Court Opinion

ID: 2648670
Source: CourtListenerOpinion
Date Created: 2014-01-09 17:51:52.554878+00
Date Added: 2024-06-11T12:32:47.953200
License: Public Domain

NOT PRECEDENTIAL

                      UNITED STATES COURT OF APPEALS
                           FOR THE THIRD CIRCUIT
                                _____________

                                    No. 12-4622
                                   _____________

                     In re: AGR PREMIER CONSULTING, INC.,
                                                   Debtor

  BAYER BUSINESS AND TECHNOLOGY SERVICES f/k/a Bayer Corporation and
                       Business Services, LLC

                                          v.

      AGR PREMIER CONSULTING, INC.; 21ST CAPITAL CORPORATION

                           21ST CAPITAL CORPORATION,
                                                 Appellant
                                 _______________

                    On Appeal from the United States District Court
                       for the Western District of Pennsylvania
                               (D.C. No. 2-11-cv-00803)
                       District Judge: Hon. Gary L. Lancaster
                                  _______________

                                       Argued
                                   October 18, 2013

             Before: RENDELL, JORDAN and LIPEZ*, Circuit Judges.

                                   (Filed: January 9, 2014)

_________________________________

       *Honorable Kermit V. Lipez, United States Court of Appeals Senior Judge for the
First Circuit, sitting by designation.
Martin F. Goldman, Esq.
15910 Ventura Boulevard – Ste. 1525
Encino, CA 91436

Ronald B. Roteman, Esq. [ARGUED]
George T. Snyder, Esq.
Stonecipher Law Firm
125 First Avenue
Pittsburgh, PA 15222
      Counsel for Appellant

William E. Kelleher, Jr., Esq. [ARGUED]
Helen S. Ward, Esq.
Cohen & Grigsby
625 Liberty Avenue
Pittsburgh, PA 15222
      Counsel for Appellees

Jeffrey J. Sikirica, Esq.
121 Northbrook Drive
Gibsonia, PA 15044
      Trustee
                                   _______________

                              OPINION OF THE COURT
                                  _______________

JORDAN, Circuit Judge.

       This is a case about allocating the fallout of fraud. AGR Premier Consulting

(“AGR” or the “Debtor”) fabricated invoices on which both 21st Capital Corporation

(“21st Capital”) and Bayer Business and Technology LLC (“Bayer”) relied. 21st Capital,

serving as a factor, paid AGR for those invoices fully expecting Bayer to reimburse those

payments. Bayer now argues that it never received any services from AGR in connection

with the fraudulent invoices and therefore owes nothing to 21st Capital. 21st Capital,

obviously, sees things differently. And therein – amidst extraneous arguments over

                                            2
bankruptcy law – lies the rub. 21st Capital now appeals the decision of the United States

District Court for the Western District of Pennsylvania finding it in contempt for

violating a Stipulated Order. For the reasons that follow, we will reverse and remand.

I.     Background1

       A.     Relationship Between the Parties

       On August 3, 2009, several creditors of AGR, not including 21st Capital, filed an

involuntary petition for bankruptcy against AGR, pursuant to 11 U.S.C. § 303(b). Prior

to the commencement of the bankruptcy proceedings, AGR had been in the business of

providing personnel and administrative resources to its clients, including Bayer. Because

of its “cash flow difficulties,” AGR entered into an agreement in July 2004 with 21st

Capital, an accounts receivable factor,2 such that:

       (i) AGR provided contract personnel to Bayer and invoiced Bayer in the
       ordinary course of business; (ii) AGR electronically created and sent a copy
       of each invoice to 21st Capital, along with a request that 21st Capital
       factor/purchase the invoice by advancing to AGR immediately available
       funds in an amount equal to eighty percent (80%) of the total amount of
       such invoice, all in conformance with the terms and conditions of the

       1
         In evaluating a contempt motion, ambiguities in the record are to be resolved in
favor of the party charged with contempt. See FTC v. Lane Labs-USA, Inc., 624 F.3d
575, 582 (3d Cir. 2010) (“These elements must be proven by clear and convincing
evidence, and ambiguities must be resolved in favor of the party charged with contempt.”
(citation omitted) (internal quotation marks omitted)). Thus, while the facts are largely
undisputed, where we discern ambiguity we consider the facts from 21st Capital’s
perspective.
       2
         “While at common law a factor was a selling agent and had a lien on his
principal’s goods in his possession for advances and commissions, the present-day factor
is a financier who lends money on the security of merchandise or accounts receivable ...
.” H.H. Henry, Necessity and Sufficiency of Notice or Statement Prescribed By Factor’s
Lien Law, 96 A.L.R. 2d 727 (1964).

