United Surety & Indemnity Co. v. Puerto Rico Electric Power Authority
- Summarized by William Amann , Amann Burnett, PLLC
- 8 years 5 months ago
- Citation:
- BAP NOS. PR 15-046, PR 15-048, Bankruptcy Case No. 08-07752-BKT, Adversary Proceeding No. 09-00258-BKT
- Tag(s):
-
- Ruling:
- We AFFIRM the Judgment of Dismissal and decline to consider USIC’s appeals from
the Interlocutory Orders. We lack jurisdiction to hear PREPA’s cross-appeal and so that crossappeal
is DISMISSED.
- Procedural context:
- United Surety & Indemnity Company (“USIC”) appeals from a bankruptcy court
judgment dismissing an adversary proceeding (the “Judgment of Dismissal”) brought by
Industrias Vassallo, Inc. (the “Debtor”) against one of its suppliers, Puerto Rico Electric Power Authority (“PREPA”). USIC also appeals from nine other orders (collectively, the
“Interlocutory Orders”), including an order “denying” USIC’s amended complaint in
intervention and an order denying a request for reconsideration.1 PREPA cross-appeals from the Judgment of Dismissal.
- Facts:
- In December 2009, the Debtor commenced an adversary proceeding against PREPA with
a single-count complaint, asserting that PREPA owed $3.4 million for damages resulting from
interruptions and/or fluctuations in the delivery of electrical service to the Debtor’s
manufacturing plant. Accordingly, the Debtor asked the bankruptcy court to disallow PREPA’s
claim and to enter a judgment against PREPA in the amount of $1.0 million.
USIC promptly moved to intervene. In its accompanying complaint in intervention (the
“Complaint in Intervention”), USIC alleged that it was not liable under the Bond because
PREPA’s liability to the Debtor exceeded the Debtor’s liability to PREPA. In its prayer for
relief, USIC sought only a declaratory judgment that it had no liability to PREPA under the
Bond. The bankruptcy court granted USIC’s motion to intervene.
PREPA answered the Complaint in Intervention, and asserted a counterclaim against
USIC. PREPA’s counterclaim sought $450,000, plus interest, costs, and attorneys’ fees.
3 Dollar amounts have been rounded, as specific amounts are not required to explain our decision.
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PREPA alleged, inter alia, that USIC had “acted obstinately or frivolously in denying PREPA’s
claim and in failing to respond to PREPA’s claim within the shortest period possible . . . .”
In September 2012—almost three years after commencing the adversary proceeding—the
Debtor obtained leave to amend its complaint by reducing the amount of its claim against
PREPA from $3.4 million to $1.1 million. Accordingly, in its prayer for relief of the amended
complaint (the “Amended Complaint”), the Debtor asked the bankruptcy court to reduce
PREPA’s proof of claim to $1.3 million. PREPA answered the Amended Complaint, alleging
that the Debtor owed it at least $2.4 million in prepetition charges and requesting the dismissal of the Amended Complaint, plus costs and attorneys’ fees.
Nearly six years after commencing the adversary proceeding, the Debtor moved for a
voluntary dismissal pursuant to Rule 41(a) (the “Voluntary Dismissal Motion”) on May 22,
2015. The Debtor’s justification was brief:
After extensive discovery and analysis, [the Debtor] has realized that the objective
of the complaint will not be attained as the disallowance of [PREPA’s] proof of
claim . . . is not achievable and will not obtain any monetary redress. Therefore,
the action pursued by [the Debtor] is moot. It is in the best interest of the parties
and this Court that the case be dismissed pursuant to [Bankruptcy] Rule 7041.
Within hours after the Debtor’s filing of the Voluntary Dismissal Motion—but almost a
year and a half after the dismissal of its Complaint in Intervention—USIC filed an amended
complaint in intervention (the “Amended Complaint in Intervention”), alleging that PREPA was liable to indemnify the Debtor for $4.9 million in damages. USIC did not seek or obtain leave to file the Amended Complaint in Intervention; it simply filed the amended pleading. The prayer for relief requested only a declaratory judgment regarding USIC’s liability (or lack
thereof) under the Bond. USIC simultaneously filed an “Informative Motion,” stating it was
“well within its rights” to file the Amended Complaint in Intervention. In support, USIC relied
exclusively on its interpretation of the Order to Show Cause as authorization for it to “reassert its Complaint in Intervention at any time until the adjudication of the Amended Complaint . . . .”
On June 2, 2015, the bankruptcy court entered three orders. First, it entered the
Voluntary Dismissal Order. Second, it entered the Disallowance of Amended Complaint in
Intervention, whereby it “den[ied the Amended Complaint in Intervention] due to the voluntary dismissal of the adversary proceeding.” In the third order, the bankruptcy court adjourned the status conference.
On June 4, 2015, USIC filed a motion for reconsideration of the Disallowance of
Amended Complaint in Intervention. Without citing any legal authority for the requested relief, USIC simply reiterated its contention that the Order to Show Cause permitted it to “reassert” its Complaint in Intervention at any time until the adjudication of the Amended Complaint. Under this theory, USIC maintained that it had until June 2, 2015, the date of the Voluntary Dismissal Order, “to reassert its Complaint in Intervention.” Thus, according to USIC, the filing of the Amended Complaint in Intervention on May 22 was timely and permissible.
