Whelan v. Heffler, Radetich ( 2000 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
____________________
No. 99-11318
Summary Calendar
____________________
In the Matter Of: FIRST CITY BANCORPORATION OF TEXAS INC
Debtor
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STEPHEN P WHELAN; JERRY KRIM; HAROLD L HARRIS, Individually and
as Trustee of Mazel Inc Profit Sharing Plan and All Others
Similarly Situated in Class 8; GROUP OF SECURITIES LITIGATION
CLAIMANTS; HARVEY GREENFIELD
Appellants-Cross-Appellees
v.
HEFFLER, RADETICH & SAITTA, LLP; CARRINGTON, COLEMAN, SLOMAN &
BLUMENTHAL, LLP; C IVAN WILSON; ROBERT W BROWN
Appellees-Cross-Appellants
FIRST CITY BANCORPORATION OF TEXAS INC
Appellee
_________________________________________________________________
Appeal from the United States District Court
for the Northern District of Texas
3:99-CV-337-P
_________________________________________________________________
October 4, 2000
Before KING, Chief Judge, and JONES and STEWART, Circuit Judges.
1
PER CURIAM:*
Appellants-Cross-Appellees Stephen P. Whelan, Jerry Krim,
Harold L. Harris, individually and as trustee of Mazel, Inc.
Profit Sharing Plan and all others similarly situated in Class 8,
the group of Securities Litigation Claimants, and Harvey
Greenfield appeal the district court’s affirmance of the
bankruptcy court’s imposition of monetary sanctions against
attorney Harvey Greenfield pursuant to the plan of reorganization
in the underlying bankruptcy proceeding, Federal Rule of
Bankruptcy Procedure 9011, and 28 U.S.C. § 1927. Because we
conclude that we lack jurisdiction to review the district court’s
order, we dismiss the instant appeal.
I. FACTUAL AND PROCEDURAL BACKGROUND
First City Bancorporation of Texas, Inc. (“First City”)
filed for Chapter 11 relief in the United States Bankruptcy Court
for the Northern District of Texas, Dallas Division. Appellant-
Cross-Appellee Harvey Greenfield is an attorney who represented
Class 8 claimants, individuals who acquired First City stock
between April 19, 1988 and October 30, 1992, in the bankruptcy
proceeding. Greenfield participated in negotiating a settlement
of $7 million in cash and an estimated $3 million in stock for
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
2
the Class 8 claimants.
In October 1994, Appellees-Cross-Appellants Heffler,
Radetich & Saitta, LLP (“Heffler”) were hired by First City and
First City’s bankruptcy counsel, Carrington, Coleman, Sloman &
Blumenthal, LLP (“Carrington”), to administer the settlement fund
and notify all potential Class 8 claimants. Heffler printed
notices in several periodicals and mailed notices to potential
claimants, but the mailing was apparently incomplete. As a
result, it appears that over two thousand potential claimants
were not notified of the bar date for filing proofs of claim or
of an impending shareholder vote. Heffler conducted a second
mailing in March 1995. After the Joint Reorganization Plan was
confirmed in May 1995, Greenfield retained ACS Financial &
Securities Services to replace Heffler. Appellants allege that
subsequent efforts to compile an accurate mailing list revealed
that First City had destroyed the original stock transfer
records.
On January 31, 1996, Greenfield moved for leave1 to file a
summons and complaint to initiate an adversary proceeding on
behalf of Appellants-Cross-Appellees Jerry Krim, Harold L.
1
On December 21, 1995, the bankruptcy court issued an
order imposing monetary sanctions on Greenfield for “egregious,
obnoxious, and insulting behavior aimed at opposing counsel and
parties” and requiring him to seek leave of court before
appearing or filing further pleadings. Greenfield later appealed
this order. On June 5, 1997, the bankruptcy court lifted the
requirement that Greenfield move for leave of court before
appearing or filing pleadings.
3
Harris, individually and as trustee of Mazel, Inc. Profit Sharing
Plan and all others similarly situated in Class 8, and the group
of securities litigation claimants (collectively with Greenfield,
“Appellants”) (“First Complaint”). The First Complaint alleged
that Appellees-Cross-Appellants Heffler, Carrington, C. Ivan
Wilson,2 and Robert W. Brown3 (collectively, “Appellees”)
mishandled class notification procedures and fraudulently
concealed their mishandling. In a memorandum order issued on
July 3, 1996 (“July 3 order”), the bankruptcy court denied leave
to file the First Complaint and barred Greenfield from filing
further pleadings involving any of the parties named in the First
Complaint unless he represented a Class 8 member who was not
given notice of the confirmation hearing, and from naming any of
First City’s outside directors as defendants without showing that
they were directly involved in the notice process. In a separate
order dated March 25, 1998 (“March 25 order”), the bankruptcy
court awarded costs and fees to Appellees under Section 11.9 of
the Joint Plan of Reorganization.
