KATHARINE M. SAMSON, Bankruptcy Judge.
This matter came on for hearing on Friday, June 24, 2011, (the "Hearing") on the Emergency
The day before the Hearing, the Trustee filed a Witness List (Dkt. No. 31) and an Exhibit List (Dkt. No. 32). Equipment and Cahaba filed objections to these lists on the same day. (Dkt. Nos. 33 and 34). The Defendants argued that they had not been provided an adequate opportunity to prepare for the witnesses, rebut the testimony
On August 10, 2010, Equipment filed suit in the United States District Court for the Eastern District of Louisiana (the "Louisiana District Court") in New Orleans, Louisiana, asserting that Interstate Truck and Equipment, Inc. ("Interstate") (sometimes referred to in the Louisiana District Court pleadings as "Three Deuces")
Assuming Barge CGB-68017 was part of the estate and/or was sold at the CDP Auction, the Trustee filed this adversary proceeding,
Prior to filing bankruptcy, CDP was in the debris removal business. Its owner and operator was Calvin Wesley Parker ("Parker"). (Dkt. No. 5 at 3). The relationship of the parties to this action is as follows. Cahaba contracted CDP for certain projects. (Dkt. No. 27 at 4). Equipment is a wholly owned subsidiary of DRC Emergency Services ("DRC"), and DRC is frequently contracted by Cahaba for various projects Id. at 14.
On April 13, 2009, CDP filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. (Bankr. Dkt. No. 1). CDP's Chapter 11 case was converted to a Chapter 7 liquidation on July 23, 2009. (Bankr. Dkt. No. 115). As noted previously, Ms. Lentz is the Chapter 7 Trustee appointed to administer CDP's bankruptcy case.
The Trustee testified that her chief concern at the outset of her appointment was to locate all of the equipment in CDP's possession.
According to the Trustee, the barge depicted in the photograph labeled Trustee Exhibit 5 at the Hearing (the "T.E. 5 barge") was at the Rigolets location.
Shortly after her appointment, the Trustee was contacted by a number of parties regarding equipment in CDP's possession. Cahaba's counsel, McNamara, was one of the individuals who contacted the Trustee. In a letter addressed to the Trustee and counsel for CDP, dated July 30, 2009, McNamara stated:
(Trustee Ex. 1 at 1). The letter lists six specific pieces of equipment in CDP's possession that Cahaba claimed to own and one piece of equipment in CDP's possession that Equipment claimed to own, a 2006 Peterbuilt 379TM Tractor. See id. at 1-2. In the letter, McNamara expressed the need to coordinate retrieval of the equipment described therein as soon as possible.
In response to McNamara's representations, the Trustee testified that she worked with McNamara and representatives of Equipment and Cahaba to return the equipment/property noted in their communications. See also Trustee Ex. 2. However, according to the Trustee, neither McNamara nor his firm, Adams and
On August 21, 2009, the Trustee filed an application with the Court to employ Benny Taylor/Taylor Auction as an Appraiser/Auctioneer to assist her in liquidating CDP's bankruptcy estate. (Bankr. Dkt. No. 147). The Court approved the employment application on August 26, 2009. (Bankr. Dkt. No. 156).
The Trustee testified that after the representatives of Cahaba and Equipment retrieved the equipment/property to which they had laid claim from the Rigolets location, she traveled with Taylor and Parker to that location to begin to construct an official inventory of the remaining property in preparation for the upcoming CDP Auction. The Trustee stated that at the time of this follow-up visit, all eight barges that the Trustee had observed on her first visit to the Rigolets location were still there, including the T.E. 5 barge. Taylor similarly testified that when he entered the Rigolets location there were seven barges in the area immediately surrounding the T.E. 5 barge. Taylor stated that one of the seven surrounding barges was a spud barge that was dry docked—it was resting on a saw-horse like structure on dry land with the bottom cut out- and the remaining six barges were interlinked Poseidon barges.
In accord with Parker's and the Trustee's representations that the T.E. 5 barge belonged to CDP, Taylor testified that the T.E. 5 barge was photographed, measured and marked for sale at the CDP Auction. Specifically, Taylor testified that he took the picture admitted into evidence as Trustee Exhibit 5.
