Court Opinion

ID: 6345826
Source: CourtListenerOpinion
Date Created: 2022-06-01 19:00:42.131674+00
Date Added: 2024-06-11T15:49:20.683244
License: Public Domain

NOT PRECEDENTIAL
                        UNITED STATES COURT OF APPEALS
                             FOR THE THIRD CIRCUIT
                                  ____________

                                        No. 21-2144
                                          ______

                        In re: RAMS ASSOCIATES, L.P., Debtor

                          EDWARD BOND, Litigation Trustee
                                             v.
    JOHN C. SABO; WORTHINGTON CAPITAL LLC; JOSEPH CARBALLEIRA

                                           Joseph Carballeira,
                                                Appellant
                                      ____________

                     On Appeal from the United States District Court
                               for the District of New Jersey
                              (D.C. Civ. No. 3-20-cv-14965)
                      District Judge: Honorable Anne E. Thompson
                                       ____________

                     Submitted Pursuant to Third Circuit LAR 34.1(a)
                                     May 26, 2022
                                     ____________

    Before: KRAUSE and PHIPPS, Circuit Judges, and STEARNS, District Judge.*
                                   (Filed: June 1, 2022)
                                       ___________

                                        OPINION**
                                       ___________

*
  The Honorable Richard G. Stearns, District Judge, United States District Court for the
District of Massachusetts, sitting by designation.
**
   This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.
PHIPPS, Circuit Judge.
         After a New Jersey limited partnership, Rams Associates, filed for bankruptcy,

certain of its unpaid creditors, through a litigation trust, obtained a default judgment
against one of the general partners, Joseph Carballeira. The amount of that judgment was
approximately $3.3 million.

         Based on two developments, Carballeira now argues that he has satisfied that
judgment. First, he previously had a claim against Rams Associates for $1.75 million.
Although he waived that claim in exchange for a release from the third-party purchaser of
Rams Associates’ assets, he contends that his prior claim entitles him to a $1.75 million
setoff against the default judgment. Second, after closure of the bankruptcy case, one of
the creditors represented by the litigation trust, William Heinzerling, stated in an affidavit
filed with the Bankruptcy Court that he wanted to waive his claim to $1.8 million of the
default judgment. Carballeira argues that the affidavit suffices to expunge his liability for
$1.8 million of the judgment.

         Carballeira tried to obtain a court order declaring that he had satisfied the default
judgment, but he did not prevail. Exercising its delegated authority, see 28 U.S.C.
§§ 151, 157(a)–(b)(1), 1334(a), the Bankruptcy Court denied his request for a warrant for
satisfaction of the judgment. Carballeira then appealed to the District Court, see
id. § 158(a), which affirmed the Bankruptcy Court’s order. Through a timely appeal,
Carballeira brought this case within this Court’s appellate jurisdiction. See 28 U.S.C.
§ 1291; Fed. R. App. P. 4(a)(1)(A).
         In reviewing the District Court’s order de novo,1 which entails “stand[ing] in the
shoes of the District Court” to evaluate the Bankruptcy Court’s legal conclusions de

1
    See In re Phila. Newspapers, LLC, 599 F.3d 298, 303 (3d Cir. 2010).

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novo2 and its discretionary decisions for abuse,3 we will affirm the judgment of the
District Court.

         1.     The Inappropriateness of a Setoff
         Carballeira does not have a right to a setoff. To qualify for a setoff in bankruptcy,
the debts must be mutual. See 11 U.S.C. § 553(a) (allowing parties to claim a setoff only

when the debts they owe each other are “mutual”). That means that “the debts must be in
the same right and between the same parties, standing in the same capacity.” In re
Orexigen Therapeutics, Inc., 990 F.3d 748, 754 (3d Cir. 2021) (quoting In re Bevill,
Bresler & Schulman Asset Mgmt. Corp., 896 F.2d 54, 59 (3d Cir. 1990)). At the outset,
Carballeira waived his prior claim against Rams Associates in return for a release from
another party, and due to the mutuality requirement, an extinguished claim cannot
provide a basis for a setoff. And here Rams Associates no longer owes a debt to
Carballeira. But even if Carballeira’s prior claim remained, it would not suffice for a
setoff. That claim was for a debt that Rams Associates owed to Carballeira. For that

claim to meet the mutuality requirement, it would have to be paired with a debt that
Carballeira owed to Rams Associates. But the default judgment against Carballeira is for
debts owed by Rams Associates to its creditors, for which Carballeira is liable as a
general partner.4 Those debts are not mutual: the creditors have a claim against

2
 In re Glob. Indus. Techs., Inc., 645 F.3d 201, 209 (3d Cir. 2011) (en banc) (internal
quotation marks omitted).
3
    See In re Am. Pad & Paper Co., 478 F.3d 546, 551 (3d Cir. 2007).
4
 See N.J. Stat. Ann. §§ 42:2A-32(b) (stating that “a general partner of a limited
partnership has the liabilities of a partner in a partnership without limited
partners”), 42:1A-18(a) (stating that, in a partnership, “all partners are liable jointly and
severally for all obligations of the partnership unless otherwise agreed by the claimant or
provided by law”); see also Butner v. United States, 440 U.S. 48, 54 (1979) (stating that
“the determination of property rights in the assets of a bankrupt’s estate” is generally

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Carballeira, but Carballeira has no claim against the creditors; his claim, if still extant,
would be against Rams Associates. See Orexigen, 990 F.3d at 754 (explaining that

mutuality “mean[s] only debts owing between two parties, specifically those owing from
a creditor directly to the debtor and, in turn, owing from the debtor directly to that
creditor” and does not include “any contractual elaboration on that kind of simple,

bilateral relationship”).
       2.     The Insufficiency of Heinzerling’s Affidavit Waiving His Claim
       The District Court was also correct that the Bankruptcy Court did not abuse its
discretion in declining to expunge Heinzerling’s claim to $1.8 million of the default
judgment based on his affidavit. Heinzerling has a prima facie valid claim against
Carballeira, which could be waived through a motion to expunge. See 11 U.S.C. § 105(a)
(“The court may issue any order, process, or judgment that is necessary or appropriate to
carry out the provisions of this title.”); In re Kane, 628 F.3d 631, 635 (3d Cir. 2010)
(describing a bankruptcy court’s expungement of a claim following a motion to

expunge). But due to a dispute over the payment of the $1,167 filing fee required to
reopen this case (a prerequisite to filing a motion to expunge), see 28 U.S.C.
§ 1930(a)(3), no one filed such a motion. Rather, Carballeira filed the Heinzerling
affidavit in the closed bankruptcy proceedings. A bankruptcy court does not abuse its
discretion by declining to rely on an affidavit to expunge a claim in a closed case and by
instead requiring the case’s reopening and the filing of a motion to expunge. See In re
Orthopedic “Bone Screw” Prods. Liab. Litig., 132 F.3d 152, 156 (3d Cir. 1997)
(explaining that courts have the power to “manage their own affairs” to achieve the

controlled by state law); City of Farrell v. Sharon Steel Corp., 41 F.3d 92, 95 n.3 (3d Cir.
1994) (same).

                                               4
“orderly and expeditious disposition of cases”); In re Fine Paper Antitrust Litig.,
685 F.2d 810, 817 (3d Cir. 1982) (“We will not interfere with a trial court’s control of its

docket except upon the clearest showing that the procedures have resulted in actual and
substantial prejudice to the complaining litigant.” (internal quotation marks omitted)).
                                           ***

       For the foregoing reasons, we will affirm the judgment of the District Court.

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