Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-06-00025/USCOURTS-ca10-06-00025-0/pdf.json

Parties Involved:
El Llano, Inc.
Appellee
Martin S. Friedlander
Appellant
Jeffery Watson Potter
Appellee
Valley National Bank
Appellee

Document Text:

* This order and judgment is not binding precedent, except under the

doctrines of law of the case, res judicata, and collateral estoppel. 10th Cir. BAP

L.R. 8018-6(a).

FILED

U.S. Bankruptcy Appellate Panel

of the Tenth Circuit

December 27, 2006

Barbara A. Schermerhorn

Clerk NOT FOR PUBLICATION

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE TENTH CIRCUIT

IN RE JEFFERY WATSON POTTER,

Debtor.

BAP No. NM-06-025

MARTIN S. FRIEDLANDER,

Appellant,

Bankr. No. 11-05-14071-MS

Adv. No. 05-1216-M

 Chapter 11

v. ORDER AND JUDGMENT*

VALLEY NATIONAL BANK,

Plaintiff –

Third-Party-Defendant –

Appellee,

JEFFERY WATSON POTTER,

Defendant –

Third-Party-Plaintiff –

Appellee,

v.

EL LLANO, INC.,

Third-Party-Defendant –

Appellee.

Appeal from the United States Bankruptcy Court

for the District of New Mexico

Before CLARK, CORNISH, and MICHAEL, Bankruptcy Judges.

CORNISH, Bankruptcy Judge.

BAP Appeal No. 06-25 Docket No. 2 Filed: 12/27/2006 Page: 1 of 7
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After examining the briefs and appellate record, the Court has determined

unanimously that oral argument would not materially assist in the determination

of this appeal. The Court grants Appellant’s request for a decision on the briefs

without oral argument. Fed. R. Bankr. P. 8012. The case is therefore submitted

without oral argument.

Martin S. Friedlander (“Friedlander”) appeals an order of the United States

Bankruptcy Court for the District of New Mexico denying his motion to intervene

in an adversary proceeding pending in the Chapter 11 bankruptcy case of Jeffery

Watson Potter (“Debtor”). For the following reasons, we affirm the decision of

the bankruptcy court. 

I. BACKGROUND

Friedlander is a California attorney who previously represented Debtor in

various legal matters, including litigation in New Mexico state court. One of the

cases was a complaint on promissory notes filed by Valley National Bank

(“Bank”) against Debtor and El Llano, Inc., a company in which Debtor owns an

interest. Friedlander had associated with local counsel and was permitted to

represent Debtor pro hac vice in New Mexico. According to Friedlander, he

advanced expenses and fees to local counsel in the amount of approximately

$210,000 in connection with the various legal matters, which remain

unreimbursed by Debtor. Local counsel then withdrew from the case and

Friedlander was no longer able to represent Debtor. 

Debtor filed a voluntary Chapter 11 bankruptcy petition on May 19, 2005. 

On September 29, 2005, Bank’s action against Debtor was removed from New

Mexico state court to the bankruptcy court by Debtor. On January 10, 2006,

pursuant to Federal Rule of Bankruptcy Procedure 7024, Friedlander filed a

“Motion to Intervene on Behalf of the Defendants and Cross-Claimants” (“Motion

to Intervene”), claiming he has an interest in the subject of the action that is not

adequately represented by existing parties. 

BAP Appeal No. 06-25 Docket No. 2 Filed: 12/27/2006 Page: 2 of 7
1 Friedlander argues that Debtor also conveyed all of his future assets to the

Trust. Additionally, Friedlander contends he is a beneficiary of the Trust. 

Friedlander also happens to be the successor trustee of the Trust.

2 Friedlander asserts Debtor has cross-claims against Bank for “lender

liability.” Friedlander also argues he should be allowed to intervene in the

proceeding because Debtor has meritorious defenses against Bank, and if Bank’s

claims “are defeated[,] then there will be more money to distribute to [Debtor’s]

rightful creditors,” i.e., Friedlander. Consolidated Brief of Appellants [sic] at 19.

3 Debtor was briefly represented by special counsel in this adversary

proceeding. However, special counsel was subsequently allowed to withdraw

from representation. At the time of the bankruptcy court’s ruling on the Motion

to Intervene, Debtor was unrepresented in the adversary proceeding, as well as the

bankruptcy case.

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Friedlander contends his claims against Debtor for the $210,000 in

expenses and fees are secured by two liens. First, he asserts he has a lien on the

assets of a trust formed by the Debtor and known as the “Legal Defense and

Maintenance Trust of California, dated August 25, 2003” (“Trust”), to which

Debtor transferred all of his assets.1

 Second, Friedlander asserts he has a lien on

the proceeds, if any, from Debtor’s cross-claims against Bank, arising as a result

of an attorney-client retainer agreement.2

 Friedlander also claims Debtor was

ineffectively represented by special counsel Debtor had employed.3

 The

bankruptcy court denied Friedlander’s Motion to Intervene and he now appeals

that denial to this Court.