Appellants appealed the March 25 order awarding fees to
Appellees,4 but did not appeal the July 3 order denying
2
Chief Executive Officer and Chairman of the Board of
Directors for First City.
3
President and member of the Board of Directors for First
City.
4
The bankruptcy court had originally awarded costs and
fees in an order dated January 3, 1997 (“January 3 order”), but
4
Greenfield’s motion for leave to file the First Complaint.
Instead, Greenfield filed a purported class action complaint
(“Second Complaint”) in the Philadelphia division of the United
States District Court for the Eastern District of Pennsylvania
(“Philadelphia district court”). The Second Complaint named as
an additional plaintiff Appellant-Cross-Appellee Stephen P.
Whelan, a shareholder who had contacted Greenfield in the summer
of 1995, and named Appellees, J-Hawk Corporation, and Weil,
Gotshal & Manges, LLP as defendants. Apart from the addition of
Whelan and the additional defendants as parties, the Second
Complaint was substantively identical to the First Complaint.
The Philadelphia district court dismissed the Second Complaint
without prejudice for lack of jurisdiction, but denied Appellees’
motion for fees and costs, stating that Appellees had
unnecessarily briefed the merits of the complaint.
In March 1998, Greenfield returned to the bankruptcy court
in the Northern District of Texas to file another complaint
(“Third Complaint”). The Third Complaint, like the Second
Complaint, named Whelan as a plaintiff, and otherwise contained
the same claims and factual allegations as the First and Second
Complaints. Appellees moved for dismissal of the Third
issued the subsequent March 25 order reducing the amount of the
costs and fees awarded pursuant to Appellants’ motion for
reconsideration. On appeal, the district court remanded to the
bankruptcy court to reinstate the amount of fees awarded in the
original January 3 order.
5
Complaint; for summary judgment in the alternative; and for
sanctions, fees, and expenses under Federal Rule of Bankruptcy
Procedure 9011, 28 U.S.C. § 1927, and § 11.9 of the Joint Plan of
Reorganization. Appellees further requested that Greenfield be
held in contempt of court. In August 1998, the bankruptcy court
dismissed the Third Complaint under Federal Rule of Civil
Procedure 12(b)(6) due to the absence of a cognizable injury to
the named plaintiffs and the failure of the complaint to state an
actionable claim.5
On December 16, 1998, the bankruptcy court held a hearing on
Appellants’ motion for sanctions and for fees and costs. The
bankruptcy court issued an order on February 1, 1999 (“February 1
order”), in which it permanently enjoined Greenfield from
practicing before the United States Bankruptcy Court for the
Northern District of Dallas (except in connection with pending
proceedings pertaining to the First City bankruptcy and with any
appeals of those proceedings). The bankruptcy court also stated
that Greenfield had violated Federal Rule of Bankruptcy Procedure
9011 and 28 U.S.C. § 1927 by filing the Second and Third
Complaints, and that reasonable fees and expenses in the amount
of $64,000 were appropriate sanctions under Rule 9011 or,
5
Appellants appealed the dismissal. The United States
District Court for the Northern District of Texas affirmed, and
Appellants appealed to the Fifth Circuit, which affirmed the
district court. See In re First City Bancorporation of Texas,
Inc., No. 99-10587 (5th Cir. Dec. 23, 1999).
6
alternatively, as reimbursement under § 11.9 of the Joint Plan of
Reorganization. This amount only represented fees and expenses
arising from Greenfield’s filing of the Third Complaint, as the
bankruptcy court determined that it was bound by the ruling of
the Philadelphia district court denying Appellees fees and
expenses incurred in connection with the Second Complaint.
Appellees then filed a motion for reconsideration of the
bankruptcy court’s determination that it was barred by res
judicata from awarding Appellees fees and expenses in connection
with the filing of the Second Complaint. In an order issued on
February 22, 1999 (“February 22 order”), the bankruptcy court
granted the motion and awarded $10,000 to Brown and Wilson and
$20,000 to Carrington as fees and expenses. Appellants timely
appealed both the February 1 order and the February 22 order to
the Northern District of Texas.
The district court issued a memorandum opinion on October
13, 1999. The district court affirmed the bankruptcy court’s
award of reasonable fees and expenses under § 11.9 of the Joint
Reorganization Plan. The district court also found that the
bankruptcy court did not abuse its discretion by awarding
sanctions under Rule 9011 and 28 U.S.C. § 1927. Furthermore, the
court affirmed the February 22 order awarding fees and expenses
incurred by Appellants in responding to the Second Complaint.
