Faulkner v. Kornman (In re Heritage Org., L.L.C.)

• Decision Date: 18 January 2012
• Docket Number: Bankruptcy No. 04–35574–BJH–11.,Adversary No. 06–3377–BJH.
• Citation: 466 B.R. 862
• Parties: In re The HERITAGE ORGANIZATION, L.L.C., Debtor.Dennis Faulkner, Trustee, Plaintiff, v. Gary M. Kornman, et al., Defendants.
• Court: U.S. District Court — Northern District of Texas

466 B.R. 862

In re The HERITAGE ORGANIZATION, L.L.C., Debtor.Dennis Faulkner, Trustee, Plaintiff,

v.Gary M. Kornman, et al., Defendants.

Bankruptcy No. 04–35574–BJH–11.

Adversary No. 06–3377–BJH.

United States Bankruptcy Court, N.D. Texas, Dallas Division.

Jan. 18, 2012.

Carol E. Jendrzey, Kinetic Concepts, Inc., Deborah D. Williamson, Cox Smith Matthews Incorporated, San Antonio, TX, M. David Bryant, Jr., Cox Smith Matthews Incorporated, Dallas, TX, for Plaintiff.

Ryan K. McComber, Keith Robert Verges, Raymond E. Walker, Figari & Davenport, L.L.P., William Lloyd Foreman, Owens, Clary & Aiken, L.L.P., Emil Lippe, Jr., Law Offices of Lippe & Associates, Brian P. Lauten, Sawicki & Lauten, L.L.P., David A. Alexander, Kirkpatrick & Lockhart Preston Gates, Dallas, TX, for Defendants.

MEMORANDUM OPINION AND ORDER

BARBARA J. HOUSER, Bankruptcy Judge.

This adversary proceeding has an extensive procedural and substantive history, little of which bears repeating as it has been set forth at length in several prior Memorandum Opinions, see Docket Nos. 83, 480, 582, 738 and 806, and in the pleadings underlying over eighty motions that have been filed either by the plaintiff or by whom the Court has come to refer to in its prior opinions as the “Kornman Defendants” or the “Judgment Debtors.” ¹ Briefly, on May 11, 2009, this Court entered its Memorandum Opinion after trial on the merits of the claims filed by Dennis Faulkner (the “Trustee”) in the above-captioned adversary proceeding (the “2009 Memorandum Opinion”). After a subsequent dispute about the Trustee's entitlement to pre-judgment interest was resolved, this Court entered, on July 13, 2009, what was styled and titled as a “Final Judgment” (the “Judgment”) against certain of the defendants, all of whom are affiliated in some fashion with Gary Kornman (“Kornman”) (those entities will be referred to here as the “Judgment Defendants”).² The Judgment awarded the Trustee a substantial monetary recovery against the Judgment Defendants, which they have been fighting ever since and which the Trustee has been trying (without much success) to collect ever since.

Specifically, ten days after entry of the Judgment, the Judgment Defendants filed “Defendants' Motions for New Trial, or to Amend or Make Additional Findings of Fact, to Alter or Amend Judgment, or for Relief from Judgment, and Supporting Brief.” See Docket No. 612. On August 25, 2009, the Judgment Defendants filed “Defendants' Supplemental Motion for New Trial, or for Relief From Judgment, and Supporting Brief.” See Docket No. 620. Both of those motions relied upon, inter alia, Federal Rule of Civil Procedure 60(b), and both were ultimately denied. See Docket No. 624. On September 11, 2009, the Judgment Defendants filed a notice of appeal, which stated that they were appealing “the Final Judgment entered on July 13, 2009.” ³ See Docket No. 626. On May 27, 2010, the Judgment Defendants filed an “Emergency Motion and Supporting Brief for Order Requiring Clients [sic] with Notice and Due Process Requirement,” see Docket No. 708, in which they alleged that this Court had “signed and entered its Final Judgment dated July 13, 2010. Such Final Judgment has not been appealed and is therefore valid and subsisting.” Docket No. 708, ¶ 1. The Judgment Defendants asserted that the Trustee had improperly commenced enforcement proceedings in the United States Bankruptcy Court for the Southern District of Texas and certain pleadings had been improperly sealed, and thus the Judgment Defendants asked this Court for certain relief.⁴ That motion was thereafter withdrawn. See Docket No. 710. On August 8, 2011, the Judgment Defendants filed “Certain Defendants' Motion to Vacate Final Judgment Pursuant to Fed.R.Civ.P. 60(b)(4) and Fed. R. Bankr.P. 9024.” See Docket No. 790 (the “ Stern Motion”).

None of the foregoing pleadings filed by the Judgment Defendants assert that the Judgment, which was drafted by their attorney and titled “Final Judgment,” is not, and never was, final. In fact, the pleadings which do not expressly concede the Judgment's finality rely upon its finality implicitly, either by virtue of an appeal or a citation to Fed. R. Civ. Pro. 60(b) which, by its terms, applies only to final judgments. The Judgment Defendants' recent Stern Motion asserted that the Judgment is void and must be vacated on the ground that this Court lacked Constitutional authority to enter it under the recent decision of the United States Supreme Court in Stern v. Marshall, ––– U.S. ––––, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). The Stern Motion itself relied upon Rule 60(b).

