In re Mcmellon

• Citation: 448 B.R. 887
• Decision Date: 08 March 2011
• Docket Number: Civil Action No. 3:11–0047.
• Court: U.S. District Court — Southern District of West Virginia
• Parties: In re David Frank McMELLON, Emily Catherine McMellon, Debtors.Steel of West Virginia, Inc. and SWVA, Inc., Appellants,v.David Frank McMellon and Emily Catherine McMellon, Appellees.

448 B.R. 887

In re David Frank McMELLON, Emily Catherine McMellon, Debtors.Steel of West Virginia, Inc. and SWVA, Inc., Appellants,

v.David Frank McMellon and Emily Catherine McMellon, Appellees.

Civil Action No. 3:11–0047.

United States District Court, S.D. West Virginia.

March 8, 2011.

Stephen J. Golder, Thomas E. Scarr, Jenkins Fenstermaker, Huntington, WV, for Appellants.Mark A. Atkinson, Paul L. Frampton, Jr., Atkinson & Polak, PLLC, Marshall C. Spradling, Marshall C. Spradling Law Office Charleston, WV, for Appellees.

MEMORANDUM OPINION AND ORDER

ROBERT C. CHAMBERS, District Judge.

Pending is a brief of objections filed by Steel of West Virginia, Inc. and SWVA, Inc. (collectively, “Steel”) to the bankruptcy court's order reopening the case of the debtors David and Emily McMellon for the purpose of adding to their asset schedules a concurrently pending wrongful termination claim. For the following reasons, the Court REVERSES the decision of the bankruptcy court reopening the case, DENIES the debtor's motion to reopen WITHOUT PREJUDICE, and REMANDS this matter for further proceedings.

I. Background and Procedural History

On March 3, 2010, David and Emily McMellon initiated a voluntary Chapter 7 petition, seeking bankruptcy protection. In accordance with the usual practice in these proceedings, the debtors filed a standard Statement of Financial Affairs and various schedules summarizing their assets and liabilities. Based on the information that was submitted, the bankruptcy court permanently discharged the McMellons' debts on June 16, 2010, and closed the case on August 24, 2010.

Shortly thereafter, on September 8, 2010, Mr. McMellon filed a wrongful discharge complaint in Cabell County Circuit Court against his former employer, Steel, based on the events that led to the termination from his long-time position with the company in December of 2009. On October 5, 2010, Steel moved to dismiss Mr. McMellon's wrongful discharge claim in State court on judicial estoppel grounds. Steel argued that, because Mr. McMellon did not disclose the factual predicate for the claim in federal bankruptcy court, he was estopped from now claiming that it was a valid cause of action in State court.

Less than a week before the Cabell County Circuit Court held a hearing on Steel's motion to dismiss, Mr. McMellon filed a motion in bankruptcy court to reopen the instant case for the purpose of amending his schedule of assets to include the omitted wrongful discharge claim. Upon objection to the petition by Steel, the bankruptcy court conducted a hearing on December 15, 2010. Mr. McMellon testified, and blamed a lawyer who had represented him in a post-termination unemployment hearing for failing to timely advise him on the validity of the claim. As he submits, he did not list the claim as a potential asset because the lawyer essentially never confirmed whether it was valid.

At the hearing, the trustee also testified, and concluded that the case should be reopened because it is in the best interest of Mr. McMellon's creditors to do as much. The bankruptcy court granted the petition to reopen the case. With regard to the allegation as to whether Mr. McMellon actively concealed his wrongful discharge claim as a potential asset, the court held as follows:

This Court has no reservation with the finding, after having heard the testimony of Mr. David McMellon that his failure to schedule a possible wrongful discharge case was not, by any means, willful or in connection with an attempt to take advantage of his creditors or to slight his creditors any opportunity for recovery, but merely because the conflicting and inconsistent advice he had received from the counsel he had engaged to understand his chances for recovery on a wrongful discrimination case.... Accordingly, this Court FINDS that the Debtor has demonstrated adequately that it is in the interest of justice to allow him to reopen the bankruptcy case for the purpose of amending the schedules, to list a claim that has now been asserted in the Circuit Court of Cabell County, West Virginia[ ]....

Bankr.Ct. Order to Reopen 4, No. 2 (Ex. 11). The court weighed heavily the consideration of Mr. McMellon's creditors in deciding to grant the motion. Id. Steel now appeals the decision to reopen the case.II. Discussion

The sole issue on appeal is whether the bankruptcy court erred by deciding to reopen the debtors' Chapter 7 bankruptcy case in light of the evidence presented at the hearing when the debtors failed to disclose a potentially meritorious wrongful discharge claim. Steel contends that there is substantial evidence that Mr. McMellon concealed the instant claim from his applicable asset disclosure filings.

