Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_04-cv-00596/USCOURTS-azd-2_04-cv-00596-0/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)

---

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

In Re

Cameo Development Company, an

Arizona general partnership,

Debtor. 

Roland E. and Dorothy Jean Ward,

Debtors.

Cameo Development Company, an

Arizona general partnership and Roland

and Dorothy Ward, husband and wife,

 Plaintiffs/Appellants,

vs.

Charles E. Lakin and Celco, Inc.,

Defendants/Appellees 

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

No. CIV 04-0596–PHX-MHM

Bankruptcy No. 97-01108-YUM-RTB

Bankruptcy No. 98-00106-YUM-RTB 

ORDER

Plaintiffs/Appellants Cameo Development Company and Roland and Dorothy Ward

appeal from the summary judgment order entered by the Honorable Redfield T. Baum,

Bankruptcy Judge, United States Bankruptcy Court, District of Arizona, in favor of

Defendants/Appellees Charles E. Lakin and Celco, Inc., in an adversary proceeding. The

parties have filed their respective briefs and record excepts for purposes of this appeal. (Doc.

11, 13, 14-15, & 17). The Court heard oral argument on September 8, 2005. This Court's

appellate jurisdiction is based on 28 U.S.C. § 158(a). 

I.

Case 2:04-cv-00596-MHM Document 21 Filed 09/30/05 Page 1 of 16
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 2 -

Background.

 Appellant Cameo Development Company is a general partnership whose members

include Mr. Ward, general partner, and Mr. and Mrs. Ward individually. Appellee Celco,

Inc., is a corporation primarily controlled and managed by Mr. Lakin. In or about April

1995, Appellants entered into an agreement with Appellees to purchase certain undeveloped

real property located in Yuma, Arizona, for $1,053,675.00. Appellants intended to develop

the property into residential subdivisions. There has been some dispute in this case regarding

whether the parties' agreements were intended to be a joint venture or buyer/seller and

lender/borrower relationship. In any event, Appellees were to provide Appellants with

partial necessary financing. In or about mid-1997, differences arose between the parties,

funds were not advanced by Appellees, and Appellants were unable to meet their financial

obligations with respect to the projects. 

In the fall of 1997, Appellants filed for bankruptcy relief. After filing the bankruptcy

petition, Appellants petitioned the Bankruptcy Court for permission to borrow $ 425,000.00

from Mortgages Limited. Appellees objected and proposed to loan the money to Appellants

instead. The parties reached an agreement entitled "Stipulation for Use of Cash Collateral,

etc." ("the stipulation") which was approved by the Bankruptcy Court at a hearing on

November 5, 1997. A dispute subsequently arose in which Appellees claimed that Appellants

had breached the terms of the stipulation. It appears that Appellees did not advance the full

amount of the post-petition loan to Appellants. 

On September 11, 2000, Appellants filed an adversary complaint against Appellees

asserting seven state or common law claims as follows: declaratory judgment (Count I);

breach of contract (Count II); breach of fiduciary duty (Count III); breach of the covenant

of good faith and fair dealing (Count IV); misrepresentation (Count V); intentional

interference in contractual and business relationships (Count VI); and intentional infliction

of emotional distress (Count VII). Appellants' theory in support of these claims was that

Appellees had indicated that they wanted to enter into a joint venture with Appellants but

when a draft joint venture agreement was prepared, Appellees advised that for "tax reasons"

Case 2:04-cv-00596-MHM Document 21 Filed 09/30/05 Page 2 of 16
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 3 -

the proposed joint venture had to be structured to appear as a loan. The actionable events in

support of Appellants' claims were alleged to have occurred between 1995 and 1997.

Appellees filed an answer to the adversary complaint. 

On October 16, 2001, Appellees moved for summary judgment, contending that

Appellants' claims were barred by applicable statutes of limitations. Appellees further

contended that the stipulation referenced above made it clear that there were no offsets and

represented a global settlement of all issues and claims between the parties. Appellees also

cited the testimony of Mr. Ward in February 2000 in which he stated that Appellants had not

listed lender liability claims in the bankruptcy schedules and had no such claims at the time.

