Energy Income Fund, L.P. v. Estes , 33 F. App'x 418 ( 2002 )

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
APR 3 2002
TENTH CIRCUIT
PATRICK FISHER
Clerk
In re: MAGNOLIA GAS COMPANY,
L.L.C.,
Debtor.
---------------------
ENERGY INCOME FUND, L.P.,
Plaintiff-Appellant,
v. No. 01-6001
JERRY ESTES; ESTES (D.C. No. 00-CV-1041-R)
CONSTRUCTION COMPANY, INC., (W.D. Oklahoma)
Defendants,
and
LIBERTY SUPPLY, INC.,
Defendant-Appellee.
______________________________
In re: MAGNOLIA GAS COMPANY,
L.L.C.,
Debtor.
---------------------
ENERGY INCOME FUND, L.P.,
Plaintiff-Appellant,
v. No. 01-6093
AP SUPPLY COMPANY, INC.; (D.C. No. 00-CV-1043-R)
WILLIAMSON CONTRACTING (W.D. Oklahoma)
SERVICES, INC.; LES O'DANIEL, d/b/a
Engine Controls,
Defendants,
and
HENRY ELECTRICAL
CONTRACTORS, INC.,
Defendant-Appellee.
ORDER AND JUDGMENT*
Before EBEL,** McWILLIAMS, and BRISCOE, Circuit Judges.
These consolidated appeals arise out of adversary proceedings initiated by plaintiff
Energy Income Fund (EIF). EIF sought a ruling from the bankruptcy court that its pre-
petition mortgage liens were superior to liens of the named defendants who held statutory
mechanics and materialmen liens. Two of the named defendants, Liberty Supply, Inc.,
and Henry Electrical Contractors, Inc., are appellees in these appeals. The other
defendants either settled or defaulted. See Answer Br. at 3. EIF appeals the district
court's order affirming the bankruptcy court's denials of its motions for summary
judgment.
I.
Prior to the Chapter 11 filing, EIF was the primary creditor of Magnolia Gas
Company, L.L.C., MKP Production Company, L.L.C., and Magnolia Gas Transmission
Co., L.L.C. (collectively referred to as “debtors”). EIF had advanced almost $11 million
*
This order and judgment is not binding precedent, except under the doctrines of
law of the case, res judicata, and collateral estoppel. The court generally disfavors the
citation of orders and judgments; nevertheless, an order and judgment may be cited under
the terms and conditions of 10th Cir. R. 36.3.
**
The Honorable William J. Holloway, Jr., Circuit Judge, was a member of the
panel that heard oral arguments in this case, but later recused himself. The Honorable
David M. Ebel, Circuit Judge, has been designated as the third panel member. Judge Ebel
has considered all of the filings in this case and has heard the tape of oral arguments.
2
for the debtors' acquisition and construction of an oil refinery in Lafayette County,
Arkansas, and, in return, received a purchase money mortgage on the property. Appellees
provided services and supplies to the debtors during construction and held statutory
mechanics and materialmen liens under Arkansas law. After the debtors defaulted on
payments for services and supplies, appellees filed actions in Lafayette County, Arkansas,
to enforce their liens. However, the actions were stayed after the debtors filed for
Chapter 11 bankruptcy. According to appellees' brief, the debtors owe them in excess of
$700,000. See Answer Br. at 2.
During the bankruptcy action, the debtors sought to borrow additional funds from
EIF. The bankruptcy court entered orders submitted by the debtors and EIF and they
were sent by general mailing to the other creditors, including appellees. Four such orders
were entered and sent to appellees: (1) Agreed Order Regarding Limited Use of Cash
Collateral filed January 21, 1999; (2) Order Regarding Obtaining Credit Under 11 U.S.C.
§ 364 filed February 26, 1999; (3) Second Order Regarding Obtaining Credit Under 11
U.S.C. § 364 filed April 22, 1999; and (4) Third Order Regarding Obtaining Credit Under
11 U.S.C. § 364 filed May 20, 1999 (collectively referred to as “cash collateral orders”).
Each of the cash collateral orders contained a statement that EIF held first priority
perfected liens and security interests for pre- and post-petition loans in all of the assets of
the debtors, including certain real estate in Lafayette County, Arkansas, and a refinery
located thereon. Appellant App. at 3, 7, 14, 21. Nothing in the captions or the lead-in
3
statements in the orders suggested that lien priority among creditors was being re-
established to place EIF's pre-petition lien priority in front of the mechanics and
materialmen liens. Appellees did not object to or otherwise challenge the orders. In
reliance upon the four cash collateral orders, EIF extended approximately $500,000 in
post-petition financing to the debtors.
