Phillips v. Tow

Decision Date14 August 2017
Docket NumberCIVIL ACTION H-17-355,ADVERSARY NO. 09-37654
PartiesJOE B. PHILLIPS, and DOROTHY J. PHILLIPS, Appellants, v. RODNEY TOW, Chapter 7 Trustee, Appellee.
CourtU.S. District Court — Southern District of Texas
MEMORANDUM OPINION AND ORDER

Pending before the court is a bankruptcy appeal by debtors Joe B. Phillips and Dorothy J. Phillips (collectively, the "Phillips") of the Bankruptcy Court's interlocutory orders. Dkt. 11. After considering the arguments, the related briefing, the evidence of record, and the applicable law, the court is of the opinion that the Bankruptcy Court's orders should be AFFIRMED.

I. BACKGROUND

This is a bankruptcy appeal. Dkt. 11. This appeal arises out of a series of orders and objections issued or filed between November 17, 2016, and January 13, 2017. The issues presented on appeal relate specifically to the Chapter 7 trustee, Rodney Tow ("Tow"), and the trustee's counsel, Ashby, LLP ("Ashby"). Id.

On November 17, 2016, the Bankruptcy Court issued Findings of Fact and Conclusions of Law ("FOF & COL")1 (Dkt. 4-66) that provided the Court's justification on two orders: (1) an order denying the Phillips's motion to remove Tow as Chapter 7 trustee (the "Trustee Order"), and (2) anorder granting in part and denying in part Ashby's application for compensation and reimbursement (the "Ashby Order"). Dkts. 4-67, 4-68.

On December 5, 2016, the Phillips filed an objection (the "Objection") to the FOF & COL, but not to the Ashby Order and the Trustee Order directly. Dkts. 4-71; 4-72. The Phillips claimed in the Objection that the Bankruptcy Court erred in issuing the Trustee Order and the Ashby Order and challenged the reasoning of the FOF & COL. Dkt. 4-72. The Phillips asserted that Ashby was overpaid for unnecessary work, that Tow had failed to comply with various rules of the Federal Rules of Bankruptcy Procedure, and that Tow illegally sold the Phillips's property. Id. Correspondingly, the Phillips argued that Ashby should not have been granted compensation and that Tow should have been removed as trustee. Id.

On January 13, 2017, the Bankruptcy Court struck the Phillips's Objection. Dkt. 4-75. The Bankruptcy Court interpreted the Objection as a notice of appeal. Id. While the Phillips's pleadings were entitled "Objection," the Objection contained references to standards of review for an appeal and requested review by a district court. Dkts. 4-71; 4-75. The deadline for filing an appeal was December 1, 2016—four days before the Phillips's filing. Dkts. 4-75; 15. Accordingly, the Bankruptcy Court struck the Objection as an untimely appeal. Dkt. 4-75.

On January 26, 2017, the Phillips filed a notice of appeal on the Bankruptcy Court's decision to strike the Phillips's Objection. Dkt. 4-78; Dkt. 11. The Phillips's arguments on appeal mirror the arguments made in their Objection. Compare Dkt. 11 at 9 (arguing that authority to enter final judgment in a bankruptcy proceeding lies beyond a bankruptcy judge's constitutional powers), with Dkt. 4-71 at 13 (same). To the extent that the Phillips appeal the Bankruptcy Court's orders, their grievances gravitate around two issues: (1) the Phillips argue that the Bankruptcy Court erred instriking the Phillips's Objection as an untimely filing of notice of appeal; and (2) the Phillips argue that the Bankruptcy Court erred in issuing the Trustee Order and the Ashby Order.

II. STANDARD OF REVIEW

In reviewing a decision of the Bankruptcy Court, this court functions as an appellate court, applying the standards of review generally applied in federal appeals courts. Webb v. Reserve Life Ins. Co. (In re Webb), 954 F.2d 1102, 1103-04 (5th Cir. 1992); see also Coston v. Bank of Mavren (In re Coston), 991 F.2d 257, 261 n.3 (5th Cir. 1993) (en banc) (citing Griffith v. Oles (In re Hipp, Inc.), 895 F.2d 1503, 1517 (5th Cir. 1990)). This court reviews discretionary decisions under an abuse of discretion standard, but it analyzes the legal conclusions that guide the Bankruptcy Court's determinations de novo and the Bankruptcy Court's findings of fact for clear error. In re ASARCO, L.L.C., 702 F.3d 250, 257 (5th Cir. 2012). "A court abuses its discretion when it bases its decision on an erroneous legal conclusion or on a clearly erroneous finding of fact." McGary v. Scott, 27 F.3d 181, 183 (5th Cir. 1994). De novo review requires an appeals court to assess the legal issues on the merits without deference to the lower court's conclusions. See Pierce v. Underwood, 487 U.S. 552, 560, 108 S. Ct. 2541 (1988).

