Ritchie, Dillard, Davies & Johnson, P.C. v. Peters (In re Johnson)

• Decision Date: 02 February 2023
• Docket Number: Civil Action 1:22-cv-00332-CNS
• Court: U.S. District Court — District of Colorado
• Parties: IN RE ALEXANDER JOHNSON, Debtor. v. M. STEPHEN PETERS, Appellee. RITCHIE, DILLARD, DAVIES & JOHNSON, P.C., Appellant,

IN RE ALEXANDER JOHNSON, Debtor.

RITCHIE, DILLARD, DAVIES & JOHNSON, P.C., Appellant, v. M. STEPHEN PETERS, Appellee.

Civil Action No. 1:22-cv-00332-CNS

United States District Court, D. Colorado

February 2, 2023

ORDER

CHARLOTTE N. SWEENEY, UNITED STATES DISTRICT JUDGE

This is an appeal brought by appellant-creditor Ritchie, Dillard Davies & Johnson, P.C. (“RDDJ”) from the United States Bankruptcy Court for the District of Colorado (the “Bankruptcy Court”). RDDJ contends that the Bankruptcy Court erred in denying its motion to convert debtor-appellee Alexander Johnson's Chapter 7 bankruptcy case to one under Chapter 11, and in approving the distributions to creditors set forth in the bankruptcy trustee's amended final report (See ECF No. 15 at 4). Exercising jurisdiction under 28 U.S.C. § 158(a) the Court AFFIRMS the decisions of the Bankruptcy Court.^[1]

I. BACKGROUND^[2]

Mr. Alexander Johnson is the debtor in this bankruptcy case (See, e.g., R. vol. 1 at 407, 460).^[3]While in college, Mr. Johnson was charged for alleged criminal activity and retained RDDJ to provide legal services throughout his criminal proceedings (Id. at 462-63). These criminal charges prohibited Mr. Johnson from pursuing a career as a professional football player (Id. at 463). He was acquitted of his criminal charges in 2018 (See id.). RDDJ's representation of Mr. Johnson permitted him to continue pursuing a career as a professional football player (Id.).

In 2018, Mr. Johnson signed a one-year contract to play for the Denver Broncos, a professional football team (See id. at 407, 460). At the time the Bankruptcy Court issued its oral ruling on RDDJ's conversion motion on December 9, 2020, the Denver Broncos had not yet begun negotiating another one-year contract with Mr. Johnson for his continued employment as a Broncos team member (R. vol. 1 at 462). Mr. Johnson was twenty-nine years old and, based on his age, was not guaranteed to be picked up as a free agent if the Broncos failed to renew his contract (Id.).

Mr. Johnson filed for Chapter 7 bankruptcy in November 2019 (Case No. 19-19816-EEB, ECF No. 1). Mr. Johnson disclosed two creditors with unsecured claims: Eastman Credit Union and RDDJ (R. vol. 1 at 35). In May 2020, RDDJ moved to convert Mr. Johnson's Chapter 7 bankruptcy into one under Chapter 11 (Case No. 19-19816-EEB, ECF No. 74). The Bankruptcy Court denied RDDJ's conversion motion in December 2020 (See, e.g., R. vol. 1 at 463). RDDJ then appealed to the United States Bankruptcy Appellate Panel of the Tenth Circuit (See, e.g., R. vol. 1 at 338). The Bankruptcy Appellate Panel dismissed the appeal because the Bankruptcy Court's ruling denying the conversion motion was interlocutory in nature (Id. at 343). Following the Bankruptcy Appellate Panel's decision, the Bankruptcy Court ultimately approved the bankruptcy trustee's amended final report regarding distributions to creditors (Case No. 19-19816-EEB, ECF No. 167).

RDDJ filed its Notice of Appeal to the United States District Court for the District of Colorado in February 2022, appealing the Bankruptcy Court's denial of its conversion motion and the Bankruptcy Court's approval of the bankruptcy trustee's amended final report (Id. at ECF No. 171). This appeal is fully briefed.

II. STANDARD OF REVIEW

A party may appeal “final judgments, orders, and decrees” of a bankruptcy court to either the district court or a bankruptcy appellate panel. 28 U.S.C. §§ 158(a)(1), (c)(1). See also In re Home Network Builders, Inc., No. CIV 06-3355 RBK, 2006 WL 3419791, at *2 (D.N.J. Nov. 22, 2006) (“This Court has appellate jurisdiction over a final order of the Bankruptcy Court pursuant to 28 U.S.C. § 158(a)(1).”). When a party appeals to the district court, a district court “reviews the bankruptcy court's legal conclusions de novo, its factual findings for clear error, and its discretionary decisions for abuse of discretion.” In re St. Charles, No. 20-CV-03050-PAB, 2022 WL 168715, at *2 (D. Colo. Jan. 19, 2022) (collecting cases).

Because the denial of a conversion motion is a discretionary decision, a district court reviews the bankruptcy court's conversion decision for abuse of discretion. See In re Schlehuber, 489 B.R. 570, 573 (B.A.P. 8th Cir. 2013), aff'd, 558 Fed.Appx. 715 (8th Cir. 2014); see also In re Bartmann, 310 B.R. 663 (B.A.P. 10th Cir. 2004). A bankruptcy court abuses its discretion if its decision is “arbitrary, capricious, whimsical, or manifestly unreasonable.” In re Waldo, No. 214050, 2022 WL 1699072, at *2 (10th Cir. May 27, 2022) (quotation omitted).

