Opinion
CASE NO. 8:02CV72, CASE NO. BK02-41760, A02-8063
March 19, 2003
MEMORANDUM AND ORDER
This matter is before the Court on the notice of appeal of James P. McCarville and Cheri Nord-McCarville, Appellants/Defendants/Debtors, from: 1) the Order of U.S. Bankruptcy Court Judge Timothy J. Mahoney (Filing No. 64) granting Stutzka relief from the automatic stay; and 2) Judge Mahoney's Order (BK02-41760, Filing No. 51) stating that the exhibits offered at the bankruptcy court hearing held on September 18, 2002 were not admitted or considered. (BK No. 02-41760, Filing No. 56).
Unless otherwise noted, citations to filing numbers are to documents in Stutzka v. McCarville, et al., 8:02CV72 ("district court case"), as opposed to the bankruptcy case.
No objections were filed pursuant to NELR 76.1(b)(2) to Judge Mahoney's Report and Recommendation, which recommended withdrawal of the reference to bankruptcy court. The district court adopted the Report and Recommendation. (Filing No. 67.)
It appears that a motion for leave to appeal was not filed. 28 U.S.C. § 158(a)(2); F.R.Bankr.P. 8003(a). The notice of appeal was filed in the bankruptcy case. (BK No. 02-41760, No. 56.) The McCarvilles then filed, also in the bankruptcy case, a "Statement of Election" to have the appeal heard in the district court. (Id. Filing No. 57.) The notice of appeal was never filed in the district court case as required by Bankruptcy Rule 8003(b). On December 16, 2002, the undersigned was advised by Magistrate Judge Kathleen Jaudzemis that she only learned during a status conference that she held that same day that an appeal had been filed regarding the stay issue as well as a request that the appeal be heard by the district court. The Court notes that this appeal still does not appear on the undersigned Judge's docket of pending bankruptcy appeals, apparently stemming from the absence of a motion for leave to appeal, which would have triggered the ususal progression of this case. F.R.Bankr.P. 8003.
At this time, the Court finds in the interest of justice that leave is now granted for the filing of the appeal and that the Court has jurisdiction under 28 U.S.C. § 158(a)(2) to entertain the appeal. Matter of Zech, 185 B.R. 334, 337 (D.Neb. 1995) (stating the standard for determining whether to grant leave for an interlocutory appeal as whether the matter involves a controlling issue of law, substantial ground for difference of opinion on that issue of law exists, and whether an immediate appeal from the order will materially advance the ultimate termination of the litigation); F.R.Bankr.P. 8003(c) (stating that a district court may grant leave to appeal if a notice of appeal has been filed in the absence of a motion for leave to appeal). The Court has considered the briefs filed by the parties (Filing Nos. 116, 132, 142), and the record submitted on appeal (Filing Nos. 93, 104, 134).
FACTUAL BACKGROUND
This matter concerns a Chapter 7 bankruptcy proceeding, In re James P. McCarville and Cheryl A. Nord-McCarville, BK02-41760. (Filing No. 134, Attachment 7.) When the bankruptcy case was filed on July 10, 2002, the district court case, filed on February 13, 2002, was already pending. The district court action had recently entered the discovery stage.
Motion for Relief From Stay
In the bankruptcy case, Stutzka filed a motion for relief from stay. (BK02-41760, Filing No. 11.) On September 18, 2002 a hearing was held on the motion before Judge Mahoney. (Id., Filing No. 30.) At the hearing, the Appellee/Plaintiff/Creditor, Tommy Joe Stutzka, offered into evidence the Affidavit of Tommy Stutzka. (Filing No. 93, 6:15-16.) Counsel for the McCarvilles objected, citing Nebraska Rule of Bankruptcy Procedure 9017-1 and, in particular, Rule 9017-1(B)(2).
