Court Opinion

ID: 2978123
Source: CourtListenerOpinion
Date Created: 2015-09-22 18:19:49.210257+00
Date Added: 2024-06-11T11:44:10.800376
License: Public Domain

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                                File Name: 09a0429n.06

                               Nos. 06-5932, 07-5525, 07-6140 and 07-6164

                               UNITED STATES COURT OF APPEALS
                                    FOR THE SIXTH CIRCUIT

                                                                                       FILED
In re: LWD, Inc., et al.                                         )                 Jun 19, 2009
---------------------------------------------------------        )             LEONARD GREEN, Clerk
                                                                 )
K&B CAPITAL, LLC,                                                )
                                                                 )   ON APPEAL FROM THE UNITED
         Appellant,                                              )   STATES DISTRICT COURT FOR
                                                                 )   THE WESTERN DISTRICT OF
v.                                                               )   KENTUCKY
                                                                 )
OFFICIAL UNSECURED CREDITORS’                                    )
COMMITTEE,                                                       )
                                                                 )
         Appellee.                                               )

         Before: MOORE, CLAY, and KETHLEDGE, Circuit Judges.

         KETHLEDGE, Circuit Judge. K&B Capital, LLC (“K&B”) seeks to appeal four orders

entered by the bankruptcy court and affirmed by the district court. None of the subject orders are

final. We therefore dismiss the appeals for lack of appellate jurisdiction.

                                                            I.

         In June 2003, six related waste disposal companies—LWD Inc., LWD Equipment, Inc.,

LWD Field Services, Inc., LWD Land Company Inc., LWD Trucking, Inc., and LWD Sanitary

Landfill, Inc.—each filed petitions for relief under Chapter 7 of the Bankruptcy Code. In September

2003, a related entity, General Environmental Services, LLC (collectively, the “Debtors”) filed a

petition for relief under Chapter 11 of the Code. The LWD cases were later converted to Chapter
Nos. 06-5932, 07-5525, 07-6140 and 07-6164
K&B Capital, LLC v. Official Unsecured Creditors’ Committee

11 cases and jointly administered with the GES case. The bankruptcy trustee thereafter appointed

a single Unsecured Creditors’ Committee (the “Committee”) for purposes of all the Debtors’ cases.

       Each of the Debtors was effectively controlled by Robert Kattula, who was himself a

principal of K&B. K&B was itself a secured creditor of the Debtors, and lent money to them during

the pendency of their bankruptcy cases. In return, the Debtors made certain “protection payments”

to K&B, which totaled $476,500.00.

       The debtors’ assets were later sold pursuant to an auction that K&B won. On March 23,

2004, the bankruptcy court issued a broadly worded sale order, authorizing the conveyance of all of

the debtors’ assets and claims, tangible and intangible, to K&B. At a telephonic hearing later that

day, however, the creditors expressed concern that this broad language might be read to suggest that

the debtors’ Chapter 5 claims had been sold to K&B, even though those claims had never been

advertised or offered for sale. Indeed, the creditors argued, those claims could not be sold as a matter

of law. Without any objection from K&B, counsel for the debtors agreed to draft a supplemental

order clarifying that the sale order did not include the Chapter 5 claims. At another telephonic

conference held the following day, the debtors’ counsel stated that he had circulated a draft

clarification order to all of the parties and that all were in agreement. Again, counsel for K&B was

present but did not object. On March 25, 2004, the bankruptcy court entered the requested

clarification, which was captioned a “Supplemental Sale Order.” As the bankruptcy court later

explained, this order was merely a clerical correction entered pursuant to Fed. R. Civ. P. 60(a).

       The Committee later commenced an adversarial proceeding in which it challenged the

Debtors’ protection payments to K&B as excessive, and challenged the sale of the Debtors’ assets

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Nos. 06-5932, 07-5525, 07-6140 and 07-6164
K&B Capital, LLC v. Official Unsecured Creditors’ Committee

to K&B on the ground that the Debtors did not disclose the existence of a valuable insurance asset,

allegedly worth more than $350,000.00.         With respect to the latter claim, the Committee

argued—successfully—that the Debtors’ nondisclosure of the asset gave K&B an unfair advantage

in the auction, because, of all the potential bidders, presumably only Kattula—as an insider of both

the Debtors and K&B—knew of the asset’s existence.

