Summary
finding that the possibility of greater distribution to creditors does not rise to the level of exceptional circumstances or extreme hardship for purposes of Rule 60(b)
Summary of this case from In re Teligent, Inc.Opinion
01 Civ. 10173 (RWS).
March 26, 2002
SHAW, LICITRA, BOHNER, ESERNIO, SCHWARTZ PFLUGER, Attorney for Appellants, Garden City, NY, By: JOHN H. HALL, JR., ESQ., Of Counsel.
CHADBOURNE PARKE, Attorney for Appellee, New York, NY, By: ANDREW P. BROZMAN, ESQ., JENNIFER C. DeMARCO, ESQ., SEVEN RIVERA, ESQ., Of Counsel.
OPINION
Appellants Key Mechanical ("Key"); DWF, Inc. ("DWF"); and Mesta Construction Inc. ("Mesta") (collectively the "Appellants") appeal from an October 12, 2001, order of the United States Bankruptcy Court for the Southern District of New York (the "Order") denying a motion for reconsideration of its dismissal of an involuntary petition Appellants filed on May 31, 2001, against Appellee BDC 56 LLC ("BDC"). This appeal is related to another filed by Appellants, appealing the Bankruptcy Court's dismissal. This Court denied that appeal, as discussed in a separate opinion. For the foregoing reasons, the Order is affirmed.
The Parties
BDC is the owner, developer and operator of a recently constructed hotel in New York, the Chambers Hotel.
Appellants are contractors who performed construction work on the Chambers Hotel.
The Facts
The facts were described in greater detail in In re BDC, No. 01 Civ. 10169, 2002 WL 449856 (S.D.N.Y. March 22, 2002), familiarity with which is presumed.
BDC contracted with Appellants for construction on the Chambers Hotel. Key installed heating, ventilation and air conditioning equipment in the Chambers Hotel pursuant to a contract dated December 13, 1999, and claims that it is owed $231,957.34 from BDC. DWF installed wood flooring in the Chambers Hotel pursuant to a contract dated May 3, 2000 and claims that it is owed $45,938.74 from BDC. Mesta was a subcontractor of Tveter Carpet Co. ("Tveter"), which contracted with Mesta to provide flooring work on the Chambers Hotel. Mesta claims that is it owed $51,674.00.
On May 29, 2001, the Appellants filed an involuntary petition under Chapter 7 of the Bankruptcy Code against BDC. BDC filed a motion to dismiss under Fed.R.Civ.P. 12(b)(6) on June 13, 2001, alleging that Key and DWF lacked standing due to bona fide disputes with respect to the asserted claims and that Mesta lacked standing because it did not hold a claim against BDC.
On June 19, 2001, six additional contractors that were owed money for work performed and/or materials furnished at the Chambers Hotel joined in the involuntary bankruptcy petition. The creditors assert claims in the aggregate amount of $291,641.28.
On June 22, 2001, the Bankruptcy Court conducted a hearing on the dismissal motion. By order dated July 2, 2001, the Court dismissed the Involuntary Petition. This Court affirmed that decision on March 22, 2002, in In re BDC, No. 01 Civ. 10169, 2002 WL 449856 (S.D.N.Y. March 22, 2002).
On July 13, 2002, the Appellants moved for (1) reconsideration of the July 2 Order pursuant to Rules 9023 and 9024; (2) an Order pursuant to Bankruptcy Rule 7015 and 11 U.S.C. § 105, 706 converting the involuntary Chapter 7 case to a case under Chapter 11, and (3) other relief. They presented what they deemed as "new evidence" in support of their motion, including an affidavit of a purported creditor seeking to join the Involuntary Petition; the construction contract between BDC and HRH; the amendment between BDC and HRH; and an affidavit of Peter Palazzo, vice president of HRH. They also stated that the Court had made a clear error of law by determining that Mesta's claim was subject to bona fide dispute.
The entry of joinder was dated 10 days after the dismissal order was entered. Under § 303(c), joining creditors may only join an involuntary petition until either relief is granted or the petition is dismissed.
A hearing was scheduled for September 14, 2001, but was cancelled due to the emergency conditions at the Bankruptcy Courthouse following the attack on the World Trade Center. The hearing was reschedule for October 15, 2001.