Appellees' other asserted grounds for summary judgment included issue and claim

preclusion, and waiver and estoppel.

Appellants filed an opposition response on summary judgment in which they argued

that the stipulation had been entered strictly for the purpose of obtaining a post-petition loan

and that the stipulation did not represent a global settlement. In support of this latter

argument, Appellants cited paragraph I of the stipulation as reserving the rights of the parties

to have additional issues determined at a later time. Paragraph IV, I of the stipulation

provides that "[t]he parties reserve all rights, including all rights set forth in their prior

agreements, except as expressly modified herein." (Doc. 13, Appendix 3). Appellants also

argued that Mr. Ward's testimony had been mischaracterized and that the equitable doctrine

of recoupment prevented application of the statute of limitations bar. Appellees filed a reply

reiterating their argument that Appellants had no claims against them.

At a hearing on January 15, 2003, the Bankruptcy Court heard oral argument on

Appellees' motion for summary judgment. (Doc. 13, Appendix 18). The Bankruptcy Court

granted Appellees' motion for summary judgment in part, summarizing the ruling as follows:

The Court: So I'll grant the motion for summary judgment by

Lakin and Celco in part as follows. Any claim for recoupment

is limited to an offset basis only, no affirmative recovery. I'm

going to grant them [summary] judgment on the tort claims, that

they [Appellants] can only go back two years from when they

filed the complaint. And frankly, I think the Plaintiff's going to

have to go back and amend its complaint because most of that

Case 2:04-cv-00596-MHM Document 21 Filed 09/30/05 Page 3 of 16
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 4 -

complaint is directed to things that happened in 1995, 1996,

1997 that I think are tort actions.

I'll take under advisement the assertion by movants that

the totality of the circumstances, the conduct and the failure to

identify and assert this precludes them from pursuing it; but I'll

say candidly I'm not sure I agree with that. But just go back and

look at these cases. ...

I think [your] breach of contract claim is still viable. But

your tort claims, you can only go back two years unless, when

I read these authorities I conclude that I [ought] to just 

totally cut off. 

(Doc. 13, Appendix 18 at 31-32). The Bankruptcy Court then inquired of Appellants' counsel

whether Appellants intended to amend their complaint, and the following discussion

occurred:

The Court: Let me ask you this, after I rule, shouldn't you

amend your complaint; or do you want to stand on it. When I

read it, it really sounds primarily that you're looking at tort

claims for things that happened in 1995, 1996, 1997. And by

this ruling, I'm essentially saying that you can only use those for

offset purposes to the amount of their claims.

Mr. Aboud (Appellants' counsel): So, don't I still need them in

there. I think what you're saying is, that I can use them, but I

just can't exceed –

The Court: You can use them defensively but not offensively.

Mr. Aboud: Correct.

(Doc. 13, Appendix 18 at 32). 

 A minute entry dated January 15, 2003 set forth the Bankruptcy Court's ruling as

follows:

IT IS ORDERED granting the motion for summary judgment in

part. Any claim for recoupment is limited to an off set basis

only. There is no affirmative recovery. IT IS FURTHER

ORDERED granting the motion on the tort claim. They can

only go back 2 years from when the complaint was filed. The

Court believes the complaint needs to be amended. The Court

will take the assertion that the totality, circumstances, conduct

& failure to identity [sic] and assert this precludes them from

pursuing it under advisement.

(Doc. 13, Appendix 8). 

Case 2:04-cv-00596-MHM Document 21 Filed 09/30/05 Page 4 of 16
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 5 -

In an Order filed on January 22, 2003, the Bankruptcy Court set forth its further

findings and conclusions on Appellees' motion for summary judgment regarding whether "the

stipulation constituted a final judgment on the merits for purposes of claims preclusion

thereby barring this action." (Doc. 13, Appendix 9). The Bankruptcy Court concluded that

the stipulation did not entitle Appellees to summary judgment, stating as follows:

...[T]he stipulation did not release all claims that the debtors

might have against the defendants. In the two cases cited above

and relied upon by defendants, the parties agreed to complete

settlements of then pending litigation. When one of the parties

attempted to pursue further claims in subsequent litigation, the

courts held that the prior settlements barred the subsequent

claims and action.

