Stalnaker v. Allison (In re Tri-State Financial, LLC)

Stalnaker v. Allison, et al., No. 14-6018, No. 14-6019, 14-6020, 14-6025 (BAP 8th Cir. October 23, 2014)
The 8th Circuit BAP reversed and remanded an order of the U.S. Bankruptcy Court for the District of Nebraska - Omaha, ruling that although (a) the bankruptcy did not exceed its mandate on remand; and (b) properly did not apply the "law of the case doctrine" to its own prior ruling that was subsequently appealed and then remanded, the bankruptcy court failed to certify, pursuant to FRCP 63 and FRBP 9028, that it was familiar with the record of the case before issuing its ruling, which was required by the retirement of the prior judge, and which prejudiced the parties from moving to recall witnesses. The BAP ruled that the bankruptcy court did not exceed its mandate on remand in reaching a different conclusion regarding the ownership of approximately $1.2 million. The BAP's ruling had been that the first ruling had been premature without consideration of a material fact issue. Consequently, on remand, it was appropriate for the bankruptcy court to both consider the material fact issue and then rule on the principal issue. The BAP also rejected the argument that the bankruptcy court's original ruling regarding ownership of the funds had become the "law of the case," given that it was appealed, reversed, and remanded. On remand, the bankruptcy court was not required to follow its prior ruling that had been appealed, reversed, and remanded. The BAP agreed, however, that the intervening retirement of the bankruptcy judge that issued the original ruling, and the ruling by the replacement judge on remand, required certification under FRCP 63/FRBP 9028 that the new judge was sufficiently familiar with the record. Without issuing the certification under Rule 63, parties did not have notice that they had the right to request that witnesses be recalled. Consequently, the BAP reversed and remanded.
Procedural context:
The 8th Circuit BAP reviewed the rulings of the U.S. Bankruptcy Court for the District of Nebraska (Omaha).
The dispute involved competing claims to $1.2 million involving approximately 20 parties, two bankruptcy estates, an adversary proceeding with cross and counterclaims between some but not all the parties, appeals and cross appeals of original rulings by the bankruptcy court by multiple parties on separate issues, the intervening retirement of the bankruptcy judge that issued the original rulings, remand on the original appeals by the BAP, new rulings by a new judge following remand, and four separate appeals by a variety of parties of those orders to the BAP. The caption of the BAP opinion spanned seven pages. The dispute involved ownership of $1.2 million, and whether the estate was entitled to surcharge the funds to pay for fees and costs. Prior to bankruptcy, a group of investors transferred $2 million to Debtor. Debtor subsequently transferred the funds to an "Affiliate," and to a creditor of the Affiliate. The Affiliate subsequently filed bankruptcy. Debtor, still prior to its own bankruptcy, sought recovery of the $2 million from Affiliate's chapter 7 trustee. The trustee transferred about $800k of the $2 million to Debtor, which Debtor returned to the investors, i.e., the original transferors. Debtor then filed bankruptcy under Chapter 11, and sought recovery of the remaining approximately $1.2 million from Affiliate's Chapter 7 estate. After negotiations, Affiliate's trustee transferred the remaining approximately $1.2 million to Debtor's Chapter 11 trustee. Debtor's trustee, Stalnaker, then commenced an interpleader action to determine the rights in the $1.2 million. Various parties made claims to the funds, including Debtor's senior secured creditor, who claimed the funds belonged to the estate, and were subject to the secured creditor's lien. The original transferors claimed the funds were not property of the estate, but belonged to them, under a trust theory. The bankruptcy court ruled that the funds belonged to the original transferors, not the estate, but ruled that the estate was entitled to surcharge the funds to pay the estate's legal fees, both in obtaining the funds from Affiliate's bankruptcy estate, and litigating the interpleader action. Various parties disputed the estate's entitlement to fees related to the interpleader action, and appealed. On appeal, the BAP reversed and remanded, determining that the bankruptcy court had not considered the effect of a release executed by various parties, or a judicial estoppel argument asserted based on the release. In the interval, however, the bankruptcy judge that had issued the original ruling retired. On remand, the new judge ruled that the $1.2 million was property of the estate and subject to the secured creditor's lien, but again allowed the estate to recover its fees for both the settlement with Affiliate's bankruptcy estate and the interpleader action. A variety of parties appealed that ruling, which resulted in the BAP's review.
Kressel, Schermer, and Nail

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