Filed: Jun. 24, 2011
Latest Update: Feb. 21, 2020
Summary: NOT RECOMMENDED FOR FULL-TEXT PUBLICATION File Name: 11a0409n.06 Nos. 09-3973, 09-4033, 09-4037, 09-4040, 09-4066 UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT FILED Jun 24, 2011 WILLIAM H. MALOOF, ) LEONARD GREEN, Clerk ) Appellant, ) ) On Appeal from the United States v. ) District Court for the Northern ) District of Ohio LEVEL PROPANE, INC., et al., ) ) Appellees. ) Before: BOGGS, SUHRHEINRICH, and STRANCH, Circuit Judges. BOGGS, Circuit Judge. In these consolidated appeals, William H
Summary: NOT RECOMMENDED FOR FULL-TEXT PUBLICATION File Name: 11a0409n.06 Nos. 09-3973, 09-4033, 09-4037, 09-4040, 09-4066 UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT FILED Jun 24, 2011 WILLIAM H. MALOOF, ) LEONARD GREEN, Clerk ) Appellant, ) ) On Appeal from the United States v. ) District Court for the Northern ) District of Ohio LEVEL PROPANE, INC., et al., ) ) Appellees. ) Before: BOGGS, SUHRHEINRICH, and STRANCH, Circuit Judges. BOGGS, Circuit Judge. In these consolidated appeals, William H...
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NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 11a0409n.06
Nos. 09-3973, 09-4033, 09-4037, 09-4040, 09-4066
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT FILED
Jun 24, 2011
WILLIAM H. MALOOF, ) LEONARD GREEN, Clerk
)
Appellant, )
) On Appeal from the United States
v. ) District Court for the Northern
) District of Ohio
LEVEL PROPANE, INC., et al., )
)
Appellees. )
Before: BOGGS, SUHRHEINRICH, and STRANCH, Circuit Judges.
BOGGS, Circuit Judge.
In these consolidated appeals, William H. Maloof (“Maloof”) argues that 1) the bankruptcy
court erred in denying his second motion to vacate the conversion of an involuntary Chapter 7
bankruptcy to a voluntary Chapter 11 bankruptcy; 2) the bankruptcy court erred in granting
Appellees’ motion for summary judgment in an adversary proceeding against Maloof; 3) the
bankruptcy court erred in granting Appellees’ motion to dismiss Maloof’s counterclaim in the
adversary proceeding; 4) the bankruptcy court erred in affirming a compromise and settlement
agreement, which resulted in the dismissal of a lawsuit brought by the debtor companies against
Maloof and his former business partner; and 5) the bankruptcy court erred in ordering Maloof to turn
over certain electronic records to Appellees. Because these arguments are all without merit or moot,
we affirm the bankruptcy court’s orders.
Nos. 09-3973, 09-4033, 09-4037, 09-4040, 09-4066
Maloof v. Level Propane, Inc., et al.
I
Maloof has come before this court twice before with similar grievances. We have previously
laid out facts relevant to the bankruptcy proceeding in question:
Plaintiff, William H. Maloof, was the sole shareholder, director and CEO of
Level Propane Gases, Inc., and Park Place, Inc. Level Propane was a propane
distribution business operating in the Great Lakes region, and headquartered in
Westlake, Ohio. Park Place was a parking lot facility at Cleveland Hopkins Airport
in Brookpark, Ohio.
Maloof v. BT Commercial Corp., 261 F. App’x 887, 887 (6th Cir. 2008) (holding that Maloof lacked
standing to bring an action on behalf of his corporations).
On June 6, 2002, various creditors filed involuntary bankruptcy proceedings
under Chapter 7 of the Bankruptcy Code against Level, Park Place Management, Inc.,
The Park Place Companies, Inc., Over-Flo Lot, Inc., Level Energy Group, Inc., and
WHM Enterprises, Inc. (collectively, the “Debtors”). These cases were subsequently
consolidated and converted to proceedings under Chapter 11 of the Bankruptcy Code.
