Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_08-cv-00178/USCOURTS-azd-2_08-cv-00178-0/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 28:0158 Notice of Appeal re Bankruptcy Matter (BAP)

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IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

NAVAJO NATION, movant, a domestic

sovereign nation,

Plaintiff, 

vs.

KRYSTAL ENERGY CO., INC., 

Defendant. 

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No. CV 08-178-PHX-MHM

ORDER

Currently pending before the Court is Movant Navajo Nation’s (“Navajo Nation”)

motion for leave to appeal from an order of the Bankruptcy Court for the District of

Arizona granting Krystal Energy Company’s (“Krystal”) partial motion for summary

judgment. (Dkt. #2). After reviewing the pleadings, the Court issues the following order.

I. BACKGROUND

On January 5, 2001, Krystal filed for Chapter 11 bankruptcy in the United States

Bankruptcy Court for the District of Arizona. (Dkt. #7, p.2; Dkt. #13, p.2). On March 5,

2001, Krystal filed an adversary proceeding against the Navajo Nation, seeking (1) a

turnover of assets under 11 U.S.C. § 542(a); (2) a determination of tax due to the Navajo

Nation under 11 U.S.C. § 505; and (3) damages arising out of the seizure of Krystal’s

Case 2:08-cv-00178-MHM Document 14 Filed 06/18/08 Page 1 of 7
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assets by the Navajo Nation. (Id.). The Navajo Nation filed a motion to dismiss the

adversary complaint; the Bankruptcy Court granted the motion on September 28, 2001,

and this Court subsequently upheld that ruling on September 30, 2002. (Dkt. #11, 2:01-

cv-1970-MHM). Krystal appealed the Court’s order to the Ninth Circuit, during which

time the bankruptcy administrative case was dismissed. (Dkt. #7, p.2; Dkt. #13, p.2). 

However, the “Stipulated Order Dismissing Case Effective February 14, 2003 and

Reserving Jurisdiction over Adversary Proceeding” reserved exclusive jurisdiction over

the adversary proceeding in order to allow appeal to the Ninth Circuit. (Dkt. #7, p.2).

The Ninth Circuit reversed this Court’s September 30, 2002 order and held that

Congress had abrogated the sovereign immunity of Indian tribes under 11 § U.S.C.

106(a). (Id.). As a result, on August 2, 2004, this Court reversed the Bankruptcy Court’s

September 28, 2001 order dismissing Krystal’s adversary complaint against the Navajo

Nation and remanded the case to the Bankruptcy Court for further proceedings. (Dkt.

#15, Case 2:01-CV-1971-MHM). 

Krystal filed an amended complaint in the Bankruptcy Court on July 25, 2006

(Dkt. #13, p.2) and a second amended complaint on December 7, 2006. (Dkt. #7, p.3). 

The second amended complaint added five new counts: (1) breach of contract; (2) unjust

enrichment / estoppel; (3) violation of due process; (4) violation of automatic stay; and

(5) injunctive relief. (Dkt. #7, p.3; Dkt. #13, pp.2-3). On March 5, 2007, the Navajo

Nation filed a motion to dismiss, which the Bankruptcy Court granted in part on May 23,

2007, dismissing Krystal’s claims of breach of contract, unjust enrichment / estoppel, and

violation of due process. (Id.). Then, on January 15, 2008, the Bankruptcy Court granted

Krystal’s motion for partial summary judgment on Krystal’s claim for a turnover of assets

under 11 U.S.C. § 542, ordering the Navajo Nation to turn over all of Krystal’s property

and provide an accounting for the property taken. (Dkt. #7, p.4; Dkt. #13, p.3). The

Navajo Nation filed the instant motion for leave to appeal on January 15, 2008. (Dkt. #2). 

Krystal objects to the instant motion. (Dkt. #7).

