Court Opinion

ID: 2732813
Source: CourtListenerOpinion
Date Created: 2014-09-15 16:00:28.40588+00
Date Added: 2024-06-11T09:44:08.757849
License: Public Domain

ELECTRONIC CITATION: 14 FED App. 0008P (6th Cir.)
                                 File Name: 14b0008p.06

               BANKRUPTCY APPELLATE PANEL OF THE SIXTH CIRCUIT

In re: SII Liquidation Company,                        )
                                                       )
                        Debtor.                        )
                                                       )
                                                       )
                                                       )
David A. Schwab, et al.,                               )                    No. 14-8009
                                                       )
          Plaintiffs-Appellants,                       )
                                                       )
v.                                                     )
                                                       )
Lawrence E. Oscar, et al.,                             )
                                                       )
          Defendants-Appellees.                        )
                                                       )
                                                       )

                           Appeal from the United States Bankruptcy Court
                             for the Northern District of Ohio at Canton.
                                   No. 10-60702; Adv. No. 12-6035

Before:          HUMPHREY, OPPERMAN, and PRESTON, Judges of the Bankruptcy
                 Appellate Panel.

                                            COUNSEL

ON BRIEF: Charles V. Longo, Matthew D. Greenwell, CHARLES V. LONGO, CO., L.P.A.,
Beachwood, Ohio, for Appellants. Daniel R. Warren, Thomas D. Warren, BAKER &
HOSTETLER LLP, Cleveland, Ohio, Jack B. Cooper, DAY KETTERER LTD., Canton, Ohio,
for Appellees.
No. 14-8009, In re SII Liquidation Company

                                           OPINION

       GUY R. HUMPHREY, Bankruptcy Appellate Panel Judge.                       Appellants were
shareholders and directors of the corporate debtor prior to its liquidation.       They filed an
adversary complaint alleging malpractice against the Debtor’s bankruptcy attorneys.           On
September 20, 2012, the bankruptcy court granted the Defendants’ and Trustee’s motions to
dismiss the adversary proceeding. The bankruptcy court held that Appellants did not have
standing to bring the complaint. Additionally, the bankruptcy court found that the complaint was
barred by res judicata. Appellants did not appeal the bankruptcy court’s decision. One year
later, they filed a motion for relief from judgment pursuant to Federal Rule of Bankruptcy
Procedure 9024, which incorporates Federal Rule of Civil Procedure 60(b). Appellants asserted
grounds under the following subsections: (1) mistake, surprise or excusable neglect; (2) newly
discovered evidence; (3) fraud; and (6) any other reason that justifies relief. The bankruptcy
court denied the motion for relief from judgment finding that Appellants still did not have
standing, and further, were bound by the bankruptcy court’s previous order holding that they did
not have standing. Appellants filed this timely appeal. For the reasons stated below, the
bankruptcy court’s order is affirmed.

                                   I. ISSUES ON APPEAL

       Appellants raised several issues on appeal. However, Appellants' lack of standing is
dispositive. Accordingly, the Panel declines to address the remainder of the issues.

                    II. JURISDICTION AND STANDARD OF REVIEW

       Under 28 U.S.C. § 158(a)(1), this Panel has jurisdiction to hear appeals “from final
judgments, orders, and decrees” issued by the bankruptcy court. For purposes of appeal, an
order is final if it “ends the litigation on the merits and leaves nothing for the court to do but
execute the judgment.” Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S. Ct.
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No. 14-8009, In re SII Liquidation Company

1494, 1497 (1989) (quotation marks and citation omitted). “An order denying a motion for relief
pursuant to Federal Rule of Civil Procedure 60(b) is a final order.” In re Calloway, 11-8059,
2012 WL 1003559, at *1 (B.A.P. 6th Cir. Mar. 27, 2012) (citing Slutsky v. Am. Express Travel
Related Servs. Co. (In re William Cargile Contractor, Inc.), 209 B.R. 435, 435-36 (B.A.P. 6th
Cir. 1997)).

                       The decision to grant or deny a motion pursuant to Federal
               Rule of Civil Procedure 60(b) is within the discretion of the
               bankruptcy judge. Bavey v. Powell (In re Baskett), 219 B.R. 754,
               757 (B.A.P. 6th Cir. 1998). The bankruptcy judge's decision is
               reviewed on appeal for abuse of discretion. Blue Diamond Coal
               Co. v. Trustees of UMWA Combined Ben. Fund, 249 F.3d 519, 524
               (6th Cir. 2001). An abuse of discretion will be found when the
               reviewing court has a “definite and firm conviction that the court
               below committed a clear error of judgment in the conclusion it
               reached upon a weighing of the relevant factors.” Huey v. Stine,
               230 F.3d 226, 228 (6th Cir. 2000) (citations and internal quotation
               marks omitted). “The question is not how the reviewing court
               would have ruled, but rather whether a reasonable person could
               agree with the bankruptcy court's decision; if reasonable persons
               could differ as to the issue, then there is no abuse of discretion.” In
               re Behlke, 358 F.3d 429, 437 (6th Cir. 2004) (citation omitted).