On April 30, 2003, the bankruptcy court, on motion from the United States
Trustee, ordered the appointment of an examiner, Professor G. Ray Warner (the
“Examiner”), for the consolidated Chapter 11 cases. Maloof, Level’s principal
shareholder and former Chief Executive Officer, had filed an earlier motion for the
appointment of an examiner, and that motion was before the bankruptcy court at the
same time. In granting the United States Trustee’s motion for an examiner, the
bankruptcy court denied Maloof’s motion as moot. On June 6, 2003, the Examiner
submitted his report to the bankruptcy court. Maloof did not file any objections to
this report.
Two and one half years later, on January 31, 2006, Maloof filed a motion
styled “Motion to Reopen Examiner's Investigation and for Substitute Examiner” (the
“Original Motion”). In this motion, Maloof alleged that Debtors had engaged in a
systematic campaign of document destruction which compromised Debtors’ financial
balance sheet and customer records. After conducting an evidentiary hearing, the
bankruptcy court denied the motion on June 26, 2006, noting that Maloof had not
provided sufficient evidence to support his allegations and finding that Maloof had
failed to show cause for reopening the Examiner's investigation or for appointing a
new examiner. Maloof did not file any motion for reconsideration or notice of appeal
with respect to this ruling.
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Nos. 09-3973, 09-4033, 09-4037, 09-4040, 09-4066
Maloof v. Level Propane, Inc., et al.
Instead, on July 12, 2006, Maloof filed a motion styled “Renewed and
Reinstated Motion to Reopen Examiner’s Report and for Appointment of Substitute
Examiner” (the “Renewed Motion”). In this Renewed Motion, Maloof asserted the
same allegations and sought the same relief as requested in the Original Motion, but
claimed that he had “newly discovered evidence” to justify the Renewed Motion.
This “newly discovered evidence,” however, consisted of e-mails and affidavits that
had been previously filed with the bankruptcy court in support of other motions. On
August 2, 2006, Level filed a response to Maloof's Renewed Motion along with its
own motion seeking sanctions, in the form of attorney's fees and costs, against
Maloof for the filing of the Renewed Motion.
On November 28, 2006, after reviewing the alleged “new evidence” presented
by Maloof, the bankruptcy court denied the Renewed Motion. The bankruptcy court
found that Maloof had failed to present any “meaningful new evidence to support his
claims” and thus had not shown sufficient cause for reopening the Examiner’s report
or for appointing a new examiner. Moreover, the bankruptcy court explicitly noted
that Maloof's motion had frustrated the doctrine of finality by “seeking the same
relief [that Maloof] has sought [unsuccessfully] on two prior occasions.”
Maloof v. Level Propane Gases, Inc., 316 F. App’x 373, 374-75 (6th Cir. 2008) (alterations in
original) (upholding an award of sanctions for vexatious litigation).
Maloof also sought to unravel the bankruptcy proceeding in other ways. On June 6,
2006—three years after the filing of the Examiner’s report—Maloof sought to vacate the Agreed
Final Order of June 11, 2002 (“the Conversion Order”), which had converted the Chapter 7
bankruptcy proceeding to one under Chapter 11. He argued that the Order (which he signed in 2002)
was procured by fraud on the court. In particular, he alleged that the Debtors’ management had no
intention of preserving the assets of the estate. This claim, like his motions to reopen the examiner’s
investigation, was based on allegations that business records were destroyed or manipulated. In
denying the motion, the bankruptcy court noted that the motion relied upon “substantially the same
evidence” as his first motion to reopen the examiner’s investigation, and that the broader accusations
had already been dispelled by the Examiner’s report.
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Nos. 09-3973, 09-4033, 09-4037, 09-4040, 09-4066
Maloof v. Level Propane, Inc., et al.
Undeterred, Maloof moved to disqualify Debtors’ counsel on November 14, 2006, claiming
a conflict of interest. Again, the bankruptcy court noted that the Examiner’s report had specifically
investigated this claim, and found it baseless. The court denied the motion, holding that it was
barred by the doctrines of laches and finality, and was without merit.