EIF filed adversary proceedings naming the holders of the statutory liens as
defendants. EIF filed motions for summary judgment asking the bankruptcy court to find
that the cash collateral orders established that EIF's lien in the pre-petition collateral had
priority over the statutory liens held by defendants. The bankruptcy court denied EIF's
motions for summary judgment. In doing so, the bankruptcy court found the language
contained in the cash collateral orders was insufficient to provide notice to the other
creditors and that binding the creditors to the language of those orders would violate their
due process rights. Soon thereafter, defendants filed a motion pursuant to 28 U.S.C.
§ 1334(c) requesting that the bankruptcy court abstain from further consideration of the
adversary proceedings in favor of state court proceedings pending in Arkansas. The
bankruptcy court granted defendants' motion to abstain. EIF appealed both decisions to
the district court and the decisions were affirmed. EIF appeals only the denials of its
summary judgment motions to this court.
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II.
Before we proceed to the merits, we must first satisfy ourselves that this court has
jurisdiction over these appeals. In its opening brief, EIF asserted that this court has
jurisdiction under 28 U.S.C. § 1291 to consider this appeal because it is an appeal from a
final order of the district court. A decision is ordinarily considered final and appealable
under § 1291 if it “ends the litigation on the merits and leaves nothing for the court to do
but execute the judgment.” Catlin v. United States, 324 U.S. 229, 233 (1945). At oral
argument, we asked counsel whether the orders denying summary judgment in these cases
were final appealable orders. See Whalen v. Unit Rig, Inc., 974 F.2d 1248, 1250-51 (10th
Cir. 1992) (stating that, as a general rule, a denial of summary judgment is not reviewable
on appeal).
EIF argues this court has jurisdiction because the district court's affirmance of the
abstention order rendered the judgments final by, in effect, throwing the adversary
proceedings out of federal court. Accordingly, EIF argues, this court has jurisdiction over
the interlocutory denials of summary judgment because they involved a purely legal
question. Appellees, on the other hand, contend this court is without jurisdiction to
review the denials of summary judgment. Appellees argue the summary judgment orders
merged into the abstention order, which was not appealed.
EIF relies upon an exception to the general rule that denials of summary judgment
are ordinarily not reviewable on appeal. That exception is described in Wolfgang v. Mid-
5
America Motorsports, Inc., where this court stated that “when the material facts are not in
dispute and the denial of summary judgment is based on the interpretation of a purely
legal question, such a decision is appealable after final judgment.” 111 F.3d 1515, 1521
(10th Cir. 1997) (emphasis added). EIF argues that the bankruptcy court's grant of
defendants' motion to abstain was a final judgment, citing Quackenbush v. Allstate Ins.
Co., 517 U.S. 706 (1996), and Moses H. Cone Mem' Hosp. v. Mercury Constr. Corp., 460
U.S. 1 (1983), and that after entry of the abstention order the interlocutory denials of
summary judgment were appealable.
In Moses H. Cone, the federal district court stayed proceedings in its court,
pursuant to the Colorado River doctrine,1 in favor of a declaratory judgment action in
state court involving a closely-related issue. Although recognizing the general rule that
stays are ordinarily not final for purposes of appeal, the Supreme Court affirmed the
Fourth Circuit's exercise of jurisdiction because “a stay of the federal suit pending
resolution of the state suit meant that there would be no further litigation in the federal
forum; the state court's judgment on the issue [of arbitrability] would be res judicata.”
460 U.S. at 10. Thus, in Moses H. Cone, the Supreme Court created an exception to the
general rule of non-appealability of stay orders. When a stay forces the plaintiff's case
1
Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 817-18
(1976) (announcing abstention doctrine under which a federal court may, in exceptional
circumstances, dismiss a federal suit “due to the presence of a concurrent state proceeding
for reasons of wise judicial administration”).
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“effectively out of court” by requiring “all or an essential part of the federal suit to be
litigated in a state forum,” or “when the sole purpose and effect of the stay are precisely
to surrender jurisdiction of a federal suit to a state court,” the order is final and,
accordingly, appealable. Id. n.11.