By order dated October 12, 2001, the Court struck the hearing from the docket, determining that it was improvidently granted. The Court then determined that Appellants had not met the burden imposed on a movant for reconsideration under Rules 9023 or 9024, rendering moot Appellants' other demands. In denying the reconsideration motion, the Bankruptcy Court held that the Petitioning Creditors failed to produce any evidence that had not already been considered by the Court or that would be material to the outcome. The Bankruptcy Court also noted that the Petitioning Creditors failed to show that the court committed clear error of law in concluding that bona fide disputes exist between the Petitioning Creditors and BDC.
Appellants filed this appeal on November 26, 2001. They claim that the Bankruptcy Court (1) should not have denied their motion for reconsideration without a hearing; (2) erroneously refused to consider new evidence presented; and (3) erroneously denied relief under Rule 9024(b)(6) on the basis that the potential loss of more than $600,000 was not the type of extraordinary circumstance or extreme hardship warranting relief under the rule. The Appellee filed a response on December 17, 2001, and the Appellants filed a reply on January 4, 2002. Argument was heard on this appeal on January 30, 2002.
I. Jurisdiction
This Court has jurisdiction over this proceeding pursuant to 28 U.S.C. § 158(a)(1), which gives the Federal District Courts jurisdiction to hear appeals from final judgments, orders, and decrees of bankruptcy judges entered in cases and proceedings referred to bankruptcy judges under 28 U.S.C. § 157.
II. Standard of Review
The applicable standard of review with respect to a motion under Bankruptcy Rules 9023 and 9024 — which make Fed.R.Civ.P. 59(e) and 60 applicable to bankruptcy proceedings — is abuse of discretion. McCarthy v. Manson, 714 F.2d 234, 237 (2d Cir. 1983) (abuse of discretion standard under Rule 59(e)); Jones v. Trump, 971 F. Supp. 783, 786 (S.D.N.Y.) (abuse of discretion standard under Rule 60).
Discussion
I. Bankruptcy Rule 9023
The Appellants sought reconsideration of the dismissal order pursuant to Bankruptcy Rule 9023, which incorporates Fed.R.Civ.P. 59. Rule 59 provides:
(a) Grounds. A new trial may be granted to all or any of the parties on all or part of the issues . . . (2) in an action tried without a jury, for any of the reasons for which rehearings have heretofore been granted in suits in equity in the courts of the United States. On a motion for a new trial in an action tried without a jury, the court may open the judgment if one has been entered, take additional testimony, amend findings of fact and conclusions of law or make new findings and conclusions, and direct the entry of a new judgment.
Reconsideration "is merited when there has been a clear error or manifest injustice in an order of the court or if newly discovered evidence is unearthed." In re Bird, 222 B.R. 229, 235 (Bankr.S.D.N.Y. 1998). The movant must show that the court overlooked factual matters or controlling precedent that might have materially influenced its earlier decision. Id.; see also Morales v. Quintales Transnational Corp., 25 F. Supp.2d 369, 372 (S.D.N Y 1998) ("To prevail [the moving party] must demonstrate an intervening change in controlling law, the availability of new evidence, or the need to correct a clear error or prevent manifest injustice."). This criterion is strictly construed against the moving party. Id.
In addition, a "motion to reconsider should not give the moving party another bite at the apple by permitting argument on issues that could have been or should have been raised prior to the original motion." In re Bird, 225 B.R. at 235; see also Herschaft v. New York City Campaign Fin. Bd., 139 F. Supp.2d 282, 285-86 (E.D.N.Y. 2001); Air Espana v. O'Brien, 1997 WL 803756 at *5 (E.D.N.Y. 1997) ("[W]hatever may be the purpose of Rule 59(e) it should not be supposed that it is intended to give an unhappy 7 litigant one additional chance to sway the judge." (citations omitted)).
The Appellants have not shown that there has been any change in controlling law, that any newly discovered evidence exists, or that the Court made any clear error in law or that manifest injustice results from the July 2 Order.