Issue 1: Maloof’s Second Motion to Vacate
On September 5, 2007, Maloof filed another motion to vacate the Conversion Order, as well
as the June 27, 2003 Sale Order which approved the sale of Level Propane as a going concern
(“Second Motion to Vacate”). Counting his two attempts to reopen the Examiner’s report and the
motion to disqualify counsel, this Second Motion to Vacate was Maloof’s fifth attempt to undermine
the bankruptcy proceeding. The bankruptcy court noted as much, before holding that the allegations
were “simply a recasting of the arguments [Maloof] has repeatedly and unsuccessfully made before
this Court and on appeal,” and that the motion was therefore barred by the doctrine of finality. The
court also held that the motion was barred by the doctrine of laches and that, in any event, Maloof
had not shown his entitlement to extraordinary relief under Rule 60(b)(6). On appeal before the
district court, that order was upheld. Maloof timely appealed.
Issues 2 & 3: Summary judgment for the Debtors and Maloof’s counterclaim
In a different strategy, Maloof also filed a 2006 action in the United States District Court for
the Northern District of Ohio, seeking damages for injury to his corporations. In February 2007, the
district court dismissed this action under Federal Rule of Civil Procedure 12(b)(6) because, as an
individual, Maloof could not assert claims for loss on behalf of his corporations. We affirmed that
ruling. Maloof, 261 F. App’x at 889.
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Nos. 09-3973, 09-4033, 09-4037, 09-4040, 09-4066
Maloof v. Level Propane, Inc., et al.
In response to the dismissal, Maloof filed a new action in federal district court in June 2007.
In that complaint, he advanced substantially the same allegations, but framed them as derivative
claims.1 Less than a month later, on July 12, 2007, the Debtors filed an adversary proceeding in
bankruptcy court against Maloof, claiming that the June 2007 action was a usurpation of the Debtors’
estate and violated the automatic stay imposed by the bankruptcy court. Maloof counterclaimed that
the entire bankruptcy was a fraud upon the court. In response, the Debtors filed a motion for
summary judgment on their claim and a motion to dismiss Maloof’s counterclaim. The bankruptcy
court granted both motions, and the district court affirmed. Maloof timely appealed.
Issue 4: The Settlement Agreement
On June 3, 2004, the Debtors and the official committee of unsecured creditors (“the
Committee”) filed a complaint in bankruptcy court against Maloof and Walter Himmelman, who had
also been involved in the management of the Debtors prior to the bankruptcy petition. The
complaint alleged that both Maloof and Himmelman had breached their fiduciary duties to the
Debtors. Both defendants denied the allegations. Himmelman eventually sought permission of the
bankruptcy court to recover his defense costs in the proceeding from a director and officer liability
insurance policy that had been issued by National Union Fire Insurance Co. (“National Union”).
Maloof joined in the motion. Although holding that the liability policy was property of the Debtors’
estate, the bankruptcy court granted the motion with respect to both defendants.
1
In March 2008, the district court also dismissed this action because Maloof did not obtain
permission from the bankruptcy court to prosecute a derivative action on behalf of the Debtors.
Maloof appealed to the Sixth Circuit, where that case is pending.
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Maloof v. Level Propane, Inc., et al.
After a great deal of expensive discovery, Himmelman and National Union agreed to mediate
the claim with the Debtors and the Committee. Maloof, on the other hand, refused to take part in
the mediation discussions. Himmelman, National Union, the Debtors, and the Committee eventually
reached a settlement that provided as follows: National Union would pay the Debtors $1.5 million
and, in exchange, the adversary proceeding would be dismissed with prejudice. Under the
settlement, Himmelman, National Union, and Maloof would be completely released—and no more
money could be recovered from the National Union liability policy. The bankruptcy court initially
rejected the settlement, sustaining Maloof’s objection that an injunction against third-party claims,
which National Union had demanded, exceeded the bankruptcy court’s jurisdiction. National Union
agreed to abandon this term, and the settlement was approved on March 3, 2008 over Maloof’s
objections. The bankruptcy court found that the settlement would not cause Maloof to incur any
personal liability or otherwise suffer prejudice. Maloof appealed to the district court, which affirmed
the bankruptcy court’s order. He now argues on appeal that the settlement violated his due process
rights.
