considered to have no interest
in how his assets are distributed among his creditors and is held not to be a party in
interest. However, when it appears that, if the contested claims are disallowed, there
may be a surplus of assets to be returned to the bankrupt, the bankrupt is considered
to have standing to contest the claims.
Willemain v. Kivitz, 764 F.2d 1019, 1022 (4th Cir. 1985) (citations omitted) (quoting Kapp v.
Naturelle, Inc., 611 F.2d 703, 706–707 (8th Cir. 1979)).
The Phillips contend that they have standing to object because the bankruptcy estate is
solvent. Dkt. 16 at 7.
Because Trustee did not challenge the Phillips’s standing in bankruptcy court,
the record evidence is inadequate for this court to decide whether the bankruptcy estate was
insolvent. An inquiry into the estate’s solvency would require this court to make findings as to the
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amount of allowed claims against the estate and the amount of assets owned by the estate. The
bankruptcy court is better situated to make such findings.
D.
Hearing on the Fee Application
If the bankruptcy court finds that (i) the Phillips timely objected to Ashby LLP’s Fee
Application under the prison mailbox rule and (ii) the Phillips have standing to object to the Fee
Application, then the bankruptcy court shall conduct a hearing on Ashby LLP’s Fee Application and
allow the Phillips to participate in such hearing.5
IV. CONCLUSION
Accordingly, this case is REMANDED to the bankruptcy court for further findings of fact
and conclusions of law consistent with this Memorandum Opinion and Order. Trustee’s motion to
dismiss is DENIED without prejudice to refiling.
Signed at Houston, Texas on June 15, 2016.
___________________________________
Gray H. Miller
United States District Judge
5
Conversely, if the bankruptcy court finds that the Phillips lack standing or that their objections were untimely, then
the court need not hold a hearing.
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