In re J.T. Thorpe, Inc., Case No. CV 14-03883-VAP
| Decision Date | 03 September 2015 |
| Docket Number | Case No. CV 14-03883-VAP,ADVERSARY Case No. 2:12-AP-02182-BB,USBC Case No. 2:02-BK-14216-BB |
| Court | U.S. District Court — Central District of California |
| Parties | IN RE: J.T. THORPE, INC. & THORPE INSULATION COMPANY, DEBTORS |
[Appeal from Bankruptcy Court]
Appellants Michael J. Mandelbrot and The Mandelbrot Law Firm challenge the bankruptcy court's refusal to countenance their withdrawal from a stipulation that limits their ability to present claims against Appellees J.T. Thorpe Settlement Trust and Thorpe Insulation Co. Asbestos Settlement Trust on behalf of clients allegedly injured by exposure to asbestos. This matter is appropriate for resolution without hearing. See Fed. R. Civ. P. 78; L.R. 7-15. For the reasons discussed below, the Court affirms the bankruptcy court's orders and judgment.
Appellees are statutory trusts created under 11 U.S.C. § 524(g). They are charged with assuming the liability for thousands of present and future mass-asbestos claims against two unrelated insolvent companies, J.T. Thorpe, Inc. ("JTT") and Thorpe Insulation Co. ("Thorpe"). JTT and Thorpe had installed and distributed asbestos insulation in various commercial and industrial settings, including shipyards and U.S. Navy ships. Appellees were established by the companies' Chapter 11 bankruptcy plan confirmation orders and affirmed by California Central District Judges Otero and Fischer.
Given the expiration of the deadlines to file an appeal, the affirmances by Judges Otero and Fischer have become final. SER Tabs A-E. Under these orders, Appellees remain under the bankruptcy court's post-confirmation supervision. SER Tab A at 20 § K (JTT); SER Tab C at 381 ¶ 16 (Thorpe). Appellees' court-approved trust distribution procedures ("TDPs") authorize them to reject the claims filed by attorneys found to be unreliable and to engage in a pattern or practice of submitting unreliable evidence in support of their claims. See SER Tab L at 1122-23 § 5.7; SER Tab M at 1156-57 § 5.7.
Appellants are a lawyer and his law firm who filed claims with Appellees on behalf of asbestos victims. ER Tab 10 at 694 ¶¶ 15, 17. In the wake of an investigation, Appellees withdrew Appellants' claim-filing privileges because they were unreliable and had engaged in a pattern or practice of submitting unreliable evidence. See SER Tab F at 465-68. The audit revealed hundreds of filings on behalf of claimants not likely to have encountered the insolvent companies' asbestos and supported by declarations and answers to interrogatories from persons not likely to have personal knowledge regarding the exposures (e.g., children not yet born and spouses not yet married). SER Tab J at 700-03 ¶ 48-54.
In many cases, Appellants simply refused to cooperate with the investigation or provide the alleged victims' prior deposition testimony. SER Tab J at 703-05 ¶¶ 55-61; SER Tab F at 469-81. Instead, Appellants accused Appellees of misconduct and threatened to sue if they did not stop the audit. In response, Appellees filed adversary proceedings to confirm the reasonableness of their decision to investigate Appellants. ER Tab 1 at 12 ¶¶ 9-10; ER Tab 8 at 658-59 ¶¶ 7-9; see ER Tab 12 at 748-49 ¶¶ 4-7. After they concluded the audit, Appellees also requested instructions to confirm that their findings and remedy were reasonable and authorized under the TDPs. ER Tab 8 at 660 ¶ 12; SER Tab G.
Following comprehensive discovery, the bankruptcy court set these matters for trial. The parties submitted affirmative trial evidence through declarations and exhibits. During the presentation of their case-in-chief, Appellants cross-examined six Appellee witnesses, including their Executive Director, Managing Trustee, and Futures Representative. Appellants also cross-examined Senior Supervising Paralegal Laura Paul, who first raised the problems with their claims and selected 200 of the claims for the audit. Paul testified extensively regarding the implausibilities in the claims. Her testimony showed that Appellants had a practice of submitting unreliable evidence. See SER Tab J at 697-99 ¶¶ 40-44.
On the third day of trial, after Appellants had presented the majority of their case-in-chief, but before Mandelbrot took the stand, the parties read into the record a detailed stipulation endorsed by Appellants and their counsel. ER Tab 7 at 630-50, ER Tab 8 at 654-57 ¶ 3. It provided that Appellants would withdraw their objections and defenses and agree that: (1) Appellees acted reasonably in conducting an investigation, confirming that their evidence was unreliable, and imposing a remedy; and (2) Appellants would promptly transfer the claims of current clients to other counsel and not file new claims against Appellees and the twoother § 524(g) trusts sharing their claim-processing facilities. 4 ER Tab 8 at 654-57 ¶ 3. In reliance on the stipulation, the bankruptcy court terminated the trial. ER Tab 4 at 71:20-72:20; ER Tab 7; ER Tab 8 at 653.
