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Joseph Hill v. Raquel King

Summarizing by J Newman

Spradlin v. Richard

Citation:
Spradlin v. Richard, 2014 FED App. 0518N (6th Cir. July 15, 2014)
Tag(s):
Ruling:
Sixth Circuit AFFIRMED the district court's affirmance of the bankruptcy court's award of sanctions; VACATED the district court's reversal of the bankruptcy court's motion to extend time and denial of plaintiff’s motion to dismiss defendant’s cross-appeal; and REMAND for such further proceedings consistent with this opinion. The Sixth Circuit concluded that defendant’s motion to extend time to designate record for appeal and plaintiffs’ motion to dismiss defendant’s cross-appeal were moot by virtue of the bankruptcy court's lack of subject-matter jurisdiction over defendant’s cross-claims, and therefore the district court lacked, and Sixth Circuit also lacked, jurisdiction over those issues. Without jurisdiction the court cannot proceed at all in any cause. Jurisdiction is power to declare the law, and when it ceases to exist, the only function remaining to the court is that of announcing the fact and dismissing the cause.' When a lower court rules on the merits of a claim over which it is later determined to lack jurisdiction, the proper remedy is to vacate the lower court's decision. Therefore, the Sixth Circuit vacated the district court's decision on plaintiff’s motion to dismiss cross-claims and the bankruptcy court's denial of the defendant’s motion to extend time. Despite lack of subject matter jurisdiction over the claims, the Sixth Circuit concluded that the bankruptcy court had jurisdiction to award sanctions against the defendants, and that the district court had, and the Sixth Circuit has, jurisdiction to review the sanctions award.
Procedural context:
Appeal of District Court’s affirmance of Bankruptcy Court’s dismissal of claims for lack of subject matter jurisdiction. Cross-appeal of District Court’s affirmance of Bankruptcy Court’s issuance of sanction.
Facts:
Alma Energy, LLC ("Alma Energy") filed for Chapter 11 bankruptcy in 2007; the bankruptcy was later converted to a Chapter 7 proceeding. Phaedra Spradlin was appointed as the Interim Trustee in the proceeding. Alma Energy commenced an adversary proceeding in the bankruptcy court by filing a complaint against various entities and individuals, including THC Kentucky Coal Venture I, LLC ("THC") and Pikeville Energy Group, LLC ("PEG"). PEG answered the complaint and filed cross-claims against THC and other entities and individuals. Trustee Spradlin entered into a settlement agreement with various individuals and entities, including THC. The Settlement Agreement provided that "THC shall inherit in full all of the claims and causes of action belonging to the Debtor and/or Estate arising before and after the date of this Agreement" against various individuals and entities including PEG and Richard and that "any and all proceeds with respect to the litigation and/or liquidation of such claims and causes of action shall belong to THC and only THC." Spradlin and THC then filed a first amended complaint asserting state-law claims against PEG and other entities and individuals. PEG filed first amended cross-claims against THC and other entities and individuals. The bankruptcy court granted THC's and others' motions to dismiss PEG's first amended cross-claims pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. Spradlin and THC then filed a second amended complaint, adding another individual as a defendant. PEG and others moved to dismiss Spradlin and THC's second amended complaint pursuant to Federal Rule of Civil Procedure 12(b)(1) for lack of subject-matter jurisdiction, arguing that the claims were all non-core, unrelated matters over which the bankruptcy court lacks subject-matter jurisdiction. Without ruling on PEG's motion to dismiss for lack of subject-matter jurisdiction, the bankruptcy court ordered the parties to mediate their claims. The mediation did not succeed, and the mediator returned the case to the bankruptcy court. In his report, the mediator concluded that PEG and the individual defendants "have not and will not engage in any meaningful negotiation process in this matter," "have demonstrated bad faith and disrespect for the mediation process," and "are deserving of sanctions by the Court." Spradlin and THC moved for sanctions against PEG and the indiviudals for unpreparedness and bad faith in the mediation process. The bankruptcy court then acted on the motion of PEG, Richard, and Banner to dismiss Spradlin and THC's second amended complaint, concluding that the bankruptcy court lacks subject-matter jurisdiction over THC's claims. The bankruptcy court concluded that all of the parties in the adversary proceeding were nondebtors, and the proceeding was not "related to" the Chapter 11 proceeding because the settlement agreement with THC gave control over the claims in the adversary proceeding to THC and others, and the bankruptcy estate was left with only "an extremely tenuous connection [to the adversary proceeding] . . . which is not a sufficient basis upon which this Court may rely for subject-matter jurisdiction." The bankruptcy court entered an order dismissing Spradlin and THC's second amended complaint. On September 21, 2012, the bankruptcy court granted Spradlin and THC's request for sanctions against PEG and the individual defendants and awarded $30,052.09 in sanctions to THC. Spradlin and THC filed a notice of appeal of the dismissal of their second amended complaint for lack of subject-matter jurisdiction. PEG filed a timely notice of the cross-appeal of the dismissal of its first amended cross-claims for failure to state a claim, but failed to meet a deadline for submitting a cross-designation of items to be included in the record of appeal and a statement of additional issues to be pursued on appeal, as required by Bankruptcy Procedure Rule 8006. PEG and the individuals moved for an extension of time to submit the cross-designation. The bankruptcy court denied the motion for an extension of time. PEG and the individuals then filed a notice of appeal of the bankruptcy court's award of sanctions and denial of the motion for extension of time. The district court issued three opinions disposing of Spradlin and THC's appeal and PEG's cross-appeal and appeal. First, the district court affirmed the dismissal of Spradlin and THC's second amended complaint for lack of subject-matter jurisdiction. Spradlin and THC did not appeal this decision. Second, the district court affirmed the bankruptcy court's sanctions award. Finally, the district court reversed the bankruptcy court's denial of PEG's motion to extend time; denied Spradlin and THC's motion to dismiss PEG's cross-appeal for want of prosecution; and held that the bankruptcy court lacks subject-matter jurisdiction over PEG's cross-claims and so reversed the bankruptcy court's dismissal of the cross-claims for failure to state a claim. Spradlin and THC appealed this decision. PEG and the individuals cross-appealed the affirmance of the sanctions.
Judge(s):
MERRITT, MOORE, and CLAY

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