There are two points which distinguish the situation here from

defendants' authorities. First, although the stipulation here is

broad in its scope, it is not a complete settlement of all claims

between the parties. Second, the reservation of rights expressly

provided, and the parties so agreed, that the parties reserved all

rights not otherwise provided for in the stipulation. That

stipulation is silent regarding whatever claims there may have

been of the plaintiffs.

[D]efendants are not entitled to summary judgment on this basis

and, therefore, the balance of the motion is denied.

(Doc. 13, Appendix 9). 

On or about January 31, 2003, Appellees filed a renewed motion for summary

judgment, noting the Court's ruling that Appellants could only go back two years on the tort

claims. Appellees now argued that all of the tort claims asserted by Appellants were prepetition in nature and therefore necessarily arose more than two years prior to the filing of

the adversary complaint, noting that the Chapter 11 petition was filed on September 29, 1997

and the adversary complaint was filed on September 11, 2000. Appellees sought partial

summary judgment on all claims, including on the basis of recoupment. (Doc. 13, Appendix

11).

On February 3, 2003, Appellees filed a related motion for new trial/relief from

judgment or order, seeking relief from the Bankruptcy Court's Order denying summary

judgment based on a construction of the stipulation. (Doc. 13, Appendix 12). Appellees

contended that the stipulation expressly stated that it was subject to and superseded by the

Case 2:04-cv-00596-MHM Document 21 Filed 09/30/05 Page 5 of 16
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 6 -

transcript of a November 5, 1997 hearing and that this transcript indicated that the matter was

a settlement of issues between the parties. The transcript of the November 5, 1997 hearing

has been submitted on this appeal. (Doc. 13, Appendix 4, Exh. 14). Appellees claimed that

the Bankruptcy Court had erred in failing to give consideration to the effect of the transcript

and other pleadings and schedules referenced in their summary judgment motion. (Doc. 13,

Appendix 12). 

A minute entry dated March 18, 2003 shows that the Bankruptcy Court heard

argument of counsel and ordered the parties to file authority in support of their respective

positions. (Doc. 13, Appendix 13). The parties timely complied with the Order. (Doc. 13,

Appendix 14 & 15). 

On August 1, 2003, the Bankruptcy Court entered an Order which granted in part

Appellees' motion for summary judgment as to Counts I through III and VII of the adversary

complaint and denied the motion as to the remaining counts. (Doc. 13, Appendix 16). The

Bankruptcy Court determined that, based on the stipulation and previous rulings, Appellees

held claims against Appellants and therefore Appellants could recoup the as yet

undetermined amounts of those claims "provided that such efforts relate to 'some feature of

the transaction upon which the claims of [Appellees] are based.'" The Court concluded that

Counts I through III and VII were too independent of the loan claims to constitute

recoupment. A further "flaw" based on the stipulation was noted as to Counts I through III,

with the Bankruptcy Court finding as follows:

Counts one through three, the joint venture claims have similar

short comings in that regard and an additional flaw. The parties'

stipulation provided that Lakin and Celco [Appellees] held

various debt obligations upon which the various debtors were

personally liable. Based upon that stipulation, which admitted

and acknowledged that Lakin and Celco had various outstanding

loans with these debtors and that any claims that their agreement

constituted a joint venture notwithstanding the parties written

agreement to the contrary are beyond the bounds of recoupment,

the court concludes that these claims are likewise too

independent to constitute recoupment. The three remaining

claims may constitute recoupment provided that such claims are

part of the debt transactions which are the basis for the claims of

Lakin and Celco in these bankruptcy cases and not based upon

independent claims too remote form the bankruptcy claims.

Case 2:04-cv-00596-MHM Document 21 Filed 09/30/05 Page 6 of 16
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 7 -

(Doc. 13, Appendix 16). 

On or about August 7, 2003, Appellants filed a motion for new trial and/or to alter or

amend the judgment. (Doc. 13, Appendix 17). Appellants contended that the Bankruptcy

Court was without legal authority to reverse its earlier ruling denying Appellees' motion for

partial summary judgment and that the August 1st ruling contravened the law of the case

doctrine. In addition, the stipulation did not preclude assertion of Appellants' claims in the

adversary complaint. Appellants filed a supplement to their motion which included a copy

of the transcript of the January 15, 2003 hearing. (Doc. 13, Appendix 18). Appellees filed

a response reasserting their estoppel and related arguments. (Doc. 13, Appendix 19).