In its Findings of Fact, the bankruptcy court decided that the trusts had reasonably determined Appellants to follow "a pattern and practice of filing unreliable evidence in support of claims[.]" See ER Tab 1 at 12 ¶ 9. Later, the bankruptcy court commented that the subjects of the stipulation were "factual findings which I would have made on my own, based on the record as the state that it was ... factual findings that weren't simply because of the stipulations between the parties, but also consistent with the evidence that I had heard." SER Tab R at 1233.
Appellants subsequently attempted to renege on the stipulation. The bankruptcy court rejected their efforts and, upon Appellees' motion, issued three orders: (1) the Order Granting Motion to Enforce January 23, 2014 Stipulated Agreement, ER Tab 1 at 3-8 ("Enforcement Order"); (2) the Order Following Trial on Adversary Complaints and Motion for Instructions, ER Tab 1 at 9-14 ("Order Following Trial"); and (3) the Judgment in Adversary Proceedings, ER Tab 1 at 15-16 ("Judgment")(collectively, "Orders"). This appeal attacks the Orders by challenging the validity of the stipulation. ER Tab 1 at 1-2.
A federal district court has jurisdiction to entertain an appeal from the Bankruptcy Court under 28 U.S.C. § 158(a), which provides: "The district courts of the United States shall have jurisdiction to hear appeals ... from final judgments, orders, and decrees."
A district court reviews a bankruptcy court's conclusions of law de novo, and the bankruptcy court's factual findings for clear error. In re Greene, 583 F.3d 614, 618 (9th Cir. 2009) (citing In re Raintree Healthcare Corp., 431 F.3d 685, 687 (9th Cir. 2005); In re Salazar, 430 F.3d 992, 994 (9th Cir. 2005)); In re Coleman, 560 F.3d 1000, 1003 (9th Cir. 2009) (citing In re Tucson Estates, Inc., 912 F.2d 1162, 1166 (9th Cir. 1990)). "Mixed questions of law and fact are reviewed de novo." In re Chang, 163 F.3d 1138, 1140 (9th Cir. 1998), cert. denied, 526 U.S. 1149, 119 S. Ct. 2029, 143 L. Ed. 2d 1039 (1999) (citing In re Bammer, 131 F.3d 788, 792 (9th Cir. 1997) (en banc)); see also Fed. R. Bank. Pro. 8013.
When conducting a "de novo review, the appellate [] court accords no deference to the trial [] court, but rather determines for itself whether the ... decision should be reversed on the ground that it is arbitrary, capricious, an abuse of discretion, or contrary to law. Harman v. Apfel, 211 F.3d 1172, 1175 (9th Cir. 2000) (citing Lake Mohave Boat Owners Ass'n v. Nat. Park Serv., 138 F.3d 759, 762 (9th Cir. 1998)). In other words, the court does not afford "deference to the [bankruptcy] court's conclusion." Voigt v. Savell, 70 F.3d 1552, 1564 (9th Cir. 1995) (citing Kayes v. Pac. Lumber Co., 51 F.3d 1449, 1454 (9th Cir. 1995)).
Under the clearly erroneous standard, however, "the court must accept the bankruptcy court's findings of fact unless, upon review, the court is 'left with the definite and firm conviction that a mistake has been committed' by the bankruptcy judge." In re Greene, 583 F.3d at 618 (citing Latman v. Burdette, 366 F.3d 774, 781 (9th Cir. 2004) (quoting United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S. Ct. 525, 92 L. Ed. 746 (1948)).
Whether the bankruptcy court abused its discretion by enforcing the parties' stipulation depends on three issues:
A. Whether the Bankruptcy Court's limited post-confirmation and post-consummation jurisdiction constitutionally extends to third parties such as Appellants
1. Appellants waived their Stern claim.
First, Appellants cite Stern v. Marshall, ___ U.S. ___, 131 S. Ct. 2594, 180 L. Ed.2d 475 (2011), to argue that the bankruptcy court exceeded its jurisdiction. The Stern court held that, "although the Bankruptcy Court had the statutory authority to enter judgment on [a] counterclaim [against the estate], it lacked the constitutional authority to do so." Id. at 2601. Appellants claim to be "two steps further removed from the estate" than the counter-claimant in Stern because they "represented injury claimants and made no claims on behalf of themselves," and because the claims "were not filed against the estate, but against the Trust which contractually assumed liability on the claims." Opening Br. at 5 (Doc. No. 17).
Appellants waived their Stern claim by stipulating that "the only appropriate jurisdiction [to enforce the stipulation] is the supervising bankruptcy court that appointed the Trust fiduciaries." ER Tab 7 at 636-37, 643-44. The "right to a hearing in an Article III court ... is waivable" for both core and non-core matters. In re Bellingham Ins. Agency, 702 F.3d 553, 566-67 (9th Cir.2013), aff'd on other grounds sub nom. Exec. Benefits Ins. Agency v. Arkison, ___ U.S. ___, 134 S. Ct. 2165, 189 L. Ed. 2d 83 (2014). Thus, "a bankruptcy court may constitutionally enter final judgment on a Stern claim against a nonclaimant to the...
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