GUY R. HUMPHREY, Bankruptcy Judge.
Bankruptcy Appellate Panel Judge. Appellants were shareholders and directors of the corporate debtor prior to its liquidation. They filed an adversary complaint alleging malpractice against the Debtor's bankruptcy attorneys. On September 20, 2012, the bankruptcy court granted the Defendants' and Trustee's motions to dismiss the adversary proceeding. The bankruptcy court held that Appellants did not have standing to bring the complaint. Additionally, the bankruptcy court found that the complaint was barred by res judicata. Appellants did not appeal the bankruptcy court's decision. One year later, they filed a motion for relief from judgment pursuant to Federal Rule of Bankruptcy Procedure 9024, which incorporates Federal Rule of Civil Procedure 60(b). Appellants asserted grounds under the following subsections: (1) mistake, surprise or excusable neglect; (2) newly discovered evidence; (3) fraud; and (6) any other reason that justifies relief. The bankruptcy court denied the motion for relief from judgment finding that Appellants still did not have standing, and further, were bound by the bankruptcy court's previous order holding that they did not have standing. Appellants filed this timely appeal. For the reasons stated below, the bankruptcy court's order is affirmed.
Appellants raised several issues on appeal. However, Appellants' lack of standing is dispositive. Accordingly, the Panel declines to address the remainder of the issues.
Under 28 U.S.C. § 158(a)(1), this Panel has jurisdiction to hear appeals "from final judgments, orders, and decrees" issued by the bankruptcy court. For purposes of appeal, an order is final if it "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S.Ct. 1494, 1497, 103 L.Ed.2d 879 (1989) (quotation marks and citation omitted). "An order denying a motion for relief pursuant to Federal Rule of Civil Procedure 60(b) is a final order." In re Calloway, 11-8059, 2012 WL 1003559, at *1 (6th Cir. BAP Mar. 27, 2012) (citing Slutsky v. Am. Express Travel Related Servs. Co. (In re William Cargile Contractor,
In re Calloway, 11-8059, 2012 WL 1003559, at *1 (6th Cir. BAP Mar. 27, 2012). Jurisdictional questions are reviewed de novo. Kahn v. Regions Bank (In re Khan), 544 Fed.Appx. 617, 619 (6th Cir.2013), cert. denied ___ U.S. ___, 134 S.Ct. 1545, 188 L.Ed.2d 558 (2014). "Standing is a jurisdictional requirement and we are under a continuing obligation to verify our jurisdiction over a particular case." Id. (quoting Harker v. Troutman (In re Troutman Enters., Inc.), 286 F.3d 359, 364 (6th Cir.2002)).
Schwab Industries, Inc. filed a chapter 11 bankruptcy petition on February 28, 2010. The filing had been authorized by the board of directors, including David Schwab, Jerry Schwab and Donna Schwab ("Appellants"). Hahn Loeser & Parks, LLP ("HLP") was appointed as bankruptcy counsel.
On May 10, 2012, Appellants filed an adversary proceeding against Attorney Lawrence Oscar and HLP (together "Appellees") asserting a malpractice claim arising from an allegedly undisclosed conflict of interest with Bank of America. The bankruptcy court dismissed the adversary proceeding on September 20, 2012, holding that (1) Appellants lacked standing to bring the claim directly or derivatively on behalf of Debtors, and (2) the claim was barred by res judicata. Mem. Op. at 8-13, Schwab v. Oscar, No. 12-6035 (Bankr. N.D.Ohio Sept. 20, 2012), ECF No. 41. Appellants did not appeal this final order.
On September 20, 2013, one year after the dismissal, Appellants filed a motion seeking relief from the dismissal order pursuant to Rule 60(b). Appellants sought to reopen the adversary proceeding on the basis of asserted newly discovered evidence that Appellees had failed to disclose a conflict with Huntington National Bank and sought to amend the complaint to add allegations concerning this new evidence.
On January 22, 2014, the bankruptcy court denied the motion for relief from judgment. The bankruptcy court determined that Appellants had not challenged the court's prior ruling that they lacked standing. In an attempt to address the standing issue, Appellants' motion for relief asserted that if the case was reopened they would either persuade the Trustee to bring the claim or obtain an assignment of the claim. However, the bankruptcy court noted that Appellants had done neither of those things. The bankruptcy court held that Appellants were bound by the order holding that they did not have standing.
Appellants timely filed an appeal of the order denying their motion for relief from the judgment.
Rule 60(b) permits a bankruptcy court to grant relief from a final judgment for any of the following reasons:
Fed.R.Civ.P. 60(b).
