Official Unsecured v. K&B Cap LLC

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 09a0429n.06
Nos. 06-5932, 07-5525, 07-6140 and 07-6164
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
FILED
In re: LWD, Inc., et al. ) Jun 19, 2009
--------------------------------------------------------- ) LEONARD GREEN, Clerk
)
K&B CAPITAL, LLC, )
) ON APPEAL FROM THE UNITED
Appellant, ) STATES DISTRICT COURT FOR
) THE WESTERN DISTRICT OF
v. ) KENTUCKY
)
OFFICIAL UNSECURED CREDITORS’ )
COMMITTEE, )
)
Appellee. )
Before: MOORE, CLAY, and KETHLEDGE, Circuit Judges.
KETHLEDGE, Circuit Judge. K&B Capital, LLC (“K&B”) seeks to appeal four orders
entered by the bankruptcy court and affirmed by the district court. None of the subject orders are
final. We therefore dismiss the appeals for lack of appellate jurisdiction.
I.
In June 2003, six related waste disposal companies—LWD Inc., LWD Equipment, Inc.,
LWD Field Services, Inc., LWD Land Company Inc., LWD Trucking, Inc., and LWD Sanitary
Landfill, Inc.—each filed petitions for relief under Chapter 7 of the Bankruptcy Code. In September
2003, a related entity, General Environmental Services, LLC (collectively, the “Debtors”) filed a
petition for relief under Chapter 11 of the Code. The LWD cases were later converted to Chapter
Nos. 06-5932, 07-5525, 07-6140 and 07-6164
K&B Capital, LLC v. Official Unsecured Creditors’ Committee
11 cases and jointly administered with the GES case. The bankruptcy trustee thereafter appointed
a single Unsecured Creditors’ Committee (the “Committee”) for purposes of all the Debtors’ cases.
Each of the Debtors was effectively controlled by Robert Kattula, who was himself a
principal of K&B. K&B was itself a secured creditor of the Debtors, and lent money to them during
the pendency of their bankruptcy cases. In return, the Debtors made certain “protection payments”
to K&B, which totaled $476,500.00.
The debtors’ assets were later sold pursuant to an auction that K&B won. On March 23,
2004, the bankruptcy court issued a broadly worded sale order, authorizing the conveyance of all of
the debtors’ assets and claims, tangible and intangible, to K&B. At a telephonic hearing later that
day, however, the creditors expressed concern that this broad language might be read to suggest that
the debtors’ Chapter 5 claims had been sold to K&B, even though those claims had never been
advertised or offered for sale. Indeed, the creditors argued, those claims could not be sold as a matter
of law. Without any objection from K&B, counsel for the debtors agreed to draft a supplemental
order clarifying that the sale order did not include the Chapter 5 claims. At another telephonic
conference held the following day, the debtors’ counsel stated that he had circulated a draft
clarification order to all of the parties and that all were in agreement. Again, counsel for K&B was
present but did not object. On March 25, 2004, the bankruptcy court entered the requested
clarification, which was captioned a “Supplemental Sale Order.” As the bankruptcy court later
explained, this order was merely a clerical correction entered pursuant to Fed. R. Civ. P. 60(a).
The Committee later commenced an adversarial proceeding in which it challenged the
Debtors’ protection payments to K&B as excessive, and challenged the sale of the Debtors’ assets
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K&B Capital, LLC v. Official Unsecured Creditors’ Committee
to K&B on the ground that the Debtors did not disclose the existence of a valuable insurance asset,
allegedly worth more than $350,000.00. With respect to the latter claim, the Committee
argued—successfully—that the Debtors’ nondisclosure of the asset gave K&B an unfair advantage
in the auction, because, of all the potential bidders, presumably only Kattula—as an insider of both
the Debtors and K&B—knew of the asset’s existence.
