Opportunity Finance, LLC v. Kelley, 051616 FED8, 15-2060

Docket Nº:15-2060, 15-2061, 15-2062
Opinion Judge:BENTON, Circuit Judge
Party Name:Opportunity Finance, LLC; Opportunity Finance Securitization, LLC; Opportunity Finance Securitization II, LLC; Opportunity Finance Securitization III, LLC; International Investment Opportunities, LLC; Sabes Family Foundation; Sabes Minnesota Limited Partnership; Robert W. Sabes; Janet F. Sabes; Jon R. Sabes; Steven Sabes Appellants v. Douglas A...
Judge Panel:Before SMITH, BYE, and BENTON, Circuit Judges. BYE, Circuit Judge, dissenting.
Case Date:May 16, 2016
Court:United States Courts of Appeals, Court of Appeals for the Eighth Circuit
 
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Opportunity Finance, LLC; Opportunity Finance Securitization, LLC; Opportunity Finance Securitization II, LLC; Opportunity Finance Securitization III, LLC; International Investment Opportunities, LLC; Sabes Family Foundation; Sabes Minnesota Limited Partnership; Robert W. Sabes; Janet F. Sabes; Jon R. Sabes; Steven Sabes Appellants

v.

Douglas A. Kelley, Chapter 11 Trustee; Unsecured Creditors Committee Appellees

DZ Bank AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main Appellant

v.

Douglas A. Kelley; Unsecured Creditors Committee Appellees

Epsilon Global Active Value Fund 1-B Ltd.; Epsilon Global Active Value Fund II, L.P.; Epsilon Global Active Value Fund II-B, L.P.; Epsilon Global Active Value Fund II-B, Ltd.; Epsilon Global Active Value Fund III Ltd.; Epsilon Global Active Value Fund Ltd.; Epsilon Global Active Value Fund, L.P.; Epsilon Global Asset Management Ltd.; Epsilon Global Master Fund II, L.P., also known as Epsilon Global Master Fund II, L.P., Sub 1; Epsilon Global Master Fund, L.P.; Epsilon Structured Strategies Master Fund, L.P., also known as Epsilon Global Master Fund III Structured Strategies, L.P.; Epsilon Investment Management, LLC; Stafford Town Ltd.; Westford Asset Management, LLC; Westford Global Asset Management Ltd.; Westford Special Situations Fund Ltd.; Westford Special Situations Fund, L .P.; Westford Special Situations Master Fund, L .P.; Steve G. Stevanovich Appellants

v.

Douglas A. Kelley; Unsecured Creditors Committee Appellees

Nos. 15-2060, 15-2061, 15-2062

United States Court of Appeals, Eighth Circuit

May 16, 2016

Submitted: November 19, 2015

Appeals from United States District Court for the District of Minnesota - Minneapolis

Before SMITH, BYE, and BENTON, Circuit Judges.

BENTON, Circuit Judge

In the aftermath of Thomas Petters' Ponzi scheme, Douglas A. Kelley-as trustee for Petters Company, Inc. (PCI) and eight associated special-purpose entities (SPEs)-filed Chapter 11 bankruptcy petitions. On Kelley's motion, the bankruptcy court consolidated the bankruptcy estates of PCI and the SPEs "for all purposes substantive and administrative." Lenders to PCI and the SPEs appealed. The district court1 dismissed, holding the Lenders did not have standing to appeal the consolidation order because they were not "persons aggrieved." Westlb AG v. Kelley, 531 B.R. 783, 795 (D. Minn. 2015). The Lenders appeal. Having jurisdiction under 28 U.S.C. § 158(d)(1), this court affirms.

I.

Petters, convicted of wire fraud, mail fraud, conspiracy and money laundering, conducted a multi-billion-dollar Ponzi scheme using PCI and eight wholly-owned SPEs. See United States v. Petters, 663 F.3d 375, 378 (8th Cir. 2011). PCI and the SPEs were placed into receivership. The receiver filed Chapter 11 bankruptcy petitions for PCI and the SPEs. Kelley was appointed as the Chapter 11 trustee in each bankruptcy case, which the bankruptcy court consolidated into one jointly-administered case.

