Foster v. First Interstate Bank (In re Shoot the Moon, LLC)
| Decision Date | 15 July 2022 |
| Docket Number | Case No. 2:15-bk-60979-WLH11,Adv. Proc. No. 2:21-ap-02005-WLH |
| Citation | 642 B.R. 21 |
| Parties | IN RE: SHOOT THE MOON, LLC, Debtor. Jeremiah Foster, Plaintiff, v. First Interstate Bank; American Bank Center; John Does 1-10, Defendants. |
| Court | U.S. Bankruptcy Court — District of Montana |
Bryce A. Burke, Moulton Bellingham PC, Billings, MT, for Defendant American Bank Center.
Evan Coren, Boone Karlberg P.C., Missoula, MT, Sheila R. Schwager, Hawley Troxell Ennis & Hawley, LLP, Boise, ID, Jenny M. Jourdonnais, Charles Edward Hansberry, Hansberry & Jourdonnais, PLLC, Missoula, MT, for Defendant First Interstate Bank.
David B. Cotner, Missoula, MT, Kyle Ryan, Cotner Law PLLC, Missoula, MT, for Plaintiff Jeremiah J. Foster.
A common challenge in the entertainment industry is improving on an original work for a sequel. Litigators can face the same challenge when crafting an amended complaint to address a prior version's deficiencies.
In this adversary proceeding, the plaintiff amended his complaint to address defects requiring dismissal of a prior complaint. Defendants again move to dismiss on a variety of bases, including because an unchallenged 2016 order approving and incorporating a release of defendants bars the claims. For the reasons set forth below, the new complaint should also be dismissed, this time with prejudice.
The general background of this litigation is detailed in a previous opinion in which the court dismissed without prejudice the bankruptcy trustee's prior complaint because the parties released each other from liability on all such claims.1 The court will not repeat the details here but directs readers to the previous opinion and incorporates its background discussion, defined terms, and legal analysis as if fully set forth herein.
Commencing where the previous opinion concluded, the Trustee timely filed an amended complaint to remedy the defects in the dismissed complaint.2 In an effort to invalidate the release barring his claims, the Trustee alleges in the present complaint that (i) he made a generalized inquiry about the existence of potential claims at a creditors’ meeting defendants attended; (ii) such inquiry imposed a duty of disclosure on defendants; (iii) defendants breached this duty by their silence; and (iv) therefore, the trustee's subsequent release of the undisclosed claims is not binding.3 The newest complaint further adds allegations designed to support a theory that the Trustee's consent to the release was a mistake, as well as a revised count expressly seeking reformation of the stipulation containing the release.4
Defendants separately move to dismiss the amended complaint on numerous grounds, including once again because the release bars the asserted claims. In this latest round of motions, though, defendants amplify and directly press an argument previously suggested but undeveloped until now: The Trustee is barred from attacking the release because that release is part of a final, unchallenged court order.5 The court has received the benefit of comprehensive briefing and oral argument regarding this second generation of dismissal motions and the matter is ready for decision.
The court has subject matter jurisdiction regarding, and the judicial power to finally resolve, this adversary proceeding for the reasons detailed in the court's previous opinion and in light of the Trustee's continued express consent "to entry of a final order or judgment by this Court."6 The standards for dismissal under Rule 12(b)(6) have not changed since the previous opinion.7
The legal system and society generally have a significant interest in the finality of court orders and judgments.8 In turn, this interest requires that federal court orders carry the full force of law unless and until extinguished through appropriate processes.9 Finality principles are usually advanced by requiring dissenting parties to pursue a direct appeal within a certain timeframe. But, because rigidly applying the appellate-finality doctrine might conflict with other important interests in some instances, Federal Rule of Civil Procedure 60(b) also permits relief from final orders or judgments in certain exceptional circumstances. Yet even Rule 60 reflects the significant value of finality and imposes its own finality-driven limitations, such as deadlines for parties to seek relief.10
If parties do not exercise available avenues for relief through either a timely appeal or a Rule 60(b) motion, they may not pursue de facto challenges to the relevant order or judgment in another proceeding. This collateral attack doctrine prevents courts from effectively overruling or altering final orders via indirect routes11 and is firmly grounded on the need for finality.
These principles apply equally in the bankruptcy context. Indeed, over many decades the Supreme Court and other courts have repeatedly barred collateral attacks on myriad breeds of bankruptcy court orders.12
In the main bankruptcy case, the Trustee, defendants, and other entities entered into a stipulation as part of a deal obtaining their collective consent to an asset-sale transaction proposed by the Trustee.13 The stipulation includes an expansive release of all known and unknown claims that, if operative, plainly releases all claims asserted here.14 In September 2016, at the Trustee's urging, the bankruptcy court authorized and approved, among other things, the asset sale and the parties’ stipulation.15 But the bankruptcy court order did more than simply approve the stipulation and its release terms; the order also provides that:
No party appealed or otherwise challenged the September 2016 order. Thus, the order is final.
Based on these undisputed events, defendants contend that the relief the Trustee seeks is a prohibited collateral attack on the September 2016 order. The court agrees. Allowing the Trustee to prosecute his claims despite the incorporated release terms would "conflict with or derogate from" explicit terms of the order, which the order itself forbids in any "proceeding subsequent to entry of this Order." This necessarily includes the instant adversary proceeding. Moreover, attempting to cleave off and modify the release in isolation from the remainder of the order also conflicts with its non-severability language.
Simply put, so long as the September 2016 order remains in full force and effect, the collateral attack doctrine bars this court (or any other) from granting relief attainable only after a successful appeal or Rule 60(b) motion, including the relief sought in the operative complaint. Importantly, this remains true even assuming the Trustee's newest allegations are sufficient to sidestep the release as a matter of Montana contract law. The release is not only embodied in a privately negotiated stipulation, but also expressly incorporated into and solidified by a federal court order that the Trustee successfully obtained. The secondary manifestation of the release in an order implicates the finality principles discussed earlier. If the Trustee wished to revisit the September 2016 order, the proper vehicle to do so is a direct appeal or a Rule 60(b) motion, not a collateral attack.
The Trustee's primary response is that his claims do not seek to challenge or unwind the sale transaction the order approved under Bankruptcy Code section 363, but instead are limited to revising the release.19 This response is unavailing for at least two reasons.
First , although finality principles certainly apply to sale orders to prevent common collateral attacks on those orders,20 the doctrine preventing such attacks is not limited to such orders. Instead, the collateral attack doctrine protects almost every final bankruptcy court order.21 In a given bankruptcy case the court may enter many orders – such as those granting or denying motions for relief from the automatic stay; allowing or disallowing claims; approving financings, sales, settlements, or payments; confirming plans; and so on – each of which could involve "a discrete procedural unit within the embracive bankruptcy case" that "yields a final, appealable order" which is binding and carries preclusive effect if not timely appealed.22 Case law demonstrates that the prohibition on improper collateral attacks encompasses all kinds of final orders.23 Here, the September 2016 order unreservedly and separately resolved and approved both the sale and the stipulated terms, and otherwise granted various relief altering the status quo – all of this means the order is final and was potentially appealable.24 The Trustee's inability to collaterally attack the release flows from its approval and inclusion in a final, unappealed order, not from anything unique to section 363 sales.
Second , even assuming some special finality principle does exist, it applies here since claim releases are asset dispositions under section 363. The statutory basis for a bankruptcy estate representative to release causes of action belonging to the estate is Bankruptcy Code section 363(b), because a release is either a "use" or a de facto "sale" of...
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