On December 2, 2003, the Bankruptcy Court filed an Order denying Appellants'

motion for new trial and/or to alter or amend the judgment. (Doc. 13, Appendix 20). The

Court set forth its rationale as follows:

The court granted summary judgment regarding count seven of

the complaint for two reasons. First, the claim alleged is timebarred and, second, recoupment can not be used to pursue an

independent claim, (which count seven is) that is time-barred.

Therefore, count seven, as alleged, is barred. Counts one

through three, the joint venture claims involve the same defects

and more. The additional problem relates to the stipulation by

these parties that the agreements between plaintiffs and

defendants were loans. Parties are bound by their stipulations.

In re Sringpark, 623 F.2d 1377 (9th Cir. 1980), cert. denied, 449

U.S. 956, 101 S.Ct. 364, 66 L.Ed.2d 221 (1981). Because

plaintiffs are bound by their stipulations that their agreements

were loans they can not pursue claims alleging that the

agreements were in fact joint ventures which thereby imposed

fiduciary duties upon the parties. (id.). 

On March 16, 2004, the Bankruptcy Court entered Judgment as to this ruling. (Doc.

15, Appendix 12). (The Judgment was filed on March 8, 2004 and the parties have

sometimes referred to it as the March 8th Judgment). In the Judgment denying Appellants'

motion, the Bankruptcy Court reiterated (1) that Count VII is time-barred and recoupment

cannot be used to pursue an independent claim that is time-barred; and (2) that Counts I

through III are barred and the parties are bound by their previous stipulation that the

agreements between them were loans. (Doc. 15, Appendix 12). Appellants timely filed a

notice of appeal from the Judgment on March 22, 2004. 

Case 2:04-cv-00596-MHM Document 21 Filed 09/30/05 Page 7 of 16
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 8 -

 II.

Discussion.

Appellants contend that the Bankruptcy Court erred in granting summary judgment

as to Counts I through III and VII asserted in the adversary complaint. Appellants argue that

the law of the case doctrine precluded the Court from revisiting Appellees' summary

judgment motion in the Court's August 1st Order and that Counts I through III of the

complaint do not depend on the doctrine of recoupment. Appellants also contend that it was

error to grant summary judgment on Count VII because Appellants are entitled to pursue this

claim to the extent based on conduct that happened within two years of the filing of the

adversary complaint based on the Bankruptcy Court's January 15, 2003 ruling. Appellants

finally contend that there are genuine issues of material fact that preclude a grant of summary

judgment in Appellees' favor.

(A) This Court's Jurisdiction to Hear this Appeal.

Appellees make an argument that requires this Court to consider whether the present

appeal is properly before it. Appellees contend that the two "operative rulings" in this case

are the Bankruptcy Court's Order of January 15, 2003 and the Judgment signed March 8,

2004 and filed on March 16, 2004. Appellees argue that in the January 15th Order, the

Bankruptcy Court ruled that the tort claims asserted in Counts III through VII were all timebarred and that Appellees were granted summary judgment as to these Counts. As part of

this argument, Appellees contend that the January 15th Order required Appellants to file an

amended complaint which they have not done. Appellees then contend that in the second

"operative" Order, the "March 8, 2004" Judgment, the Bankruptcy Court based its ruling on

the stipulation of the parties and essentially held that Appellants had waived any claim of a

joint venture pursuant to the terms of the stipulation which indicated that the parties had a

debtor/creditor relationship. Appellees go on to argue that the effect of the March 8th

Judgment was to grant summary judgment in their favor on Counts I through III and to renew

summary judgment as to Count VII. Appellees contend that the January 15th Order and

Case 2:04-cv-00596-MHM Document 21 Filed 09/30/05 Page 8 of 16
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 9 -

"March 8th" Judgment granted summary judgment in favor of Appellees as to all seven

Counts set forth in the adversary complaint. 