A. Standard of Review

The court may hear bankruptcy appeals from “final judgments, orders and decrees” or “with leave of the court, from interlocutory orders and decrees.” 28 U.S.C. § 158(a)(1), (3). “The vast body of law articulating rigorous finality standards for the appealability of orders is largely inapplicable here in the bankruptcy context,” as bankruptcy proceedings are generally required to be administrated in a more “pragmatic” and “less technical” manner. See In re Swyter, 263 B.R. 742, 746 (E.D.Va.2001). An order is appealable in the bankruptcy context where it “(i) finally determines or seriously affects a party's substantive rights, or (ii) will cause irreparable harm to the losing party or waste judicial resources if the appeal is deferred until the conclusion of the bankruptcy case.” Id. (citations omitted).

The bankruptcy court's decision to reopen the instant case does not give further opportunity for the parties to challenge the change in the schedule of assets. It simply permits the amendment in the manner the McMellons have requested. The Court believes this is sufficient to constitute a final judgment under 28 U.S.C. § 158(a)(1) because it effectively “ ‘ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.’ ” ¹ See In re Cusson, 412 B.R. 646, 652 (citing Catlin v. United States, 324 U.S. 229, 233, 65 S.Ct. 631, 89 L.Ed. 911 (1945) (further citation omitted)); see also In re Bonner, No. 04–8101, 2005 WL 2136204, at *3–4 (B.A.P. 6th Cir. Sept. 6, 2005); In re Parker, 264 B.R. 685, 689 (10th Cir. BAP 2001). That is, “it ... completely resolve[s] all of the issues pertaining to a discrete claim.” In re Fugazy Express, Inc., 982 F.2d 769, 776 (2d Cir.1992).

The decision to reopen a bankruptcy case is reviewed under an abuse of discretion standard. Hawkins v. Landmark Fin. Co., 727 F.2d 324, 327 (4th Cir.1984). The bankruptcy court's conclusions of law are reviewed de novo, and its findings of fact under the clearly erroneous standard. In re Johnson, 960 F.2d 396, 399 (4th Cir.1992). A finding of fact is clearly erroneous if the court is left with a “firm and definite conviction that a mistake has been committed.” In re Daugherty Coal Co., Inc., 144 B.R. 320, 322 (N.D.W.Va.1992).

B. The Decision to Reopen

Steel argues that the bankruptcy court abused its discretion in reopening the instant case by ignoring key facts that suggest that Mr. McMellon knew about his potential wrongful discharge claim before his bankruptcy case was closed, but actively concealed his knowledge of the issue from the court. Steel contends that the bankruptcy court should have declined to grant the McMellons' motion in light of applicable law that does not permit the reopening of bankruptcy cases where a motion to reopen is filed only to prevent dismissal of a claim on the basis of judicial estoppel.

To properly address Steel's arguments, the Court must assess whether the bankruptcy court relied upon erroneous factual or legal premises in arriving at its ultimate finding. See United States v. Hedgepeth, 418 F.3d 411, 418–19 (4th Cir.2005). The bankruptcy court may reopen a closed case in order to administer assets, accord relief to the debtor, or for other cause. See 11 U.S.C. § 350(b). The right to reopen, while in the sound discretion of the bankruptcy judge, “depends upon the circumstances of the individual case.” In re Carter, 156 B.R. 768, 770 (Bankr.E.D.Va.1993). The Court must therefore examine the record of the proceedings below in order to determine whether the decision was proper.

Under the Bankruptcy Code, all of a debtor's interests in property at the time his petition is filed, including any claims he may have, must be added to the bankruptcy estate. See 11 U.S.C. § 541(a)(1). The debtor must disclose all potentially meritorious claims, not simply those that are guaranteed to succeed. Casto v. Am. Union Boiler Co. of W. Va., No. 2:05–cv–00757, 2006 WL 660458, at *2 (“Pursuant to this duty to disclose, debtors ‘must disclose all potential causes of action including litigation that is likely to arise in a non-bankruptcy setting.’ ” (quoting In re Baldwin, 307 B.R. 251, 265 (M.D.Al.2004))). To paraphrase one court:

The debtor need not know all the facts or even the legal basis for the cause of action; rather, if a debtor has enough information, prior to confirmation to suggest that it may have a possible cause of action, then that is a “known” cause of action such that it must be disclosed. Any claim with potential must be disclosed, even if it is contingent, dependent, or conditional.

In re Coastal Plains, 179 F.3d 197, 208 (5th Cir.1999) (quotations omitted).

Steel cites to various decisions which it claims support the proposition that courts generally do not permit the reopening of bankruptcy cases under circumstances similar to those in this case. See, e.g., Moses v. Howard Univ. Hosp., 606 F.3d 789, 800 (D.C.Cir.2010) (affirming the district court's dismissal of a retaliation claim on grounds of judicial estoppel where claimant failed to disclose the claim in a concurrent bankruptcy proceeding); In re Walker, 323 B.R. 188, 194–96 (Bankr.S.D.Tex.2005) (refusing to reopen a debtor's case for the purpose of...