                                             3
      factoring agreement; and (iii) ultimately, as the invoices became due, Bayer
      approved and paid them directly to 21st Capital, as AGR’s assignee.
(Appellant’s Opening Br. at 6.) In other words, AGR provided staffing to Bayer; 21st

Capital paid AGR for that staff; and then Bayer in turn paid 21st Capital.3

       The mechanics of the parties’ factoring arrangement included 21st Capital

periodically sending online Invoice Confirmation Agreements (“ICAs”) to Bayer, as

noted in step “(ii)” of the foregoing quotation describing the parties’ dealings with one

another. According to 21st Capital, Bayer was then required to acknowledge, and

thereby authenticate, each and every invoice that AGR factored, and subsequently pay

each invoice directly to 21st Capital. For each invoice directed to Bayer, 21st Capital

claims that “a paper trail exists (in the form of a verifiable, electronic record) in which

Bayer [not only] formally replied and agreed in writing to pay 21st Capital” (Appellant’s

Opening Br. at 7), but also agreed to waive all of its defenses to payment, pursuant to the

California Commercial Code § 9403.

       By June 2009 Bayer’s payments had become – at least in 21st Capital’s view –

increasingly inconsistent and late. According to 21st Capital’s records, Bayer owed it

over $2 million on unpaid invoices (the “Bayer Debt”). Because of the magnitude of that

sum, 21st Capital sought assurances from Bayer that Bayer’s records were consistent

with its own, so, for further verification, it sent Bayer an “Aging Report” on June 15,

2009, which highlighted the Bayer Debt. Although the parties disagree on the

significance of Bayer’s response – and whether Bayer was in fact responding to 21st

       3
        21st Capital never properly filed its security interest in Bayer’s accounts
receivable – and therefore never perfected that interest – and so is not considered a
secured creditor in AGR’s bankruptcy proceeding.
                                              4
Capital’s request for confirmation or to another matter altogether4 – three days after 21st

Capital sent the Aging Report, Karen Moran, Bayer’s lead for “authoriz[ing] invoices,”

replied in an email, stating, “Hello. Sorry I havent [sic] got back to you until now. This

is correct.” (J.A. 861-64 (Karen Moran’s Deposition), 323 (Email).) A few weeks later,

on July 21, 2009, AGR suddenly and without warning announced that it was immediately

ceasing operations. Unbeknownst to Bayer and 21st Capital, at the time AGR shut down,

       4
        During her deposition, Moran denied ever responding to 21st Capital’s email
regarding the Bayer Debt:

       Q: And you responded to Mr. Ford’s email, June 15; did you not?
       A. No, I don’t believe I did.
       Q. Do you recall approving the accuracy of the invoices in the aging report
       that is attached to his June 15 email?
       A. I don’t.
       ….
       Q. When you say this is correct, you’re responding affirmatively to the
       accuracy of the aging, the invoices or all the information in the aging report
       attached to Mr. Ford’s email, correct?
       A. No, I can’t be sure this answers to that.
       Q. What do you think it’s for?
       A. I don’t know.
       Q. What do you think he was asking?
       A. I don’t know.
       ….
       Q. Do you recall then in what context you said this is correct in your email
       of June 18?
       A. I can’t remember what that would be for.

(J.A. at 621-625 (Karen Moran’s Deposition).) The District Court noted that it did not
find it necessary to resolve this factual dispute to rule on the Bankruptcy Court’s finding
of contempt.

                                             5
a significant number of its invoices – approximately $2,000,000-worth that 21st Capital

had already factored – were fraudulent.

       B.     California Action & Stipulated Order

       On or about August 7, 2009 – after the involuntary bankruptcy petition was filed

against AGR but before any relief was ordered by the Bankruptcy Court – 21st Capital

filed a complaint (the “California Action”) against Bayer in the Superior Court of

California, County of Los Angeles, Central District, to recoup payment from Bayer for

the Bayer Debt based on two “legal theories under the laws of the State of California”:

(1) Money Had and Received and (2) Goods and Services Sold and Delivered.

