Opinion
Case No. 2:04-cv-493.
April 21, 2005
ORDER
This bankruptcy appeal is before the Court on the motion of Appellees National Century Financial Enterprises, Inc. and its subsidiaries (now "the Debtors") for an award of fees and costs under 28 U.S.C. § 1927. After the appeal was dismissed pursuant to settlement, the Debtors requested an award of the attorney fees and costs they incurred in briefing the appeal. According to the Debtors, the conduct of Appellant Amedisys Inc. in pursuing the appeal was unreasonable and vexatious because: (1) the appeal was equitably moot; (2) Amedisys waived its right to appeal; and (3) Amedisys had no grounds to appeal.
For the reasons stated below, the Debtors' motion is granted.
I. Background
Amedisys, a health care provider based in Louisiana, entered into two separate agreements with National Century entities in December 1998. First, Amedisys entered into an agreement to sell its health care receivables to NPF VI. NPF VI paid for the receivables on a weekly basis through a "receivables purchase wire." Second, Amedisys entered into a loan agreement in which NPF Capital loaned $11.7 million to Amedisys. Amedisys executed a promissory note that the parties refer to as the "Amedisys Note." Payments on the loan were deducted on a monthly basis from the receivables purchase wire.
In December 2000, NPF Capital assigned the Amedisys Note to Provident Bank. National Century and Provident had a preexisting arrangement whereby Provident had extended a $40 million line of credit to National Century. The Amedisys Note was assigned to Provident as collateral for loans National Century took out.
On November 18, 2002, National Century filed for Chapter 11 bankruptcy in the United States Bankruptcy Court for the Southern District of Ohio. As of the petition date, National Century had $19.3 million in outstanding obligations to Provident, and Amedisys owed $6 million on the Amedisys Note. In addition, Amedisys alleges that when National Century filed for bankruptcy, it had taken, but not paid for, $7.3 million worth of receivables from Amedisys.
During the course of the bankruptcy proceedings, the Debtors agreed to resolve all disputes with Provident, National Century's only secured creditor. On April 7, 2004 the Bankruptcy Court approved of the settlement, which called for the Debtors to transfer $15.6 million to Provident.
Before approving the settlement, the Bankruptcy Court held a hearing in which counsel for Amedisys objected to the settlement between Provident and National Century. Amedisys's main objection was that the settlement agreement prejudiced certain setoff rights that Amedisys claims it has with respect to the Amedisys Note. Amedisys contends that it has a right to setoff the amount it owes on the Amedisys Note against the $7.3 million in receivables that National Century allegedly took from Amedisys.
In response to Amedisys's objection, counsel for the Debtors and counsel for the Unsecured Creditors Committee proposed adding language which made clear that the National Century-Provident settlement agreement did not affect Amedisys's alleged setoff rights. The Bankruptcy Court accepted this proposal and included it in the final order approving the settlement: "Nothing in this order or the settlement agreement shall be deemed to affect such rights, remedies, and defenses as Amedisys or Provident may have with respect to the payment of the Amedisys note." See April 9, 2004 Order (doc. 2712).
Amedisys appealed the Bankruptcy Court's order, arguing that the order deprived Amedisys of its alleged setoff rights. The Debtors and Provident both filed motions to dismiss the appeal under Fed.R.Bankr.P. 8011. Those motions raised largely the same arguments that are being offered in support of the Debtors' current motion for attorney fees and costs. The motions to dismiss were fully briefed when the parties filed a joint motion to dismiss the appeal with prejudice pursuant to a settlement. The Court dismissed the appeal on January 10, 2005.
The Debtors then filed their motion for attorney fees and costs. The motion is now ripe for a decision.
II. 28 U.S.C. § 1927
Section 1927 provides that any attorney "who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys' fees reasonably incurred because of such conduct." 28 U.S.C. § 1927. The Sixth Circuit treats § 1927 as setting an objective standard. See Ridder v. City of Springfield, 109 F.3d 288, 298 (6th Cir. 1997). A court may assess fees without a finding of bad faith, "at least when an attorney knows or reasonably should know that a claim pursued is frivolous, or that his or her litigation tactics will needlessly obstruct the litigation of nonfrivolous claims." Jones v. Continental Corp., 789 F.2d 1225, 1230 (6th Cir. 1986). On the other hand, "simple inadvertence or negligence that frustrates the trial judge will not support a sanction under section 1927."In re Ruben, 825 F.2d 977, 984 (6th Cir. 1987). "There must be some conduct on the part of the subject attorney that trial judges, applying the collective wisdom of their experience on the bench, could agree falls short of the obligations owed by a member of the bar to the court and which, as a result, causes additional expense to the opposing party." Id.; see also Shepherd v. Wellman, 313 F.3d 963, 969 (6th Cir. 2002).