In re Calloway, 11-8059, 2012 WL 1003559, at *1 (B.A.P. 6th Cir. Mar. 27, 2012).
Jurisdictional questions are reviewed de novo. Kahn v. Regions Bank (In re Khan), 544 F. App'x
617, 619 (6th Cir. 2013), cert. denied 134 S. Ct. 1545 (2014). “Standing is a jurisdictional
requirement and we are under a continuing obligation to verify our jurisdiction over a particular
case.” Id. (quoting Harker v. Troutman (In re Troutman Enters., Inc.), 286 F.3d 359, 364 (6th
Cir. 2002)).

                                           III. FACTS

       Schwab Industries, Inc. filed a chapter 11 bankruptcy petition on February 28, 2010. The
filing had been authorized by the board of directors, including David Schwab, Jerry Schwab and

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No. 14-8009, In re SII Liquidation Company

Donna Schwab (“Appellants”).         Hahn Loeser & Parks, LLP (“HLP”) was appointed as
bankruptcy counsel.

       On May 10, 2012, Appellants filed an adversary proceeding against Attorney Lawrence
Oscar and HLP (together “Appellees”) asserting a malpractice claim arising from an allegedly
undisclosed conflict of interest with Bank of America. The bankruptcy court dismissed the
adversary proceeding on September 20, 2012, holding that (1) Appellants lacked standing to
bring the claim directly or derivatively on behalf of Debtors, and (2) the claim was barred by res
judicata. Mem. Op. at 8-13, Schwab v. Oscar, No. 12-6035 (Bankr. N.D. Ohio Sept. 20, 2012),
ECF No. 41. Appellants did not appeal this final order.

       On September 20, 2013, one year after the dismissal, Appellants filed a motion seeking
relief from the dismissal order pursuant to Rule 60(b). Appellants sought to reopen the adversary
proceeding on the basis of asserted newly discovered evidence that Appellees had failed to
disclose a conflict with Huntington National Bank and sought to amend the complaint to add
allegations concerning this new evidence.

       On January 22, 2014, the bankruptcy court denied the motion for relief from judgment.
The bankruptcy court determined that Appellants had not challenged the court’s prior ruling that
they lacked standing. In an attempt to address the standing issue, Appellants’ motion for relief
asserted that if the case was reopened they would either persuade the Trustee to bring the claim
or obtain an assignment of the claim. However, the bankruptcy court noted that Appellants had
done neither of those things. The bankruptcy court held that Appellants were bound by the order
holding that they did not have standing. Additionally, the bankruptcy court held that although
the other arguments were immaterial in light of Appellants’ lack of standing, the evidence
proffered by Appellants was neither new nor newly discovered. In fact, the bankruptcy court
held that the evidence clearly established that Appellants “had knowledge of the specific conflict
at least three years earlier than they’ve claimed in their motion for relief.” Mem. Op. at 5.
Finally, the bankruptcy court held that the motion for relief was not timely in light of the fact that
Appellants had “information which would have led to discovery of the conflict much earlier.”
Mem. Op. at 7.

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No. 14-8009, In re SII Liquidation Company

       Appellants timely filed an appeal of the order denying their motion for relief from the
judgment.

                                       IV. DISCUSSION

       Rule 60(b) permits a bankruptcy court to grant relief from a final judgment for any of the
following reasons:

        (1) Mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered
        evidence which by due diligence could not have been discovered in time to move
        for a new trial under Rule 59(b); (3) fraud (whether heretofore denominated
        intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse
        party; (4) the judgment is void; (5) the judgment has been satisfied, released, or
        discharged, or a prior judgment upon which it is based has been reversed or
        otherwise vacated, or it is no longer equitable that the judgment should have
        prospective application; or (6) any other reason justifying relief from the
        operation of the judgment.

Fed. R. Civ. P. 60(b).

       Appellants allege that the newly discovered evidence relating to HLP’s conflict of
interest with Huntington provided a basis for the bankruptcy court’s vacating of its dismissal of
the adversary proceeding. However, even if there was newly discovered evidence of such a
conflict, that discovery does not serve as a basis for vacating the dismissal order due to the
Appellants’ lack of standing.

       In their motion for relief from judgment, Appellants did not challenge the bankruptcy
court’s previous ruling that they lacked standing. In fact, Appellants seem to concede that they
do not have standing to bring the underlying claims by asserting that they will either convince
the Trustee to bring the claims or obtain an assignment of the claims. The bankruptcy court
ruled that Appellants did not have standing to bring the underlying claim and did nothing to cure
their lack of standing prior to bringing their motion for relief from judgment.

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No. 14-8009, In re SII Liquidation Company

        On appeal, Appellants attempt to challenge the bankruptcy court’s September 20, 2012
holding that they do not have standing to bring the malpractice claims. In their brief, Appellants
begin their argument with the assertion that “[t]he bankruptcy court erred as a matter of law
when it held that Appellants did not have standing to pursue the claims asserted in their
Amended Complaint filed in the adversary proceeding.” Br. of Appellants at 18, Apr. 30, 2014,
ECF No. 15. Appellees argue that Appellants are bound by the bankruptcy court’s September
20, 2012 order, which Appellants did not appeal. Appellees are correct.

