Keener v. Super Wings Int'l, Ltd. (In re Keener), Bankruptcy No. 14-01169

• Decision Date: 28 August 2015
• Docket Number: Adversary No. 14-09061,Bankruptcy No. 14-01169
• Citation: Keener v. Super Wings Int'l, Ltd. (In re Keener), Adversary No. 14-09061, Bankruptcy No. 14-01169 (Bankr. N.D. Iowa Aug 28, 2015)
• Court: U.S. Bankruptcy Court — Northern District of Iowa
• Parties: IN RE: JODY L. KEENER, Debtor. JODY L. KEENER, Plaintiff, v. SUPER WINGS INTERNATIONAL, LIMITED Defendant.

IN RE: JODY L. KEENER, Debtor.

JODY L. KEENER, Plaintiff, v. SUPER WINGS INTERNATIONAL, LIMITEDDefendant.

Bankruptcy No. 14-01169

Adversary No. 14-09061

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF IOWA

August 28, 2015

Chapter 11

MEMORANDUM AND ORDER RE: MOTION TO AMEND AND ALTER RULING

DefendantSuper Wings International, Limited("Super Wings") filed a Motion to Amend and Alterthe Court's April 16, 2015 Ruling.That Ruling denied Super Wing's Motion to Dismiss Combined with or in the Alternative Motion for Summary Judgment("Motion to Dismiss").The Court held a hearing on May 7, 2015.Jeffrey Goetz appeared for Debtor.Eric Lam appeared for Super Wings.The Court granted Debtor additional time to file a resistance and took the matter under advisement.This is a core proceeding under 28 U.S.C. § 157(b)(2)(E).

STATEMENT OF THE CASE

Super Wings points out two factual errors in the Court's April 16, 2015 Ruling("Ruling").Super Wings argues that correcting these errors will affect the outcome of the Court's Ruling.Debtor agrees that there are factual errors in the Ruling, but does not agree that the errors affect the outcome of the case.The Court agrees with Super Wings and will correct the factual errors, revise its legal conclusions, and grant the Motion to Dismiss.

PRIOR RULING AND ARGUMENTS TO AMEND AND ALTER

Debtor brought this adversary seeking turnover of valuable plastic toy molds from Super Wings.Super Wings made three arguments in its Motion to Dismiss.One argument was based on res judicata and two were based on the Court lacking jurisdiction.

Super Wings based its res judicata argument on the simple fact that the United States District Court for the Northern District of Iowa had already ruled on the ownership of the molds.The District Court concluded, among other things, that J. Lloyd International, Inc.("JLI"), Debtor's wholly owned company, owned the molds, not Debtor.The District Court further concluded that JLI, not Debtor, had the right to demand and direct their return from Super Wings.

Debtor disagreed that res judicata applied.Debtor claimed that the facts had changed and that this current lawsuit is consistent with, not barred by, the previousfederal lawsuit.Debtor argued that he had sued JLI in a separate state court, received a default judgment against JLI, and later agreed to have JLI assign its right in the molds to Debtor in partial satisfaction of that default judgment ("Assignment").Debtor claimed that the Assignment gave him the rights of JLI that the federal district court had recognized.

This Assignment was also the basis of Super Wing's two jurisdictional arguments.Super Wings argued that the Assignment was void under the § 362 automatic stay and invalid under 28 U.S.C. § 1359 as an improper transfer to create jurisdiction.Because the Assignment was void and invalid, Super Wings argued, the Court did not have jurisdiction over this turnover action.Debtor disagreed with Super Wing's analysis.

The Court concluded that there were factual issues to resolve on all three issues.Thus, the Court found that immediate dismissal was not warranted.

Now Super Wings argues that the prior Ruling was based on an incorrect understanding of the factual record.Super Wings argues that the Court should correct these facts, revise its legal conclusions, and grant the Motion to Dismiss.

STATEMENT OF FACTS

Super Wings correctly points out that the Ruling misstated the date of the Iowa District Court default judgment at Rulingp. 5.It occurred on February 14, 2011, not February 14, 2014, as the Court previously stated.

Super Wings also correctly points out that the ruling erroneously stated that the "Debtor claims to be in a [state court] lawsuit with his company to gain control over property that is rightfully his."Ruling p. 15.The underlying state court lawsuit did not involve the disputed property (the molds).Instead, it involved several promissory notes between Debtor and JLI.

Both parties now agree that the purpose of that state court lawsuit is not relevant here.They agree that the purpose of the Assignment from JLI to Debtor is the relevant inquiry.The Court incorporates all other facts detailed in the Ruling.

The Court finds that limiting the inquiry to the reason for the Assignment—not the factual basis for the underlying lawsuit—is dispositive.The Court originally found that a fact question existed about the purpose of the state court lawsuit by Debtor against his own company.Because the parties now agree that the purpose of that lawsuit is irrelevant, the finding that there were factual questions on that issue is also irrelevant.