These appeals concern four orders entered by the bankruptcy court. Two of the orders were
entered in the jointly administered Chapter 11 cases. The first (the “substitution order”) substituted
Baker & Hostetler LLP for Nixon Peabody LLP, over K&B’s objection, as counsel for the
Committee. The second (the “Rule 60(b) order”) denied K&B’s Rule 60(b)(4) motion to vacate the
bankruptcy court’s Rule 60(a) order clarifying the sale order entered nearly two years earlier.
The other two orders were entered in the adversarial proceeding between K&B and the
Committee. The first (the “damages order”) required, among other things, K&B to return to the
Debtors’ estate $476,500.00 (representing excessive protection payments) and an additional
$352,375.00 (representing the auction windfall), plus interest. The second (the “reference order”)
denied K&B’s motion to withdraw the reference of the adversarial proceeding to the bankruptcy
court pursuant to a local rule, and to have the proceeding adjudicated instead in the district court.
The district court affirmed all four orders. K&B thereafter filed notices of appeal to this
court as to each order. We consolidated the appeals.
II.
We must determine whether we have jurisdiction over these appeals. Although a motions
panel of this court previously issued an order denying K&B’s motion to dismiss this appeal for lack
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K&B Capital, LLC v. Official Unsecured Creditors’ Committee
of appellate jurisdiction, we are not precluded from reexamining this issue under the law-of-the-case
doctrine. That doctrine is not a limit on a court’s power, but rather is “discretionary when applied
to a coordinate court or the same court’s own decisions.” Bowling v. Pfizer, Inc., 132 F.3d 1147,
1150 (6th Cir. 1998); see also Brady-Morris v. Schilling (In re Kenneth Allen Knight Trust), 303
F.3d 671, 677 (6th Cir. 2002). Moreover, “[i]ssues such as ‘subject matter jurisdiction’ or ‘appellate
jurisdiction’ may be ‘particularly suitable for reconsideration.’” Kennedy v. Lubar, 273 F.3d 1293,
1299 (10th Cir. 2001) (quoting 18 CHARLES ALAN WRIGHT ET AL., FEDERAL PRACTICE &
PROCEDURE : JURISDICTION § 4478, at 799 & n.32 (1981)). We therefore find it appropriate to
reconsider whether appellate jurisdiction exists in this case.
“The courts of appeals . . . only have jurisdiction to hear bankruptcy appeals when both the
bankruptcy and district courts’ orders are final.” In re M.T.G., Inc., 403 F.3d 410, 413 (6th Cir.
2005) (internal quotation marks omitted). Accordingly, “[w]hen the bankruptcy court’s order is
interlocutory the general rule is that a court of appeals lacks jurisdiction unless the district court
order in some sense ‘cures’ the non-finality of the bankruptcy court order.” Id. (internal quotation
marks omitted). “A district court order has been found to ‘cure’ the non-finality of the bankruptcy
court order only in cases where the district court’s order in some way ended all litigation in the
bankruptcy court.” Id. (internal quotation marks omitted).
None of the orders here are final. The substitution order is not final in these Chapter 11
cases, because it concerns only the counsel that will represent the Committee in that litigation. See
generally Cottrell v. Schilling (In re Cottrell), 876 F.2d 540, 542 (6th Cir. 1989) (“Generally, a
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K&B Capital, LLC v. Official Unsecured Creditors’ Committee
bankruptcy court’s order approving or substituting counsel in a bankruptcy proceeding is not appealable”).
Nor is the Rule 60(b) order final. It is true that a sale order by a bankruptcy court is generally
a final, appealable order. But the sale order in this case never covered the Chapter 5 avoidance
claims that K&B now contends it purchased along with the debtors’ other assets. If K&B had
believed that the sale order did include the Chapter 5 claims, it could have immediately appealed the
sale order (as clarified by the Rule 60(a) clarification) and argued that it had bid upon and purchased
those claims. But K&B did not do that. Instead, K&B proceeded to defend itself against a Chapter
5 claim brought by the creditors in an adversarial proceeding—an implicit recognition that the
Chapter 5 claims had not been transferred to K&B and remained with the debtors. Only after losing
on the merits in that adversary proceeding, and then changing counsel, did K&B, nearly two years
later, challenge the Rule 60(a) order for the first time.