Appellants in their reply brief dispute Appellees' claim that summary judgment has

been entered against them on all of the seven Counts they asserted in the adversary

complaint. (Doc. 17 at 4). This Court therefore raised the issue at oral argument. 

The Court disagrees with Appellees' claim that summary judgment has been entered

in their favor on all seven counts asserted in the adversary complaint. The Bankruptcy Judge

stated during the hearing on January 15th that the Court was granting Appellees' motion for

summary judgment in part and that Appellants could only "go back" two years from when

the complaint was filed on their tort claims asserted in Counts III through VII. The

Bankruptcy Judge observed that he thought Appellants should file an amended complaint

because the present complaint contained allegations that went back to 1995 through 1997.

In fact, during the January 15th hearing, the Bankruptcy Court specifically inquired of

Appellants' counsel whether an amended complaint should be filed. It appears from the

discussion that followed, set forth in the background facts above, that the Bankruptcy Court

and Appellants' counsel concurred that the allegations based on pre-1997 events could be

used "defensively" but not "offensively."

Moreover, and significantly, the Bankruptcy Court's August 1st Order granted in part

Appellees' renewed motion for summary judgment specifically as to Counts I through III and

VII and denied the motion as to the remaining Counts. (Doc. 13, Appendix 16). The

Bankruptcy Judge specifically stated in the August 1st Order that "the three remaining claims"

might constitute recoupment so long as they are part of the parties' loan transaction "and not

based upon independent claims too remote from the bankruptcy claims." The record

indicates that the Bankruptcy Court discussed only Counts I through III and VII in the

August 1st Order, in the December 2, 2003 Order which denied Appellants' motion for new

trial and/or to amend the judgment (Doc. 13, Appendix 20), and in the Judgment filed on

March 8, 2004 (Doc. 15, Appendix 12). This Court therefore concludes that the Bankruptcy

Case 2:04-cv-00596-MHM Document 21 Filed 09/30/05 Page 9 of 16
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 10 -

Court entered summary judgment in favor of Appellees as to Counts I through III and VII

only. 

Title 28, United States Code, section 158(a), provides as follows:

(a) The district courts of the United States shall have jurisdiction

to hear appeals

(1) from final judgments, orders, and decrees;

(2) from interlocutory orders and decrees issued under section

1121(d) of title 11 increasing or reducing the time periods

referred to in section 1221 of such title; and

(3) with leave of the court, from other interlocutory orders and

decrees;

and, with leave of court, from interlocutory orders and decrees,

of bankruptcy judges entered in cases and proceedings referred

to the bankruptcy judges under section 157 of this title. An

appeal under this subsection shall be taken only to the district

court for the judicial district in which the bankruptcy judge is

serving.

The appeal in this case involves an adversary proceeding which is "'a complete civil

lawsuit within the bankruptcy action.'" In re BTR Partnership, 292 B.R. 188, 192 (D.Neb.

2003)(quoting Matter of Boucher, 728 F.2d 1152, 1153 n.2 (8th Cir. 1984)). "[F]inality for

purposes of jurisdiction over 'as of right' appeals under 28 U.S.C. section 158(a)(1) in

adversary proceedings does not differ from finality in ordinary federal civil actions under 29

U.S.C. section 1291." Oliner v. Kontrabecki, 305 B.R. 510, 525 (N.D.Cal. 2004)(quoting

In re Belli, 268 B.R. 851, 856 (9th Cir. BAP 2001)). Moreover, appellate courts have

consistently applied Fed.R.Civ.P. 54(b) in bankruptcy adversary proceedings. Oliner, 305

B.R. at 525 (citing Belli, 268 B.R. at 856). The March 8th Judgment filed by the Bankruptcy

Court disposes of fewer than all of the claims asserted in the adversary complaint. As

discussed in Belli, "... Rule 54(b) makes plain that a 'judgment' that does not resolve an

adversary proceeding as to all remaining counts and parties and that lacks a Rule 54(b)

certification is not a final judgment." Id., 268 B.R. at 856. 