However, the district court found that the bankruptcy court
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abused its discretion by imposing a lifetime injunction against
practicing in the bankruptcy court for the Northern District of
Texas on Greenfield. Citing this circuit’s rule that sanctioning
courts must “utilize the sanction that furthers the purposes of
Rule 11 and is the least severe sanction adequate to such
purpose,” see Thomas v. Capital Sec. Servs., Inc., 836 F.2d 866,
878 (5th Cir. 1988), the district court found that a lifetime
injunction was “almost certainly not the least severe sanction
available to deter Greenfield’s conduct.” Consequently, the
district court reversed the portion of the February 1 order that
permanently enjoined Greenfield from practicing before the
bankruptcy court in the Northern District of Texas, and remanded
to the bankruptcy court with instructions to “reconsider its
sanction in light of the Fifth Circuit precedent cited above, and
to tailor any injunction against Greenfield accordingly.”
Appellants timely appeal the judgment of the district court to
this court.
II. DISCUSSION
Appellants argue that reimbursement under § 11.9 of the
Joint Reorganization Plan was inappropriate, and that the
imposition of sanctions was improper, whether under Bankruptcy
Rule 9011, or 28 U.S.C. § 1927. Appellees contend that this
court lacks jurisdiction over the instant appeal because the
district court did not issue a final order. We agree.
8
Our jurisdiction over bankruptcy appeals is defined by 28
U.S.C. § 158(d). That section provides: “The courts of appeals
shall have jurisdiction of appeals from all final decisions,
judgments, orders, and decrees entered under subsections (a) and
(b) of this section.” 28 U.S.C. § 158(d). Subsection (a) grants
district courts “jurisdiction to hear appeals from final
judgments, orders, and decrees . . . of bankruptcy judges entered
in cases and proceedings referred to the bankruptcy judges under
section 157 of this title.” 28 U.S.C. § 158(a). Thus, this
court may only review final decisions of a district court that,
in turn, dispose of a final decision of a bankruptcy court. See
In re Pro-Snax Distributors, Inc., 157 F.3d 414, 420 (5th Cir.
1998) (citing §§ 158(a), (d)). As we have previously stated,
“[t]he salutary purpose of the rule set forth in § 158 is to
avoid piecemeal appeals.” In re County Management, Inc., 788
F.2d 311, 314 (5th Cir. 1986) (citing In re Delta Servs. Indus.,
782 F.2d 1267, 1269 (5th Cir. 1986)).
The rule in this circuit is that “a district court order is
not a final order under section 158(d) where that order reverses
an order of the bankruptcy court and remands the case to the
bankruptcy court for significant further proceedings.” In re
Caddo Parish-Villas South, Ltd., 174 F.3d 624, 626 (5th Cir.
1999). Under our precedents, a district court’s remand order
requires “significant further proceedings” when it “calls on the
bankruptcy court to perform a judicial function [rather than] a
9
purely ministerial function.” Id. at 628. We have, moreover,
defined a “judicial function” as one which “necessitates further
fact-finding [or] the use of substantial discretion on the part
of the bankruptcy court.” Pro-Snax, 157 F.3d at 420-21 (footnote
omitted). In contrast, we have explained that a “ministerial
function” comprises “purely mechanical, computational, or in
short ‘ministerial’ task[s], whose performance is unlikely to
generate a new appeal or to affect the issue that the
disappointed party wants to raise on appeal from the order of
remand.” Caddo, 174 F.3d at 628 (quoting In re Fox, 762 F.2d 54,
55 (7th Cir. 1985)) (internal quotation marks omitted). Under
this standard, one of our sister circuits has found that when a
district court affirms a finding that sanctions are warranted but
remands for the bankruptcy court to reconsider the particular
sanctions awarded, the district court has remanded for
“significant further proceedings” and its order does not
constitute a final decision. See In re Rex Montis Silver Co., 87
F.3d 435, 438 (10th Cir. 1996); cf. In re Excello Press, Inc.,
967 F.2d 1109, 1111 (7th Cir. 1992) (finding remand for
ministerial task when both parties agreed that “to implement the
district court’s judgment, the bankruptcy court would merely
subtract $1,500 from the original award of sanctions”).
Here, the district court remanded “that portion of the
Original Sanctions Order which permanently enjoined Greenfield
10
from practicing before the United States Bankruptcy Court for the
Northern District of Texas, Dallas Division.” In so doing, it
instructed the bankruptcy court to “reconsider its choice of
sanction” in light of Fifth Circuit precedent requiring a
sanctioning court to award the least severe sanction adequate to
further the purpose of Federal Rule of Civil Procedure 11 (and
thus, by analogy, Federal Rule of Bankruptcy Procedure 9011).