II. JURISDICTION

This Court has jurisdiction to hear timely-filed appeals from “final

judgments, orders, and decrees” of bankruptcy courts within the Tenth Circuit,

unless one of the parties elects to have the district court hear the appeal. 28

U.S.C. § 158(a)(1), (b)(1), and (c)(1); Fed. R. Bankr. P. 8002. Neither party

elected to have this appeal heard by the United States District Court for the

District of New Mexico. The parties have thus consented to appellate review by

this Court. 

The bankruptcy court’s order denying the Motion to Intervene is not a final

BAP Appeal No. 06-25 Docket No. 2 Filed: 12/27/2006 Page: 3 of 7
-4-

order in the ordinary sense. However, it is an adverse pretrial order that is

nonetheless appealable. An order denying intervention as of right has the degree

of definitiveness which supports an appeal because the adversely affected

applicant cannot appeal from any subsequent order or judgment in the proceeding.

Bhd. of R.R. Trainmen v. Baltimore & O.R. Co., 331 U.S. 519, 524 (1947). As a

result, an order denying intervention is final and subject to immediate review if it

prevents the applicant from becoming a party to an action. Coal. of Ariz./N.M.

Counties for Stable Econ. Growth v. Dep’t of Interior, 100 F.3d 837, 839 (10th

Cir. 1996) (citing Stringfellow v. Concerned Neighbors in Action, 480 U.S. 370,

377-78 (1987)). Thus, the decision of the bankruptcy court is a final order for

purposes of review. 

III. STANDARD OF REVIEW 

The applicable standard of review for rulings on motions to intervene as of

right is de novo. DeJulius v. New England Health Care Employees Pension Fund,

429 F.3d 935, 942 (10th Cir. 2005) (citing City of Stilwelll v. Ozarks Rural Elec.

Coop Corp., 79 F.3d 1038, 1042 (10th Cir. 1996). De novo review requires an

independent determination of the issues, giving no special weight to the

bankruptcy court’s decision. Salve Regina Coll. v. Russell, 499 U.S. 225, 238

(1991). 

IV. ANALYSIS

Rule 24 of the Federal Rules of Civil Procedure, made applicable to

bankruptcy proceedings by Federal Rule of Bankruptcy Procedure 7024, provides

in pertinent part:

(a) Intervention of Right. Upon timely application anyone shall be

permitted to intervene in an action: (1) when a statute of the United

States confers an unconditional right to intervene; or (2) when the

applicant claims an interest relating to the property or transaction

which is the subject of the action and the applicant is so situated that

the disposition of the action may as a practical matter impair or

impede the applicant’s ability to protect that interest, unless the

applicant’s interest is adequately represented by existing parties.

BAP Appeal No. 06-25 Docket No. 2 Filed: 12/27/2006 Page: 4 of 7
4 The bankruptcy court’s Order Denying Martin S. Friedlander’s Motion to

Intervene on Behalf of Defendants and Cross Claimants (“Order”) also states that

it “finds no reason to permit Friedlander to intervene under the discretionary

intervention provision of Rule 24(b)(2).” Order at 3. Friedlander made no

argument regarding permissive intervention in either his brief-in-chief or his reply

brief. Therefore, such issue is deemed abandoned on appeal.

5 Bank did not submit an answer brief on appeal.

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Fed. R. Civ. P. 24(a). Friedlander does not assert the right to intervene based on

a federal statute. Rather, he asserts he has an interest in the subject matter of the

adversary proceeding and that his interest is not adequately protected by existing

parties.4

 On appeal, Friedlander argues that the bankruptcy court, in denying his

Motion to Intervene, “failed to liberally construe Rule 24,” and erred in

concluding he has no protectable interest, thereby depriving him of his right to

due process of law in violation of the Fifth Amendment.5

In In re Kaiser Steel, the United States Court of Appeals for the Tenth

Circuit held:

An intervenor under Rule 24(a)(2) must meet the following

requirements: (1) submit a timely application to intervene, (2)

demonstrate an interest in the property or transaction, (3) show that

the intervenor’s ability to protect such interest might be impaired,

and (4) demonstrate that the interest is not adequately represented by

the existing parties.

