Simmons Foods, Inc. v. Capital City Bank

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
FEB 20 2003
TENTH CIRCUIT
PATRICK FISHER
Clerk
SIMMONS FOODS, INC.,
Plaintiff - Appellant, No. 01-3375
v. (D. Kansas)
CAPITAL CITY BANK, (D.C. No. 98-CV-4035-RDR)
Defendant - Appellee.
ORDER AND JUDGMENT *
Before SEYMOUR , ANDERSON , and O’BRIEN , Circuit Judges.
Simmons Foods, Inc. appeals from an adverse summary judgment in its
diversity action against Capital City Bank following, and arising out of,
bankruptcy proceedings involving their mutual debtor, Teets Foods Company, Inc.
In its suit, Simmons claims that Capital City, a senior secured creditor of
Teets, became liable to Simmons for various alleged acts and omissions while
Teets’ assets were being managed and liquidated under the jurisdiction of the
*
This order and judgment is not binding precedent, except under the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.
bankruptcy court. Specifically, Simmons’ claims, pursued on appeal, include the
following: (1) failure to marshal assets in favor of Simmons, a junior secured
creditor, allegedly in violation of Kansas law; (2) breach of fiduciary duty arising
out of a dominant creditor position; (3) unjust enrichment; and (4) conversion of
property by a bailee.
Simmons contends that the district court erred in its analysis and
application of the law as to each of those claims when it granted Capital City’s
motion for summary judgment and that issues of fact precluded summary
judgment. It also contends that the district court erred when it refused to
consider: (a) minutes of the Unsecured Creditors’ Committee meetings; (b) the
opinion of a law professor as to the applicable law; and (c) a letter from opposing
counsel.
We review the district court’s grant of summary judgment de novo. Tool
Box v. Ogden City Corp. , 316 F.3d 1167, 1173 (10th Cir. 2003). For a factual
issue to preclude summary judgment, there must be a genuine issue of material
fact, and the substantive law will determine which facts are material. Fed. R. Civ.
P. 56(c); Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248 (1986). Because
this is a diversity case, we apply the substantive law of Kansas as to issues where
Kansas law is invoked. See Wood v. Eli Lilly & Co. , 38 F.3d 510, 512-13 (10th
Cir. 1994) (“[W]e must apply the most recent statement of state law by the state’s
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highest court.”). In a diversity action, “[w]here no state cases exist on a point, we
turn to other state court decisions, federal decisions, and the general weight and
trend of authority.” Barnard v. Fireman’s Fund Ins. Co. , 996 F.2d 246, 248 (10th
Cir. 1993) (quotation omitted).
The district court set out the central facts and fully addressed each of
Simmons’ claims in a Memorandum and Order dated October 17, 2001. After
fully reviewing the record, the arguments on appeal, and the district court’s
reasoning, we conclude that the district court did not err. Accordingly, subject to
the additional observations set out below, we affirm the district court’s judgment
substantially for the reasons set out in the district court’s October 17, 2001,
Memorandum and Order.
A.
Whatever claim Simmons possessed against Capital City arose out of and
during the Teets Foods bankruptcy proceedings in the bankruptcy court.
Accordingly, we look only to those proceedings in evaluating Simmons’
allegations.
Simmons’ principal assertion is that Capital City failed to marshal assets,
i.e. , to seek the liquidation of assets securing Teets’ debt to Capital City in a
particular sequence that would most benefit Simmons, the junior secured creditor
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on some of those assets. Significantly, Simmons does not identify in its
complaint, R. Vol. I at 64, 66-67, or its answer to interrogatories, id. at 107, 118,
exactly what assets should have been liquidated first—or at least before Capital
City collected part of its debt out of Teets’ accounts receivable—or for how
much, or how such a hypothetical liquidation could occur at a particular time
relative to the liquidation of other assets and the operation of the business.
Furthermore, Simmons does not dispute that it failed to object to the sale of “the
Wichita property” before the liquidation of other non-jointly secured assets or to
the distribution to Capital City of most of the proceeds from that sale. Capital
City and Simmons held senior and junior secured interests, respectively, in that
property.
Finally, the record shows that Simmons did not file formal motions in the
bankruptcy court seeking a marshaling order until nineteen and twenty months,
respectively, after Teets filed for reorganization in bankruptcy, which was six and
seven months, respectively, after the bankruptcy court converted the bankruptcy
from a reorganization to a liquidation. Those motions came many months after
Capital City had, pursuant to court approval, collected on its debt through the
liquidation of secured assets.
The equitable doctrine of marshaling of assets was recognized in Kansas
prior to the enactment of the Uniform Commercial Code (U.C.C.) in that state.
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Equitable Mortgage Co. v. Lowe , 35 P. 829, 831 (Kan. 1894); Burnham, Hanna,
Munger & Co. v. Citizens’ Bank of Emporia , 40 P. 912, 914 (Kan. 1895); Gore v.
