Court Opinion

ID: 8407061
Source: CourtListenerOpinion
Date Created: 2022-11-01 13:00:46.874596+00
Date Added: 2024-06-11T16:47:23.564132
License: Public Domain

USCA11 Case: 21-14276    Date Filed: 11/01/2022   Page: 1 of 11

                                         [DO NOT PUBLISH]
                          In the
         United States Court of Appeals
               For the Eleventh Circuit

                 ____________________

                        No. 21-14276
                 Non-Argument Calendar
                 ____________________

In re:
 BEAULIEU GROUP, LLC, et al.,
                                                      Debtors.
___________________________________________________

ENGINEERED FLOORS, LLC,
                                            Plaintiff-Appellant,
versus
BEAULIEU OF AMERICA, INC.,
BEAULIEU GROUP, LLC,
PHOENIXCORPORATE RECOVERY SERVICES, LLC,
in its capacity as the liquidating trustee for
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2                      Opinion of the Court                 21-14276

the Estates of Beaulieu Group, LLC, et al
f.k.a. PMCM 2, LLC,
LAKESHORE EQUIPMENT COMPANY,
d.b.a. Lakeshore Learningmaterials,

                                              Defendants-Appellees.

                     ____________________

           Appeal from the United States District Court
              for the Northern District of Georgia
             D.C. Docket No. 4:20-cv-00290-WMR
                    ____________________

Before WILSON, BRANCH, and BRASHER, Circuit Judges.
PER CURIAM:
       In this bankruptcy adversary proceeding, Appellant Engi-
neered Floors, LLC (EF) appeals the district court’s order affirming
the bankruptcy court’s grant of summary judgment to Appellees
Beaulieu Group, LLC (Beaulieu) and Phoenix Corporate Recovery
Services, LLC (the Liquidating Trustee and collectively, the Debt-
ors). This case is about who is liable for defective carpet sold by EF
to Lakeshore Equipment Company (Lakeshore). The bankruptcy
court found that the Debtors were not liable for the defective car-
pet claims and entered summary judgment in favor of the Debtors
on all of EF’s claims against the Debtors. It also entered partial
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21-14276               Opinion of the Court                        3

summary judgment in favor of Lakeshore as to liability for the de-
fective carpet. The district court likewise found that the Debtors
were not liable for the defective carpet and affirmed the bankruptcy
court’s summary judgment on appeal. We agree with the bank-
ruptcy court and district court that the Debtors are not liable for
the defective carpet and therefore affirm
                                     I.
        On July 16, 2017, Beaulieu, a manufacturer and seller of car-
pet, filed a petition for bankruptcy in the United States Bankruptcy
Court of the Northern District of Georgia. Beaulieu and EF then
moved in the bankruptcy court for approval of a sale of Beaulieu’s
non-real estate assets to EF (the Asset Purchase Agreement). The
bankruptcy court approved the sale through a Sale Order. As a re-
sult of the Sale Order, EF obtained Beaulieu’s carpet inventory.
         One of Beaulieu’s customers, Lakeshore, brought claims
against EF for defective carpet. EF then initiated this adversary
proceeding in the bankruptcy court against the Debtors and
Lakeshore. The complaint was based on allegations that the Asset
Purchase Agreement shielded EF from warranty claims and other
liabilities that the Debtors owed to Lakeshore. Further, EF alleged
that Lakeshore violated the Sale Order by suing EF in California
state court and falsely alleging EF was liable for warranty claims on
carpet manufactured by the Debtors. According to EF, the Sale
Order provides that EF did not assume any alleged warranty claims
and other liabilities for Lakeshore’s claims against the Debtors and
EF. Lakeshore violated the Sale Order, EF alleged, by falsely
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4                       Opinion of the Court                   21-14276

asserting that EF is liable for warranty claims for carpet manufac-
tured by Beaulieu before EF purchased Beaulieu’s assets. Further,
EF contended that the Debtors violated the Asset Purchase Agree-
ment and Sale Order by shifting their liabilities for the defective
carpet to EF.
       Lakeshore moved to sever pursuant to Federal Rule of Civil
Procedure 21 and Bankruptcy Rule of Procedure 7021. In its sup-
port brief, Lakeshore stated that it had initiated a civil action against
EF for warranty claims for defectively manufactured carpets.
Lakeshore further clarified that Lakeshore’s warranty claims could
be classified into three types of claims: (1) carpet that Beaulieu man-
ufactured and sold to Lakeshore (Bucket 1); (2) carpet that Beaulieu
manufactured at least in part, but that was sold by EF to Lakeshore
(Bucket 2); and (3) carpet that EF manufactured and sold to
Lakeshore (Bucket 3). Lakeshore requested that the bankruptcy
court sever the Bucket 2 and 3 claims from the Bucket 1 claims and
either allow those claims to proceed in an appropriate forum or
dismiss those claims and remand to another court.
        EF’s operative complaint in the adversary proceeding con-
tains the following claims: (1) declaratory judgment against the
Liquidating Trustee and Lakeshore (Count I); (2) specific perfor-
mance of the Asset Purchase Agreement and enforcement of the
Sale Order against the Liquidating Trustee and Lakeshore (Count
II); (3) breach of contract and duty of good faith and fair dealing
against the Liquidating Trustee (Count III); (4) damages incurred
by EF in defending Lakeshore’s claims against the Liquidating
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21-14276               Opinion of the Court                        5