K&B thus sought belated relief not from the underlying sale order, but from the bankruptcy
court’s correction of a clerical error in that order, which correction was entered two days later
pursuant to Rule 60(a). Rule 60(a) may be used to correct “[c]lerical mistakes . . . made by judges
as well as ministerial employees,” but may not be used to “revisit . . . legal analysis or otherwise
correct an error[] of substantive judgment.” Pruzinsky v. Gianetti (In re Walter), 282 F.3d 434, 440
(6th Cir. 2002) (internal quotation marks omitted).
The basic distinction between clerical mistakes and mistakes that cannot be corrected
pursuant to Rule 60(a) is that the former consist of blunders in execution whereas the
latter consists of instances where the court changes its mind, either because it made
a legal or factual mistake in making its original determination, or because on second
thought it has decided to exercise its discretion in a manner different from the way
it was exercised in the original determination.
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K&B Capital, LLC v. Official Unsecured Creditors’ Committee
Id. (internal quotation marks omitted). Thus, a proper Rule 60(a) order involves the purely
ministerial act of correcting a clerical mistake; it does not alter the substantive rights of the parties
or resolve any of the disputes in the case. Such an order should not be considered final. See Elliott
v. Four Seasons Props. (In re Frontier Props., Inc.), 979 F.2d 1358, 1363 (9th Cir. 1992) (holding
that a bankruptcy order is not final unless it “1) resolves and seriously affects substantive rights and
2) finally determines the discrete issue to which it is addressed”).
Because the underlying Rule 60(a) order is not final, the bankruptcy court’s subsequent order
denying K&B’s Rule 60(b)(4) motion to vacate that order is not final either. See Mason v. Integrity
Ins. Co. (In re Mason), 709 F.2d 1313, 1315 (9th Cir. 1983) (“[T]he finality of [Rule 60(b)] orders
derives from the finality of the underlying judgment upon which relief is sought”).
The orders entered in the adversarial proceeding likewise are not final. The damages order
does not fully dispose of the damages issue, but instead expressly contemplates “further hearings to
determine” whether certain of the damages awarded should ultimately be refunded to K&B. And
the reference order, both on its face and under settled law, is not final. See Caldwell-Baker Co. v.
Parsons, 392 F.3d 886, 888 (7th Cir. 2004) (“No court of appeals has engaged in appellate review
of an order either granting or denying withdrawal of reference”) (collecting cases).
We therefore dismiss each of these consolidated appeals for lack of appellate jurisdiction.
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CLAY, Circuit Judge, concurring in part and dissenting in part. Although I agree with
the majority’s conclusions with respect to three of the four orders at issue in this appeal, I disagree
with its determination that this Court lacks appellate jurisdiction to review the bankruptcy court’s
denial of K&B Capital, LLC’s (“K&B”) Rule 60(b) motion to vacate the bankruptcy court’s
previously issued supplemental sale order.
This Court previously has noted that a “ruling on a Rule 60(b) motion . . . [is] appealable in
and of itself.” Peake v. First Nat’l Bank & Trust Co. of Marquette, 717 F.2d 1016, 1020 (6th Cir.
1983); see also Jerry v. UAW-Local 735, 818 F.2d 866 (6th Cir. 1987) (unpublished table decision)
(“A ruling on a Rule 60(b), Federal Rules of Civil Procedure, motion to vacate is appealable . . . .”).
As other courts have noted in addressing the appealability of Rule 60(b) orders, “the finality of such
orders derives from the finality of the underlying judgment upon which relief is sought.” Mason
v. Integrity Ins. Co. (In re Mason), 709 F.2d 1313, 1315 (9th Cir. 1983). In this case, the underlying
order—the supplemental sale order—is itself a final order. See Precision Indus., Inc. v. Qualitech
Steel SBQ, LLC, 327 F.3d 537, 543 (7th Cir. 2003); cf. Winget v. JP Morgan Chase Bank, N.A., 537
F.3d 565, 579 (6th Cir. 2008) (holding that a bankruptcy court’s sale order is a final order for res
judicata purposes).