In re Kaiser Steel Corp., 998 F.2d 783, 790 (10th Cir. 1993). Regarding the

interest claimed by the applicant, the Tenth Circuit stated that “[u]nder

Bankruptcy Rule 7024, the putative intervenor must show that he has a

‘significantly protectable interest’ in the adversary proceeding.” Id. at 790

(quoting In re Thompson, 965 F.2d 1136, 1143, n.12 (1st Cir. 1992). Further, that

interest must be “direct, substantial, and legally protectable.” Kaiser Steel at 790-

91 (quoting United States v. Perry County Bd. of Educ., 567 F.2d 277, 279 (5th

Cir. 1978). “[T]he mere existence of a third person’s contingent interest in the

outcome of pending litigation is insufficient to warrant intervention of right.” 

Kaiser Steel at 791 (quoting Abney v. I.T.T. Diversified Credit Corp. (In re Envtl.

BAP Appeal No. 06-25 Docket No. 2 Filed: 12/27/2006 Page: 5 of 7
6 Order at 3. Additionally, the bankruptcy court ruled that Friedlander did

not comply with the procedural requirements of Rule 24(c) which states:

(c) Procedure. A person desiring to intervene shall serve a motion to

intervene upon the parties as provided in Rule 5. The motion shall

state the grounds therefor and shall be accompanied by a pleading

setting forth the claim or defense for which intervention is

sought . . . .

Friedlander argues that the first amended complaint filed in the state court and his

proof of claim (No. 15) filed in the bankruptcy proceeding satisfy Rule 24(c). For

purposes of this appeal, we will assume that Friedlander complied with Rule

24(c).

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Elec. Sys., Inc.), 11 B.R. 962, 964 (Bankr. N.D. Ga. 1981)). In Kaiser Steel, the

Tenth Circuit applied the above criteria and determined that surface owners of

real property had no protectable interest in an adversary proceeding involving a

coal mining royalty claim against the real property. Kaiser Steel at 791. 

Accordingly, the standard for intervention as of right has been set high in the

Tenth Circuit.

In this case, Friedlander’s interest in the adversary proceeding is

contingent, not direct, and therefore insufficient to warrant intervention of right. 

Because his interest is contingent, the disposition of this action does not impair or

impede Friedlander’s ability to protect that interest. As stated by the bankruptcy

court, “Friedlander’s lien on any recovery from this proceeding, if any, is an

insufficient reason to allow intervention. . . . Friedlander is a creditor in the

bankruptcy proceeding with a right to payment from property of [Debtor’s]

bankruptcy estate and a right to vote on a proposed Chapter 11 Plan.”6

Accordingly, Friedlander’s interest is protected by application of the provisions

of the Bankruptcy Code.

Even if it had determined that Friedlander had a significantly protectable

interest in the adversary proceeding, the bankruptcy court would still have had

grounds to deny his Motion to Intervene. This is because in order to intervene as

of right, Friedlander must also show that his “interest is not adequately

BAP Appeal No. 06-25 Docket No. 2 Filed: 12/27/2006 Page: 6 of 7
7 At the time of the bankruptcy court’s ruling on the Motion to Intervene,

Debtor was unrepresented by counsel in this action. However, Debtor’s status as

pro se does not in and of itself compel the conclusion that Friedlander’s interest is

not adequately represented by Debtor. The burden is on Friedlander to rebut the

presumption of adequacy, and he has not fulfilled that burden “by showing

collusion between the representative and an opposing party, that the

representative has an interest adverse the applicant, or that the representative

failed in fulfilling his duty to represent the applicant’s interest.” Coal. of

Ariz./N.M. Counties for Stable Econ. Growth v. Dep’t of Interior, 100 F.3d 837,

844-845 (10th Cir. 1996) (quoting Sanguine, Ltd. v. United States Dep’t of

Interior, 736 F.2d 1416, 1419 (10th Cir. 1984)). 

8 Order at 4.

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represented by the existing parties.” Here, Friedlander’s interest is directly

aligned with Debtor’s interest. A positive outcome for Debtor in the adversary

proceeding is a positive outcome for Friedlander. Representation is presumed

adequate when the ultimate objective of the applicant for intervention is the same

as that of one of the parties. Coal. of Ariz./N.M. Counties for Stable Econ.

Growth v. Dep’t of Interior, 100 F.3d 837, 845 (10th Cir. 1996). Therefore,

Friedlander’s interest is adequately represented by an existing party– the Debtor.7

Friedlander also contends he should be allowed to intervene to act on

behalf of Debtor because special counsel was allowed to withdraw and Debtor is

now unrepresented. However, as noted by the bankruptcy court, it is the debtorin-possession who must file an application to hire counsel. Intervention is an

inappropriate avenue for seeking to represent the debtor-in-possession.8

 

V. CONCLUSION

The bankruptcy court did not err in denying the Motion to Intervene. 

Friedlander has no significantly protectable interest in the adversary proceeding. 

Therefore, the judgment of the bankruptcy court will be affirmed.

BAP Appeal No. 06-25 Docket No. 2 Filed: 12/27/2006 Page: 7 of 7