 If there has been no Rule 54(b) certification, then the order is interlocutory, and

appellate jurisdiction depends upon whether the appellate court grants leave to appeal under

Case 2:04-cv-00596-MHM Document 21 Filed 09/30/05 Page 10 of 16
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

1

The Court has considered the "judge-made" exceptions to the final order doctrine

discussed in Belli, 268 B.R. at 857, and as in that case, finds none of them applicable. 

- 11 -

28 U.S.C. § 158(a)(3). Belli, 268 B.R. at 857.1

 This Court may treat a notice of appeal from

an interlocutory order as a motion for leave to appeal under § 158(a)(3) and may exercise its

discretion "to grant leave to appeal in order to avoid wasteful litigation and expense where

the appeal presents a meritorious issue on a controlling question of law and an immediate

appeal would materially advance the ultimate termination of the litigation." Id. In the Ninth

Circuit, and "in the bankruptcy context, courts adopt a pragmatic approach in applying the

finality requirement, as 'the idiosyncracies of bankruptcy sometimes make it difficult to

discern whether orders entered in bankruptcy cases are final in the classic sense.'" In re

Pacific Gas and Electric Co., 280 B.R. 506, 511 (N.D.Cal. 2002). The finality requirements

of Rules 54(b) and § 158(a) are applied with more flexibility and the focus is on "whether

the order affects substantive rights and finally determines a discrete issue." Id. (quoted

citation omitted). 

Based on the circumstances of this case, this Court will construe Appellants' notice

of appeal as a motion to appeal which is granted. The Court has determined that the

Bankruptcy Court's Judgment affects substantive rights and determines a discrete issue.

Moreover, granting leave to appeal will serve to avoid wasteful litigation and expense and

to materially advance the ultimate termination of the litigation.

(B) Standard of Review.

The Bankruptcy Court's decision to grant summary judgment is reviewed de novo. 

In re Schafer, 294 B.R. 126, 129 (N.D.Cal. 2003). Federal Rule of Bankruptcy Procedure

7056 provides that Fed.R.Civ.P. 56 "applies in adversary proceedings." A motion for

summary judgment may be granted only if the evidence shows "that there is no genuine issue

as to any material fact and that the moving party is entitled to judgment as a matter of law."

Fed.R.Civ.P. 56(c). To defeat the motion, the non-moving party must show that there are

genuine factual issues "that properly can be resolved only by a finder of fact because they

Case 2:04-cv-00596-MHM Document 21 Filed 09/30/05 Page 11 of 16
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 12 -

may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477

U.S. 242, 250, 106 S.Ct. 2505, 2511 (1986). The party opposing summary judgment "may

not rest upon the mere allegations or denials of [the party's] pleadings, but ... must set forth

specific facts showing that there is a genuine issue for trial." Rule 56(e). See also,

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348,

1356 (1986).

A motion to alter or amend the judgment is appropriate to correct manifest errors of

fact or law or to present newly discovered evidence. In re Oak Brook Apartments of Henrico

County, Ltd., 126 B.R. 535, 536 (S.D.Ohio 1991). Denial of such motions are reviewed

under an abuse of discretion standard. Carter v. United States, 973 F.2d 1479, 1488 (9th Cir.

1992). 

(C) Appellants' Argument Based on the Law of the Case Doctrine.

The Bankruptcy Court's January 15th ruling did not dispense with all seven counts

asserted in the adversary complaint. Rather, the Bankruptcy Court indicated that its ruling

dealt with “the tort claims.” The Bankruptcy Judge specifically stated at the January 15th

hearing that Appellants' contract claim was "still viable." 

Pursuant to Fed.R.Civ.P. 54(b), all orders of a district court are "subject to reopening

at the discretion of the district judge" absent an express entry of a final judgment. Rule 54(b),

Federal Rules of Civil Procedure, which applies to bankruptcy cases, provides that, where

multiple claims are presented and upon proper findings, the district court may direct the entry

of final judgment as to one or more but fewer than all of the claims. Rule 54(b) further

provides in relevant part:

In the absence of such a determination and direction , any order

or other form of decision, however designated, which

adjudicates fewer than all the claims or the rights and liabilities

of fewer than all the parties shall not terminate the action as to

any of the claims or parties, and the order or other form of

decision is subject to revision at any time before the entry of

judgment adjudicating all the claims and the rights and

liabilities of all the parties. 