(Appellant’s Opening Br. at 8.) At about the same time, Bayer initiated an Adversary

Proceeding in the Bankruptcy Court against AGR’s Trustee and 21st Capital to resolve

“possible conflicting claims concerning, inter alia, payments due and owing by Bayer to

[AGR] on or before about July 20, 2009, for certain invoiced and uninvoiced amounts for

services rendered by or on behalf of [AGR] before [AGR] ceased operations, in the

approximate amount of $302,057.81 (the ‘Bayer Receivable’).” (J.A. at 141 (Stipulated

Order at 2).) In its initial response to Bayer’s motion, 21st Capital “expressly argued that

the Bankruptcy Court had no jurisdiction to decide the matters at bar in the California

Action.” (Appellant’s Opening Br. at 9.) Nonetheless, rather than fully litigate the

Adversary Proceeding, 21st Capital decided to temporarily stay the California Action and

enter a stipulation with Bayer and the Trustee in the Bankruptcy Court. After “at least six

hearings” and discovery (Appellee’s Br. at 3), the parties – 21st Capital, Bayer, and the

Trustee – signed a Stipulated Order, which expressly defined the terms “Accounts

                                             6
Receivable” and “Bayer Receivable” as follows: (1) “Accounts Receivable” are “an asset

of the Debtor’s estate,” which includes “any amount owed with respect to services

actually performed by or on behalf of the Debtor for Bayer which Bayer has not paid”;

and (2) the “Bayer Receivable” is the payment “due and owing by Bayer to Debtor on or

before about July 20, 2009, for certain invoiced and uninvoiced amounts for services

rendered by or on behalf of Debtor before Debtor ceased operations, in the approximate

amount of $302,057.81.” (J.A. at 141 (Stipulated Order at 2).) The Order also stated, in

part:

         WHEREAS, Bayer has averred herein that the payment of $302,057.81
        into the custody of this Court represents the full and complete payment of
        any and all valid and owing invoices, accounts receivable or other amount
        due from Bayer for any and all services performed or provided by the
        Debtor for Bayer, and said payment fully satisfied its obligations to the
        Debtor regarding all services provided or performed by the Debtor for
        Bayer through and including the date of said payment; and ...

        WHEREAS, 21st Capital contends in the California Action that Bayer’s
        alleged liability to 21st Capital is the result of alleged specific contractual
        agreements; and

        WHEREAS, notwithstanding Bayer’s payment of said $302,057.81 and
        Bayer’s contentions set forth above, 21st Capital contends in the California
        Action (which Bayer denies) that Bayer, as the result of alleged specific
        contractual agreements is independently liable to 21st Capital for the
        principal amount of $2,156,194.91 (the “21st Capital Claim”) ...

        WHEREAS, the 21st Capital Claim is not an asset of the Debtor’s estate.

        NOW, THEREFORE, it is hereby stipulated by, between and among the
        Parties ...

        3. Within a reasonable time after this final Stipulated Order becomes
        nonappealable, 21st Capital shall amend its Complaint in the California
        Action to assert the 21st Capital Claim;

                                              7
       4. That 21st Capital shall not pursue any claim in the California Action
       against Bayer for the recovery of the Bayer Receivable as defined herein or
       the Accounts Receivable, as defined herein;

       5. If it is discovered in the course of the California Action, that Bayer owes
       additional sums to the Debtor for services actually performed by the Debtor
       and/or its personnel or representatives, that is, if any Accounts Receivable
       actually exist, 21st Capital shall promptly notify the Trustee and at the
       request of Bayer or the Trustee, this Court shall enter an appropriate order
       as to the disposition of said assets; …

       8. This Stipulated Order shall close this adversary proceeding; however, the
       Court shall retain jurisdiction to enforce this Stipulated Order … .

(J.A. at 141-444 (Stipulated Order at 2-5).)