Trustee (Count IV); (5) unjust enrichment against the Liquidating
Trustee (Count V); (6) apportionment, indemnity, and contribu-
tion against the Liquidating Trustee (Count VI); (7) an injunction
against Lakeshore (Count VII); (8) allowance of an administrative
expense claim against the Liquidating Trustee (Count VIII); (9) civil
contempt against Lakeshore (Count IX); and (10) bad faith attor-
neys’ fees against Lakeshore (Count X).
        The Debtors moved for summary judgment on all claims as-
serted against them by EF in the adversary proceeding (Counts I–
VI and VIII). Lakeshore also moved for partial summary judgment,
seeking an order that EF is not immune from liability for the
Bucket 2 and Bucket 3 claims. The Bucket 1 claims were not at
issue because those claims only concerned the Debtors and
Lakeshore. The Debtors and Lakeshore separately resolved those
claims via a settlement agreement. It was also not disputed that
the Bucket 3 claims are borne by EF, as the Debtors did not play
any role in those transactions with Lakeshore. The main issue be-
fore the bankruptcy court was determining which party, the Debt-
ors or EF, could be held liable for the Bucket 2 claims. Under the
terms of the Asset Purchase Agreement, the bankruptcy court
found that Beaulieu was responsible for the Bucket 1 claims but not
responsible for the Bucket 2 and 3 claims. As a result, the bank-
ruptcy court granted the Debtors’ motion for summary judgment
and Lakeshore’s motion for partial summary judgment (the Sum-
mary Judgment Order). The Summary Judgment Order disposed
of all claims against the Debtors.
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6                      Opinion of the Court                21-14276

       EF’s remaining claims against Lakeshore (Counts I, II, VII,
IX, and X) were disposed of by the bankruptcy court’s granting of
Lakeshore’s motion to sever (the Severance Order). However, ra-
ther than severing the claims against Lakeshore and sending them
to a different forum, the bankruptcy court found that because the
claims did not concern the administration of the bankruptcy estate,
it dismissed the claims for lack of subject matter jurisdiction.
        EF appealed both the Summary Judgment Order and the
Severance Order to district court. Those appeals were treated as
separate appeals in the district court. Although the district court
did not consolidate the appeals, the district court ruled on both ap-
peals in one order. The district court affirmed the Summary Judg-
ment Order in favor of the Debtors, finding that the Bucket 2
claims were not the responsibility of the Debtors under the terms
of the Asset Purchase Agreement. As to the Severance Order, the
district court reversed the bankruptcy court’s dismissal of one of
EF’s claims against Lakeshore for lack of jurisdiction. The district
court found that the bankruptcy court had jurisdiction to consider
EF’s civil contempt claim (Count IX) against Lakeshore, so it re-
versed and remanded that claim to the bankruptcy court.
       EF appealed the district court’s affirmance of the Summary
Judgment Order to this court. That appeal is before this panel.
Separately, Lakeshore appealed the district court’s reversal of the
Severance Order as to the contempt claim. EF also cross-appealed
the district court’s decision not to reverse and remand as to EF’s
other claims against Lakeshore (Counts I, II, VII, X).
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21-14276               Opinion of the Court                         7

                                     II.
       We raised a jurisdictional question in both appeals. For this
appeal, we carried with the case the issue of finality of the Sum-
mary Judgment Order. For Lakeshore’s separate appeal, we dis-
missed the appeal for lack of subject matter jurisdiction to the ex-
tent that Lakeshore appealed the district court’s reversal of the Sev-
erance Order for EF’s contempt claim. We concluded that the
bankruptcy court’s Severance Order with respect to the contempt
claim was no longer final because the district court reversed and
remanded that claim to the bankruptcy court. We further found
that EF had abandoned any issues in its cross-appeal that the bank-
ruptcy court erred in dismissing its remaining claims against
Lakeshore. See Engineered Floors, LLC v. Beaulieu of Am., Inc.,
No. 21-14304, 2022 WL 2903402 (11th Cir. July 22, 2022).
      We conclude that we have jurisdiction over EF’s appeal of
the Summary Judgment Order. “A court of appeals has jurisdiction
over only final judgments and orders arising from a bankruptcy
proceeding.” In re Donovan, 532 F.3d 1134, 1136 (11th Cir. 2008).
A bankruptcy order is “final” when it “end[s] the litigation on the
merits, leaving nothing to be done but execute the judgment.” Id.
Taken in isolation, the Summary Judgment Order was not a final
order because it did not dispose of EF’s remaining claims against
Lakeshore. However, when considered in conjunction with the
Severance Order, the Summary Judgment Order became final
when the bankruptcy court dismissed EF’s remaining claims.
Thus, “[EF’s] adversary proceeding . . . [was] finally resolved.” Id.
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8                      Opinion of the Court               21-14276