The Appellants assert that the Bankruptcy Court erred by failing to consider additional evidence. As the Bankruptcy Court noted, however, this additional evidence is not admissible, has already been considered by the Court in the earlier proceeding, or is immaterial to the outcome of the case. This decision was not an abuse of discretion.
In determining whether newly discovered evidence is sufficient to warrant a new trial, courts should consider whether the evidence (1) probably would have changed the outcome of the trial; (2) could have been discovered earlier with due diligence; and (3) is merely cumulative or impeaching. Diaz v. Methodist Hosp., 46 F.3d 492, 495 (3d Cir. 1995); see also Philip v. Mayer, Rothkopf Indus., 635 F.2d 1056, 1063 (2d Cir. 1980) (affirming denial of motion for new trial on grounds of new evidence where "[n]one of the pieces of evidence could change our result").
A. Joinder of Purported New Creditor
The existence of another creditor would not affect the earlier result. The creditor did not attempt to join until after the time had expired for the creditor to do so. Any joining creditor must join an involuntary petition before it is dismissed. Rule 303(c). Because the creditor did not join in time, it could have no affect on the case.
B. Contracts Between HRH and BDC
The contracts should have been discovered earlier with due diligence. The Appellants filed the involuntary petition, and thus controlled the time line. If they had not completed sufficient discovery to obtain the documents, they should not have filed the petition. If they had obtained the documents, there is no reason they should not have been included earlier.
C. The Palazzo Affidavit
The Palazzo affidavit would not affect the earlier result because the evidence and allegations it contained were merely cumulative or inadmissible.
The Bankruptcy Court therefore properly considered Appellants' request for relief under Rule 9023.
II. Bankruptcy Rule 9024
Appellants also sought relief under Bankruptcy Rule 9024, which incorporates Fed.R.Civ.P. 60. That rule states in pertinent part:
On motion and upon such terms as are just, the court may relieve a party or party's legal representative from a final judgment, order, or proceeding for the following reasons:
(6) any other reason justifying relief from the operation of the judgment.
In their appeal, Appellants also rely on Rule 60(b)(2). They failed to raise this argument in their motion for reconsideration and cannot do so now. Appellants waived this claim by not raising in the Bankruptcy Court. E.g., U.S. v. Weisman, 624 F.2d 1118, 1127 (C.A.N.Y. 1980).
Relief should only be granted pursuant to Rule 60(b)(6) where the movant has "demonstrated `extraordinary circumstances' or `extreme hardship.'" PRC Harris, Inc. v. Boeing Co., 700 F.2d 894, 897 (2d Cir. 1983) (citing U.S. v. Cirami, 563 F.2d 26, 32 (2d Cir. 1977)); see also Nemaizer v. Baker, 793 F.2d 58, 61-63 (2d Cir. 1986) ("Since 60(b) allows extraordinary judicial relief, it is invoked only upon a showing of exceptional circumstances.").
The Bankruptcy Court held that simple assertions that purported creditors stand to lose the opportunity to substitute the Bankruptcy Court for their normative state law collection vehicles does not constitute an "undue hardship" sufficient to merit Rule 60(b) relief.
This decision was not an abuse of discretion. Appellants cite to a Tenth Circuit case to support the proposition that the ability to distribute more money to creditors constitutes exceptional circumstances. Appellants misconstrue In re Gledhill, 76 F.3d 1070 (10th Cir. 1996). In that case, the Tenth Circuit affirmed the district court's affirmation of the Bankruptcy Court's order under Rule 60(b)(6) because there had been exceptional changed circumstances in the case. Id. at 1081. The Bankruptcy Court had originally allowed a creditor to foreclose its judgment lien against the debtor as a means of punishing the debtor for filing a bad faith Chapter 11 petition. Id. By the time of the motion, the property had increased significantly in value and the case had been converted to a Chapter 7 liquidation. Id. Allowing the original order to stand would then punish other creditors. Thus, Gledhill stands for the proposition that changed circumstances can warrant relief under Rule 60(b)(6) — not that an extreme hardship may exist where purported creditors fear they may not get as much money as they claim they are owed.
Conclusion
For the foregoing reasons, Appellant's appeal of the Bankruptcy Court's October 12, 2001 order is denied.
It is so ordered.