III. ANALYSIS

Having considered the parties' briefs, appellate records, the Bankruptcy Court's orders, the Bankruptcy Court proceedings, and relevant legal authority, the Court affirms the Bankruptcy Court's decisions.

A. Jurisdiction

Before proceeding to the merits of this appeal, the Court must first examine whether it has appellate jurisdiction. Next, the Court considers Mr. Johnson's argument that RDDJ's conversion appeal is moot because final distributions have occurred (ECF No. 17 at 18). For the reasons set forth below, the Court may properly exercise jurisdiction over this appeal, and the appeal is not moot.

1. Appellate Jurisdiction & Finality

This bankruptcy appeal poses a threshold jurisdictional issue: whether the Bankruptcy Court's denial of RDDJ's conversion motion is appealable. RDDJ contends that the Bankruptcy Court's denial of its conversion motion constitutes a final appealable judgment over which the Court may properly exercise jurisdiction (ECF No. 15 at 4). The Court agrees with RDDJ that it has jurisdiction to review the Bankruptcy Court's denial of its conversion motion.

Courts have an independent obligation to ensure that they have jurisdiction over bankruptcy appeals, even if perceived jurisdictional issues have not been raised by the parties. See In re McCormick, 812 F.3d 659, 661 (8th Cir. 2016); In re Sorrells, 218 B.R. 580, 582 (B.A.P. 10th Cir. 1998) (“[W]e must independently assess whether we have jurisdiction to hear this appeal.” (citation omitted)). Where a court lacks jurisdiction over a bankruptcy appeal, the appeal must be dismissed. See, e.g., McCormick, 812 F.3d at 661-62.

Courts have jurisdiction over a bankruptcy court's “final judgments, orders, and decrees.” § 158(a)(1). Ordinarily, an order is not “final” unless it “ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.” Cunningham v. Hamilton Cnty, 527 U.S. 198, 204 (1999). In the bankruptcy context, the finality requirement is relaxed, and a bankruptcy order may be considered “final” if it “conclusively determines [a] discrete dispute” within the bankruptcy proceeding. United Phosphorus Ltd. v. Fox (In re Fox), 241 B.R. 224, 228 (B.A.P. 10th Cir. 1999); see also Crossingham Trust v. Baines (In re Baines), 528 F.3d 806, 809 (10th Cir. 2008). “Ultimately, the pivotal question concerning finality will center on what kind of dispute the order resolves.” In re Fox, 241 B.R. at 229 (citation omitted).

Generally, a bankruptcy court's denial of a motion to convert a Chapter 7 bankruptcy case to one under Chapter 11 is not final. See, e.g., In re Miller, No. BR 9:13-10313-PC, 2015 WL 13604250, at *4 (C.D. Cal. Dec. 2, 2015) (“Generally, an order denying a motion to convert is not a final order .... an order denying a motion to convert from Chapter 7 to Chapter 11 is not a final order.” (citations omitted)); Gebhardt v. Hardigan, 512 B.R. 385, 387-88 (S.D. Ga. 2014) (“Here, the effect of the . . . denial of [motions to convert] is the same: the case will continue to proceed under Chapter 7 .... it appropriate to treat the denial of [the motions] as interlocutory as well.”

(citation omitted) (emphasis added)).^[4] Here, the Bankruptcy Appellate Panel previously concluded that the Bankruptcy Court's denial of RDDJ's conversion motion was not final and dismissed RDDJ's appeal as interlocutory (R. vol. 1 at 339-41). In the words of the Bankruptcy Appellate Panel, the Bankruptcy Court's order “denying a motion to convert a chapter 7 to chapter 11 is not the equivalent of an order granting a motion to convert from chapter 11 to chapter 7,” and for this reason the Appellate Panel concluded that “an order denying a motion to convert from chapter 7 to chapter 11 is not final” (R. vol. 1 at 340-41 (original emphasis)).

The Court agrees with the Bankruptcy Appellate Panel that, at the time RDDJ filed its earlier appeal, the Bankruptcy Court's denial of its conversion order was interlocutory in nature (R. vol. 1 at 341). See also Gebhardt, 512 B.R. at 387-88. However, the Bankruptcy Appellate Panel reached this conclusion before the Bankruptcy Court approved the bankruptcy trustee's amended final report and its distributions (Case No. 19-19816-EEB, ECF No. 167). The Bankruptcy Court's approval of the trustee's amended final report and its distributions amounts to a final judgment in the Bankruptcy Court proceedings. See Bullard v. Blue Hills Bank, 575 U.S. 496, 502-03 (2015); see also In re Kristan, No. BAP EP 08-041, 2008 WL 8664765, at *2 (B.A.P. 1st Cir. Dec. 15, 2008) (“Generally, a bankruptcy court's order approving a trustee's final report and proposed distribution of the bankruptcy estate's assets is a final, appealable order.” (citation omitted)); In re McLaren, 562 B.R. 309, 319 (Bankr. E.D. Va. 2016) (“In the context of a chapter 7 case with assets to be administered, there is no order more central to payment of creditors than the order approving the trustee's final report . . . [s]since the [approval] order resolved all of the issues relating to the [trustee's] Final Report, it is a final, appealable order.” (citations omitted)).

Because the Bankruptcy Court's approval of the trustee's...