III. ANALYSIS

The central issue presented on appeal is whether the Bankruptcy Court abused its discretion in striking the Phillips's Objection. Underlying that issue, however, is whether the Bankruptcy Court properly interpreted the Phillips's Objection as a notice of appeal. See Dkt. 4-75. If the Objection was actually a notice of appeal, then this court must determine if the notice of appeal was filed within the fourteen-day deadline. Fed. R. Bankr. P. 8002. If the Phillips timely filed a notice of appeal, then the court would have jurisdiction to review the Trustee Order and the Ashby Order. See In re Berman-Smith, 737 F.3d 997, 1000 (5th Cir. 2013). This court will first address whetherthe Bankruptcy Court erred when it interpreted the Phillips's Objection as a notice of appeal and then decide whether the appeal was timely.

A. Interpreting Objection as an Appeal

The Phillips argue that the Bankruptcy Court erred or abused its discretion in striking their Objection. Dkt. 11 at 3. The Phillips argue that the Bankruptcy Court should not have stricken their Objection because they complied with the Federal Rules of Bankruptcy Procedure, as amended on December 1, 2016. Dkt. 11 at 12. Because the Phillips filed their Objection on December 5, 2016, which they claim is within the fourteen-day filing deadline, the Phillips argue that this entitles them to an appeal.

The Bankruptcy Court struck the Objection because it interpreted the documents as an attempt to file a notice of appeal of the Trustee Order and the Ashby Order. Dkt. 4-75 at 2. The Bankruptcy Court held that the Objection contained the following statement: "In a bankruptcy appeal, the district court reviews finds [sic] of fact for clear error and issues of law de novo." Id.; Dkt. 4-71 at 12. Because bankruptcy courts liberally construe notices of appeal, the Bankruptcy Court treated the Objection as such and struck it as untimely. Dkt. 4-75 at 3 (citing In re Blast Energy Servs., Inc., 593 F.3d 418, 424 n.3 (5th Cir. 2010)); see In re Barron, 325 F.3d 690, 692 (5th Cir. 2003). In response, Tow characterizes the matter succinctly: "[t]he relief Appellants are seeking is for this Court to review the Ashby Order and the Trustee Order," and not the Objection itself. Dkt. 15 at 9.

The court agrees with Tow. To the extent that the Objection is a notice of appeal, the Phillips's claims center around one theme: the Bankruptcy Court was wrong to strike their Objection because the Bankruptcy Court was wrong to issue the Trustee Order and the Ashby Order in the first place. Dkt. 11 at 2-3.

An appellate court "is 'lenient' in interpreting notices of appeals, and maintains 'a policy of liberal construction . . . where the intent to appeal an unmentioned or mislabeled ruling is apparent and there is no prejudice to the adverse party.'" In re Blast Energy Services, Inc., 593 F.3d at 424 n.3 (quoting C.A. Marine Supply v. Brunswick Corp., 649 F.2d 1049, 1056 (5th Cir. July 1981)). Appellate courts should consider an appeal even "if there is an error in designating . . . an appeal if the intent to appeal a particular judgment can be fairly inferred, and . . . the appellee is not prejudiced or misled by the mistake." In re TransAmerican Natural Gas Corp., 978 F.2d 1409, 1414 (5th Cir. 1992) (citing Friou v. Phillips Petroleum Co., 948 F.2d 972, 974 (5th Cir. 1991)).

The Phillips attempted to give notice of appeal by citing Federal Rule of Bankruptcy Procedure 8002, which sets the deadline for filing a notice of appeal, and Federal Rule of Bankruptcy Procedure 9033, which delineates the standard of review for proposed findings of fact and conclusions of law. Dkt. 4-71. Both rules relate to an appeal before a district court. The Phillips appear to be using their Objection as a means to appeal because they argue that, "[t]he Debtors/Appellants disagreed and appealed all Orders," referencing the Trustee Order and the Ashby Order—and not the order striking their Objection. Dkt. 11 at 7. In their amended statement of issues on appeal, the Phillips directly challenge the Bankruptcy Court's Trustee Order and the Ashby Order as if they were the subjects of the appeal. Dkt. 11 at 2-3. The Phillips "request[ed] oral testimony by District Court . . . [and] request[ed] District Court to review Bankruptcy Court hearing de novo." Id. at 2.

On its face, the Phillips seem to indicate that their Objection is an "appeal" when they use the word throughout the pleading. Dkt. 4-71. The Phillips contend that they "timely appealed the Trustee's Order and the Ashby LLP Order." Id. In their Objection, the Phillips request de novo review by a district court. Dkt. 4-71 at 2. Additionally, in a section entitled "Standards of Review,"the Phillips argue that the "clearly erroneous" standard should apply in a district court's review of the bankruptcy proceedings. Dkt. 4-71 at 12 (citing United States v. U.S. Gypsum Co., 333 U.S. 364, 395, 68 S. Ct. 525 (1948) (bankruptcy appeal case)).

Further, the substance of the Phillips's Objection is on the Tow and Ashby Orders. The Phillips argue that Tow should be removed as trustee. Dkt. 11. The Phillips alleged that Tow committed three separate breaches of fiduciary duty and misconduct (Dkt. 11 at 5-7) and violated Bankruptcy Rules (Dkt. 11 at 9-12). These arguments need not be rehashed. The Phillips give little indication that their Objection is anything other than an appeal of the Trustee and...

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