Treen v. Orrill, Cordell, & Beary, L.L.C. (In re Delta Starr Broadcasting, L.L.C.)

Summarized by Peter Ruggero , Ruggero Law Firm PC
14 years 10 months ago

Citation:

Case No. 10-30195 (5th Cir. Apr 19, 2011)

Tag(s):

5th Circuit

Ruling:

The Court ruled (i) that conversion of the bankruptcy case from chapter 11 to chapter 7 was proper and (ii) that denial of motion to dismiss related debtor's chapter 7 case was proper. The Court held that a consent judgment agreement entered in a state court proceeding during the bankruptcy case did not bind the parties that were not part of the agreement. Accordingly, the lower court's conversion of the case and denial of the dismissal of the related chapter 7 case was affirmed. In addition, the Court found that under Fed. R. Civ. P. 60(b)(5), made applicable under Fed. R. Bankr. P. 9024, the appellant had waited too long to file his motion for relief of the order converting the bankruptcy case.

Procedural context:

Appeal from the U.S. District Court for the Eastern District of Louisiana's affirmance of the Bankruptcy Court's (1) denial of motion to set aside previous order converting the chapter 11 bankruptcy case to a case under under chapter 7; and (2) denial of motion to dismiss chapter 7 bankruptcy case of related debtor.

Facts:

Three individuals each owned a one-third interest in Delta Starr Broadcasting LLC ("Delta"). The sole asset of Delta was a 98% share in La-Terr Broadcasting Corporation ("La-Terr"), which owned a radio station. Disputes arose as to apportionment of ownership. Delta filed a voluntary petition for relief under chapter 11. The owners did not all agree to the bankruptcy filing. Extensive and protracted litigation commenced. Concurrent with the bankruptcy proceeding, the parties litigated in Louisiana state court regarding their ownership disputes. Delta’s case was converted to a case under chapter 7. La-Terr also filed its own chapter 7 case that became jointly administered with Delta’s case. The chapter 7 trustee for the two estates liquidated the assets and began paying significant claims. One of the owner's interest was transferred to a third party. Subsequently, the three original owners obtained entry of a Consent Judgment that would invalidate the authority of the conversion of Delta’s case and filing of La-Terr’s case. Then, they moved the Bankruptcy Court to (1) set aside its prior order converting Delta's case to a case under chapter 7 under Fed. R. Civ. P. 60(b)(5) ("Rule 60"); and (2) dismiss La-Terr's chapter 7 bankruptcy case. The Bankruptcy Court denied the two motions. The District Court affirmed the Bankruptcy Court. The Court of Appeals affirmed and found that the third party had obtained owner's interest before entry of the Consent Judgment. Consequently, the third party could not be bound by the Consent Judgment. Under the equitable prong of Rule 60, the Court of Appeals found equity to favor finality and completion of the distribution of assets to creditors under the facts of Delta’s case. The Court of Appeals also found the motion was not timely under the "made within a reasonable time" standard in Rule 60. Unlike the District Court, the Court of Appeals declined to apply judicial estoppel, an extraordinary remedy, when other grounds to affirm the District Court's ruling existed. The Court of Appeals also affirmed the denial of the motion to dismiss La-Terr's bankruptcy case on the same grounds that the third party was not bound by the Consent Judgment.

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