Peterson v. Somers Dublin Ltd.

• Decision Date: 06 September 2013
• Docket Number: 12–2495.,12–2493,12–2494,Nos. 12–2463,12–2464,s. 12–2463
• Citation: 729 F.3d 741
• Parties: Ronald R. PETERSON, as Trustee for the estates of Lancelot Investors Fund, L.P., and related entities, Plaintiff–Appellant, v. SOMERS DUBLIN LTD., et al., Defendants–Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

729 F.3d 741

Ronald R. PETERSON, as Trustee for the estates of Lancelot Investors Fund, L.P., and related entities, Plaintiff–Appellant,

v.SOMERS DUBLIN LTD., et al., Defendants–Appellees.

Nos. 12–2463, 12–2464, 12–2493, 12–2494, 12–2495.

United States Court of Appeals, Seventh Circuit.

Argued April 8, 2013.

Decided Sept. 6, 2013.

Jason J. Green, Barry Levenstam, Attorney, Sarah C. Hardgrove–Koleno, Attorney, Ronald R. Peterson, Attorney, Landon S. Raiford, Attorney, Jenner & Block LLP, Chicago, IL, for Plaintiff–Appellant.

Bojan Guzina, Constantine L. Trela, Jr., Attorney, Sidley Austin LLP, Stuart M. Rozen, Mayer Brown LLP, Chicago, IL, Harry Frischer, Proskauer Rose LLP, New York, NY, for Defendants–Appellees.

Before EASTERBROOK, Chief Judge, and BAUER and SYKES, Circuit Judges.

EASTERBROOK, Chief Judge.

After Gregory Bell's mutual funds, known as the Lancelot or Colossus group (collectively “the Funds”), folded in late 2008, their trustee in bankruptcy filed many independent suits or adversary actions seeking to recover from solvent third parties. Last year we considered the Trustee's claims against the Funds' auditor. Peterson v. McGladrey & Pullen, LLP, 676 F.3d 594 (7th Cir.2012). These appeals concern the Trustee's claims against some of the Funds' investors, which the Trustee believes received preferential transfers or fraudulent conveyances. Another appeal, also decided today, addresses a suit against one of the Funds' law firms.

The Funds invested in notes issued by Thousand Lakes, LLC, and other ventures operated by Thomas Petters. For simplicity we refer to Thousand Lakes as the only borrower. Although Bell may have believed at the outset that Thousand Lakes was a commercial factor—that is, a lender financing other businesses' inventory—Petters did not have customers and was running a Ponzi scheme, paying old investors with newly raised money. Ponzi schemes must grow to survive, and eventually they collapse when they cannot maintain the necessary growth. See Saul Levmore, Rethinking Ponzi-Scheme Remedies in and out of Bankruptcy, 92 Boston U.L.Rev. 969 (2012).

In fall 2007 Thousand Lakes stopped remitting money to the Funds. It contended that Costco, a customer, had been late in paying; the Funds extended the notes' due dates. By February 2008 Thousand Lakes still had not paid, and Bell at last discovered the problem. (He may have learned earlier, or been wilfully blind to what Petters was doing, but we need not decide.) Instead of taking the news to prosecutors, Bell began operating the Funds as a second-tier Ponzi scheme. He placed “new” investments with Thousand Lakes, which used the money the same day to repay outstanding notes. These round-trip transactions meant that the Funds were not receiving any net cash from Thousand Lakes and thus needed to pay their own investors, when they sought to redeem shares, with newly raised money. But by fall 2008 that was no longer possible. Both the Funds and Petters's empire collapsed; about 60% of the roughly $2.5 billion nominally held by the Funds had been stolen or disappeared. Bell pleaded guilty to fraud and was sentenced to 37 months' imprisonment. Petters denied liability but was convicted after a trial and sentenced to 50 years' imprisonment. United States v. Petters, 663 F.3d 375 (8th Cir.2011).

The Trustee contends in the current proceedings, filed as adversary actions in the Funds' bankruptcy, that investors who redeemed shares before the bankruptcy received preferential transfers, 11 U.S.C. § 547, or fraudulent conveyances, 11 U.S.C. § 548(a)(1)(B). The Trustee also invoked the Illinois fraudulent-conveyance statute, using the avoiding power of 11 U.S.C. § 544. These parts of the Bankruptcy Code allow trustees to recoup payouts for the benefit of all creditors. The bankruptcy judge granted summary judgment to the investors, 467 B.R. 643 (Bankr.N.D.Ill.2012), relying on 11 U.S.C. § 546(e), which provides:

Notwithstanding sections 544, 545, 547, 548(a)(1)(B), and 548(b) of this title, the trustee may not avoid a transfer that is a margin payment, as defined in section 101, 741, or 761 of this title, or settlement payment, as defined in section 101 or 741 of this title, made by or to (or for the benefit of) a commodity broker, forward contract merchant, stockbroker, financial institution, financial participant, or securities clearing agency, or that is a transfer made by or to (or for the benefit of) a commodity broker, forward contract merchant, stockbroker, financial institution, financial participant, or securities clearing agency, in connection with a securities contract, as defined in section 741(7), commodity contract, as defined in section 761(4), or forward contract, that is made before the commencement of the case, except under section 548(a)(1)(A) of this title.