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II. INTERLOCUTORY APPEAL

This is an interlocutory appeal under 28 U.S.C. § 158(a). The Bankruptcy Court

granted Krystal’s motion for partial summary judgment, ordering the Navajo Nation to

turn over all of Krystal’s property in its possession and to provide an accounting for the

property that had been taken from the well sites. (Dkt. #7, p.4). In addition, the

Bankruptcy Court ordered that “[Krystal] is entitled to judgment against [the Navajo

Nation] for the value of the property removed from the well sites, and judgment will be

entered accordingly.” (Dkt. #7, pp. 4-5). Three counts remain pending before the

Bankruptcy Court – (1) violation of automatic stay under 11 U.S.C. § 362(a); (2) tax

determination under 11 U.S.C. § 505; and (3) injunctive relief. 

The Navajo Nation presents four issues on appeal: (1) whether the Bankruptcy

Court erroneously determined whether Krystal’s property was in the possession, custody

or control of the Navajo Nation under 11 U.S.C. § 542(a); (2) whether the Bankruptcy

Court erroneously determined that Krystal possessed a legal or equitable interest in the

property to be turned over and accounted for; (3) whether the Bankruptcy Court had

jurisdiction at the time Krystal’s amended complaints were filed in the absence of an

underlying administrative bankruptcy case; and (4) whether the United States is a

necessary and indispensable party under Rule 19(a)&(b) of the Federal Rules of Civil

Procedure. (Dkt. #13, pp. 3-4). The Navajo Nation seeks dismissal of the adversary

claims brought by Krystal. (Dkt. #4, p.2).

A district court may hear appeals from “final judgments, orders, and decrees, and,

with leave of the court, from interlocutory orders and decrees, of bankruptcy judges.” 28

U.S.C. § 158(a). “A bankruptcy court order is final and thus appealable ‘where it 1)

resolves and seriously affects substantive rights and 2) finally determines the discrete

issue to which it is addressed.’” In re Lewis, 113 F.3d 1040, 1043 (9th Cir. 1997) (citing

In re Frontier Properties, Inc., 979 F.2d 1358, 1363 (9th Cir. 1992)). “[A]n order that

determines liability, but not damages, generally does not seriously affect substantive

rights because the parties ‘must engage in protracted litigation before the . . . order will

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have any direct impact in the case.’” Mosier v. United Educ. & Software, 285 B.R. 442,

445 (C.D. Cal. 2002) (citing Elliott v. Four Seasons Props., 979 F.2d 1358, 1362-63 (9th

Cir.1992)). In addition, “[a]n order does not conclusively resolve an issue if later pending

proceedings could effectively reverse the order appealed.” Id.

The Navajo Nation states that the Bankruptcy Court’s order forces it to incur

expenses by requiring it to hold a property valuation hearing and retain valuation experts,

remove and deliver oil production equipment from its land, and pay for equipment that it

never controlled or possessed. (Dkt. #13, p.4). As such, the Navajo Nation contends that

an interlocutory appeal is warranted because the issues raised on appeal involve

controlling questions of law, promote judicial economy, and “potentially hasten the

ultimate termination of the litigation.” (Id.). On the other hand, in its objection, Krystal

argues that the Court should deny the Navajo Nation’s motion for leave to appeal because

the Bankruptcy Court did not enter final judgment and thus appeal is premature. (Dkt. #7,

p.14). In addition, Krystal argues that the Navajo Nation will not suffer irreparable injury

if the Court denies the Navajo Nation’s motion for leave to appeal. (Dkt. #7, p.15). 

The Bankruptcy Court’s order granting Krystal’s motion for partial summary

judgment entered a final judgment as to Krystal’s claim for turnover of property. The

order requires the Navajo Nation to turn over all of Krystal’s property and account for

any of Krystal’s property that was taken from the well sites. (Dkt. #7, p.4). The order

further states that Krystal is entitled to judgment against the Navajo Nation for the value

of the property that was removed from the well sites, and that judgment will be entered

accordingly. Krystal apparently contends that the appeal is premature because the

Bankruptcy Court has not yet actually entered judgment for a specific amount as to

Krystal’s property that was taken from the well sites. (Dkt. #7, p.5). However, the fact

that a specific amount has not yet been entered does not effect the finality of the

Bankruptcy Court’s order. The Bankruptcy Court specifically stated that Krystal is

entitled to judgment against the Navajo Nation for the value of its property that was

removed from the well sites. (Dkt. #7, pp. 4-5). As such, although the specific amount

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owed to Krystal for any removed property that is not returned remains unclear, the order

conclusively resolves the issue at hand because later pending proceedings, such as the

determination of the exact value owed to Krystal for its unreturned property, would not

effectively reverse the order appealed. The Bankruptcy Court’s order finally determined

Krystal’s claim for turnover of property.