       These appeals concern four orders entered by the bankruptcy court. Two of the orders were

entered in the jointly administered Chapter 11 cases. The first (the “substitution order”) substituted

Baker & Hostetler LLP for Nixon Peabody LLP, over K&B’s objection, as counsel for the

Committee. The second (the “Rule 60(b) order”) denied K&B’s Rule 60(b)(4) motion to vacate the

bankruptcy court’s Rule 60(a) order clarifying the sale order entered nearly two years earlier.

       The other two orders were entered in the adversarial proceeding between K&B and the

Committee. The first (the “damages order”) required, among other things, K&B to return to the

Debtors’ estate $476,500.00 (representing excessive protection payments) and an additional

$352,375.00 (representing the auction windfall), plus interest. The second (the “reference order”)

denied K&B’s motion to withdraw the reference of the adversarial proceeding to the bankruptcy

court pursuant to a local rule, and to have the proceeding adjudicated instead in the district court.

       The district court affirmed all four orders. K&B thereafter filed notices of appeal to this

court as to each order. We consolidated the appeals.

                                                 II.

       We must determine whether we have jurisdiction over these appeals. Although a motions

panel of this court previously issued an order denying K&B’s motion to dismiss this appeal for lack

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Nos. 06-5932, 07-5525, 07-6140 and 07-6164
K&B Capital, LLC v. Official Unsecured Creditors’ Committee

of appellate jurisdiction, we are not precluded from reexamining this issue under the law-of-the-case

doctrine. That doctrine is not a limit on a court’s power, but rather is “discretionary when applied

to a coordinate court or the same court’s own decisions.” Bowling v. Pfizer, Inc., 132 F.3d 1147,

1150 (6th Cir. 1998); see also Brady-Morris v. Schilling (In re Kenneth Allen Knight Trust), 303

F.3d 671, 677 (6th Cir. 2002). Moreover, “[i]ssues such as ‘subject matter jurisdiction’ or ‘appellate

jurisdiction’ may be ‘particularly suitable for reconsideration.’” Kennedy v. Lubar, 273 F.3d 1293,

1299 (10th Cir. 2001) (quoting 18 CHARLES ALAN WRIGHT               ET AL.,   FEDERAL PRACTICE &

PROCEDURE : JURISDICTION § 4478, at 799 & n.32 (1981)). We therefore find it appropriate to

reconsider whether appellate jurisdiction exists in this case.

       “The courts of appeals . . . only have jurisdiction to hear bankruptcy appeals when both the

bankruptcy and district courts’ orders are final.” In re M.T.G., Inc., 403 F.3d 410, 413 (6th Cir.

2005) (internal quotation marks omitted). Accordingly, “[w]hen the bankruptcy court’s order is

interlocutory the general rule is that a court of appeals lacks jurisdiction unless the district court

order in some sense ‘cures’ the non-finality of the bankruptcy court order.” Id. (internal quotation

marks omitted). “A district court order has been found to ‘cure’ the non-finality of the bankruptcy

court order only in cases where the district court’s order in some way ended all litigation in the

bankruptcy court.” Id. (internal quotation marks omitted).

       None of the orders here are final. The substitution order is not final in these Chapter 11

cases, because it concerns only the counsel that will represent the Committee in that litigation. See

generally Cottrell v. Schilling (In re Cottrell), 876 F.2d 540, 542 (6th Cir. 1989) (“Generally, a

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Nos. 06-5932, 07-5525, 07-6140 and 07-6164
K&B Capital, LLC v. Official Unsecured Creditors’ Committee

bankruptcy court’s order approving or substituting counsel in a bankruptcy proceeding is not appealable”).

        Nor is the Rule 60(b) order final. It is true that a sale order by a bankruptcy court is generally

a final, appealable order. But the sale order in this case never covered the Chapter 5 avoidance

claims that K&B now contends it purchased along with the debtors’ other assets. If K&B had

believed that the sale order did include the Chapter 5 claims, it could have immediately appealed the

sale order (as clarified by the Rule 60(a) clarification) and argued that it had bid upon and purchased

those claims. But K&B did not do that. Instead, K&B proceeded to defend itself against a Chapter

5 claim brought by the creditors in an adversarial proceeding—an implicit recognition that the

Chapter 5 claims had not been transferred to K&B and remained with the debtors. Only after losing

on the merits in that adversary proceeding, and then changing counsel, did K&B, nearly two years

later, challenge the Rule 60(a) order for the first time.