Deleting words not relevant to the current dispute, and omitting ellipses, we have: “the trustee may not avoid a settlement payment or transfer made to a financial participant in connection with a securities contract, except under section 548(a)(1)(A) of this title.”

The bankruptcy court entered its decision on May 11, 2012, and on May 24 the Trustee appealed to the district court. The Trustee and the defendants agreed to request direct review by this court, bypassing a district judge, as 28 U.S.C. § 158(d) allows. Certifications under Fed. R. Bankr.P. 8001(f) were filed on June 19 and 20, and a joint petition under Fed. R. App. P. 5 was filed on July 16. This court authorized the appeals but directed the parties to discuss whether they are timely. That is the first question we must address—and, if the papers are late, we must decide whether any problem is a jurisdictional defect.

An interlocutory appeal from a bankruptcy judge's decision to the court of appeals requires three steps: first a certification by the bankruptcy judge, district judge, or the parties acting jointly; second a petition to the court of appeals under Rule 5; and finally a discretionary decision by the court of appeals. Bankruptcy Rule 8001(f)(3)(A) says that a “request” for certification must be filed “within the time specified by 28 U.S.C. § 158(d)(2)”. This provision governs requests by a party to a judge. Rule 8001(f)(4) covers certification on a judge's initiative. As far as we can see Rule 8001 does not set a time limit for certification on a judge's initiative or by agreement of the litigants. In re American Mortgage Holdings, Inc., 637 F.3d 246, 254 (3d Cir.2011), says that the outer limit for the parties' joint certification is 60 days, which it drew from § 158(d)(2)(E). But that provision deals with a request to a judge, not with the litigants' joint certification. Section 158(d)(2)(E) reads: “Any request under subparagraph (B) for certification shall be made not later than 60 days after the entry of the judgment, order, or decree.” Subparagraph (B) deals with judicial certification, while subparagraph (A) is what authorizes certification by the parties.

We have considered the possibility that Rule 5(a)(2) supplies a time limit. It reads: “The petition must be filed within the time specified by the statute or rule authorizing the appeal or, if no such time is specified, within the time provided by Rule 4(a) for filing a notice of appeal.” Because Bankruptcy Rule 8001(f) does not supply a time, Appellate Rule 5(a)(2) sends us to Appellate Rule 4(a), which specifies 30 days. By that standard, the joint certification would be late. But Rule 5(a) deals with petitions for leave to appeal—the second step in the process under § 158(d)—rather than with certifications by judges or litigants. The parties' petition under Rule 5(a) came within 30 days of the joint certification, so Rule 5(a) has been satisfied.

This leaves the conclusion that there is no time limit for a joint certification. Probably none is necessary. If the parties take too long, the court of appeals can deny the petition for interlocutory review. But whether or not a time limit would be a good idea, a court must follow the statute and rules as written. See, e.g., Spivey v. Vertrue, Inc., 528 F.3d 982 (7th Cir.2008).

If we are wrong about this, and there is either a 30-day limit from Rules 4(a) and 5(a) or a 60-day limit from § 158(d)(2)(E), we still would hear these appeals, which present legal issues not yet addressed in this circuit. If the limit is 60 days, the certifications are timely. And if the limit is 30 days, none of the parties has asked us to dismiss the appeal on that account. The time established by Rule 5(a) is not a limit on appellate jurisdiction. See In re Turner, 574 F.3d 349, 354 (7th Cir.2009).

Statutory time limits for appeal can be jurisdictional, see Bowles v. Russell, 551 U.S. 205, 127 S.Ct. 2360, 168 L.Ed.2d 96 (2007), but time limits in the Rules of Appellate Procedure are not. See United States v. Neff, 598 F.3d 320 (7th Cir.2010); Carter v. Hodge, 726 F.3d 917, No. 13–2243, 2013 WL 4022531 (7th Cir. Aug. 8, 2013). See also Kontrick v. Ryan, 540 U.S. 443, 124 S.Ct. 906, 157 L.Ed.2d 867 (2004) (time limits in Federal Rules of Bankruptcy Procedure are not jurisdictional). A mandatory, though nonjurisdictional, rule must be enforced if a party invokes its protection, but no one wants us to dismiss these appeals.

A second issue potentially affects jurisdiction. Stern v. Marshall, ––– U.S. ––––, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011), holds that bankruptcy judges, who lack tenure under Article III of the Constitution, cannot entertain certain actions by debtors or trustees in bankruptcy. We concluded in In re Ortiz, 665 F.3d 906 (7th Cir.2011), that, when a bankruptcy judge is not entitled to enter a dispositive order, 28 U.S.C. § 158(d) does not allow the court of appeals to review the decision; instead the case must be heard initially by a district judge.

The parties, well aware of Stern, sought to eliminate any problem by consenting to the bankruptcy court's exercise of jurisdiction. It is...