Bankruptcy Judge Christopher Klein explains appellate jurisdiction, finality, cumulative finality and mislabeled motions for reconsideration.

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Case Type:
Case Status:
20-1175 (9th Circuit, Oct 06,2021) Published
Confronting a byzantine fact pattern in but the latest aspect of a “multi-forum Whack-a-Mole tournament," the U.S. Bankruptcy Appellate Panel of the Ninth Circuit (BAP) affirmed a bankruptcy court's decision declining to join parties in an opinion published to establish that: (1) an order as to a motion for a § 303(i) monetary award, unlike most other non-final orders as to discrete matters, is immediately appealable; (2) an interlocutory order's appeal notice is effective, despite leave's absence, upon a final judgment's entry; and (3) Fed. R. Civ. P. 54 controls pre-judgment reconsideration.
Procedural context:
This appeal revolved around the involuntary chapter 7 case of WB Coyle (Coyle or DR), an individual, seemingly involving "some twenty related bankruptcy cases, adversary proceedings, and appeals," with the same judge for the the United States Bankruptcy Court for the Northern District of California (BC) presiding over most. Eventually, the BC dismissed the petition for a variety of reasons, prompting the DR to file a motion for costs, fees and damages under § 303(i), by definition a contested matter. As a subset of this matter, the DR also filed a motion to hold several individuals and other entities liable for damages as alter egos of the petitioning creditors, which the BC denied. The DR then timely appealed this alter ego determination to the BAP. This decision presented a problem. As the BAP observed, denial of the alter ego motion had not been a final order, and thus it was initially prepared to dismiss the DR's appeal for lack of jurisdiction. However, before the BAP could issue an opinion so holding, the overarching § 303(i) motion came to final judgment. As a result, the BAP reached the merits in what amounts to a detailed exegesis on appellate jurisdiction, finality, cumulative finality, and mislabeled motions for reconsideration penned by Judge Christopher Klein, one that relied on Ritzen Group, Inc. v. Jackson Masonry, LLC; Bullard v. Blue Hills Bank; and Wright, Miller & Cooper. Crucially, as the BAP characterized it, the BC's denial of the alter ego motion amounted to a denial of a motion to add parties under Fed. R. Civ. P. 21, made applicable by Bankruptcy Rule 9014(c), which was itself seen "a subsidiary component of the overall contested matter in which it arises," thus pointing to only one conclusion: "contested matters may be nested within contested matters.”
Putting aside the related matters' own convoluted story, this appeal grew out of the decision of Andrew Linton (Linton), the appellant, to rent a four-unit building from Coyle in the midst of its case. Prepetition, this property, located at 1429-1431 Grant Avenue and 80 Bannam Place in San Francisco (Property), had been transferred by Coyle to one or more LLCs controlled by his brother-in-law. Post-petition, the trustee appointed to administer Coyle's chapter 7 case (TR) launched an action to avoid the transfer and recover the Property. Coyle, acting on behalf of its new artificial owner(s), had leased the Property to Linton precisely so as to obstruct this maneuver. Regardless, the avoidance action defendants, primarily Linton and the DR, and the TR struck a deal - that the TR could sell the Property for a minimum price that these defendants thought too high to be realistic, seemingly hoping that any such effort would fail and abandonment and reversion would take place - whose consequences - a true-blue sale of the Property! - the defendants had never seemingly foreseen. Thereafter, the Property's new owner, 1429 Grant Avenue LLC, led by its sole member, Jefries Azar (Azar), first terminated Linton's lease and then struck at Linton and Coyle with a state court action seeking, among other relief, to eject Linton and his subtenants from the premises. On July 16, 2018, however, just as trial was beginning in state court on the severed ejectment claim against Linton, Coyle filed an involuntary chapter 11 petition against Linton, thereby triggering the automatic stay. Coyle's mother, paralegal Louisa Trifiletti (Trifiletti ), was the sole petitioning creditor on the basis of a claim no one ever proved actually existed. For his part, Linton, who knew of the involuntary petition upon stay of the unlawful detainer trial, at first appeared unconcerned. Two months later, Colpo Talpa, LLC (CT), with its sole member, Munir Shahin (Shain), allied with Azar, was formed, acquired a money judgment against Coyle that had been excepted from discharge under § 523(a)(2) and (4), and joined the involuntary petition as a petitioner per § 303(c). In a mistaken bit of statutory understanding, it assumed that the assigned judgment qualified it under § 303(c) to join as a petitioner and to participate in the case. Only now did Linton jump into the fray by seeking dismissal of the involuntary petition on the grounds of its bad faith filing. In time, the BC dismissed Trifiletti for her failure to prosecute and CT for its ineligibility, as it had acquired a claim for the purpose of joining the petition and, with both petitioners excised, dismissed the entire involuntary case. In the aftermath, Linton moved for fees, costs, and damages under § 303(i), as happens when an involuntary petition fails to result in an order for relief, whose adjudication gave rise to this appeal. Because the BC had found CT to have acted in bad faith, Linton was entitled to actual and punitive damages under § 303(i)(2). With this entitlement in hand, Linton sought to hold 1429 Grant Avenue LLC, Azar, and Shain, three non-petitioners, as jointly and severally liable with CT on an alter ego theory. The BC denied this alter ego motion. In so doing, beyond just giving three alternative grounds, the BC vacated its ruling that CT had acted in “bad faith” as incorrect. The BC made this ruling on June 11, 2020. Linton then filed the Notice of Appeal now before the BAP. Meanwhile, proceedings in the BC continued. First, BC granted CT's motion to reconsider and, with damages under § 303(i)(2) now closed, proceeded to determine fees and costs under § 303(i)(1). Later, it found Linton entitled to fees of $172,965.93 against Trifiletti and CT but awarded judgment only against the latter, as Linton had never served his motion on Trifiletti, and denied his requests to impose sanctions against the three non-petitioners. Linton appealed neither this order nor the ensuing money judgment. That judgment was dated April 5, 2021. While Linton’s Notice of Appeal asserted jurisdiction under § 158(a)(1) on the incorrect theory the trial court’s order declining to impose alter ego liability on non-petitioners qualified as an immediately appealable final order, final judgment in the overall discrete adversary proceeding was entered as the BAP pondered whether to grant sua sponte leave to appeal under § 158(a)(3).
Christopher M. Klein; Laura S. Taylor; and Julia W. Brand

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