Smith Corset Shops, Inc., In re, 82-1283

• Decision Date: 27 December 1982
• Docket Number: No. 82-1283,82-1283
• Citation: 696 F.2d 971
• Parties: 7 Collier Bankr.Cas.2d 1009, 10 Bankr.Ct.Dec. 159, Bankr. L. Rep. P 69,011 In re SMITH CORSET SHOPS, INC., Debtor. Appeal of Laurent BRODEUR, et al.
• Court: U.S. Court of Appeals — First Circuit

Page 971

696 F.2d 971

7 Collier Bankr.Cas.2d 1009, 10 Bankr.Ct.Dec. 159,

Bankr. L. Rep. P 69,011

In re SMITH CORSET SHOPS, INC., Debtor Appeal of Laurent BRODEUR, et al.

No. 82-1283.

United States Court of Appeals First Circuit.

Argued Nov. 2, 1982.

Decided Dec. 27, 1982.

Edward John Mulligan, Warwick, R.I., with whom Carolyn E. Mulligan, Warwick, R.I., was on brief, for appellants.

Marshall F. Newman, Boston, Mass., with whom Newman & Newman, Boston, Mass., P.C., was on brief, for appellee.

Before CAMPBELL and BREYER, Circuit Judges, and HEMPHILL, ^* Senior District Judge.

LEVIN H. CAMPBELL, Circuit Judge.

Laurent and Meredith Brodeur appeal from a decision of the Bankruptcy Appellate Panel for the First Circuit, 18 B.R. 388 ¹ holding them liable to the debtor, Smith Corset Shops, Inc. (Smith) for conversion. We reverse.

Beginning on January 1, 1979, Smith operated a shop in Woonsocket, Rhode Island, upon premises leased from the Brodeurs. Smith defaulted on the March 1980 rent and later that March closed its store and ceased doing business. On March 25, 1980, the Brodeurs brought an action against Smith for trespass and ejectment in the local Rhode Island district court. R.I.Gen.Laws Sec. 34-18-9 (1981 Supp.). Smith received actual notice of this action on March 26 but nevertheless failed to appear. The court entered a default judgment and issued execution ordering Smith's eviction. A Rhode Island constable, acting under the execution, moved Smith's inventory from the premises to Jones Warehouse in Providence. See R.I.Gen.Laws Sec. 34-18-9.1 (1981 Supp.). ² There was evidence at trial that a Smith employee was actually present at the store and removed some of the goods while the constable was moving the balance.

Unbeknown to the Brodeurs, the state court, or the constable, Smith had filed a petition on March 21, 1980, for reorganization in bankruptcy under Chapter 11, title 11. The bankruptcy petition preceded by four days the commencement of the Brodeurs' trespass and ejectment action. The landlords first received notice of the bankruptcy proceeding on April 15, several days after the property had been moved to the warehouse. On that same day Smith, now acting as debtor-in-possession, brought the present action in the United States Bankruptcy Court for the District of Massachusetts, 6 B.R. 324, charging the Brodeurs with conversion of the inventory. Thereafter, the Brodeurs' attorney, Mr. DiGianfilippo, and Smith's representatives held somewhat confusing negotiations during which DiGianfilippo may have told Smith that it could not obtain the goods unless Smith dismissed the conversion suit. At the same time, however, Mr. DiGianfilippo apparently sent a letter to the warehouse authorizing the unconditional release of the goods to Smith. ³ The parties also discussed who should bear the cost of moving the goods from Providence to Smith's Brockton, Massachusetts location. Smith claimed that the landlords at one time agreed to pay these expenses. They denied so doing.

With Smith apparently unwilling to dismiss the case, it went to trial before the bankruptcy court, the issue being whether the constable's transfer of the property to the Providence warehouse made the Brodeurs convertors.

On October 7, 1980, the bankruptcy court issued a comprehensive memorandum and order finding for the Brodeurs. The court ruled that the absence of any notice or knowledge of the filing of a bankruptcy petition at the time the goods were being removed rendered removal of the inventory non-tortious notwithstanding the automatic stay provisions of 11 U.S.C. Sec. 362. The court went on to state that the Brodeurs had acted in good faith; that the goods had been held available for Smith; and that the Brodeurs had informed Smith of their availability. The memorandum and order concluded with the words, "Judgment for the defendants."

At this point, the case took an unfortunate procedural twist. Apparently feeling that his memorandum and order sufficed, the judge did not enter a separate document setting forth the judgment, as required by Rule 921 of the Bankruptcy Rules.

Unsure whether the October 7, 1980, memorandum and order was or was not a judgment, Smith did not file a notice of appeal within 10 days thereafter. See Rule 3 of the First Circuit Rules Governing Appeals from Bankruptcy Judges to District Court, Appellate Panels and Court of Appeals (First Circuit Rules) and Bankruptcy Rule 802. ⁴ That Smith was not alone confused in this regard is indicated by the fact that on October 21 the Brodeurs tendered to the court a proposed judgment with a cover letter citing Rule 921. The bankruptcy court nonetheless took no action to enter a separate judgment. Smith, apparently concerned that no final judgment would be forthcoming, then filed an appeal with the Bankruptcy Appellate Panel for the First Circuit on October 23, 1980.