       In essence, the Order re-opened the door to the California Action. While the

Order expressly prohibited 21st Capital from pursuing in the California Action any

“Accounts Receivable” or the “Bayer Receivable” – as expressly defined in the Order – it

also gave 21st Capital the green light to pursue the “21st Capital Claim,” which appears

to have reference to “alleged specific contractual agreements” between 21st Capital and

Bayer as embodied in the ICAs. The Order also made clear that the 21st Capital Claim

was not a part of the Debtor’s estate. All parties have agreed that the outstanding, unpaid

invoices that 21st Capital relied upon in paying AGR – outside of what Bayer has already

paid to the estate in the Adversary Proceeding – were a complete fabrication.

       In a purported attempt to abide by the Order, 21st Capital filed its First Amended

Complaint (the “FAC”) in the California Action, adding a cause of action for “Breach of

Written Contract,” but maintaining its two earlier causes of action for “Money Had and

Received” and “Goods and Services Sold and Delivered.” (J.A. at 159-61 (FAC at 4-6).)

For the “Goods and Services Sold and Delivered” claim, 21st Capital amended the

                                               8
Complaint to clarify that Bayer “became indebted to [21st Capital] in the sum of

$2,156,194.81 for services allegedly sold and delivered by AGR,” (J.A. at 161 (FAC at 6)

(emphasis added)), in contrast to the original language of the Complaint that had stated

Bayer “became indebted to [21st Capital] … for services sold and delivered to defendant”

(J.A. at 740 (Original Complaint at 3-4)). 21st Capital considered the FAC as being

consistent with the requirements of the Stipulated Order.

      C.     Motion for Contempt

      In response to the FAC, Bayer returned to the Bankruptcy Court and filed a

Motion for Contempt, arguing that 21st Capital’s claim in the California Action for

“Goods and Services Sold and Delivered” was “a violation of the automatic stay” and of

the Order. (J.A. at 137 (Bayer’s Motion for Contempt at 4).) In its response, 21st Capital

claimed that “Goods and Services Sold and Delivered” was a “common count[,] as

permitted under the California Pleading Rules,” and sought only to “recover for services

allegedly rendered,” whereas the Order only prohibits recovery for services that were

“actually rendered.” (J.A. at 252 (21st Capital’s Response in Opposition to Motion for

Contempt at 2) (emphasis added) (internal quotation marks omitted).)

      21st Capital also argued that “the Motion [was] not ripe for judicial review and

may soon be moot, since 21st Capital ha[d] filed a Motion for Leave to File a Second

Amended Complaint” (the “SAC”) in the California Action. (J.A. at 253 (21st Capital’s

Response in Opposition to Motion for Contempt at 3).) As a part of its SAC, 21st Capital

not only voluntarily dismissed its claim for “Money Had and Received” as

“inappropriate” but also requested that the claim regarding “Goods and Services Sold and

                                            9
Delivered” be “repleaded as a common count for ‘account stated’ so that there is no

dispute between the parties of what the plaintiff has intended.” (J.A. at 330-31

(Declaration in Support of Motion for Leave at 3-4).) The proposed SAC, therefore,

provided for only two causes of action: (1) “Breach of Written Contract” and (2)

“Account Stated.”5

       Upon hearing from the parties, the Bankruptcy Court intimated that, at least on

their face, 21st Capital’s complaints in the California Action appeared to implicate

AGR’s accounts receivable because 21st Capital’s relationship to Bayer was premised

entirely on being paid for those receivables. At that time, Bayer made clear that it was

not objecting to 21st Capital’s claim of “Breach of Written Contract,” but only to its

proposed Account Stated claim (formerly denominated in the FAC as a claim for “Goods

and Services Sold and Delivered”). Specifically, Bayer stated:

       Your Honor, I think the litigation is going forward, or it has gone forward
       up to this point, based on the contractual count that they have and would
       still have in their complaint in Count 1. That’s the theory that they said
       they wanted to pursue. That’s the theory that underlied the Stipulated
       Order, and we have no problem with them ... going forward on that.

(J.A. at 428.) In other words, Bayer did not believe that 21st Capital’s claim for Breach

of Contract in any way implicated AGR’s accounts receivable. In addition, the Trustee of

AGR’s estate confirmed that there was no evidence of any additional receivables owed to

       5
         It is unclear from the record whether the California Superior Court has granted
21st Capital leave to file the SAC. Because the “Money Had and Received” claim is not
at issue here, and our resolution of the appeal does not hinge on the characterization of
the third cause-of-action as either being for “Goods and Services Sold and Delivered” or
“Account Stated,” the filing status of the SAC is of no consequence to the present
dispute.