Royse , 44 P. 1053, 1055 (Kan. 1896); Rundquist v. O’Leary , 337 P.2d 1017, 1020
(Kan. 1959). But there are no Kansas Supreme Court cases cited to us by
Simmons recognizing or applying the doctrine after Kansas adopted the Uniform
Commercial Code in 1962. Hence, even though a comment to the U.C.C. suggests
the possible availability of the concept, Kan Stat. Ann. § 84-9-501, Kansas
Comment 1, it is clear that marshaling is not a provision of the U.C.C. and neither
imposes an obligation on creditors nor reduces their rights under the code. And,
to the extent this quiescent doctrine persists in post-U.C.C. Kansas law, there is
no indication of the conditions for its application.
In any event, Simmons has not cited, and we have not found, any case, from
Kansas or anywhere else, granting legal relief to a junior lienholder for the senior
lienholder’s failure to voluntarily marshal assets. More to the point, we have
found no case imposing liability for failure to marshal in the context of a
bankruptcy proceeding, in which the parties have full recourse, in the form of
motions in the bankruptcy court, for any grievances against co-creditors, and an
avenue for appeal from an adverse ruling. Finally, Simmons cites no case
establishing that an action for failure to marshal in the context of a bankruptcy
would survive the close of the bankruptcy proceedings. Despite the bankruptcy
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court’s order purporting to distribute the various claims that Simmons insisted it
had, we hold that it had no claim against Capital City following the termination of
the Teets bankruptcy proceedings.
B.
As indicated above, Simmons contends that the district court erred when it
refused to consider certain materials proffered by Simmons in response to
Capital’s motion for summary judgment. “Like other evidentiary rulings, we
review a district court’s decision to exclude evidence at the summary judgment
stage for abuse of discretion.” Sports Racing Servs., Inc. v. Sports Car Club of
Am., Inc. , 131 F.3d 874, 894 (10th Cir. 1997). “An abuse of discretion occurs
where the district court clearly erred or ventured beyond the limits of permissible
choice under the circumstances.” Wright v. Abbott Labs., Inc. , 259 F.3d 1226,
1233 (10th Cir. 2001).
The district court found that many of Simmons’ “uncontroverted facts”
were based on documents that were hearsay and therefore were not competent to
oppose a motion for summary judgment. See Order Granting Summary Judgment,
R. Vol. III at 503, 506-07; Gross v. Burggraf Constr. Co. , 53 F.3d 1531, 1541
(10th Cir. 1995). Simmons argues that this ruling was erroneous because the
documents in question were not hearsay.
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Although it is difficult to determine from the Order what document or
documents the district court excluded as hearsay, Simmons acknowledges that
there were only three documents that the court possibly excluded: (1) Professor
Griffin’s Expert Report; (2) the Minutes for the Unsecured Creditors’ Committee;
and (3) a letter from counsel for Capital to counsel for Simmons. Appellant’s Br.
at 35.
Professor Griffin’s report was inadmissible as it addressed a question of
law, rather than fact, and therefore encroached on the domain of the judge, who is
“the sole arbiter of the law and its applicability.” Specht v. Jensen , 853 F.2d 805,
807 (10th Cir. 1988) (en banc) (holding that expert testimony on purely legal
issues is inadmissible). 1
As to the second document, the Unsecured Creditors’ Committee Minutes,
after a careful review of the Minutes, we conclude that there were multiple bases
on which the district court could have properly excluded them. First, the section
of the minutes Simmons used to establish its “facts” was nothing more than a
summary of the Unsecured Creditors’ Committee’s allegations of Capital City’s
wrongdoings during the course of the bankruptcy, without any supporting
evidence or documentation, and more nearly constituted assertions of law than of
While the district court did not explicitly exclude the report on these
1
grounds, we may affirm the district court’s ruling on any grounds supported by
the record. Hayes v. Whitman, 264 F.3d 1017, 1025 (10th Cir. 2001).
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fact. Second, the Minutes contained errors, see e.g. , R. Vol. II at 399 (“Brock
Snyder [Simmons’ counsel] was filing an objection to Simmons’ ‘Motion for
Adequate Protection or Relief from Stay.’”), and hearsay within hearsay, see e.g. ,
id. at 392 (“Per Randy Hart, Jeff Willis advised Brock Snyder.”).
Finally, even if the Minutes were not properly classified as hearsay,
excluding them was not error because they did not establish any genuine issue of
material fact in light of the applicable law. “Only disputes over facts that might
affect the outcome of the suit under the governing law will properly preclude the
entry of summary judgment.” Anderson , 477 U.S. at 248. Simmons does not
point to any fact established by the Minutes that, in light of the applicable law,
might have affected the outcome of the suit. Therefore, summary judgment would
have been granted even if the Minutes had been considered. See Wright , 259
F.3d at 1233.
With regard to the letter from counsel for Capital City Bank to counsel for
Simmons, we conclude that it also failed to establish any material fact. Simmons
asserts that the letter demonstrates that Capital City agreed to marshal assets. See
Appellants Br. at 23. However, as presented to us—without any indication of the
substance of the prior conversations, which the letter references, and without any
evidence of Simmons’ response to the letter, which the letter anticipated—the
letter did not, even viewed in the light most favorable to Simmons, establish that
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Capital agreed to marshal assets. Since the letter did not establish any genuine
issue of material fact, failure to consider it was not error.
AFFIRMED.
ENTERED FOR THE COURT
Stephen H. Anderson
Circuit Judge
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