Issue 5: The email turn overs
In June 2008, Maloof filed a motion under Federal Rule of Civil Procedure 60(b)(2) to vacate
the bankruptcy court’s decision denying his Second Motion to Vacate, claiming that he had newly
discovered evidence that certain individuals had conspired to wrongfully seize control of Level
Propane by hiding its true value as a going concern. This newly discovered evidence consisted of
a series of outrageously incriminating emails allegedly discovered on back-up tapes of Level’s
server. The Debtors moved for expedited discovery, asking Maloof to turn over the server tapes to
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Maloof v. Level Propane, Inc., et al.
a company specializing in forensics so that the legitimacy of the emails could be determined. The
bankruptcy court granted the motion in part, ordering that Maloof turn over all electronic media and
certain documents. The district court affirmed, and Maloof timely appealed.
Through all these motions, Maloof’s primary accusation has remained largely unchanged:
that the Chapter 11 bankruptcy was a conspiracy to seize Level Propane at a sharply reduced price.
He argues primarily that, after the bankruptcy filing, certain individuals within the management of
Level concealed and destroyed Level’s customer records in an attempt to make it appear less
valuable. He also argues that these individuals frustrated attempts to sell the company on the open
market, and ultimately delivered it to its eventual buyer for a dramatically inadequate price.
II
“We directly review the bankruptcy court’s decision, and not the district court’s decision
below.” In re Parker, 499 F.3d 616, 620 (6th Cir. 2007) (citing In re Trident Assocs. Ltd. P’ship,
52 F.3d 127, 130 (6th Cir. 1995)). We review the bankruptcy court’s legal conclusions de novo and
its findings of fact for clear error.
Ibid. (citing In re M.J. Waterman & Assocs., Inc.,
227 F.3d 604,
607 (6th Cir. 2000)).
A
On February 28, 2008, the district court issued a Memorandum Opinion and Order denying
Maloof’s Second Motion to Vacate on three grounds: the motion was barred by the doctrine of
finality, it was barred by the doctrine of laches, and Maloof failed to show extraordinary
circumstances to warrant relief under Federal Rule of Civil Procedure 60(b)(6). On appeal, Maloof
challenges all three conclusions.
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Nos. 09-3973, 09-4033, 09-4037, 09-4040, 09-4066
Maloof v. Level Propane, Inc., et al.
We agree with the ruling below that Maloof’s Second Motion to Vacate was barred by the
doctrine of finality. On multiple prior occasions, the bankruptcy court considered and rejected
Maloof’s theory of fraud on the court, leading us in a prior appeal to affirm the imposition of
sanctions. See Maloof, 316 F. App’x at 377. Maloof argues that he has adduced “substantial new
evidence” such that the doctrine of finality is inapplicable to him. See United States v. Moored, 38
F.3d 1419, 1421 (6th Cir. 1994) (noting that exceptions to the doctrine of finality exist where “there
is substantially different evidence raised on subsequent trial; a subsequent contrary view of the law
by the controlling authority; or a clearly erroneous decision which would work a manifest injustice”
(internal quotation marks omitted)). However, as we explain, we find Maloof’s new evidence
unpersuasive.
Even considering the evidentiary submissions Maloof attached to the Second Motion to
Vacate, we agree with the bankruptcy court that Maloof failed to demonstrate circumstances to
warrant relief. Typically, Federal Rule of Civil Procedure 60 is a litigant’s only avenue for altering
a final judgment. Indeed, Maloof brought both his First Motion to Vacate and his Second Motion
to Vacate under Rule 60(b)(6). However, Rule 60 also provides a savings clause, which allows a
judgment to be attacked for fraud on the court regardless of the passage of time. Fed. R. Civ. P.
60(d)(3); see Marcelli v. Walker, 313 F. App’x 839, 842 (6th Cir. 2009). Under either Rule 60(b)(6)
or an independent action in equity for fraud on the court, we review for abuse of discretion. See Blue
Diamond Coal Co. v. Trustees of the UMWA Combined Benefit Fund, 249 F.3d 519, 524 (6th Cir.