USIC maintains that when the bankruptcy court dismissed the adversary proceeding, it
erred by failing to consider USIC’s rights and interests, and, more particularly, the pendency of the Amended Complaint in Intervention. USIC contends that the dismissal unfairly deprived it of its only defense against PREPA’s claim—the right of setoff. USIC also persists in its interpretation of the Order to Show Cause as unconditional license to amend the Complaint in Intervention.
According to PREPA, the Amended Complaint in Intervention “was a nullity and of no
legal effect” as it was filed without leave, and the bankruptcy court lacked jurisdiction to
consider it. PREPA also rejects USIC’s argument, premised on the Order to Show Cause, that it could reassert the Complaint in Intervention at any time prior to the entry of a final judgment.
On the other hand, PREPA’s cross-appeal faces an insurmountable hurdle. In this
circuit, a threshold question is whether we have jurisdiction to hear an appeal brought by a party who “has consented to the very judgment from which it then appeals.” Scanlon v. M.V. Super Servant 3, 429 F.3d 6, 8 (1st Cir. 2005). The First Circuit “generally holds a party who consents to a judgment to have waived the right of appeal . . . .” Id. (citation omitted).
Several other circuits similarly refuse appellate jurisdiction in such cases. See, e.g., Tel-Phonic Servs., Inc. v. TBS Int’l, Inc., 975 F.2d 1134, 1137 (5th Cir. 1992) (“A party will not be heard to appeal the propriety of an order to which it agreed.”); Stewart v. Lincoln-Douglas Hotel Corp., 208 F.2d 379, 381 (7th Cir. 1953) (“It is a generally accepted rule of long standing that a party who agrees or consents to the entry of an order or judgment thereby waives his right to claim that the trial court committed error in the entry of the order.”) (citations omitted); Marks v. Leo Feist, Inc., 8 F.2d 460, 462 (2d Cir. 1925) (“So far as this record shows, the complaint was dismissed on the plaintiff’s motion, and the decree entered was in effect a decree by consent. And from such a decree the plaintiff cannot appeal.”) (citations omitted).
The First Circuit allows a limited exception to this rule: “‘it is possible for a party to
consent to a judgment and still preserve [its] right to appeal’ a previous ruling on a contested
matter in the case, as long as it ‘reserve[s] that right unequivocally.’” BIW Deceived v. Local
S6, Indus. Union of Marine & Shipbuilding Workers of Am., 132 F.3d 824, 828 (1st Cir. 1997)
(quoting Coughlin v. Regan, 768 F.2d 468, 470 (1st Cir. 1985)); see also John’s Insulation, Inc.
our review of the Judgment of Dismissal. That said, as noted below, we do not address the merits of
USIC’s appeal from any of the Interlocutory Orders.
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v. L. Addison & Assocs., 156 F.3d 101, 107 (1st Cir. 1998) (stating the proper course for
obtaining review of interlocutory orders is “to file a motion for voluntary dismissal with
prejudice, stating explicitly that the purpose is to seek immediate review of the interlocutory
order in question”); accord Laczay v. Ross Adhesives, 855 F.2d 351, 354 (6th Cir. 1988) (stating
“one who seeks to come within an exception to th[e] rule [of non-appealability after a voluntary
dismissal] should make his or her intention known to the court and opposing parties”). Dubbed
the “‘unequivocal intention’ standard,” this rule requires not only that the expression of the intent
to appeal be unequivocal, but also that it be made “concurrently with the motion for dismissal.”
Scanlon, 429 F.3d at 9.
PREPA did not meet the Scanlon requirements here. We discern no attempt by
PREPA—or any other party—to express any intention to take an appeal of either the Judgment
of Dismissal or, at the time the Judgment of Dismissal was entered, any of the Interlocutory
Orders. At the time of the Voluntary Dismissal Motion, PREPA reported only that it had no
objection to the granting of that motion. PREPA’s earlier attempts to appeal some of the
Interlocutory Orders are of no consequence. As the Scanlon court ruled, “[i]t is insufficient that
plaintiffs at one point in the course of the proceedings expressed a desire to appeal.” Id.
Thus, consistent with Scanlon, we are without jurisdiction to hear PREPA’s cross-appeal and it
is, therefore, DISMISSED.
As noted, USIC asserts that the bankruptcy court abused its discretion when it entered the
Judgment of Dismissal. This argument is unpersuasive, however, because USIC did not object
to the Voluntary Dismissal Motion. USIC’s admitted failure to object to the motion in the trial
court is fatal to its effort to challenge the resulting order on appeal. See Hoover v. Harrington
(In re Hoover), No. 15-2383, 2016 WL 3606918, at *4 (1st Cir. July 5, 2016) (ruling that
argument not made to the bankruptcy court was waived on appeal) (citation omitted); Patriot
Portfolio, LLC v. Weinstein (In re Weinstein), 164 F.3d 677, 685 (1st Cir. 1999) (expressing the
general rule “that issues raised for the first time on appeal are waived”) (citation omitted).
Because USIC did not object to the voluntary dismissal of the adversary proceeding or otherwise
alert the court to the possibility of prejudice to its interests as a result of such dismissal, USIC
waived any right to appeal the Judgment of Dismissal. See, e.g., In re Weinstein, 164 F.3d at
685. Accordingly, we do not consider the merits of its appeal of the Judgment of Dismissal.
- Judge(s):
- Before Bankruptcy Judges Bailey, Finkle and Fagone
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