        K&B thus sought belated relief not from the underlying sale order, but from the bankruptcy

court’s correction of a clerical error in that order, which correction was entered two days later

pursuant to Rule 60(a). Rule 60(a) may be used to correct “[c]lerical mistakes . . . made by judges

as well as ministerial employees,” but may not be used to “revisit . . . legal analysis or otherwise

correct an error[] of substantive judgment.” Pruzinsky v. Gianetti (In re Walter), 282 F.3d 434, 440

(6th Cir. 2002) (internal quotation marks omitted).

        The basic distinction between clerical mistakes and mistakes that cannot be corrected
        pursuant to Rule 60(a) is that the former consist of blunders in execution whereas the
        latter consists of instances where the court changes its mind, either because it made
        a legal or factual mistake in making its original determination, or because on second
        thought it has decided to exercise its discretion in a manner different from the way
        it was exercised in the original determination.

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Nos. 06-5932, 07-5525, 07-6140 and 07-6164
K&B Capital, LLC v. Official Unsecured Creditors’ Committee

Id. (internal quotation marks omitted). Thus, a proper Rule 60(a) order involves the purely

ministerial act of correcting a clerical mistake; it does not alter the substantive rights of the parties

or resolve any of the disputes in the case. Such an order should not be considered final. See Elliott

v. Four Seasons Props. (In re Frontier Props., Inc.), 979 F.2d 1358, 1363 (9th Cir. 1992) (holding

that a bankruptcy order is not final unless it “1) resolves and seriously affects substantive rights and

2) finally determines the discrete issue to which it is addressed”).

        Because the underlying Rule 60(a) order is not final, the bankruptcy court’s subsequent order

denying K&B’s Rule 60(b)(4) motion to vacate that order is not final either. See Mason v. Integrity

Ins. Co. (In re Mason), 709 F.2d 1313, 1315 (9th Cir. 1983) (“[T]he finality of [Rule 60(b)] orders

derives from the finality of the underlying judgment upon which relief is sought”).

        The orders entered in the adversarial proceeding likewise are not final. The damages order

does not fully dispose of the damages issue, but instead expressly contemplates “further hearings to

determine” whether certain of the damages awarded should ultimately be refunded to K&B. And

the reference order, both on its face and under settled law, is not final. See Caldwell-Baker Co. v.

Parsons, 392 F.3d 886, 888 (7th Cir. 2004) (“No court of appeals has engaged in appellate review

of an order either granting or denying withdrawal of reference”) (collecting cases).

        We therefore dismiss each of these consolidated appeals for lack of appellate jurisdiction.

                                                  -6-
Nos. 06-5932, 07-5525, 07-6140 and 07-6164
K&B Capital, LLC v. Official Unsecured Creditors’ Committee

       CLAY, Circuit Judge, concurring in part and dissenting in part. Although I agree with

the majority’s conclusions with respect to three of the four orders at issue in this appeal, I disagree

with its determination that this Court lacks appellate jurisdiction to review the bankruptcy court’s

denial of K&B Capital, LLC’s (“K&B”) Rule 60(b) motion to vacate the bankruptcy court’s

previously issued supplemental sale order.

       This Court previously has noted that a “ruling on a Rule 60(b) motion . . . [is] appealable in

and of itself.” Peake v. First Nat’l Bank & Trust Co. of Marquette, 717 F.2d 1016, 1020 (6th Cir.

1983); see also Jerry v. UAW-Local 735, 818 F.2d 866 (6th Cir. 1987) (unpublished table decision)

(“A ruling on a Rule 60(b), Federal Rules of Civil Procedure, motion to vacate is appealable . . . .”).

As other courts have noted in addressing the appealability of Rule 60(b) orders, “the finality of such

orders derives from the finality of the underlying judgment upon which relief is sought.” Mason

v. Integrity Ins. Co. (In re Mason), 709 F.2d 1313, 1315 (9th Cir. 1983). In this case, the underlying

order—the supplemental sale order—is itself a final order. See Precision Indus., Inc. v. Qualitech

Steel SBQ, LLC, 327 F.3d 537, 543 (7th Cir. 2003); cf. Winget v. JP Morgan Chase Bank, N.A., 537

F.3d 565, 579 (6th Cir. 2008) (holding that a bankruptcy court’s sale order is a final order for res

judicata purposes).