Case 2:04-cv-00596-MHM Document 21 Filed 09/30/05 Page 12 of 16
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 13 -

Rule 54(b)(emphasis added). The district court's discretion under Rule 54(b) has been held

to be properly exercised only within the confines of the law of the case doctrine. W.

Birkenfeld Trust v. Bailey, 837 F. Supp. 1083, 1085 (E.D. Wash. 1993). "Under the law of

the case doctrine 'a court is generally precluded from reconsidering an issue previously

decided by the same court, or a higher court in the identical case.'" Ingle v. Circuit City, 408

F.3d 592, 594 (9th Cir. 2005)(quoting United States v. Lummi Indian Tribe, 235 F.3d 443,

452 (9th Cir. 2000)). 

Application of the doctrine is discretionary, Id.; "[t]he law of the case doctrine is 'not

an inexorable command.'" United States v. Smith, 389 F.3d 944, 949 (9th Cir. 2004)(quoted

citation omitted), cert. denied, 125 S.Ct. 1721 (2005). The doctrine is "'wholly inapposite' to

circumstances where a district court seeks to reconsider an order over which it has not been

divested of jurisdiction." Smith, 389 F.3d at 949 (citing City of Los Angeles v. Santa Monica

Baykeeper, 254 F.3d 882, 888 (9th Cir. 2001)). As noted in Santa Monica Baykeeper, 254

F.3d at 888-89, "[a]ll rulings of a trial court are subject to revision at any time before entry

of judgment." See Belli, 268 B.R. at 857(until such time as the Bankruptcy Court directs

that final judgment be entered pursuant to a Rule 54(b) certification, "the court remains free

... to change its mind ..."). 

The Bankruptcy Court did not certify its January 15th ruling under Rule 54(b). The

Bankruptcy Judge was free to reconsider or change his mind until entry of final judgment.

Appellants' argument that the Bankruptcy Court was without legal authority to enter the

subsequent August 1st Order based on the law of the case doctrine is rejected.

(D) Appellants' Argument that the Bankruptcy Court erred in its

August 1st Order granting Summary Judgment in favor of

Appellees on Counts I through III and VII.

In the August 1st Order the Bankruptcy Court ruled in part that Counts I through III,

“the joint venture claims,” were barred based on the parties' stipulation. These counts

referred to Appellants' claims for declaratory judgment, breach of contract and breach of

fiduciary duty and were premised on allegations that the parties' pre-petition relationship was

that of a joint venture. The Court construed the stipulation as providing that Appellees held

Case 2:04-cv-00596-MHM Document 21 Filed 09/30/05 Page 13 of 16
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 14 -

“debt obligations” on which the debtors were liable. The Bankruptcy Court's August 1st

ruling occurred as a result of Appellees' renewed motion for summary judgment which

referred to the transcript of a November 5, 1997 hearing during which the terms of the

stipulation were stated on the record. 

The Court has reviewed the stipulation and the transcript of the November 5, 1997

hearing. Part I, paragraphs A through J, of the stipulation indicate that the parties prepetition relationship was that of borrower/lender. For example, paragraph A states that "[o]n

or about April 12, 1995, Cameo entered into a Purchase Agreement with Lakin, Seller," to

purchase real property commonly referred to as Victoria Meadows. Paragraph B states that

"[o]n or about April 2, 1995, Cameo entered into a Loan Agreement with CELCO for the

acquisition of Victoria Meadows." Paragraph D states that "[o]n or about August 15, 1995,

Cameo entered into a Purchase Agreement with Lakin, as seller, to purchase certain real

property ... known as Dunes III ..." Paragraphs E and G refer to the parties' "loan

agreement[s]." Paragraph I states that "[o]n or about February 1, 1997, Cameo and the

Wards entered into a Business Loan Agreement ..." Paragraph J states that "[o]n or about

February 1, 1997, Cameo and the Wards executed a promissory note in favor of Lakin ..."

The comments of counsel at the November 5, 1997 hearing described the parties’ pre-petition

relationship as involving loans. 