See Thomas v. Capital Sec. Servs., Inc., 836 F.2d 866, 878 (5th
Cir. 1988). This instruction requires the bankruptcy court to
consider the extent to which an injunction of a particular
duration will serve to educate, compensate, and deter repetition
of the sanctioned conduct, see Jennings v. Joshua Indep. Sch.
Dist., 948 F.2d 194, 196 (5th Cir. 1991) (citing Jennings v.
Joshua Indep. Sch. Dist., 877 F.2d 866, 322 (5th Cir. 1989) (on
denial of rehearing)); to consider alternatives to the lifetime
injunction; to possibly make further findings of fact; and in all
likelihood, to prescribe an injunction of different duration than
that originally imposed in the February 1 order. Thus, the
analysis that the district court’s instruction obliges the
bankruptcy court to perform is a far cry from a “purely
mechanical, computational, or ministerial task.” We therefore
conclude, like the Tenth Circuit in Rex Montis, that the remand
requires the performance of a judicial function by the bankruptcy
court, and that, as a result, the district court’s memorandum
opinion and order is not a final order under § 158.
11
Unsurprisingly, Appellants do not argue that the district
court’s order should be considered final because the remand calls
for the performance of a ministerial, rather than judicial,
function. Instead, Appellants contend that we have jurisdiction
because the district court’s decision regarding the portion of
the February 1 order determining that sanctions were appropriate
and awarding monetary sanctions is final. Appellants point to
the fact that no further proceedings in the bankruptcy court are
necessary with regard to this portion of the February 1 order.
In their reply brief, furthermore, Appellants characterize this
non-remanded portion of the February 1 order as a discrete and
separable issue that may be appealed while the remanded portion
of the order is pending before the bankruptcy court.
Appellants cite several factually and legally inapposite
cases in support of the proposition that one portion of an order
may be appealed although another portion is remanded. See
Beneficial Consumer Discount Co. v. Poltonowicz, 47 F.3d 91, 93
(3d Cir. 1995)(reviewing district court’s dismissal of action
with prejudice under exception to 28 U.S.C. § 1447(d)’s bar
against appellate review of district court’s decision to remand
to state court for lack of subject matter jurisdiction); Colorado
Dep’t of Soc. Serv. v. United States Dep’t of Health, 29 F.3d
519, 522 (10th Cir. 1994) (reviewing agency commissioner’s
disallowance of four separate claims for administrative costs
even though a fifth claim had been remanded). We are not
12
persuaded that this authority should govern the case before us.
Furthermore, our own research has revealed no case in which a
court of appeals applying a rule of finality similar to our own
has assumed jurisdiction over an appeal of a district court’s
affirmance of the decision to award sanctions when the district
court remanded to the bankruptcy court for a determination of the
actual award.
Even if we were to very generously construe Appellants’
brief to assert that appellate jurisdiction lies under the
collateral order exception, that argument would also fail. In
order for this exception to § 158's final order requirement to
apply, the order appealed from must “(1) ‘conclusively determine
the disputed question,’ (2) ‘resolve an important issue
completely separate from the merits of the action,’ and (3) ‘be
effectively unreviewable on an appeal from a final judgment.’”
In re Aegis Speciality Mktg., Inc., 68 F.3d 919, 921-22 (5th Cir.
1995) (per curiam) (citations and internal quotation marks
omitted). “‘These conditions are conjunctive: failure of any
one results in the failure of jurisdiction.’” Id. at 922(citations omitted). Although Appellants’ arguments on the first
two requirements are hardly persuasive, their inability to
establish the third is fatal. There is no conceivable reason
that the bankruptcy court’s decision to award sanctions would not
be reviewable on an appeal to the district court from a final
order of the bankruptcy court determining the scope of the
13
injunction against Greenfield, once the injunction is
reconsidered on remand. We therefore conclude that we lack
jurisdiction over this appeal.6 To find otherwise would run
contrary to the “salutory purpose” of § 158: “to avoid piecemeal
appeals.” See County Management, 788 F.2d at 314.
III. CONCLUSION
For the foregoing reasons, we DISMISS the instant appeal for
want of jurisdiction.
6
Because we lack jurisdiction over the instant appeal, we
do not reach the question of whether we have jurisdiction over
Appellees’ cross appeal. Furthermore, in the absence of
appellate jurisdiction, we do not have the authority to stay or
suspend the appeal pending the bankruptcy court’s ruling on
remand and cannot accede to Appellants’ request that we do so.
The record will be returned to the district court.
14