2001); Barrett v. Sec’y of Health & Human Servs.,
840 F.2d 1259, 1263 (6th Cir. 1987).
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Nos. 09-3973, 09-4033, 09-4037, 09-4040, 09-4066
Maloof v. Level Propane, Inc., et al.
To establish fraud on the court, Maloof was required to show conduct (1) by an officer of
the court; (2) directed to the “judicial machinery” itself; (3) which was intentionally false, willfully
blind to the truth, or in reckless disregard of the truth; (4) which was a positive averment or a
concealment when under a duty to disclose; and (5) which deceived the court. Demjanjuk v.
Petrovsky, 10 F.3d 338, 348 (6th Cir. 1993). Maloof’s counsel conceded at oral argument that the
fraud on the court claim was based entirely on representations the debtors made to the bankruptcy
court that the sale price for Level Propane was fair and reasonable. Maloof attempted to show
through the documents attached to his Second Motion to Vacate that the sale price for Level Propane
was not fair and reasonable because the debtors fraudulently devalued the company in order to sell
it at a reduced price.
Having examined all of the exhibits Maloof submitted, we conclude, as did the bankruptcy
court, that these documents, individually or collectively, fail to demonstrate fraud on the bankruptcy
court as required by Demjanjuk. In light of the above, we are satisfied that the bankruptcy court did
not abuse its discretion in denying Maloof’s Second Motion to Vacate. Based on these rulings, we
do not determine whether the doctrine of laches is applicable to the Second Motion to Vacate.
B
With regard to the adversary proceeding, the Debtors’ cause of action against Maloof alleges
that he willfully violated the automatic stay by bringing a district court action on their behalf. A
petition filed under sections 301, 302, or 303 of the Bankruptcy Code operates as an automatic stay.
11 U.S.C. § 362(a). In this case, Maloof admits that such a stay was in operation, but claims that the
Debtors abandoned their legal causes of action by asserting on the record that they would not
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Nos. 09-3973, 09-4033, 09-4037, 09-4040, 09-4066
Maloof v. Level Propane, Inc., et al.
prosecute them. As an affirmative defense, Maloof also argues that the entire bankruptcy was the
product of a fraud on the court. The bankruptcy court correctly rejected these arguments.
A trustee may abandon estate property “that is burdensome to the estate or that is of
inconsequential value and benefit to the estate.” 11 U.S.C. § 554(a). However, according to §
554(a), such an abandonment must be made, “[a]fter notice and a hearing.” Likewise, Federal Rule
of Bankruptcy Procedure 6007 directs that:
[T]he trustee or debtor in possession shall give notice of a proposed abandonment or
disposition of property to the United States trustee, all creditors, indenture trustees,
and committees elected pursuant to § 705 or appointed pursuant to § 1102 of the
Code. A party in interest may file and serve an objection . . . . If a timely objection
is made, the court shall set a hearing on notice . . . .
Thus, for Maloof to succeed, it must be the case that the Debtors gave adequate notice of their intent
to abandon the causes of action.
Maloof’s entire abandonment claim therefore hinges on whether the Debtors provided notice
within the meaning of Rule 6007 and § 554(a). To support his argument, Maloof points to a letter
from Debtors’ counsel in response to Maloof’s demand that they bring a lawsuit. That letter reads
in part:
[A]t no point in your correspondence do you identify those causes of action,
enumerating instead instances of what Mr. Maloof characterizes as the “actionable
conduct of the Bank Group.” It is therefore difficult to determine what “claims” Mr.
Maloof believes should be “preserve[d]” or to ascertain the “limitations” that Mr.
Maloof believes to be “fast approaching.” As a result, we must question whether Mr.
Maloof’s demand is tendered in good faith . . . .
....
Level does not believe that it has a good faith basis for commencing an action against
the Bank Group. Nor does it believe that the significant costs attendant to the
prosecution of such an action could be justified in light of what it finds to be the
speculative and, at best, negligible likelihood of an outcome favorable to Level.
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Nos. 09-3973, 09-4033, 09-4037, 09-4040, 09-4066
Maloof v. Level Propane, Inc., et al.