                                   III.
       “When reviewing a district court’s appellate review of a
bankruptcy court’s decision, we apply the same standards of review
as the district court.” In re Stanford, 17 F.4th 116, 121 (11th Cir.
2021). Therefore, “we review conclusions of law drawn by both
the district court and the bankruptcy court de novo.” Id.
                                   IV.
        At the outset, we note that this appeal concerns the bank-
ruptcy court’s grant of summary judgment in favor of the Debtors
for Counts I–VI and VIII, referred to above as the Summary Judg-
ment Order. In granting summary judgment for the Debtors, the
dispositive issue for each of those claims was whether EF or Beau-
lieu was responsible for the Bucket 2 claims. Because the bank-
ruptcy court determined that Beaulieu was not responsible for the
Bucket 2 claims, the bankruptcy court granted summary judgment
for the Debtors. The bankruptcy court also granted partial sum-
mary judgment for Lakeshore on the threshold legal issue of liabil-
ity for the Bucket 2 claims.
       The district court likewise found the “key legal question”
was “whether EF or Beaulieu is subject to liability for Bucket 2
claims under the Asset Purchase Agreement.” While the district
court concluded that EF was not responsible for Beaulieu’s liabili-
ties unless EF expressly assumed them, it noted that the Asset Pur-
chase Agreement did not shield EF from its own liabilities. Apply-
ing Georgia law, which governs this dispute, the district court
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21-14276               Opinion of the Court                         9

found that Beaulieu was not responsible for the Bucket 2 claims
because EF was the seller of that carpet.
       While the issue should seem to be straightforward at this
point—whether Beaulieu is liable for the Bucket 2 claims—the par-
ties dispute the issue on appeal. EF frames the issue as this:
Whether the bankruptcy court and district court erred “by not
holding that the Asset Purchase Agreement and the order approv-
ing it shield [EF] from claims based on alleged warranties in
Lakeshore’s purchase orders to Beaulieu.” Disputing this framing,
the Debtors respond that “the only issue in this appeal is whether
[Beaulieu] could have any breach of warranty liability for the sale
of carpet by Engineered Floors to Lakeshore.”
        We agree with Beaulieu’s framing of the issue. For Beaulieu
to prevail at summary judgment, it needed to show that it was not
liable for the Bucket 2 claims. EF’s complaint in the adversary pro-
ceeding was based on allegations that Beaulieu was shifting its ob-
ligations to EF in violation of the Asset Purchase Agreement and
Sale Order. But if the Bucket 2 claims were not Beaulieu’s respon-
sibility, then, as the bankruptcy court correctly noted, all of EF’s
claims against Beaulieu must fail.
       EF does not argue that it cannot be liable at all to Lakeshore
for the Bucket 2 claims or that Beaulieu is liable for those claims.
Instead, it argues that it could not be liable based on the warranties
made by Beaulieu in its purchase orders to Lakeshore before EF
bought Beaulieu’s business. But the bankruptcy court did not hold
that EF assumed liability for these specific warranties. Rather, the
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10                        Opinion of the Court                      21-14276

bankruptcy court concluded that “any agreement for the sale of
product must be between EF and Lakeshore, and any express or
implied warranties issued were issued by EF and not by the Debt-
ors.” Thus, the bankruptcy court simply found that any potential
liability arising from the Bucket 2 claims must not be borne by
Beaulieu because Beaulieu did not sell those goods.
        Rather than addressing the dispositive issue underlying the
Summary Judgment Order, which is liability for the Bucket 2
claims, EF’s brief focuses on the merits of Lakeshore’s breach of
warranty claims against EF. Throughout its initial brief and reply
brief, EF contends that it cannot be held liable for Lakeshore’s
claims because they are based on warranties Beaulieu made which
EF did not assume. While that might mean EF would prevail in a
lawsuit between EF and Lakeshore, reversing the Summary Judg-
ment Order would ultimately require us to find that Beaulieu is
liable for the Bucket 2 claims. We agree with both the district court
and the bankruptcy court that Beaulieu cannot be liable for the
Bucket 2 claims because it was not the seller of the carpet. See
Lamb v. Georgia-Pacific Corp., 392 S.E.2d 307, 309 (Ga. Ct. App.
1990) (“As this warranty clearly arises out of a contract of sale of
goods, it can only run to a buyer who is in privity of contract with
the seller.”). Therefore, the Summary Judgment Order and the dis-
trict court’s order affirming it are affirmed. 1

1 EF also appeals the district court’s affirmance of the bankruptcy court’s de-
nial of its motion to compel discovery concerning whether Lakeshore was
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21-14276                  Opinion of the Court                             11

       AFFIRMED.

properly notified of the bankruptcy and asset sale and whether Beaulieu or EF
made and sold each of the carpet rolls at issue. However, as the issue at sum-
mary judgment was a legal question, these factual disputes are not relevant,
and we therefore affirm the bankruptcy court’s denial of EF’s motion to com-
pel and the district court’s affirmance of that denial.