                                            10
the Debtor. The Trustee further advised that 21st Capital’s claims appeared to be that

“someone inside Bayer ... somehow validated these invoices” so that 21st Capital “was

induced to factor this money to AGR, and as a result of that,” 21st Capital was harmed by

“separate actions by an employee of Bayer.” (J.A. at 482.)

       Nonetheless, the Bankruptcy Court found 21st Capital in contempt. The Court

reasoned that since, “to assert an ‘account stated’ action, there must be a previous debt in

existence,” that previous debt “would by necessity be based upon the services rendered

by the Debtor to Bayer,” which is now property of the estate. (J.A. at 641 (Memorandum

Opinion at 6).)

       On appeal to the District Court, 21st Capital argued that the Bankruptcy Court had

exceeded its jurisdiction by deciding matters of California state law and had abused its

discretion by determining that 21st Capital was in contempt of the Stipulated Order. The

District Court rejected those contentions and affirmed the contempt order. 21st Capital

then filed this timely appeal.

                                             11
II.    Discussion6

       6
          As more fully described herein, the Bankruptcy Court had jurisdiction under 28
U.S.C. §§ 157(b)(1) and 1334. The District Court had jurisdiction under 28 U.S.C.
§§ 158(a)(1) and 1334. We consider our jurisdiction well-grounded in 28 U.S.C.
§ 158(d), as well as under § 1291 and § 1292. Although the parties do not challenge that
the Bankruptcy Court’s order functions as a “final order” such that an appeal is
appropriate, 28 U.S.C. § 158(a)(1), we have an obligation to independently consider our
jurisdiction. Having done so, we conclude that the Bankruptcy Court’s order is a final
order, giving us jurisdiction pursuant to § 1291, and is also effectively an injunction,
making our review proper under § 1292.
        With respect to whether a civil contempt finding constitutes a “final order,” we
note that we have “consistently considered finality in a more pragmatic and less technical
way in bankruptcy cases than in other situations.” In re Amatex Corp., 755 F.2d 1034,
1039 (3d Cir. 1985) (citing cases). Relevant factors have included “the impact of the
matter on the assets of the bankruptcy estate, the preclusive effect of a decision on the
merits, and whether the interests of judicial economy will be furthered.” F/S Airlease II,
Inc. v. Simon, 844 F.2d 99, 104 (3d Cir. 1988). Here, the contempt finding is based on a
Stipulated Order that resolved an adversary proceeding, retaining jurisdiction as to that
proceeding only to enforce the Stipulated Order. Under these facts, the bankruptcy order
was final, and so too the District Court’s decision to then uphold that order. See In re
Prof’l Ins. Mgmt., 285 F.3d 268, 281 (3d Cir. 2002) (“[A] bankruptcy court order ending
a separate adversary proceeding is appealable as a final order even though that order does
not conclude the entire bankruptcy case.”) (internal quotation marks omitted). While the
Bankruptcy Court ostensibly leaves 21st Capital’s “Breach of Contract” claim intact in its
“Order of the Court,” its decision is of contrary effect. In finding that 21st Capital’s
“Account Stated” claim was impermissible, the Court explicitly reasoned that 21st
Capital “cannot escape the tentacles of the Debtor in attempting to establish its
relationship with Bayer.” (J.A. at 33.) That same reasoning applies to 21st Capital’s
“Breach of Contract” claim, and thus means the order effectively denies relief sought by
21st Capital on the discrete issue of whether it can pursue the California Action.
        With respect to the contempt finding constituting an injunction, it was (1) directed
to 21st Capital, (2) was enforced by contempt, and (3) was designed to give substantive
relief to Bayer. It thus meets all of the criteria we have set forth for determining that an
order has the practical effect of an injunction. Cohen v. Bd. of Trs. Of the Univ. of Med.
& Dentistry of N.J., 867 F.2d 1455, 1465 n.9 (3d Cir. 1989). Accordingly, it is
appealable under § 1292. Saudi Basic Indus. Corp. v. Exxon Corp., 364 F.3d 106, 110
(3d Cir. 2004).
                                            12
       21st Capital seeks to recoup from Bayer more than $2,000,000 that it paid AGR as

a result of AGR’s fraudulent invoices, but Bayer asserts that 21st Capital is effectively

trying to recover AGR’s outstanding receivables from Bayer, in violation of the

Stipulated Order. The problem with Bayer’s argument is that “Accounts Receivable” is a

defined term in the Order. If the invoices are indeed fraudulent, as Bayer itself insists

they are, then those invoices do not represent services actually rendered by AGR to