In Quackenbush, the Supreme Court relied on its decision in Moses H. Cone and
found a district court's remand to state court on Burford abstention grounds2 was final and
reviewable on appeal. The Court found the abstention “indistinguishable” from the stay
order at issue in Moses H. Cone because the abstention put the litigants “effectively out of
court” and surrendered jurisdiction of the federal suit to state court. 517 U.S. at 714. EIF
argues that, like the stay and abstention involved in Quackenbush and Moses H. Cone, the
bankruptcy court's abstention in this case rendered the judgments final and any prior
interlocutory judgments (i.e., the denials of summary judgment motions on legal rather
than factual grounds) became appealable. See Bowdry v. United Airlines, Inc., 58 F.3d
1483, 1489 (10th Cir. 1995).
Appellees remind the court that Quackenbush and Moses H. Cone involved
appeals of the abstention orders. In this case, by contrast, the abstention order has not
been appealed. Instead, only the interlocutory judgments (the denials of summary
2
Burford v. Sun Oil Co., 319 U.S. 315 (1943) (allowing federal court sitting in
equity to dismiss case that presents difficult questions of state law bearing on policy
problems whose importance transcends result in case before federal court, or if
adjudication in federal forum would disrupt state efforts to establish coherent policy on
matter of substantial public concern).
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judgment) have been appealed. This distinction is important because under this court's
precedent, the interlocutory judgments merged into the final judgment, the order of
abstention. Because 28 U.S.C. § 1334 prohibits appeals from orders of abstention, this
court is also prohibited from reviewing an interlocutory judgment which is merged into an
order of abstention.
EIF is prevented by § 1334 from appealing the district court's affirmance of the
bankruptcy court's order abstaining in favor of the Arkansas proceedings. The adversary
claims filed by EIF in bankruptcy court were “core proceedings” under the Bankruptcy
Code. See 28 U.S.C. § 157(b)(2)(K) (including “determinations of the validity, extent, or
priority of liens” as “core”). Thus, the bankruptcy court's decision to abstain was
permissive rather than mandatory. See 28 U.S.C. § 1334(c)(1).3
Any decision to abstain or not to abstain made under this subsection
(other than a decision not to abstain in a proceeding described in subsection
(c)(2)) 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. This subsection shall not
be construed to limit the applicability of the stay provided for by section
362 of title 11, United States Code, as such section applies to an action
affecting the property of the estate in bankruptcy.
3
In its order, the district court stated that “[a]lthough the determination of lien
priority is a core proceeding, as noted by the other creditors, a bankruptcy court may
abstain pursuant to 11 U.S.C. § 1334(c)(2) even in core proceedings.” Appellant App. at
107. This is obviously a typographical error as 11 U.S.C. § 1334 does not exist. The
applicable provisions are found under Title 28. Further, the permissive abstention
provision is under subsection (c)(1). Subsection (2) provides for mandatory abstention in
non-core, “related to” cases.
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28 U.S.C. § 1334(d). Thus, if a proceeding is a “core proceeding,” a court of appeals may
not review a bankruptcy court's decision to abstain. See In re Dean, 107 F.3d 579, 581
(8th Cir. 1997).
Whether the denials of summary judgment are appealable here depends upon
whether these interlocutory judgments merged into what EIF contends is a final judgment
(the order granting abstention). See Mock v. T.G.&Y. Stores Co., 971 F.2d 522, 527
(10th Cir. 1992) (“The general rule is that interlocutory rulings merge into the final
judgment of the court and become appealable only once a final judgment has been
entered.”). However, this court previously has ruled that if the final judgment itself is
unappealable, the interlocutory ruling is rendered unappealable as well. See id. In Mock,
the plaintiffs attempted to appeal the district court's interlocutory rulings, including the
denial of prejudgment interest. However, the parties had entered into a consent judgment
and the general rule is that such a judgment is unappealable. Because the interlocutory
judgments had merged into the final unappealable judgment, the earlier rulings were
deemed unappealable as well. Id. at 527.
In this case, the interlocutory denials of summary judgment are only appealable
because they merged into the grant of abstention. However, the abstention ruling is
unappealable, at least to the court of appeals.4 Therefore, this court is also prevented
4
This is the distinguishing fact which allowed the district court to decide the
appeal of the interlocutory order. The district court was not statutorily prevented from
hearing the appeal of the abstention. Thus, it could then also decide the merits of the
9
from reviewing interlocutory judgments which must rely upon the abstention ruling for
finality. Although EIF argues that dismissing these appeals on jurisdictional grounds
denies it the opportunity to obtain review of the bankruptcy court's denials of its motions
for summary judgment, such a ruling by this court is dictated by the limitations on
appellate jurisdiction contained in 28 U.S.C. § 1334(d).
These appeals are DISMISSED for lack of jurisdiction.
Entered for the Court
Mary Beck Briscoe
Circuit Judge
denial of summary judgment under the rationale urged by EIF.
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