In concluding that this court lacks appellate jurisdiction over the appeal of the denial of the
Rule 60(b)(4) motion, the majority argues that the Rule 60(a) order is not a final order because a
“Rule 60(a) order involves the purely ministerial act of correcting a clerical mistake.” Op. at 6.
According to the majority, because a Rule 60(a) order “does not alter the substantive rights of the
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K&B Capital, LLC v. Official Unsecured Creditors’ Committee
parties or resolve any of the disputes in the case,” such an order cannot meet the requirement that
an order “affect[] substantive rights” to constitute a final order. Id.1
Under the majority’s reasoning, a Rule 60(a) order would never be appealable, because, by
definition, a Rule 60(a) motion does not affect the substantive rights of the parties. However, a Rule
60(a) order generally is an appealable order. See Pfizer Inc. v. Uprichard, 422 F.3d 124, 128 (3d Cir.
2005) (addressing argument that the district court exceeded its authority in acting pursuant to Rule
60(a)); 11 Alan Wright, Arthur R. Miller, & Mary Kay Kane, Federal Practice & Procedure § 2871
(2d ed. 2008) (Where a “court corrects the judgment . . . after an appeal has ended or after the time
for appeal has run in a case in which no appeal was taken, [the court’s] action would itself be
appealable though the appeal would be limited to its disposition of the Rule 60(a) motion.”).
Further, under the circumstances of this case, the Rule 60(a) order should be considered a final order
because K&B has no other way to challenge the district court’s use of Rule 60(a) to amend the final
sale order. Thus, because the supplemental sale order is a final order, this is not a case where this
Court “may not entertain an appeal [from a denial of a Rule 60(b) motion] under [28 U.S.C. §] 1291
because the underlying order . . . is purely interlocutory and, thus, not within the scope of Rule 60(b),
which applies only to ‘final’ judgments and orders.” Penn W. Assocs., Inc. v. Cohen, 371 F.3d 118,
123 (3d Cir. 2004) (first alteration in original).
1
In support of its argument, the majority suggests that K&B never understood the sale order
to include the Chapter 5 claims based on K&B’s failure to immediately appeal the sale order.
However, whether K&B believed that the original sale order included the Chapter 5 claims is
irrelevant to the question of whether the subsequent Rule 60(a) order is a final order for purposes of
K&B’s appeal.
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K&B Capital, LLC v. Official Unsecured Creditors’ Committee
Moreover, in the bankruptcy context, “finality ‘is considered in a more pragmatic and less
technical way . . . than in other situations.’” Winget, 537 F.3d at 579 (quoting Lindsey v. O’Brien,
Tanksi, Tanzer & Young Health Care Providers of Conn. (In re Dow Corning), 86 F.3d 482, 488
(6th Cir.1996)). Thus, a “case need not be appealed as a ‘single judicial unit’ at the end of the entire
bankruptcy proceeding” to constitute a final order. In re Tex. Extrusion Corp., 844 F.2d 1142, 1155
(5th Cir. 1988). Instead, “where an order in a bankruptcy case finally dispose[s] of discrete disputes
within the larger case, it may be appealed immediately.” Winget, 537 F.3d at 579 (quoting In re Dow
Corning, 86 F.3d at 488) (internal quotation marks omitted).
In this case, the bankruptcy court’s order denying K&B’s Rule 60(b) motion was a final
determination that K&B was not entitled to the relief it sought—an order vacating the supplemental
sale order as void. Consequently, although the district court’s ruling on K&B’s motion did not end
the entire Chapter 11 litigation proceedings, it constituted a final, appealable order over which this
Court has jurisdiction. Because I disagree with the majority’s conclusion that we lack appellate
jurisdiction to review K&B’s appeal of the denial of its Rule 60(b) motion, I respectfully dissent
from that portion of its opinion.
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