        “The law-of-the-case doctrine bars challenges to a decision made at a previous stage of
litigation which could have been challenged in a prior appeal, but were not.” JGR, Inc. v.
Thomasville Furniture Indus., Inc., 505 F. App’x 430, 435 (6th Cir. 2012) (quotation marks and
citation omitted). The Sixth Circuit has unambiguously stated “[a] Rule 60(b) motion is neither a
substitute for, nor a supplement to, an appeal.” GenCorp, Inc. v. Olin Corp., 477 F.3d 368, 373
(6th Cir. 2007). “For this reason, arguments that were, or should have been, presented on appeal
are generally unreviewable on a Rule 60(b)(6) motion.” Id. (citations omitted). And for related
reasons, “an appeal from [the] denial of Rule 60(b) relief does not bring up the underlying
judgment for review.” Id. (quoting Browder v. Dir., Dep’t of Corr. Of Illinois, 434 U.S. 257,
263 n.7, 98 S. Ct. 556, 560 (1978)).

        In the September 20, 2012 opinion dismissing the adversary complaint, the bankruptcy
court clearly held that Appellants did not have standing to bring the underlying claims. Mem.
Op. at 8-13, Schwab v. Oscar, No. 12-6035 (Bankr. N.D. Ohio Sept. 20, 2012), ECF No. 41.
Specifically, the bankruptcy court held that only the representative of the bankruptcy estate or its
successor had standing to bring a malpractice claim against Appellees absent a showing of
shareholder derivative standing or assignment of the claims. The bankruptcy court further held
that Appellants did not establish derivative standing nor did they obtain an assignment of claims.
Id. at 10.

        The order dismissing the complaint because Appellants lacked standing was a final,
appealable order. Hamilton v. Appolon (In re Hamilton), 399 B.R. 717, 720 (B.A.P. 1st Cir.
2009) (“An order dismissing an adversary proceeding is a final order as it ends the litigation on

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No. 14-8009, In re SII Liquidation Company

the merits of the complaint.”).      Appellants should have filed an appeal if they wished to
challenge the bankruptcy court’s decision that they lacked standing to bring the malpractice
claims.       Accordingly, they are bound by the bankruptcy court’s decision that they lacked
standing under the law of the case doctrine. They may not raise any issues regarding the prior
order in this appeal.

          In the motion for relief from judgment, Appellants attempted to address the standing
defect asserting: “[I]t is [Appellants’] intention to either obtain commitment from the
Creditor/Trustee to pursue the malpractice claims against [Appellees and others], or, in the
alternative, obtain an assignment of those rights[.]” Mot. For Relief from Judgment at 32,
Schwab v. Oscar, No. 12-6035, (Bankr. N.D. Ohio, Sept. 20, 2013), ECF No. 47.                  The
bankruptcy court noted that neither of these assertions had come to fruition. Mem. Op. at 3,
Schwab v. Oscar, No. 12-6035 (Bankr. N.D. Ohio Jan. 22, 2014), ECF No. 75.1 Accordingly,
the bankruptcy court found that there was no factual basis for a determination that the
Appellants’ standing had changed. “The [Appellants] did not have standing when the complaint
was filed and have done nothing to cure the lack of standing.” Id. at 4. Further, there is no basis
from the record to determine that the asserted newly discovered evidence relating to the alleged
conflict of interest involving Huntington affects Appellants’ standing, or lack thereof, in any
manner.

          In this appeal, Appellants are attempting to use a Rule 60(b) motion to re-litigate the
issue of their standing to bring the underlying claims when they should have filed a timely appeal
if they wished to challenge that ruling. Marbly v. City of Southfield, 2001 U.S. App. LEXIS
18599, at *6 (6th Cir. Aug. 13, 2001) (Rule 60(b) may not be employed to re-litigate issues
previously decided); Hopper v. Euclid Manor Nursing Home, Inc., 867 F.2d 291, 294 (6th Cir.
1989) (citations omitted) (Rule 60(b) not a substitute for an appeal).

          1
          The bankruptcy court was not convinced that an assignment would have cured the
standing defect. Mem. Op. at 3, Schwab v. Oscar, No. 12-6035 (Bankr. N.D. Ohio Jan. 22,
2014), ECF No. 75. “[Appellants] have not cured the standing problems identified in the court’s
previous order and are unable to do so after the fact.” Id. at 6.
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No. 14-8009, In re SII Liquidation Company

       Because Appellants lack standing to be a party in the underlying complaint, they lack
standing to bring a motion for relief from judgment. “The plain language of Rule 60(b) only
allows relief to be given to ‘a party’ to the litigation.” Bridgeport Music, Inc. v. Smith, 714 F.3d
932, 940 (6th Cir. 2013) (citations omitted). The bankruptcy court correctly determined that
Appellants’ motion for relief from judgment should be denied due to the preclusive effect of its
prior ruling determining that the Appellants’ lacked standing to pursue the adversary proceeding.

                                       V. CONCLUSION

       For the reason stated, the order of the bankruptcy court denying the motion for relief from
judgment is AFFIRMED.

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