The bankruptcy court noted that the letter, although filed on the record, does not contain an
abandonment request or a service certification in accordance with Local Bankruptcy Rules 6007-1
and 9013-3.2 Further, the letter is merely a rejection of Maloof’s demand, not a clear abandonment.
It emphasizes that the Debtors found Maloof’s demand unclear and makes no reference to any
specific cause or causes of action that the Debtors intended to abandon. It therefore does not
constitute a proper abandonment, and we affirm the bankruptcy court on this issue.
Maloof also argued before the bankruptcy court that he did not violate the stay because the
entire bankruptcy was a fraud on the court. Maloof articulated this argument as both an “affirmative
defense” and a “counterclaim.” In its January 29, 2008 bench ruling on the motion for summary
judgment, the bankruptcy court deferred any discussion of the fraud accusation because the substance
of the claim was identical to other pending motions. In granting summary judgment without
considering the argument, the bankruptcy court effectively struck the defense and considered it only
2
Under Local Bankruptcy Rule 6007-1, to abandon property, “[t]he movant shall file a
certificate of service pursuant to LBR 9013-3 with the request for abandonment.” Rule 9013-3
requires that the certificate of service shall: “(1) Identify, with specificity, the pleading or other paper
served; (2) State the date and method of service; (3) Identify, by name and address, each entity
served; and (4) Contain or refer to an accompanying notice as required by LBR 9013-1(a).” Rule
9013-1(a) provides for a certificate of service and:
a notice to all persons entitled to notice that any objection must be filed within 14
days, or such other time as specified by applicable Federal Rule of Bankruptcy
Procedure or statute or as the Court may order, from the date of service as set forth
on the certificate of service, if the relief sought is opposed, and that the Court is
authorized to grant the relief requested without further notice unless a timely
objection is filed.
The Debtors’ letter was filed with the court, but contains only the usual electronic certificate of
service: “The foregoing Praecipe was filed electronically, this 5th day of June, 2007, and was thereby
served electronically on all parties registered with the Court’s ECF system.” It does not comply with
the specific notice provisions of the Local Bankruptcy Rules for abandonment laid out above.
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Nos. 09-3973, 09-4033, 09-4037, 09-4040, 09-4066
Maloof v. Level Propane, Inc., et al.
as a counterclaim. Doing so may have been improper. Cf. Bd. of Trustees of Leland Stanford Junior
Univ. v. Roche Molecular Sys., Inc., 583 F.3d 832, 840 (Fed. Cir. 2009) (holding that it was error
for the district court to consider an argument as only a counterclaim when it was properly pled as
both a counterclaim and an affirmative defense). Although there may have been a lack of clarity in
the bankruptcy court’s bench ruling of January 29, 2008, the error, if any, is harmless. In subsequent
orders entered on February 28, 2008, both in the adversary action (No. 07-1278) and in the
bankruptcy court proceeding (No. 02-16172) and on March 6, 2008, in the adversary action (No. 07-
1278), the bankruptcy court considered and rejected Maloof’s bankruptcy fraud argument both as
an affirmative defense and as a counterclaim. Therefore, Maloof did not suffer any prejudice due
to the bankruptcy court’s bench ruling.
C
On March 6, 2008—a little more than a month after granting the Debtors’ motion for
summary judgment—the bankruptcy court ruled on Maloof’s counterclaim. The court noted that,
“Mr. Maloof’s counterclaim is identical to the relief sought in his [Second Motion to Vacate]. That
Motion was denied by this Court . . . . [therefore,] Plaintiff’s Motion to Dismiss is hereby granted
for the reasons set forth in this Court’s February 28, 2008 Memorandum of Opinion and Order.” On
appeal, Maloof does not appear to contend that his counterclaim was distinguishable from the
Second Motion to Vacate. In fact, he spends much of the appellate brief filed in this case attacking
the bankruptcy court’s ruling with respect to the Second Motion to Vacate. Having already rejected
his argument with regard to the Second Motion to Vacate, we now reject this claim for the same
reasons.
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Nos. 09-3973, 09-4033, 09-4037, 09-4040, 09-4066
Maloof v. Level Propane, Inc., et al.