Also at the hearing, the McCarvilles offered the Affidavit of James P. McCarville. (Id. 16:16-17; Filing No. 93, Attachment 3.) Stutzka's attorney raised foundation objections to ¶¶ 4, 5 and 8 of the Affidavit. (Id. 16:20-17:10.) The objections were essentially to foundation, noting in particular that ¶ 8 of the Affidavit refers to a figure of $40,000-$50,000 needed to defend the U.S. District Court action without any supporting factual information. (Id. 17:4-11.) The Appellants also offered the Affidavit of Robert Lannin. (Id. 17:16-17; Filing No. 93, Attachment 11.) Stutzka's attorney also objected to this offer, stating that he was not served with the Affidavit. (Id. 17:20-21; 18:3-4.) The Court allowed time for the submission of written objections before ruling on the offer of the exhibit. (Id. 18:6-8.) A brief was filed; however, the brief was not made a part of the record on appeal. (BK No. 41760, Filing No. 34.)
Motion for Withdrawal of Reference
On August 8, 2002, Stutzka filed a motion for withdrawal of reference. (8:02CV72, Filing No. 61.) The Debtors objected to the request. (Id., Filing No. 62.)
Bankruptcy Court's Order/Report and Recommendation and the District Court's Disposition Thereof
Before the bankruptcy court addressed the issue of the automatic stay, the district court case had already been stayed as against the McCarvilles. However, the district court case continued as to the other defendants. (Filing No. 56.) Therefore, Stutzka requested relief from the automatic stay to allow him to continue the litigation in district court against the McCarvilles, and he sought withdrawal of the reference to allow the litigation against all defendants to proceed simultaneously in the district court. (Filing No. 61.)
On October 17, 2002, Judge Mahoney signed an "Order Report and Recommendation" granting the motion for relief from automatic stay and recommending to the U.S. District Court that the withdrawal of reference be granted, allowing the district court case, Stutzka v. McCarville, et al., 8:02CV72, to proceed to trial. (Filing No. 64.) Judge Mahoney's Order/Report and Recommendation was filed on October 18, 2002. (Filing No. 64.)
The docket entry states in error that the "Order Report and Recommendation" was signed on October 18, 2002. (Filing No. 64.)
On November 25, 2002, the undersigned District Court Judge adopted Judge Mahoney's Report and Recommendation that the withdrawal of reference be granted, noting that no objections were filed to the Report and Recommendation as allowed by NELR 76.1(b)(2).
Motion for Clarification and Bankruptcy Court's Disposition
On October 25, 2002 the McCarvilles filed a Motion for Clarification and Amended Order requesting an amended order and report and recommendation (Filing No. 93, Attachment 14). The McCarvilles noted that Judge Mahoney's "Order Report and Recommendation" did not include a ruling on the admissibility of the Affidavits offered by the McCarvilles at the hearing in the bankruptcy court, i.e. the Affidavits of Tommy Joe Stutzka, James P. McCarville, and Robert Lannin. (Id.) The motion was filed pursuant to Federal Bankruptcy Rule of Procedure 8002(b)(1), which tolls the time for filing a notice of appeal upon the filing of a motion to amend the order in question.
On December 3, 2002 Judge Mahoney ruled on the motion for clarification, etc. The order, which appears in a docket entry, provides:
The undersigned recommended that the district court withdraw the reference of the district court lawsuit that was transferred to the bankruptcy court. The exhibits offered at the hearing were not admitted and not considered. The recommendation was made because the claims of the plaintiff must be liquidated and the district court is the better forum for determination of the claims. The question of dischargeability cannot be determined until the claim or claims are liquidated.
(BK No. 41760, Filing No. 51.)
This appeal followed from the following orders of Judge Mahoney: 1) the April 17, 2002 Order granting Stutzka relied from the automatic stay; and 2) the December 3, 2002 Order stating that the exhibits offered at the hearing held on September 18, 2002 were not admitted or considered.
ANALYSIS Standard of Review
A grant or denial of an automatic stay is reviewed for abuse of discretion. In re Bowman, 253 B.R. 233, 237 (B.A.P. 8th Cir. 2000); In re Kirwan, 164 F.3d 1175, 1178 (8th Cir. 1999). Similarly, a bankruptcy court's decision regarding the admission of evidence is also reviewed for abuse of discretion. First Bank Investors' Trust v. Tarkio College, 129 F.3d 471, 476 (8th Cir. 1997).
