In re McKenzie

• Decision Date: 19 September 2013
• Docket Number: Case No. 08-16378
• Parties: In Re: STEVE A. McKENZIE, Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of Tennessee

In Re: STEVE A. McKENZIE, Debtor.

Case No. 08-16378

UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF TENNESSEE SOUTHERN DIVISION

SIGNED: September 19, 2013

______________________

Shelley D. Rucker

UNITED STATES BANKRUPTCY JUDGE

Chapter 7

MEMORANDUM

Burr & Forman LLP ("Appellee") has filed an objection to the designation of the record prepared by Grant, Konvalinka & Harrison, P.C. ("GKH") and SEDI Acquisition, LLC ("SEDI") (collectively, "Appellants"). [Doc. No. 1918].¹ The Appellants have responded, and the court heard argument on the objection on September 12, 2013. [Doc. Nos. 1929, 1931, 1932]. The Appellant first challenges whether this court has jurisdiction to determine the contents of the record on appeal. If the court determines that it does, the court must then consider whether Appellee's objections have merit.

I. Background

On April 3, 2012, this court entered an Order (Doc. No. 1689) authorizing employment of Appellee as Counsel for Trustee C. Kenneth Still (the "Trustee"). Appellee was retained as special counsel by the Trustee on March 5, 2012. [Doc. No. 1672]. Appellee completed its work and filed a First and Final Fee Application on November 26, 2012. [Doc. No. 1788]. Appellant objected to the fee application on December 17, 2012 (Doc. No. 1792), and a hearing was held on the fee application and the objection on March 25, 2013. The court entered an order granting the fee application on June 21, 2013, and the Appellant has filed a Precautionary Notice of Appeal. [Doc. No. 1895]. On July 19, 2013, Appellants filed a Designation of Record on Appeal. [Doc. No. 1907]. The designation included a number of items that were not made exhibits at the hearing, but that had been filed previously, either in the main case or in an adversary proceeding pending in the case. Appellee has objected to the designation of these items on the bases that the court did not rely on them in making its decision and/or they are irrelevant to the issues involved in the contested matter. Appellant contends that the court does not have jurisdiction to decide the question and that the items should be included because they are relevant or they help the appellate court to understand the issues on appeal.

II. Analysis

A. This Court's Jurisdiction

Both parties have provided the court with authorities on the issues and participated in oral argument. Based on the arguments of counsel, the authorities cited, and the pleadings filed by the parties, the court concludes that it does have jurisdiction to decide the matter. The court is persuaded by the arguments made in In re Purvi Petroleum III, LLC, No. 304-14423, 2012 WL360047 (Bankr. M.D. Tenn. Feb. 2, 2012), Amedisys, Inc. v. JP Morgan Chase Bank (In re Nat'l Century Fin. Enter., Inc.), 334 B.R. 907 (Bankr. S.D. Ohio 2005), and NLW Holdings, Inc. v. Eden Ctr., Inc. (In re Ames Dep't Stores, Inc.), 320 B.R. 518 (Bankr. S.D.N.Y. 2005).

Federal Rule of Civil Procedure 8006 outlines the deadlines and procedures for designating a record on appeal. It provides:

Within 14 days after filing the notice of appeal..., the appellant shall file with the clerk and serve on the appellee a designation of the items to be included in the record on appeal and a statement of the issues to be presented. Within 14 days after the service of the appellant's statement the appellee may file and serve on the appellant a designation of the additional items to be included in the record on appeal....

Fed. R. Bankr. P. 8006. The Appellants would have the court follow the reasoning in In re Dow Corning Corp., which determined that the bankruptcy court had "no discretion under Rule 8006 to strike designated items from the record on appeal." 263 B.R. 544, 546-548 (Bankr. E.D. Mich. 2001).

As noted in the In re National Century Financial Enterprises, Inc.,

Rule 8006 does not explicitly provide a mechanism for resolving disputes over items designated in a record on appeal. While "the rule provides the appellee with a remedy for perceived underinclusivieness- viz., the specifying of 'additional items' for designation[,]" Rule 8006 is silent as to a party's recourse should it believe that another's designation of items is overinclusive.

334 B.R. at 912 (quoting In re Dow Corning Corp., 263 B.R. at 546) (noting that the rule "is conspicuously silent on an appellee's recourse should it believe that the appellant's list is overinclusive").