The Debtors' first two reasons for imposing § 1927 sanctions are not persuasive. The Debtors first argue that the appeal was equitably moot. Under the doctrine of equitable mootness, "a reviewing court may decline to consider the merits of a confirmation order when there has been substantial consummation of the plan such that effective judicial relief is no longer available — even though there may still be a viable dispute between the parties on appeal." In re Manges, 29 F.3d 1034, 1039 (5th Cir. 1994) (emphasis added), cited in City of Covington v. Covington Landing Ltd. Partnership, 71 F.3d 1221, 1225 (6th Cir. 1995). The doctrine of equitable mootness has traditionally been applied to confirmation orders. In contrast, Amedisys appealed an order that approved a settlement between two parties; it did not confirm a plan of bankruptcy reorganization or liquidation. The Court recognizes that the National Century-Provident settlement helped pave the way for an agreed plan of liquidation in the National Century bankruptcy proceedings, but the Court is unwilling, at least on a motion for attorney fees, to expand the doctrine of equitable mootness to an order approving a settlement agreement.
The Debtors' second reason for imposing § 1927 sanctions is that Amedisys waived its right to appeal. The Court has reviewed the transcript of the April 7, 2004 hearing before the Bankruptcy Court and finds that Amedisys did not waive its right to appeal. Counsel for Amedisys did say that he was agreeable to adding language which clarified that the order did not affect Amedisys's setoff rights with respect to the Amedisys Note. See Tr. of April 7, 2004 Hearing, p. 92 (counsel for Amedisys stating that he was "agreeable to the language"). Nonetheless, counsel ultimately concluded that he "need[ed] 24 hours to mull this over." Id., p. 92. Given counsel's statement that he needed more time to think over the proposed language, the Court cannot say that Amedisys waived its right to appeal.
The Debtors' most compelling reason for imposing § 1927 sanctions is that Amedisys had no grounds to appeal an order which expressly preserved its setoff rights. The Court agrees with the Debtors on this point. The Bankruptcy Court, sensitive to Amedisys's fears that its setoff rights would be prejudiced by the National Century-Provident settlement, added language stating that "nothing" in the order or in the settlement agreement "shall be deemed to affect such rights, remedies, and defenses as Amedisys or Provident may have with respect to the payment of the Amedisys note." Amedisys then filed an appeal, alleging that the order prejudiced its setoff rights, despite the Bankruptcy Court's clear statement that its order had no effect on those rights. Amedisys's aim in filing an appeal was to protect its alleged setoff rights, but this appeal could not have accomplished that goal. The Court could not have protected Amedisys's setoff rights by reversing an order that had no effect on those rights in the first place.
Amedisys offers no coherent explanation as to why it believed that the bankruptcy order prejudiced its setoff rights. In the absence of such an explanation, the Court finds that counsel for Amedisys knew or reasonably should have known this appeal was frivolous and would needlessly cause expense and delay to the opposing party. By filing this appeal, counsel for Amedisys unreasonably and vexatiously multiplied the proceedings.
III. Inherent Powers to Sanction Amedisys
The Debtors further request that the Court exercise its inherent powers to impose an award of attorney fees and costs.See Big Yank Corp. v. Liberty Mut. Fire Ins. Co., 125 F.3d 308, 313 (6th Cir. 1997) (noting "a district court's inherent authority to award fees when a party litigates "in bad faith, vexatiously, wantonly, or for oppressive reasons") (quotingAlyeska Pipeline Serv. Co. v. Wilderness Society, 421 U.S. 240, 247, 95 S.Ct. 1612, 1616 (1975)). Unlike a sanction under § 1927, a sanction under the court's inherent powers requires "a finding that an attorney `willfully abuse[d] judicial processes' by conduct `tantamount to bad faith.'" Jones v. Continental Corp., 789 F.2d 1225, 1229 (6th Cir. 1986) (quoting Roadway Express, Inc. v. Piper, 447 U.S. 752, 764-66, 100 S.Ct. 2455, 2463-64 (1980)). Exercising this power "requires that the district court make actual findings of fact that demonstrate that the claims were meritless, that counsel knew or should have known that the claims were meritless, and that the claims were pursued for an improper purpose." Big Yank, 125 F.3d at 314.
The evidence before the Court does not demonstrate an improper purpose on Amedisys's part. Even though counsel for Amedisys should have known that the appeal was meritless, there is no evidence to show that counsel filed the appeal with the intent of causing delay and expense to the Debtors. The appeal appears to stem from counsel's honest, though mistaken, belief that the order approving the settlement somehow prejudiced Amedisys's alleged setoff rights.
IV. Conclusion
Accordingly, the Debtors' January 10, 2005 motion for an award of attorney fees and costs incurred in briefing this appeal (doc. 14) is GRANTED under 28 U.S.C. § 1927.
The Debtors shall submit a statement of fees and costs within twenty (20) days of the date of this order. The statement shall be supported by an affidavit, itemized bills, or other materials which show the amount of fees and costs that the Debtors incurred in briefing this appeal. If Amedisys has an objection to the reasonableness of the amount claimed by the Debtors, it may file an objection within ten (10) days of the Debtors filing their statement of fees and costs.