During the course of the Hearing, counsel for Equipment noted that the measurements used to describe the T.E. 5 barge in the CDP Auction brochure and the auction invoice issued to Henderson are different, and that both of these measurements differ from the measurements of Barge CGB-68017 as calculated by a marine survey. Specifically, the CDP Auction brochure described the eight barges in CDP's possession as follows:
(Equipment Ex. 1). In contrast, the auction invoice issued to Henderson described lot 572 as a "POSEIDON SPUD BARGE 24′ × 73′ × 8.′" (Equipment Ex. 2). Equipment's marine survey of Barge CGB-68017 states that Barge CGB-68017 is a spud barge measuring 68′ in length, 26′ in width and 7′ in depth. (Dkt. No. 27, Ex. N). The Trustee testified that she believed that the cited discrepancies in the auction materials were clerical errors and that the T.E. 5 barge and Barge CGB-68017 are the same vessel. Taylor similarly stated that despite the measurement discrepancies noted above he believed that the Louisiana action concerned the T.E. 5 barge and that he simply erred in the measurements he used to describe the T.E. 5 barge in the CDP Auction brochure
On August 25, 2009, the Trustee filed a motion seeking authorization to sell substantially all of CDP's assets free and clear of all liens, claims, interests and encumbrances pursuant to 11 U.S.C. §§ 105 and 363. (Bankr. Dkt. No. 151). On September 22, 2009, this Court entered an order granting authorization to the Trustee:
(Bankr. Dkt. No. 185) (referred to herein as the "sale order").
Taylor stated that leading up to the CDP Auction, qualified bidders had the opportunity to conduct an on-site inspection of the items for sale.
The CDP Auction was held on October 14th and 15th of 2009. On the first day of the auction, Taylor testified that the smaller items were liquidated. On the second day, Taylor convened approximately 400 potential bidders in a ballroom at a hotel to liquidate the larger items. Taylor facilitated the auction sales by narrating a PowerPoint presentation of his design. As he described each property and managed bidding, photographs of each piece of property were displayed on a large screen one at a time along with the corresponding lot
Taylor testified that sometime before the second day of the CDP Auction, Parker informed him that the T.E. 5 barge was misidentified in the marketing materials; specifically that it was incorrectly identified as a Poseidon barge. Taylor made notes in his presentation materials accordingly. Thus, on the second day of the auction, when the time came to sell lot 572, the photograph labeled Trustee Exhibit 5 was projected onto the screen in the ballroom and on the internet auction website and Taylor paused to notify the auction participants of the error. Taylor testified that he emphasized to the audience that lot 572 was a spud barge, not a Poseidon barge, and that descriptions stating otherwise in any document related to the CDP Auction were incorrect.
Taylor stated that he sold the barge depicted in Trustee Exhibit 5, which was designated lot 572, to Henderson. Equipment's representative at the CDP Auction placed an unsuccessful bid on the T.E. 5 barge, but successfully purchased the six Poseidon barges that were adjacent to the T.E. 5 barge at the Rigolets location. The Court also notes that it appears that Henderson purchased the last of the eight barges located at the Rigolets location, the previously mentioned dry-docked, spud barge.
Henderson's auction invoice described lot 572 as a "POSEIDON SPUD BARGE 24′ × 73′ × 8′" and states that this lot sold for $32,000. (Equipment Ex. 2). On cross-examination, Taylor stated that, given the time pressures, he did not correct Henderson's invoice to match the verbal corrections he made during the sale of lot 572, i.e., he did not remove the name Poseidon from the description of lot 572.
Taylor testified that after the auction, he saw Equipment pick up the six Poseidon barges from the Rigolets location. At that time, the T.E. 5 barge was still moored in the waterway next to the Poseidon barges.