Appellants allege that the newly discovered evidence relating to HLP's conflict of interest with Huntington provided a basis for the bankruptcy court's vacating of its dismissal of the adversary proceeding. However, even if there was newly discovered evidence of such a conflict, that discovery does not serve as a basis for vacating the dismissal order due to the Appellants' lack of standing.
In their motion for relief from judgment, Appellants did not challenge the bankruptcy court's previous ruling that they lacked standing. In fact, Appellants seem to concede that they do not have standing to bring the underlying claims by asserting that they will either convince the Trustee to bring the claims or obtain an assignment of the claims. The bankruptcy court ruled that Appellants did not have standing to bring the underlying claim and did nothing to cure their lack of standing prior to bringing their motion for relief from judgment.
On appeal, Appellants attempt to challenge the bankruptcy court's September 20, 2012 holding that they do not have standing to bring the malpractice claims. In their brief, Appellants begin their argument with the assertion that "[t]he bankruptcy court erred as a matter of law when it held that Appellants did not have standing to pursue the claims asserted in their Amended Complaint filed in the adversary proceeding." Br. of Appellants at 18, Apr. 30, 2014, ECF No. 15. Appellees argue that Appellants are bound by the bankruptcy court's September 20, 2012 order, which Appellants did not appeal. Appellees are correct.
"The law-of-the-case doctrine bars challenges to a decision made at a previous stage of litigation which could have been challenged in a prior appeal, but were not." JGR, Inc. v. Thomasville Furniture Indus., Inc., 505 Fed.Appx. 430, 435 (6th Cir.2012) (quotation marks and citation omitted). The Sixth Circuit has unambiguously stated "[a] Rule 60(b) motion is
In the September 20, 2012 opinion dismissing the adversary complaint, the bankruptcy court clearly held that Appellants did not have standing to bring the underlying claims. Mem. Op. at 8-13, Schwab v. Oscar, No. 12-6035 (Bankr.N.D.Ohio Sept. 20, 2012), ECF No. 41. Specifically, the bankruptcy court held that only the representative of the bankruptcy estate or its successor had standing to bring a malpractice claim against Appellees absent a showing of shareholder derivative standing or assignment of the claims. The bankruptcy court further held that Appellants did not establish derivative standing nor did they obtain an assignment of claims. Id. at 10.
The order dismissing the complaint because Appellants lacked standing was a final, appealable order. Hamilton v. Appolon (In re Hamilton), 399 B.R. 717, 720 (1st Cir. BAP 2009) ("An order dismissing an adversary proceeding is a final order as it ends the litigation on the merits of the complaint."). Appellants should have filed an appeal if they wished to challenge the bankruptcy court's decision that they lacked standing to bring the malpractice claims. Accordingly, they are bound by the bankruptcy court's decision that they lacked standing under the law of the case doctrine. They may not raise any issues regarding the prior order in this appeal.
In the motion for relief from judgment, Appellants attempted to address the standing defect asserting: "[I]t is [Appellants'] intention to either obtain commitment from the Creditor/Trustee to pursue the malpractice claims against [Appellees and others], or, in the alternative, obtain an assignment of those rights[.]" Mot. For Relief from Judgment at 32, Schwab v. Oscar, No. 12-6035, (Bankr.N.D.Ohio, Sept. 20, 2013), ECF No. 47. The bankruptcy court noted that neither of these assertions had come to fruition. Mem. Op. at 3, Schwab v. Oscar, No. 12-6035 (Bankr. N.D.Ohio Jan. 22, 2014), ECF No. 75.
In this appeal, Appellants are attempting to use a Rule 60(b) motion to re-litigate the issue of their standing to bring the underlying claims when they should have filed a timely appeal if they wished to challenge that ruling. Marbly v. City of Southfield, 2001 U.S.App. LEXIS 18599, at *6 (6th Cir. Aug. 13, 2001) (Rule 60(b) may not be employed to re-litigate issues previously decided); Hopper v. Euclid Manor Nursing Home, Inc., 867 F.2d 291,
Because Appellants lack standing to be a party in the underlying complaint, they lack standing to bring a motion for relief from judgment. "The plain language of Rule 60(b) only allows relief to be given to `a party' to the litigation." Bridgeport Music, Inc. v. Smith, 714 F.3d 932, 940 (6th Cir.2013) (citations omitted). The bankruptcy court correctly determined that Appellants' motion for relief from judgment should be denied due to the preclusive effect of its prior ruling determining that the Appellants' lacked standing to pursue the adversary proceeding.
For the reason stated, the order of the bankruptcy court denying the motion for relief from judgment is AFFIRMED.