The Bankruptcy Court clarified in the December 2, 2003 Order denying Appellants'

motion for new trial, etc., that Appellants "are bound by their stipulations that their

agreements were loans [and] they can not pursue claims alleging that the agreements were

in fact joint ventures which thereby imposed fiduciary duties upon the parties." (Doc. 13,

Appendix 20). See, e.g., Dimidowich v. Bell & Howell, 803 F.2d 1473, 1477 n.1 (9th Cir.

1986)(parties generally may "fix the facts" by stipulation). 

As to Count VII, the claim for intentional infliction of emotional distress, the

Bankruptcy Court determined that the claim was time-barred and that it was too remote from

the loan claims to constitute recoupment. In Arizona, a two-year statute of limitations

applies to the tort of intentional infliction of emotional distress. See Hansen v. Stoll, 636

Case 2:04-cv-00596-MHM Document 21 Filed 09/30/05 Page 14 of 16
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 15 -

P.2d 1236, 1242 (Ariz. App. 1981)(citing Ariz. Rev. Stat. Ann. § 12-542(1)). Appellants'

allegations set forth in the adversary complaint were based on events that occurred between

1995 and 1997. Appellants filed the adversary complaint on September 11, 2000. The claim

for intentional infliction of emotional distress asserted in Count VII therefore was timebarred.

Based on the discussion that occurred during the January 15th hearing, the Bankruptcy

Court indicated that any time-barred tort claim could proceed under a recoupment theory.

Both federal and Arizona law recognize that a statute of limitations is not a bar to a

recoupment defense. Aetna Finance Company v. Pasquali, 626 P.2d 1103, 1105 (Ariz. App.

1981). "A recoupment defense survives as long as plaintiff's claim can be asserted, even

though defendant's claim would be barred by the statute of limitations if brought as an

affirmative action." Id. Recoupment is "in the nature of a defense arising out of some

feature of the transaction" upon which the plaintiff's action is grounded. Id. In other words,

the right to plead recoupment survives if the defense arises from the existence or foundation

of the transaction upon which plaintiff's claim is based. If the recoupment claim is

independent of the plaintiff's claim, it cannot survive the expiration of the period provided

by the statute of limitations. Beach v. Ocwen Federal Bank, 523 U.S. 410, 415, 118 S.Ct.

1408 (1998). 

In the August 1st and December 2nd Orders, the Bankruptcy Court noted that

Appellees had claims against Appellants, i.e., the "debt obligations", as evidenced by the

stipulation and previous rulings in the bankruptcy proceedings. The Court further reasoned

that Appellants could assert their tort claims in the adversary complaint against Appellees

in an effort to "recoup" any undetermined amounts even though such claims might be timebarred. However, Appellants could proceed on their tort claims provided that Appellants'

efforts were related to the transaction on which the claims were based, that is, the parties'

loan transactions. The Bankruptcy Court concluded that Count VII's claim for intentional

infliction of emotional distress was too independent of the loan claims to constitute

recoupment.

Case 2:04-cv-00596-MHM Document 21 Filed 09/30/05 Page 15 of 16
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 16 -

The elements of a cause of action for intentional infliction of emotional distress are

that the defendant's conduct must be "extreme" and "outrageous," the defendant must either

intend to cause emotional distress or recklessly disregard the near certainty that such distress

will result from his conduct, and that severe emotional distress has occurred as a result of the

defendant's conduct. Johnson v. McDonald, 3 P.3d 1075, 1080 (Ariz. App. 1999). This

claim cannot be said to have arisen from the loan transactions upon which Appellees' creditor

claims are based. 

The Bankruptcy Court did not err in its legal conclusions based upon this Court's de

novo review. The Bankruptcy Court's ruling was not an abuse of discretion. It is unnecessary

to consider Appellants' argument that genuine issues of material fact precluded entry of

summary judgment in Appellees' favor.

Accordingly, 

IT IS ORDERED that the Bankruptcy Court's Judgment filed on March 8, 2004 is

affirmed. 

DATED this 28th day of September, 2005.

Case 2:04-cv-00596-MHM Document 21 Filed 09/30/05 Page 16 of 16