Bayer. That places the sums stated in the invoices outside of the defined category of

“Accounts Receivables,” which 21st Capital is prohibited to pursue. Fundamentally,

Bayer – along with the Bankruptcy Court and the District Court – has confused the

defined term “Accounts Receivable” with whatever debt Bayer may owe 21st Capital due

to AGR billing.

       Of the several issues on appeal, we need only address the question of the

Bankruptcy Court’s jurisdiction and whether the contempt order was an abuse of that

Court’s discretion.

        When reviewing a district court appeal of a bankruptcy court decision, we exercise
the same standard of review as the district court. Manus Corp. v. NRG Energy, Inc.,188
F.3d 116, 122 (3d Cir. 1999). We review de novo a bankruptcy court’s legal
determinations, including whether it properly exercised its subject matter jurisdiction. In
re RFE Indus., Inc., 283 F.3d 159, 163 (3d Cir. 2002). However, when reviewing a
district court’s decision on a motion for contempt, we apply an abuse of discretion
standard. “Reversal is appropriate ‘only where the denial is based on an error of law or a
finding of fact that is clearly erroneous.’” Roe v. Operation Rescue, 54 F.3d 133, 137 (3d
Cir. 1995) (quoting Harley-Davidson, Inc. v. Morris, 19 F.3d 142, 145 (3d Cir. 1994)).

                                             13
       A.     The Bankruptcy Court’s Jurisdiction

       “There are [] three types of bankruptcy jurisdiction, commonly called ‘arising

under,’ ‘arising in,’ and ‘related to’ jurisdiction.” In re W.R. Grace & Co., 591 F.3d 164,

171 (3d Cir. 2009). The first two categories cover so-called “core proceedings,” in which

a bankruptcy court is statutorily permitted to enter final judgments, whereas in a “related-

to,” or non-core proceeding, a bankruptcy court may only “submit proposed findings of

fact and conclusions of law to the district court[.]” 28 U.S.C. § 157(c)(1). “It is well

established that proceedings to determine what constitutes property of the bankruptcy

estate under section 541(a) of the Bankruptcy Code are core proceedings.” In re Point

Blank Solutions Inc., 449 B.R. 446, 449 (Bankr. D. Del. 2011). Similarly, a

“determination of what is property of the estate and concurrently, of what is available for

distribution to creditors of that estate, is precisely the type of proceeding over which the

bankruptcy court has exclusive jurisdiction.” In re Reliance Grp. Holdings, Inc., 273
B.R. 374, 395 (Bankr. E.D. Pa. 2002). As for continuing jurisdiction over a stipulated

agreement, such as the Order at issue here, while a “court does not have

continuing jurisdiction over disputes about its orders merely because it had jurisdiction

over the original dispute, a stipulated agreement signed by the court does allow” for the

continuing exercise of jurisdiction. Washington Hosp. v. White, 889 F.2d 1294, 1298-99

(3d Cir. 1989).

       Despite 21st Capital’s protestations, it is clear that the Bankruptcy Court had

jurisdiction. This is a case centered around the question of “what constitutes property of

the bankruptcy estate,” and is therefore a core proceeding. Point Blank Solutions, 449
14
B.R. at 449. But even assuming for the sake of argument that, as 21st Capital contends,

this dispute is “non-core,” it is at the very least “related to” the AGR Bankruptcy

proceeding. See Stoe v. Flaherty, 436 F.3d 209, 216 (3d Cir. 2006) (“[A] proceeding is

‘related to’ a bankruptcy case if ‘the outcome of that proceeding could conceivably have

any effect on the estate being administered in bankruptcy.’”). Moreover, by signing the