On December 23, 1980 the Brodeurs moved that the appellate panel dismiss the appeal for lack of jurisdiction on the ground that the notice of appeal was not filed within the 10-day period prescribed by Rule 3 of the First Circuit Rules and Bankruptcy Rule 802. Smith thereupon sent a letter to the bankruptcy court citing Rule 921 and requesting entry of a separate document setting forth the judgment. The bankruptcy court replied on January 6, 1981, that "there was a clear and unambiguous order entered on October 7, 1980 which sufficiently complies with the spirit and intent of Bankruptcy Rule 921." On January 7, 1981, the appellate panel dismissed the appeal. On January 13, 1981 Smith filed a motion for reconsideration of the dismissal explaining that the notice of appeal was not filed within the required 10 days because of uncertainty caused by the lack of a separate document setting forth the judgment. The bankruptcy court's January 6 letter was attached as an exhibit to the motion. On February 4 the appellate panel, without giving any reason, reinstated the appeal.

The panel thereafter ruled that the evidence did not support the bankruptcy judge's finding that the Brodeurs made the inventory unconditionally available to Smith after learning about the bankruptcy. The panel found, instead, that the Brodeurs had conditioned return of the goods upon Smith's willingness to withdraw the conversion action. Concluding that this continued withholding amounted to conversion, the panel deemed it unnecessary to determine whether the original removal of the inventory had been tortious. The Brodeurs appealed to this court from the panel's decision. 28 U.S.C. Sec. 1293(a).

I.

We must first consider whether the Bankruptcy Appellate Panel had jurisdiction to decide the appeal. There are two claimed procedural infirmities: the lack of a separate document setting forth the judgment and Smith's failure to file the notice of appeal within 10 days after entry of the memorandum and order. We discuss each problem in turn.

Rule 921 of the Bankruptcy Rules, 11 U.S.C., provides,

A judgment in an adversary proceeding or contested matter shall be set forth on a separate document .... A judgment is effective only when entered in this manner.

The rule was derived from Rule 58 of the Federal Rules of Civil Procedure. Advisory Committee Notes to Rule 921. Rule 58 was designed to aid parties in knowing when they must file appeals by eliminating uncertainty as to whether an opinion or memorandum constituted a judgment for the purposes of appeal. Bankers Trust Co. v. Mallis, 435 U.S. 381, 385, 98 S.Ct. 1117, 1120, 55 L.Ed.2d 357 (1978) (per curiam). To serve that function, courts should apply the rule "mechanically." United States v. Indrelunas, 411 U.S. 216, 93 S.Ct. 1562, 36 L.Ed.2d 202 (1973) (per curiam).

In the present case the bankruptcy court's six-page memorandum and order did not satisfy the rule's requirements. It constituted, in essence, an opinion, and the court should have entered a judgment pursuant thereto on a separate document, as the rule provides. "Separate document" means one separate from an opinion or memorandum of the court. See, e.g., State National Bank of El Paso v. United States, 488 F.2d 890, 893 (5th Cir.1974), citing 6A Moore's Federal Practice p 58.01[1.-02] at 58-14.

A court's failure to comply with the rule's requirements ordinarily disables an appellate court from reviewing the case. Id. See United States v. Indrelunas, 411 U.S. 216, 93 S.Ct. 1562, 36 L.Ed.2d 202. But, the rule is not jurisdictional. It should be read to prevent loss of the right of appeal, not to facilitate loss. Bankers Trust Co. v. Mallis, 435 U.S. at 386, 98 S.Ct. at 1120.

If, by error, a separate judgment is not filed before a party appeals, nothing but delay would flow from requiring the court of appeals to dismiss the appeal. Upon dismissal, the district court would simply file and enter the separate judgment, from which a timely appeal would then be taken. Wheels would spin for no practical purpose.

435 U.S. at 385, 98 S.Ct. at 1120.

The bankruptcy court unequivocally made clear on January 6, 1981 its view that its order and memorandum constituted a final judgment. After this clarification, both parties became aware of the court's intentions, and thereafter the case underwent exhaustive appellate review. Nothing but delay and expense would be caused were we to treat the case as if judgment was never entered. We therefore hold that judgment was in fact entered. Nevertheless, given the confusion prevailing prior to January 6, 1981, it would be manifestly unfair to treat the actual date of the memorandum, October 7, 1980, as the operative date of the judgment. To do so would leave appellants in a Catch-22 situation where the possibility of a timely appeal would have been cut off by judicial action taken in contravention of Rule 921. We think, and so hold, that the effective date of judgment was January 6, 1981, the date the judge announced that his memorandum and order constituted a judgment.

This holding resolves...