On August 10, 2010, nearly ten months after Taylor sold the T.E. 5 barge at the CDP Auction, Equipment filed the Louisiana action seeking to regain possession of Barge CGB-68017, which it alleged it owned and which it alleged was wrongfully in the possession of Interstate. (Dkt. No. 1, Ex. A). On February 16, 2011, Interstate filed a third party demand in which it alleged that it purchased Barge CGB-68017 at an auction conducted by Henderson. Id., Ex. C. Interstate further alleged that Henderson purchased Barge CGB-68017 from the CDP Auction conducted by Taylor. Accordingly, Interstate averred that if it was not lawfully in possession of Barge CGB-68017, then Henderson and Taylor are liable to Interstate
On May 26, 2011, the Trustee filed the instant adversary case against Equipment and Cahaba. In this adversary, the Trustee seeks a declaratory judgment establishing that the Defendants have no interest in Barge CGB-68017 since it was sold free and clear of all interests by the order of this Court. The Trustee also requests that this Court, through its statutory and/or inherent powers, permanently stay and or enjoin the proceedings in the Louisiana District Court, hold the Defendants in civil contempt and impose sanctions on the Defendants. Finally, the Trustee seeks to extend the automatic stay of 11 U.S.C. § 362 to protect third-party, non-debtor Taylor Auction. (Dkt. No. 1).
On June 10, 2011, the Trustee filed the instant "Emergency Motion" seeking: (1) to preliminarily enjoin the Louisiana District Court from further adjudicating issues related to the Louisiana action and/or Barge CGB-68017, (2) to preliminarily enjoin the parties from further litigation in the Louisiana District Court regarding CGB-68017, and (3) a declaration that the automatic stay of 11 U.S.C. § 362 protects Taylor/Taylor Auctions. (Dkt. No. 5 at 13, 15-16).
As between the Defendants in the instant adversary matter, Equipment is the only entity that argues it presently owns Barge CGB-68017. Cahaba argues that it has no ownership interest in Barge CGB-68017 and joins Equipment in making the assertion that Equipment owns Barge CGB-68017. Cahaba avers that it was brought into this action due to a series of miscommunications with the Trustee and submits that it has no standing to offer substantive arguments in this matter.
Equipment asserts several arguments in response to the Trustee's Motion. First Equipment states that the description of the barge on Henderson's invoice from the CDP Auction does not accurately describe Barge CGB-68017. Specifically, Equipment notes that the auction invoice states that Henderson purchased a Poseidon barge, and that Barge CGB-68017 is not a Poseidon barge according to a marine survey of the vessel. (Dkt. No. 27, Ex. N). Furthermore, Equipment notes that the dimensions of the barge identified on Henderson's auction invoice as lot 572 do not match the measurements of Barge CGB-68017 that were obtained via the marine survey. Based on these observations, Equipment states, "there is no evidence that Barge CGB-68017 was sold to any party at the bankruptcy auction." (Dkt. No. 27 at 9).
Equipment also argues that if Barge CGB-68017 was somehow sold at the CDP Auction, the lack of advertisements accurately describing Barge CGB-68017 prior to the CDP Auction invoke Constitutional, Due Process concerns and negate the sale and any argument that Equipment implicitly consented to the sale vis-à-vis 11 U.S.C. § 363(f). See 11 U.S.C. § 363(f) (stating, in relevant part, that the trustee may only sell property free and clear of another entity's interest if that entity consents). Finally, Equipment urges that Barge CGB-68017 was never part of the CDP bankruptcy estate, and thus Barge
Equipment also attached a vehicle sign out sheet to its response which appears to show that an individual checked-out or signed-out Barge CGB-68017 from Equipment's
The cases are numerous which find that "[a] bankruptcy court always retains jurisdiction to review and interpret its own orders." Rodriguez v. EMC Mortgage Corp. (In re Rodriquez), 252 F.3d 435, 2001 WL 360713, at *2 (5th Cir.2001) (quoting In re Terracor, 86 B.R. 671, 677 (D.Utah 1988)); In re Cano, 410 B.R. 506, 546 (Bankr.S.D.Tex.2009) (quoting Travelers Indem. Co. v. Bailey, 557 U.S. 137, 129 S.Ct. 2195, 2205, 174 L.Ed.2d 99 (2009)). This continuing jurisdiction is core jurisdiction. In re Petrie Retail, Inc., 304 F.3d 223, 230-31 (2d Cir.2002) (core jurisdiction existed over dispute regarding interpretation of bankruptcy court's sale order); In
As noted above, in the instant Motion the Trustee requests: (1) that this Court preliminarily enjoin the Louisiana District Court from further adjudicating issues related to the Louisiana action and/or Barge CGB-68017, or (2) that this Court preliminarily enjoin the parties from further litigation in the Louisiana District Court regarding Barge CGB-68017 "pending transfer and referral of the [Louisiana action] to [this Court],"
This Court cannot envision a situation in which it would attempt to enjoin a federal district court; and the Trustee has not provided any persuasive authority for such an action. The Trustee argues that this Court has the authority to enjoin the Louisiana District Court from continuing to consider the suit concerning Barge CGB-68017 pursuant to its "Inherent General Equity Powers" as construed in the Fifth Circuit's decision in Wedgeworth v. Fibreboard Corp., 706 F.2d 541, 545 (5th Cir.1983). However, the Wedgeworth decision does not directly address the authority of the bankruptcy courts, but instead addresses the inherent, general, discretionary power of the federal district courts. More importantly, to the extent that Wedgeworth can be construed to apply to bankruptcy courts, its holding does little to address the substance of the Trustee's request.