Order, the parties consented to proceed in the Bankruptcy Court. 21st Capital thus

affirmatively waived any objection to the Bankruptcy Court’s exercise of jurisdiction to

enforce the Order. (See J.A. at 144 (Stipulated Order at 5) (noting that the “the Court

shall retain jurisdiction to enforce this Stipulated Order”).) In fact, 21st Capital admits as

much, stating that it “does not dispute that the Bankruptcy Court had proper jurisdiction

over the [Adversary Proceeding] or that it could decide whether 21st Capital was in

contempt.” (Appellee’s Br. at 29 (citing Appellant’s Opening Br. at 21 n.6).) Having

agreed to submit itself to the Bankruptcy Court’s jurisdiction to enter the Stipulated

Order, 21st Capital cannot opt out of proceedings to enforce the Order now. See

Travelers Indem. Co. v. Bailey, 557 U.S. 137, 138 (2009) (“The Bankruptcy Court plainly

ha[s] jurisdiction to interpret and enforce its own prior orders, and it explicitly retained

jurisdiction to enforce its injunctions when it issued the [earlier] Orders.” (citation

omitted)).

       B.     Contempt Order

       “Proof of contempt requires a movant to demonstrate ‘(1) that a valid order of the

court existed; (2) that the defendants had knowledge of the order; and (3) that the

defendants disobeyed the order.’” FTC v. Lane Labs-USA, Inc., 624 F.3d 575, 582 (3d

                                              15
Cir. 2010) (citations omitted). Each element must be proven by clear and convincing

evidence, with ambiguities resolved in favor of the party charged with contempt. Id.

“Although courts should hesitate to adjudge a defendant in contempt when ‘there is

ground to doubt the wrongfulness of the conduct,’ an alleged contemnor’s behavior need

not be willful in order to contravene the applicable decree. In other words, ‘good faith is

not a defense to civil contempt.’” Id. (citations omitted).

       The Bankruptcy Court and District Court focused their detailed analyses on

whether an “Account Stated” cause of action would touch any of AGR’s accounts

receivable and whether 21st Capital’s UCC defenses were appropriate. As noted above,

the Account Stated claim plainly involves fraudulent invoices which by definition cannot

constitute accounts receivable. In addition, the courts looked beyond the mark. The

Stipulated Order should have been the starting point for the analysis. Here, although the

parties did not present the Bankruptcy Court with a stipulation as clear as it could have

and should have been, the Stipulated Order nonetheless established that 21st Capital

could proceed with the California Action.

       We agree with 21st Capital that, “[f]ar from disobeying a valid court order,” it

“did exactly what the [s]tipulation provided: It amended its complaint in the California

Action and pursued the 21st Capital Claim in state court.” (Appellant’s Opening Br. at

28.) Bayer seems to think that, if there are no legitimately due invoices from AGR, then

21st Capital is precluded from pursuing any cause of action against Bayer that at all relies

on 21st Capital’s relationship with Bayer via its relationship with AGR. If that were the

case, however, 21st Capital “would not have bothered negotiating the narrow definition

                                             16
of ‘Accounts Receivable.’” (Appellant’s Reply Br. at 19.) More to the point, if 21st

Capital had no claim to any damages from Bayer, the Stipulated Order would not have

provided express guidance to 21st Capital in resuming the California Action, nor would it

have defined the 21st Capital Claim as being separate from the Debtor’s estate. The

Order only precludes 21st Capital from pursuing AGR’s “Accounts Receivable,” as that

term is defined within the Stipulated Order. The parties even provided a mechanism

under which Bayer is to notify the Court if any additional Accounts Receivable are

“discovered in the course of the California Action.” (J.A. at 143.)

       On this record, it was an abuse of discretion to hold 21st Capital in contempt and

prevent it from moving forward in the California Action.7

III.   Conclusion

       21st Capital abided by the Order; it did not flout it. We will therefore reverse the

District Court order affirming the Bankruptcy Court and remand to the District Court to

reverse the contempt order entered by the Bankruptcy Court.

       7
          None of this is to say that a finding of contempt may not later prove warranted.
If, for example, 21st Capital still proffers the same jury instructions as it provided under
its “Goods and Services Rendered” claim, 21st Capital may well be in violation of the
Stipulated Order. 21st Capital cannot claim that it abides by the Stipulated Order if, in its
proposed jury instructions, it sets out to prove that “AGR provided the services” to Bayer
and that “reasonable value of the services [] were provided.” (J.A. at 408 (Reply to 21st
Capital’s Response in Opposition to Bayer’s Motion for Contempt, App’x A).)
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