Fieger & Fieger P.C. v. Nathan (In re Romanzi), Case No. 16-cv-13986

• Decision Date: 27 March 2017
• Docket Number: Case No. 16-cv-13986
• Parties: IN RE CRAIG S. ROMANZI, Debtor. FIEGER & FIEGER P.C., et al., Appellants, v. KENNETH A. NATHAN, Appellee.
• Court: U.S. District Court — Eastern District of Michigan

IN RE CRAIG S. ROMANZI, Debtor.

FIEGER & FIEGER P.C., et al., Appellants, v. KENNETH A. NATHAN, Appellee.

Case No. 16-cv-13986

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION

March 27, 2017

UNITED STATES DISTRICT COURT JUDGE GERSHWIN A. DRAIN

UNITED STATES MAGISTRATE JUDGE R. STEVEN WHALEN

OPINION AND ORDER DENYING MOTION FOR RECONSIDERATION [19]

I. INTRODUCTION

Fieger & Fieger, P.C. and Geoffrey N. Fieger ("Appellants" or "Defendants") filed a Notice of Appeal with this Court on November 10, 2016, regarding the Bankruptcy Court's denial of their Motion for Abstention. Dkt. No. 1. The bankruptcy trustee of Craig S. Romanzi ("Debtor"), Kenneth A. Nathan ("Appellee" or "Trustee") moved to dismiss this appeal from the denial of a motion for abstention because it constitutes an improper interlocutory appeal and appellants did not properly seek leave to appeal. Dkt. No. 4. On January 30, 2017, this Court entered an Order granting the Motion to Dismiss. Dkt. No. 17.

Presently before the Court is Appellants' Motion for Reconsideration. Dkt. No. 19. Upon consideration of the arguments presented by Appellants, the Court will deny their Motion for Reconsideration [19].

II. FACTUAL AND PROCEDURAL BACKGROUND

An involuntary Chapter 7 bankruptcy case was filed against Debtor Craig S. Romanzi on March 16, 2016 in Case Number 16-43857-mbm (the "Bankruptcy Case"). Dkt. No. 10, p. 203 (Pg. ID 413). Id. Kenneth A. Nathan was appointed trustee over the bankruptcy estate. Id. Among the assets allegedly owed to the estate is a portion of attorney fees retained by Debtor's prior employers, Appellants.

Debtor had previously filed a lawsuit in Oakland County Circuit Court to recover these fees, but voluntarily dismissed them in July 2016. Dkt. No. 10, p. 148 (Pg. ID 358). Less than a week later, Trustee filed a five-count adversary complaint against Appellants in the bankruptcy proceeding (hereinafter referred to as the "Adversary Proceeding"). See Dkt. No. 10, pp. 203-13 (Pg. ID 413-23). Appellants filed a motion for abstention on August 29, 2016. Dkt. No. 10, p. 95 (Pg. ID 305). Appellants argued for both mandatory abstention, pursuant to 28 U.S.C. § 1334(c)(2), and permissive abstention, pursuant to 28 U.S.C. § 1334(c)(1). Id. at 83, 88 (Pg. ID 293, 298).

The bankruptcy court held a hearing on the motion on October 25, 2016 and issued an order denying the motion the following day. Dkt. No. 10, p. 11 (Pg. ID 221); Dkt. No. 10, p. 10 (Pg. ID 220).

On November 10, 2016, Appellants filed a Notice of Appeal to this Court. Dkt. No. 1. Shortly thereafter, Trustee filed a Motion to Dismiss Appeal. Dkt. No. 4. The Court granted Appellee's motion on January 30, 2017. Dkt. No. 17. Appellants now seek reconsideration. Dkt. No. 19.

III. LEGAL STANDARD

Local Rule 7.1(h)(3) of the Local Rules of the United States District Court for the Eastern District of Michigan provides:

Generally, and without restricting the Court's discretion, the Court will not grant motions for rehearing or reconsideration that merely present the same issues ruled upon by the Court, either expressly or by reasonable implication. The movant must not only demonstrate a palpable defect by which the Court and the parties and other persons entitled to be heard on the motion have been misled but also show that correcting the defect will result in a different disposition of the case.

E.D. Mich. LR 7.1(h)(3). "A 'palpable defect' is 'a defect that is obvious, clear, unmistakable, manifest, or plain.' " United States v. Lockett, 328 F. Supp. 2d 682, 684 (E.D. Mich. 2004) (citing United States v. Cican, 156 F. Supp. 2d 661, 668 (E.D. Mich. 2001)). "[A] motion for reconsideration is not properly used as a vehicle to re-hash old arguments or to advance positions that could have been argued earlier but were not." Smith ex rel. Smith v. Mount Pleasant Pub. Sch., 298F. Supp. 2d 636, 637 (E.D. Mich. 2003) (citing Sault Ste. Marie Tribe of Chippewa Indians v. Engler, 146 F.3d 367, 374 (6th Cir. 1998)).

IV. DISCUSSION

Appellants contend that, pursuant to 28 U.S.C. § 1334(c)(2), under which part of their abstention motion was brought, the bankruptcy court erred in failing to abstain from hearing the Adversary Proceeding. This Court, concluding the bankruptcy court's abstention order was interlocutory, dismissed the appeal for lack of jurisdiction. See Dkt. No. 17.