The record is not in dispute about the relevant issue—the Assignment.At Debtor's 341 examination, Counsel for Debtor unequivocally stated the purpose of the Assignment:

And that had to do with the Super Wings not recognizing the automatic stay in the Chapter—in the involuntary and their threat to dispose of it.So to bring all of that property into the protection of the automatic stay in the involuntary, there was a transaction. . . .And so now that it is, in fact, property of the estate, there's an assurance thatit can't be liquidated, because there had been a threat of selling it for scrap.

Ruling at 21-22.

Super Wings reiterates that on the proper record—limited to the facts above—the Assignment improperly creates jurisdiction in this Court and also causes other serious problems.Although Super Wings continues to point out that Debtor and Super Wings already had a full lawsuit on the exact same issue—Debtor's entitlement to the molds—in the United States District Court for the Northern District of Iowa, that is relevant only to provide context for the limited purpose of this Motion.

DISCUSSION

I.Applicable Standard

Super Wings filed its Motion to Amend and Alter Ruling on April 29, 2015, just 13 days after the Ruling was entered.Super Wings cited Federal Rules of Bankruptcy Procedure 9024 and 7052 as the basis for this Motion.It also cited Federal Rules of Civil Procedure 60(a), 60(b)(1), and 52(b) and referenced the Court's broad authority under 11 U.S.C. § 105.¹Debtor resisted, arguing thatFederal Rule of Bankruptcy Procedure 9023 must apply because Super Wings filed the motion within 14 days of the Ruling.

Because Super Wings specifically invoked Federal Rule of Bankruptcy Procedure 9024, the Court will use that provision's applicable standard along with other provisions cited.SeeAuto Servs. Co., Inc. v. KPMG, LLP, 537 F.3d 853, 855(8th Cir.2008)(explaining that the Court would use the Rule cited by the moving party).But under Rule 9023 or 9024, the Court can alter or amend a ruling that contains legal or factual errors.SeeUnited States v. Metro. St. Louis Sewer Dist., 440 F.3d 930, 933(8th Cir.2006)(discussingRule 59 in the context of a new trial);Kopolow v. P.M. Holding Corp.(In re Modern Textile, Inc.), 900 F.2d 1184, 1193(8th Cir.1990)(explaining that the Court has the power to "clarify and correct omissions in its judgment to reflect what the court originally intended" under Rule 60);Hagerman v. Yukon Energy Corp., 839 F.2d 407, 414(8th Cir.1988)("Motions for reconsideration serve a limited function: to correct manifest errors of law or fact or to present newly discovered evidence."(quotingRothwell Cotton Co. v. Rosenthal & Co., 827 F.2d 246, 251(7th Cir.1987), as amended, 835 F.2d 710(7th Cir.1987)))."Relief under Rule 60 is extraordinary and lieswithin the court's discretion."Crofford v. Conseco Fin. Servicing Corp.(In re Crofford), 277 B.R. 109, 113(B.A.P. 8th Cir.2002).If a fact mistake is substantial, then the Court can set aside the judgment.SeeIn re DEF Invs., Inc., 186 B.R. 671, 680-81(Bankr. D. Minn.1995).

Here, the Court has amended its finding on two important facts: the date of the Iowa District Court default judgment and the underlying purpose of the state court lawsuit.The date of the Iowa District Court judgment alone does not change the Court's decision.But this fact, coupled with the parties' agreement that the purpose of the Assignment—not the purpose of the lawsuit—is the relevant issue, does change the Court's decision.

Although the Court did consider the effect of the Assignment in the Ruling, the analysis was combined with incorrect findings about the purpose of the underlying lawsuit.Now the parties agree that the fact issues that the Court found to exist are irrelevant.Therefore, the Court finds that relief under Rule 60 is warranted.

II.Issues in Super Wings' Motion to Amend and Alter

A.Dismissal Under 28 U.S.C. § 1359

Super Wings argues that the Court did not apply the correct legal standard under 28 U.S.C. § 1359 in the Ruling when it addressed the legitimacy of the Assignment.Super Wings argues that Debtor has the burden to prove that theAssignment was not collusive and argues that the Court did not properly hold Debtor to this burden.

Super Wings argues that Debtor improperly attempted to create jurisdiction through a collusive assignment such that 28 U.S.C. § 1359 removes this adversary from the Court's jurisdiction.That statute states: "A district court shall not have jurisdiction of a civil action in which any party, by assignment or otherwise, has been improperly or collusively made or joined to invoke the jurisdiction of such court."28 U.S.C. § 1359(2012).Debtor continues to argue that 28 U.S.C. § 1359 does not apply to bankruptcy cases, and even if it did, he has shown that the Assignment was proper.Debtor also argues that 28 U.S.C. § 1359 does not apply because he is not trying to "join"a party to the case.The analysis of these arguments follows.

In its Ruling, the Court determined that 28 U.S.C. § 1359 applies to bankruptcy cases.Ruling at 18-20.The Court has carefully reviewed the law and affirms its conclusion that 28 U.S.C. § 1359 applies here. e.g., Premium of Am., LLC v. Sanchez(In re Premium Escrow Servs., Inc.), 342 B.R. 390, 394...