On the morning of the hearing on the Stern Motion, Judgment Defendants' current counsel concocted a clever concept—and raised for the first time an issue that he “noticed last night” when preparing for the hearing— i.e., that the Judgment may not be final because it may not have disposed of all pled claims in the adversary proceeding against all named defendants. At that hearing, he was unable to provide any specifics beyond this vague statement. Therefore, the Court declined to address what it characterized as a hypothetical issue because it was neither raised in the Stern Motion nor was the Judgment Defendants' counsel prepared to address it any further than simply raising its specter.

On October 3, 2011, this Court entered its Memorandum Opinion and Order (the “October Opinion”) denying the Stern Motion filed under Rule 60(b)(4). This Court held, for the reasons set forth therein, that its prior determination of jurisdiction was res judicata such that the Judgment Defendants could not challenge it on Stern grounds by way of a motion under Rule 60(b)(4) where the Court's prior Judgment was not a “clear usurpation of power” or rendered notwithstanding a “total want of jurisdiction.” Faulkner v. Kornman (In re The Heritage Organization, L.L.C.), 459 B.R. 911 (Bankr.N.D.Tex.2011).⁵

Undaunted, the Judgment Defendants have now filed several motions. First, the Judgment Defendants have filed a “Motion to Amend or Modify the Court's Memorandum Opinion and Order Denying their Motion to Vacate” pursuant to Fed.R.Civ.P. 52 (the “Motion for Amended Findings”). See Docket No. 810. In essence, the Judgment Defendants argue that the Judgment is not, and has never been, “final” and thus the Court's analysis in its October Opinion was flawed as such finality is a necessary predicate to the application of the doctrine of res judicata or claim preclusion. The Judgment Defendants ask this Court to amend its October Opinion and expressly find that

(i) no final judgment has been entered in the above-captioned matter; (ii) the “Final Judgment” entered by the Court on July 13, 2009 is not a final judgment; (iii) Stern is fully applicable to the jurisdictional analysis that must be applied to this case; and (iv) under Article III of the Constitution of the United States, as interpreted by the Supreme Court in Stern, this Court has no subject matter jurisdiction to adjudicate the claims that it purported to adjudicate in the proceedings that culminated in its entry of the “Final Judgment” on July 13, 2009.

Motion for Amended Findings, p. 4. The Judgment Defendants further request that after making these findings, the Court amend its October Opinion to vacate the Judgment and its 2009 Memorandum Opinion containing the findings and conclusions supporting the Judgment.

Second, the Judgment Defendants have filed an “Emergency Motion to Stay Enforcement of Alleged ‘Final Judgment’ and Brief in Support Thereof” (the “Stay Motion”). See Docket No. 814. The Judgment Defendants argue that the Judgment is not final, and therefore the Trustee's registration of the Judgment in the Southern District of Texas was improper, and his efforts to enforce the Judgment violate due process under the 14th Amendment to the United States Constitution and should be stayed pending this Court's disposition of the Motion for Amended Findings.⁶

Third, the Judgment Defendants have filed a “Motion to Dismiss Pursuant to Rules 12(b)(1) and 12(h)(3) of the Federal Rules of Civil Procedure and Rule 7012(b) of the Federal Rules of Bankruptcy Procedure” (the “Dismissal Motion”). See Docket No. 818. The Judgment Defendants assert that the Trustee's claims in this adversary proceeding are “private right claims that must be adjudicated by a court established pursuant to Article III of the Constitution of the United States” under Stern, see Dismissal Motion, p. 2, and this Court accordingly lacks subject matter jurisdiction to adjudicate such claims and enter a final judgment. They further assert that since no final judgment has been entered, this Court retains jurisdiction to determine its jurisdiction, and they ask that this Court enter an order dismissing the adversary proceeding for lack of subject matter jurisdiction.

The Trustee has opposed all three motions. The Court heard the motions on November 22, 2011 and took them under advisement.

I. LEGAL ANALYSISA. The Motion for Amended Findings

The Judgment Defendants argue the Judgment was not, in fact, a final judgment because the record shows that (i) all of the claims against all of the parties were not finally disposed of, (ii) there was no order of severance respecting the Court's separate rulings as to claims against individual defendants, and (iii) there was never any certification under Fed.R.Civ.P. 54(b) rendering any ruling of the Court a final judgment. As the Fifth Circuit has noted, the purpose of a motion for amended or additional findings under Rule 52(b) is to correct manifest errors of law or fact—“that is not to say, however, that a motion to amend should be employed to introduce evidence that was available at trial but was not proffered, to relitigate old issues, to advance new theories, or to secure a rehearing on the merits.” Fontenot v. Mesa Petroleum Co., 791 F.2d 1207, 1219 (5th Cir.1986).

The Court will address the disposition of claims...