The Trustee also suggests that this Court has authority under 11 U.S.C. § 105(a) to directly enjoin the Louisiana District Court. Section 105(a) of Title 11, utilizing well known, oft cited terminology, states:
11 U.S.C. § 105(a). The Fifth Circuit has cautioned bankruptcy courts that the power granted by 11 U.S.C. § 105(a) is not limitless. See Mirant Corp. v. Potomac Elec. Power Co. (In re Mirant Corp.), 378 F.3d 511, 523 (5th Cir.2004); Omni Mfg., Inc. v. Smith (In re Smith), 21 F.3d 660, 665 (5th Cir.1994); Southmark Corp. v. Grosz (In re Southmark Corp.), 49 F.3d 1111, 1116 (5th Cir.1995). While the Trustee has cited authorities that generally discuss the broad injunction power of the bankruptcy court under Section 105(a), she has not cited authority from within the Fifth Circuit that explicitly states, or more importantly demonstrates, that this Court has the authority to directly enjoin a federal district court.
In the absence of binding authority explicitly empowering this Court to directly enjoin an Article III court, this Court will not do so. For the reasons stated above, the Trustee's Motion is denied to the extent that it is requesting that this Court stay the Louisiana District Court.
The Trustee proposes that this Court enjoin the parties from further litigation before the Louisiana District Court under the same authorities discussed above, i.e., the Wedgeworth decision and 11 U.S.C. § 105(a).
The four prerequisites to the issuance of a preliminary injunction are: (a) a substantial likelihood that the movant will prevail on the merits; (b) a substantial threat that the movant will suffer irreparable injury if the injunction is not granted; (c) that the threatened injury to the movant outweighs the threatened harm an injunction may cause the party opposing the injunction; and (d) that the granting of the injunction will not disserve the public interest. See In re Zale Corp., 62 F.3d at 765 (citing In re Commonwealth Oil Ref. Co. v. U.S.E.P.A. (In re Commonwealth Oil Ref. Co.), 805 F.2d 1175, 1189 (5th Cir.1986)). It has been observed that:
In re The Babcock & Wilcox Co., No. Civ-A-00-3408, 2001 WL 536305, at *7 (E.D.La. May 18, 2001); see also Productos Carnic, S.A. v. Central Am. Beef & Seafood Trading, Co., 621 F.2d 683, 686 (5th Cir.1980) ("Where the other factors are strong, a showing of some likelihood of success on the merits will justify temporary injunctive relief.").
The eventual success or failure of the Trustee's various prayers for relief in this adversary proceeding all hinge on one core determination: whether the T.E. 5 barge, i.e., the barge that was marked as lot 572 and was sold to Henderson at the CDP Auction, is the same vessel as Barge CGB-68017, the vessel at issue in the Louisiana action. The Trustee avers that barge she sold is the barge at issue in the Louisiana action. This Court will consider whether, at this preliminary stage of the proceedings, the record establishes that the Trustee is substantially likely to succeed in proving this allegation.
To demonstrate a likelihood of success on the merits, the Trustee is not required to present sufficient evidence to "prove [her] entitlement to summary judgment." Janvey v. Alguire, 628 F.3d 164, 175 (5th Cir.2010). The Trustee must present a prima facie case, but "need not show that [she] is certain to win." Id.