An abuse of discretion is found if the "lower" court's judgment was based on clearly erroneous factual findings or legal conclusions. Bowman, 253 B.R. at 237. A finding is "clearly erroneous" when, despite the existence of supporting evidence, the reviewing court finds that a mistake was made. Id.
Discussion Motion for Clarification: Affidavits
The McCarvilles argue that the bankruptcy court erred in not admitting the affidavits of James P. McCarville and Robert Lannin, which the McCarvilles offered at the hearing before the bankruptcy court.
The bankruptcy court did not state its reasons for declining to admit the affidavits. (Filing No. 93, Attachment 15.) However, as described previously in this Memorandum and Order, the record on appeal includes detailed objections made on the record during the hearing before the bankruptcy court with respect to the McCarville Affidavit. (Tr. 16:20-17:11.) The Nebraska Rules of Bankruptcy Procedure provide:
1. Declarations; Affidavits. Evidence submitted in support of or in opposition to motions shall be in the form of declarations or affidavits and documentary evidence.
. . . .
. . . Each declaration or affidavit must be made on personal knowledge, set forth such facts as would be admissible in evidence, show affirmatively that the declarant is competent to testify to the matters stated therein, and identify the motion in connection with which the declaration or affidavit is filed.
Neb. R. Bankr. P. 9017-1(B)(1) (2).
McCarville Affidavit
With regard to the McCarville Affidavit, the district court finds that the Affidavit was not entirely made on personal knowledge. For example, James McCarville represents in his Affidavit the opinions of his wife. (Filing No. 93, Attachment 9, ¶¶ 4, 5, 6, 8.) Moreover, the estimate of $40,000 to $50,000 in defense costs does not appear to be based on any particular hourly figure of any particular attorney or any other foundation that can be gleaned from the other statements made in the Affidavit.
The district court finds that the bankruptcy court's decision not to admit the McCarville Affidavit into evidence was not an abuse of discretion and was not based on clearly erroneous factual findings or legal conclusions.
Lannin Affidavit
The bankruptcy case was filed on July 10, 2002. Lannin stated in his Affidavit that when the bankruptcy case was filed, the district court case was in its "infancy," and "[t]he only discovery that had taken place was the service of various third-party subpoenas by Stutzka's attorney. At the time of the filing of the Bankruptcy Petition, no other discovery was pending." (Filing No. 93, Attachment 11, ¶ 6.)
Attached to the Lannin Affidavit is the docket sheet from the district court case. (Id., Ex. C.) A careful viewing of the record of this case shows that the following discovery matters were pending in the district court at the time of the filing of the bankruptcy case: 1) interrogatories, requests for production, and requests for admission served by Stutzka on Defendant James Walters on July 3, 2002 (Filing No. 45); and 2) interrogatories, requests for production, and requests for admission served by Stutzka on Defendants James P. McCarville and Cheri Nord-McCarville on July 3, 2002 (Filing No. 46). Therefore, ¶ 6 of the Lannin Affidavit contains a misstatement.
Also, as in the McCarville Affidavit, the Court finds that the estimate of $40,000 to $50,000 to defend the McCarvilles in this case is without adequate foundation. The estimate is supported merely by a conclusory statement that the amount is based on "the complexity of the issues, the necessity of substantial discovery, the potential for dispositive motion practice related to certain of the claims presented, and the general nature, tenor and demeanor of the claims asserted." (Filing No. 93, Attachment 11, ¶ 8.) No facts are presented as to an hourly rate or number of hours that Lannin estimates would be necessary to defend the McCarvilles in this case.
Therefore, the district court finds that the Lannin Affidavit is also without adequate foundation. The Court further finds that the bankruptcy court's decision not to admit the McCarville Affidavit into evidence was not an abuse of discretion and was not based on clearly erroneous factual findings or legal conclusions. The Court finds that the Court's Order of December 3, 2002 should be affirmed.