D
Maloof claims that in approving the settlement between Himmelman, National Union, the
Debtors, and the Committee, the bankruptcy court violated his due process rights. We typically
review a bankruptcy court’s decision to approve a settlement for abuse of discretion. Lyndon
Property Ins. Co. v. Katz, 196 F. App’x 383, 386 (6th Cir. 2006) (citing In re Monus, 63 F. App’x
215, 216 (6th Cir. 2003); and In re Bard, 49 F. App’x 528, 530 (6th Cir. 2002)). However, to the
extent that this appeal turns on an interpretation of constitutional law, we review de novo. See
Mingus v. Butler, 591 F.3d 474, 481 (6th Cir. 2010).
The bankruptcy court properly rejected Maloof’s due process argument by pointing to the fact
that the settlement agreement does not deprive him of any rights or property. Although Maloof
claimed that he would not be able to vindicate his pre-petition conduct, this grievance is not
cognizable in a due process claim. See Cutshall v. Sundquist, 193 F.3d 466, 479 (6th Cir. 1999)
(“The Supreme Court made clear in [Paul v. Davis,
424 U.S. 693, 701 (1976)], that reputation alone
is not a constitutionally protected liberty or property interest. Only where the stigma of damage to
a reputation is coupled with another interest, such as employment, is procedural due process
protection triggered.”) (internal citation moved).
Therefore, on appeal before this court, Maloof also claims that the settlement agreement
curtailed his litigation rights. In support, he points to a provision of the settlement in which the
Debtors, the Committee, and Himmelman reserve their rights and remedies against Maloof. In
pertinent part, that provision reads:
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Maloof v. Level Propane, Inc., et al.
The Release provided herein is not intended to be, and should not be construed as,
a waiver or limitation of (1) the ability of WHM, the Creditors’ Committee and/or
Himmelman to seek to enjoin Maloof from taking any action against them, including
rights and remedies to enforce any such injunction or for violation of any such
injunction, or (2) to raise any defenses, including the affirmative defenses of accord
and satisfaction, arbitration and award, assumption of risk, contributory negligence,
discharge in bankruptcy, duress, estoppel, failure of consideration, fraud, illegality,
injury by fellow servant, laches, license, payment, privilege, release, res judicata,
statute of frauds, statute of limitations and/or waiver, in defense of any claims,
demands or causes of action, known or unknown, arising at law, in equity or
otherwise, that have been or may be asserted by Maloof against them.
This argument is without merit. The settlement simply provides that the Debtors and Unsecured
Creditors Committee preserve their right to pursue all defenses they may have in the event Maloof
brings suit against them. Their reservation of certain preexisting rights and remedies in the
settlement agreement did not change the universe of potential legal possibilities for Maloof. Because
Maloof does not have a due process interest in his reputation to vindicate, Paul, 424 U.S. at 701;
Cutshall, 193 F.3d at 479, we affirm the bankruptcy court’s order approving the settlement.
E
The bankruptcy court ordered Maloof to turn over electronic media and print documents,
allegedly taken from Level’s server, pursuant to 11 U.S.C. § 542(e). Section 542(e) provides that,
“the court may order an attorney, accountant, or other person that holds recorded information,
including books, documents, records, and papers, relating to the debtor's property or financial affairs,
to turn over or disclose such recorded information to the trustee.” Maloof appealed.
Shortly after this ruling, the bankruptcy court dismissed Maloof’s motion to vacate the
Second Motion to Vacate (the subject of this discovery), holding that it lacked jurisdiction to revisit
an order that was being reviewed on appeal. Eight days after Maloof was required to turn over the
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Maloof v. Level Propane, Inc., et al.
tapes, he filed a motion for stay pending appeal. The Debtors filed a brief in opposition, and the
bankruptcy court denied the stay. At oral argument, counsel for the Debtors stated that the discovery
had never been turned over and that, because the underlying action had been dismissed and there was
no appeal, no further action had been taken to obtain the discovery. Both sides agree that this issue
is now moot, and therefore we need not consider it.
III
For all these reasons, we AFFIRM the bankruptcy court’s orders.
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