Appellants' primary argument is that the Court's interpretation of 28 U.S.C. § 1334(d) did not give meaning to Congress's distinction between the appellate jurisdiction relating to issues of mandatory abstention, 28 U.S.C. § 1334(c)(1), and permissive abstention, 28 U.S.C. § 1334(c)(2). Dkt. No. 19, p. 6 (Pg. ID 1228). Based on the carve-out in section 1334(d), Appellants assert that they have a right to appeal orders denying mandatory abstention, regardless of finality, based on their interpretation of the statutory text. See id. at 9 (Pg. ID 1231).

The Court agrees with Appellants that district courts are not barred from reviewing bankruptcy court orders denying mandatory abstention. This Court is not the "court of appeals" referred to in section 1334(d), which is barred from considering decisions to abstain or not under section 1334(c)(1), but may consider decisions not to abstain under section 1334(c)(2). Under section 1334(d), appealsfrom decisions not to abstain are not prohibited in this court, or in the court of appeals.

As appellate courts, district courts are duty-bound to determine jurisdiction over bankruptcy appeals prior to proceeding on the merits. See In re Henriquez, 261 B.R. 67, 69 (B.A.P. 1st Cir. 2001); 28 U.S.C. § 158(a). Under section 158, jurisdiction arises from final determinations, interlocutory determinations under 11 U.S.C. § 1121(d), and from other interlocutory determinations with leave of court. Id. Section 1334(d) does not state at what point in the bankruptcy proceedings parties may appeal, and does not explicitly carve-out an exception to the ordinary finality requirement. Here, the Court found that the bankruptcy court's order was not a final determination and that Appellants had not sought leave of court for an interlocutory appeal.

The Court is not the first to reach the conclusion that a bankruptcy court's order denying a motion for abstention requires leave of court to appeal. In 2013, a bankruptcy court in the Sixth Circuit spoke to the question of whether orders denying mandatory and permissive abstention are final judgments for appeal to a district court:

The Sixth Circuit Court of Appeals in the unpublished opinion of In re Gentry, 127 F.3d 1102 (table), 1997 WL 664747 (6th Cir. 1997), held that an order denying abstention is "clearly interlocutory" and not appealable under the collateral order exception to the final judgment rule established in Quackenbush v. Allstate Ins. Co., 517 U.S. 706 (1996). Orders denying abstention are treated differently than ordergranting abstention because orders denying abstention are treated as interlocutory while orders granting abstention fall under the collateral order exception. Based on this case law, the bankruptcy court respectfully opines that its August 13, 2013 order [denying mandatory abstention, permissive abstention, and remand] was an interlocutory order within the Fed. R. Bankr. P. 7042 consolidated Adversary Proceedings, being nos. 13-00197 and 13-00208. The August 13, 2013 order merely denied mandatory and permissive abstention and remand and did not dispose of the entire subject disputed in the consolidated adversary proceedings. Upon the bankruptcy court issuing a final judgment on the Law Firm's removed lawsuit and its § 523(c) nondischargeability complaint, that judgment along with the order denying abstention and remand would be appealable final orders subject to the provisions of 28 U.S.C. § 158(a)(1) and Fed. R. Bankr.P. 8001(a).

In re Wade, 500 B.R. 896, 903-04 (Bankr. W.D. Tenn. 2013) (internal citations omitted); see also In re Gentry, 127 F.3d 1102, *1 (6th Cir. 1997) ("The order denying abstention was clearly interlocutory as evidenced by the trial and subsequent judgment that have been entered in the bankruptcy court during the pendency of this appeal . . . If the judgment is affirmed by the district court, Gentry will be free to appeal the affirmance and raise the appropriateness of denying mandatory abstention as one of his issues on appeal.").

The Court also notes that its decision is in line with a plethora of recent cases interpreting whether appeal of a bankruptcy court's order denying a motion to abstain pursuant to section 1334(c)(2) requires leave of court under section 158(a)(3). See, e.g., In re GACN, Inc., 555 B.R. 684, 692 (B.A.P. 9th Cir. 2016) ("Unless we grant leave to appeal, this interlocutory appeal from the bankruptcycourt's order denying abstention is subject to dismissal for lack of jurisdiction."); In re: Meridian Med. Sys., LLC, No. 15-2028, 2016 WL 3221558, at *2 (D. Me. June 10, 2016) (finding appellant's appeal of a bankruptcy court's order denying mandatory abstention to be interlocutory and denying leave to appeal); In re Bankr. Estate of Morgantown Excavators, Inc., 507 B.R. 126, 131 (N.D.W. Va. 2014) (finding a bankruptcy court's order denying mandatory or permissive abstention was not a final order under section 158(a)(1)); In re Extended Stay, Inc., No. 09-13764 JMP, 2012 WL 491436, at *2 (S.D.N.Y. Feb. 14, 2012) ("Because the abstention order [denying mandatory and permissive abstention] does not resolve an entire claim, it is not final under section 158(a).").

In 2015, the First Circuit considered a case where appellants argued that a bankruptcy court should have remanded the case pursuant to the mandatory abstention provision of 28 U.S.C. § 1334(c)(2), but the appellants made no meaningful effort to address the jurisdictional issues that prompted the district court to dismiss the appeal. In re Gonzalez, 795 F.3d 288, 291-92 (1st Cir.), cert. denied sub nom. Sitka...