Order Granting Stutzka Relief From Automatic Stay
A court may grant relief from an automatic stay for cause. 11 U.S.C. § 362(d)(1). "Cause" is not defined. However, Congress "contemplated relief from the automatic stay to allow litigation involving the debtor to proceed in another forum under appropriate circumstances." In re Wintroub, 283 B.R. 743, 745 (B.A.P. 8th Cir. 2002). After describing the factual backgrounds of the bankruptcy and district court cases, the bankruptcy court analyzed this case under Wintroub, 283 B.R. at 743. As stated in Wintroub:
The court must balance the potential prejudice to the debtor, the bankruptcy estate, and the other creditors associated with a proceeding in another forum against the hardship to the movant if it is not allowed to proceed in the other forum. The relevant factors which the court must consider include judicial economy, trial readiness, the resolution of primary bankruptcy issues, the movant's chance of success on the merits, the costs of defense or other potential burdens to the estate, and the impact of the litigation on other creditors.
Wintroub, 283 B.R. at 745 (citations omitted).After considering these factors, Judge Mahoney found:
In this situation, the issues have nothing to do with bankruptcy law. The complaint contains state and federal causes of action, with the debtors as primary defendants. Justice would not be served by bifurcating the lawsuit and trying it in both district court and bankruptcy court against the different defendants. Because the lawsuit is already at the discovery stage in district court, it is appropriate to grant Mr. Stutzka relief from the automatic stay in the bankruptcy case and recommend to the district court that reference of this matter be withdrawn to permit the [district court] case . . . to proceed to trial against all of the named defendants.
(Filing No. 64, at 2-3.)
Upon reviewing this matter, the District Court finds that the balance leans in favor of Stutzka. Stutzka's position would be hindered if he were unable to proceed against all defendants simultaneously in the district court. Judicial economy would certainly be fostered by granting relief from the automatic stay. Viewing trial readiness, already in July 2002 the district court case entered the discovery stage. The case was scheduled for trial for April 21, 2003. (Filing No. 66.) The case was subsequently removed from the April 2003 trial schedule and the pretrial conference cancelled. (Filing No. 126.) Ongoing discovery involves the McCarvilles. (See, e.g., Filing Nos. 130, 137-39, 143-50, 152.) The record contains no evidence that the cost of defending this action is beyond the financial abilities of the McCarvilles, that the McCarvilles would sustain other burdens by an affirmance of the bankruptcy court's orders, or of the impact of the litigation on other creditors. At this stage of the litigation, the Court views Stutzka's chances of success on the merits as a neutral factor.
For these reasons, the District Court finds that the bankruptcy court did not abuse its discretion in granting relief from the automatic stay. The Court concludes that neither the bankruptcy court's factual findings nor its legal conclusions were clearly erroneous. Therefore, the appeal from Judge Mahoney's October 17, 2002 Order granting relief from the automatic stay will be denied, and the Order will be affirmed.
CONCLUSION
For the reasons discussed, the Court finds neither Judge Mahoney's Order granting Stutzka relied from the automatic stay nor the Order stating that the exhibits offered at the hearing held on September 18, 2002 were not admitted or considered constitute an abuse of discretion on the part of the bankruptcy court. Both orders will be affirmed, and the appeal from those orders will be denied.
IT IS ORDERED:
1. The Court grants leave for this appeal pursuant to Federal Rule of Bankruptcy Procedure 8003(c);
2. The Order of U.S. Bankruptcy Court Judge Timothy J. Mahoney (Filing No. 64) granting Stutzka relief from the automatic stay is affirmed;
3. Judge Mahoney's Order (BK02-41760, Filing No. 51) stating that the exhibits offered at the hearing held on September 18, 2002 were not admitted or considered is affirmed;
4. The appeal is denied;
5. The Clerk of the U.S. District Court is directed to provide a copy, electronic or otherwise, of the Memorandum and Order to the Clerk of the Bankruptcy Court and the chambers of the Honorable Timothy J. Mahoney, and to provide notification in the District Court's docket that these copies have been provided; and
6. The Clerk of the U.S. District Court is directed to coordinate this matter with the Clerk of the Bankruptcy Court and ensure that this appeal is, under the unusual set of facts presented, properly docketed and accounted for statistically.