Despite the lack of an explicit mechanism, a number of courts faced with the issue have concluded that authority over the record on appeal should remain with the bankruptcy court. For example, in In re Ames Dep't Stores the court explained why a bankruptcy court has jurisdiction to determine the record on appeal. 320 B.R. at 520-21. The court first noted that the designationof the appellate record is filed in the bankruptcy court for the record to be assembled and transmitted to the appellate court. See Fed. R. Bankr. P. 8006. It then noted a more "fundamental reason" for allowing the bankruptcy court to maintain jurisdiction over the designation of the contents of the appellate record:

The more fundamental reason is that the bankruptcy court knows best what was before it and what it considered in making its ruling. It is sometimes the case that matter is submitted to a bankruptcy court in a way that, while consistent with notice and due process, evades formal docketing or designation. It also is sometimes the case that the bankruptcy court takes judicial notice of matters— such as earlier proceedings in that court. The bankruptcy judge, as the court that issued the decision and order appealed from, is in the best position to know what it considered. It also is in the best position to know what was not considered.

For these reasons, or a subset of them, it long has been clear that the bankruptcy court is the appropriate forum to determine a dispute of this character.

320 B.R. at 521.

The National Century court agreed with the reasoning in In re Ames Dep't Stores and held that the bankruptcy court was in the best position to clarify what it considered. 334 B.R. at 913-914. It addressed the arguments in In re Dow Corning Corp. and rejected what it termed the "minority position espoused by Dow." Id. at 916.

The minority position ignores the directive in 28 U.S.C. § 158(c) that provides that bankruptcy appeals shall generally be taken in the same manner as the district court appeals, which are governed by the Federal Rules of Appellate Procedure. Applying Appellate Rule 10(e) to the present case and adopting the majority position lead the Court to the same result - that it has the authority to determine a dispute over the record on appeal. Lastly, adopting the minority position would lead to the untenable result of permitting any party appealing a decision of a bankruptcy court to designate absolutely any item it wishes for the appellate record.

Id. at 916. This court agrees that the minority position would allow for inclusion in the appellate record items which were not considered by the court and items which, although available for consideration by the court, do not promote a full understanding of the parties' contentions.

The court agrees with the bankruptcy courts in In re Ames Dep't Stores and National Century and concludes that this court is in the best position to understand what it considered in the decision from which Appellants appeal. The court finds that it has jurisdiction to review Appellants' designation of the appellate record.

B. Appellee's Objections to Designation of Appellate Record

As to the merits, there are three groups of documents to which the Appellee objects: (1) documents related to the employment by the Trustee of Mr. Farinash, Appellee's predecessor, for representation in Adversary Proceeding No. 10-1407 and Appellants' objections; (2) a Notice of the Appointment of the Chapter 7 Trustee; and (3) the complaint and its exhibits filed by Nelson E. Bowers II alleging malicious prosecution and abuse of process by the Trustee and his original counsel employed in the bankruptcy case in Adversary Proceeding No. 10-1407. With respect to the first group, the court finds that the history of the employment of Mr. Farinash, as well as the history of the Appellants' objections to the expansion of his employment as litigation with Appellant expanded will be allowed. Although not specifically referenced in the court's opinion, these documents were available in the record of the case and do relate to the employment of Appellee's direct predecessor. The court did consider the scope of the roles of successive special counsel in its review of the fee application to ensure that the two attorneys' work did not overlap. Therefore, the court will overrule Appellee's objection to all documents designated by Appellant relating to the main Bankruptcy Case No. 08-16378 related to Mr. Farinash's employment.

With respect to the notice of the Trustee filed on December 27, 2012, Doc. No. 1800, the court did not rely on that Notice for its finding that Appellee was properly employed by a trustee. Rather, it relied on: (1) the order filed in the Chapter 11 proceeding authorizing the appointment of a trustee entered on February 19, 2009; (2) the conversion of the case on June 14, 2010 to achapter 7 proceeding; and (3) the amended notice of the first meeting of creditors indicating Mr. Still was the Chapter 7 Trustee. [Doc. No. 792]. Further, the issue of Mr. Still's authority to employ counsel was not raised in the Objection to Appellee's fees. Finally, the court finds that the inclusion of this Notice will not serve to improve the understanding of the appellate court, but rather will confuse an issue that the Sixth Circuit has already addressed. See Grant, Konvalinka & Harrison v. Banks et al. (In re McKenzie), 716 F.3d 404, 416 n.6 (6^th Cir. 2013). Therefore, the court will sustain Appellee's objection to Doc. No. 1800 and will strike it from the appellate record.

The most difficult question...