To fund PCI, Petters used various SPEs, which held illusory accounts receivable and had no appreciable assets entering bankruptcy. PCI also served as a holding company for several of the SPEs. Two groups of Lenders made loans to certain SPEs. Another group of Lenders did not make loans directly to the SPEs, but only to other Lenders. Each Lender was a net winner from the Ponzi scheme.

As net winners, none of the Lenders filed a proof of claim. Kelley, however, named the Lenders as defendants in separate avoidance actions. Seeking to recover funds for the bankruptcy estates, Kelley alleges that the SPEs wrongfully transferred funds to the Lenders. If the Lenders were found liable in the avoidance actions, they could then file proofs of claim in the bankruptcy case.

Kelley-with the support of the Committee of Unsecured Creditors-moved to substantively consolidate PCI and the SPEs. See generally Sampsell v. Imperial Paper & Color Corp., 313 U.S. 215, 219 (1941) (recognizing bankruptcy referee's power "consolidating the estates" of two related entities); In re Giller, 962 F.2d 796, 799 (8th Cir. 1992) (recognizing "the bankruptcy court's power to order substantive consolidation"). The Lenders, along with nonparty Elistone Fund, objected to the consolidation. Kelley moved to strike their objections, asserting they were not parties in interest. The motion to strike was denied by the bankruptcy court. Granting the consolidation motion and consolidating the assets and liabilities of PCI and the SPEs in the main bankruptcy case, the bankruptcy court found that PCI and the SPEs were interrelated, and had engaged in "massive commingling and the erosion of corporate boundaries."

The Lenders and Elistone Fund appealed the consolidation. Kelley first moved to certify those appeals directly to this court, which was denied. Kelley then moved to dismiss the appeals, arguing that the Lenders did not have standing as "persons aggrieved" to appeal the bankruptcy court's order. The Lenders responded that (1) Kelley was estopped from objecting to their standing because he expressly stated in his certification motion that the district court had jurisdiction to hear the appeals and (2) nevertheless, they were persons aggrieved.

The district court dismissed the appeals, holding Kelley was not estopped, and that the Lenders were not "persons aggrieved." The Lenders appeal.

II.

The Lenders argue Kelley should be estopped from asserting they lacked standing to appeal. The Lenders note that, in the certification motion, Kelley said that the district court had "jurisdiction over . . . the pending appeal pursuant to 28 U.S.C. §§ 158(a) and 1331 and Federal Rule of Bankruptcy Procedure 8001(f)(3)(C)." Thus, according to the Lenders, Kelley should be estopped from invoking the "persons aggrieved" doctrine (which Kelley contends is jurisdictional).

The district court declined to estop Kelley from arguing that the Lenders were not persons aggrieved. This court reviews an application of the judicial estoppel doctrine for an abuse of discretion. Van Horn v. Martin, No. 15-1710, 2016 WL537592, at *1 (8th Cir. Feb. 11, 2016). This court "will not overturn a district court's discretionary application of the judicial estoppel doctrine unless it plainly appears that the court committed a clear error of judgment in the conclusion it reached upon a weighing of the proper factors." Stallings v. Hussman Corp., 447 F.3d 1041, 1046-47 (8th Cir. 2006)

Judicial estoppel, an equitable doctrine, "prevents a party from prevailing in one phase of a case on an argument and then relying on a contradictory argument to prevail in another phase." New Hampshire v. Maine, 532 U.S. 742, 749 (2001). This doctrine "protects the integrity of the judicial process." EEOC v. CRST Van Expedited, Inc., 679 F.3d 657, 679 (8th Cir. 2012). The Supreme Court has articulated three non-exhaustive factors to aid a court in determining whether to apply the doctrine: (1) whether a party's later position is clearly inconsistent with its earlier position; (2) whether the party has succeeded in persuading a court to accept that party's earlier position, so that judicial acceptance of an inconsistent position in a later proceeding would create the perception that the court was misled; and (3) whether the party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the party if not estopped. Jones v. Bob Evans Farms, Inc., No. 15-2068, 2016 WL 308659, at *2 (8th Cir. Jan. 26, 2016), citing New Hampshire, 532 U.S. at 749-51. "Notably, judicial estoppel does not apply when a debtor's prior position was taken because of a good-faith mistake rather than as part of a...

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