In addition, Krystal’s claim of turnover of property appears to be a discrete issue. 

There is no indication that the claim at issue is related to the three remaining counts

pending before the Bankruptcy Court – (1) violation of automatic stay under 11 U.S.C. §

362(a); (2) tax determination under 11 U.S.C. § 505; and (3) injunctive relief. As such,

the Bankruptcy Court’s order finally determined the discrete issue to which it addressed,

i.e., the issue of Krystal’s claim of turnover of property. 

Moreover, an order requiring the turnover and accounting of property (and

payment of any unreturned property), like an order requiring disgorgement, resolves and

seriously affects substantive rights. See Mosier, 285 B.R. at 445 (holding that orders

requiring disgorgement resolve and seriously affect substantive rights). The Bankruptcy

Court’s order did not merely determine liability, but damages as well, ordering that

Plaintiff is entitled to the immediate return of its property, as well as judgement for the

value of any property that is unreturned. This is not an instance in which the parties must

engage in protracted litigation before the Bankruptcy Court’s order will have any direct

impact in the case. Although the Bankruptcy Court has not yet determined the exact

amount to which Krystal is entitled for any property that is not returned by the Navajo

Nation, pursuant to the Bankruptcy Court’s order, the Navajo Nation must immediately

return any of Krystal’s property in its possession and must account for, and then

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Any future dispute between the parties over the exact amount that the Navajo Nation

may owe Krystal for any unreturned property is not a subject for interlocutory appeal; that

is a matter to be determined by the Bankruptcy Court. Further, the Court notes that the

Navajo Nation apparently did not contest Krystal’s valuation of its property, as established

in the declarations of Hubert Dayzie and Mark Nicholson. (Dkt. #7, p.13).

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subsequently pay for, any unreturned property; the order has a direct impact.1

 As such,

the Court finds that the Bankruptcy Court’s order granting Krystal’s motion for summary

judgment on its claim for turnover of property is final and thus appealable.

The Court notes that the issues presented on appeal by the Navajo Nation extend

beyond the issue of whether the Bankruptcy Court appropriately granted Krystal’s motion

for summary judgment on its claim for turnover of property. (Dkt. #2, pp. 3-4). The

motion for leave to appeal also raises questions concerning the Bankruptcy Court’s

jurisdiction and whether the United States is a necessary and indispensable party under

the Federal Rules of Civil Procedure; the motion apparently seeks dismissal of all

Krystal’s adversary claims on those grounds. (Id.). However, these issues are not related

to the Bankruptcy Court’s order granting Krystal’s motion for summary judgment on its

claim for turnover of property, and thus the Court will not address these issues on

interlocutory appeal. Three counts remain pending before the Bankruptcy Court, and thus

that court may still consider whether it possesses jurisdiction and whether the United

States is a necessary and indispensable party. There has been no final judgment regarding

those issues and they are not appealable at this time. This is an interlocutory appeal

concerning only the Bankruptcy Court’s final judgment as to Krystal’s motion for

summary judgment on its claim for turnover of property under 11 U.S.C. § 542(a), and

thus the Court will consider only that issue on appeal at this time.

Accordingly,

IT IS HEREBY ORDERED that Krystal’s objection to Movant Navajo Nation’s

motion for leave to appeal is overruled. (Dkt. #7).

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IT IS FURTHER ORDERED that Movant Navajo Nation’s motion for leave to

appeal is GRANTED to the extent discussed in this order. (Dkt. #2).

IT IS FURTHER ORDERED that the Court’s scheduling order (Dkt. #10) is

now in effect and will no longer be held in abeyance. Unless the movant decides to

withdraw its interlocutory appeal at this time, the parties must abide by the briefing

schedule set forth in the Court’s April 18, 2008 scheduling order, with the deadlines for

the parties’ respective briefs to commence from the date of this order.

DATED this 16th day of June, 2008.

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