       In concluding that this court lacks appellate jurisdiction over the appeal of the denial of the

Rule 60(b)(4) motion, the majority argues that the Rule 60(a) order is not a final order because a

“Rule 60(a) order involves the purely ministerial act of correcting a clerical mistake.” Op. at 6.

According to the majority, because a Rule 60(a) order “does not alter the substantive rights of the

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Nos. 06-5932, 07-5525, 07-6140 and 07-6164
K&B Capital, LLC v. Official Unsecured Creditors’ Committee

parties or resolve any of the disputes in the case,” such an order cannot meet the requirement that

an order “affect[] substantive rights” to constitute a final order. Id.1

        Under the majority’s reasoning, a Rule 60(a) order would never be appealable, because, by

definition, a Rule 60(a) motion does not affect the substantive rights of the parties. However, a Rule

60(a) order generally is an appealable order. See Pfizer Inc. v. Uprichard, 422 F.3d 124, 128 (3d Cir.

2005) (addressing argument that the district court exceeded its authority in acting pursuant to Rule

60(a)); 11 Alan Wright, Arthur R. Miller, & Mary Kay Kane, Federal Practice & Procedure § 2871

(2d ed. 2008) (Where a “court corrects the judgment . . . after an appeal has ended or after the time

for appeal has run in a case in which no appeal was taken, [the court’s] action would itself be

appealable though the appeal would be limited to its disposition of the Rule 60(a) motion.”).

Further, under the circumstances of this case, the Rule 60(a) order should be considered a final order

because K&B has no other way to challenge the district court’s use of Rule 60(a) to amend the final

sale order. Thus, because the supplemental sale order is a final order, this is not a case where this

Court “may not entertain an appeal [from a denial of a Rule 60(b) motion] under [28 U.S.C. §] 1291

because the underlying order . . . is purely interlocutory and, thus, not within the scope of Rule 60(b),

which applies only to ‘final’ judgments and orders.” Penn W. Assocs., Inc. v. Cohen, 371 F.3d 118,

123 (3d Cir. 2004) (first alteration in original).

        1
         In support of its argument, the majority suggests that K&B never understood the sale order
to include the Chapter 5 claims based on K&B’s failure to immediately appeal the sale order.
However, whether K&B believed that the original sale order included the Chapter 5 claims is
irrelevant to the question of whether the subsequent Rule 60(a) order is a final order for purposes of
K&B’s appeal.

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Nos. 06-5932, 07-5525, 07-6140 and 07-6164
K&B Capital, LLC v. Official Unsecured Creditors’ Committee

       Moreover, in the bankruptcy context, “finality ‘is considered in a more pragmatic and less

technical way . . . than in other situations.’” Winget, 537 F.3d at 579 (quoting Lindsey v. O’Brien,

Tanksi, Tanzer & Young Health Care Providers of Conn. (In re Dow Corning), 86 F.3d 482, 488

(6th Cir.1996)). Thus, a “case need not be appealed as a ‘single judicial unit’ at the end of the entire

bankruptcy proceeding” to constitute a final order. In re Tex. Extrusion Corp., 844 F.2d 1142, 1155

(5th Cir. 1988). Instead, “where an order in a bankruptcy case finally dispose[s] of discrete disputes

within the larger case, it may be appealed immediately.” Winget, 537 F.3d at 579 (quoting In re Dow

Corning, 86 F.3d at 488) (internal quotation marks omitted).

       In this case, the bankruptcy court’s order denying K&B’s Rule 60(b) motion was a final

determination that K&B was not entitled to the relief it sought—an order vacating the supplemental

sale order as void. Consequently, although the district court’s ruling on K&B’s motion did not end

the entire Chapter 11 litigation proceedings, it constituted a final, appealable order over which this

Court has jurisdiction. Because I disagree with the majority’s conclusion that we lack appellate

jurisdiction to review K&B’s appeal of the denial of its Rule 60(b) motion, I respectfully dissent

from that portion of its opinion.

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