Equipment has produced a "Sign Out Sheet" (Dkt. No. 27, Ex. H) that indicates that Barge CGB-68017 was checked-out from Equipment's inventory on November 30, 2006, to CDP. The space on this form designed to document the return of the barge is blank, indicating that Barge CGB-68017 had not been returned and was in CDP's possession when CDP filed bankruptcy on April 13, 2009. The documents filed in the Louisiana District Court establish that Barge CGB-68017 was in the possession of Interstate when the Louisiana action was filed on August 10, 2010. (Dkt. No. 1, Ex. A); (La. Dkt. Nos. 1, 4, 9 and 13)
The Court takes special notice of the fact that Interstate believes that Barge CGB-68017 came to it through Henderson and Taylor by way of the CDP Auction. Accordingly, Interstate has filed a third party complaint against Henderson and Taylor.
The evidence before this Court indicates that CDP had only eight barges in its possession by the time the final inventory for the CDP Auction was compiled. Considering the Equipment sign out form discussed above and the testimony at the Hearing, Barge CGB-68017 was likely among them. According to Taylor's testimony, of the eight barges in CDP's possession at the time of the CDP Auction, the six interlinked Poseidon barges were sold to Equipment. The remaining two barges were sold to Henderson. (Dkt. No. 27, Ex. K).
The measurements on Henderson's auction invoice for the T.E. 5 barge, i.e., lot 572, are not that different from the measurements of Barge CGB-68017 in the marine survey submitted by Equipment. The auction invoice notes that the T.E. 5 barge measured 24′ × 73′ × 8′. (Equipment Ex. 2). Equipment's marine survey states that Barge CGB-68017 measures 68′ in length,
Furthermore, the chances that Henderson accidentally took possession of a barge other than the T.E. 5 barge are, by this Court's estimation, very low. Taylor testified that he wrote the CDP Auction lot number, 572, on the T.E. 5 barge with yellow crayon large enough for easy viewing, and that all the other barges sold were marked in a similar manner with their respective lot numbers. Taylor also testified that there were no other spud barges in the waterway where the T.E. 5 barge was moored,
Certainly, as these proceedings move forward, the Court will expect further evidence to be introduced to verify the chain of title alleged by the Trustee, i.e., that the T.E. 5 barge was the barge Henderson took possession of through the bankruptcy auction and sold to Interstate, and that this same barge was the vessel that, most recently, was seized from Interstate via the Louisiana action. Similar to the Louisiana District Court, this Court believes that discovery from Henderson is critical in this regard. (La. Dkt. No. 50). However, in the Court's view, there is more than enough evidence currently in the record in this proceeding to justify a preliminary finding that the T.E. 5 barge and Barge CGB-68107 are one and the same.
Given the finding above, the Louisiana action appears to be a collateral attack
Celotex Corp. v. Edwards, 514 U.S. 300, 313, 115 S.Ct. 1493, 1501, 131 L.Ed.2d 403 (1995); see also Heck v. Humphrey, 512 U.S. 477, 490 n. 10, 114 S.Ct. 2364, 2374, 129 L.Ed.2d 383 (1994) (acknowledging that "the principle barring collateral attacks" is "a longstanding and deeply rooted feature of both the common law and [the Supreme Court's] own jurisprudence"). Accordingly, the Court finds there is a substantial likelihood that the Trustee will succeed in establishing that the T.E. 5 barge and Barge CGB-68107 are the same barge.
In regard to irreparable injury, there are several concerns in this case. First, if Equipment is allowed to continue to litigate the merits of the Louisiana action, the long-standing judicial policy prohibiting collateral attacks will be violated, seriously undercutting the orderly process of law. See Celotex Corp., 514 U.S. at 313, 115 S.Ct. at 1501; Henkel v. Lickman (In re Lickman), 286 B.R. 821, 829-30 (Bankr. M.D.Fla.2002) (collateral attack on the bankruptcy court's jurisdiction and orders in the courts of another jurisdiction, if allowed to continue, would result in irreparable harm to the bankruptcy policy of the United States).
Second, decisions rendered in the Louisiana action could limit this Court's review of its own sale order. See Altman v. Davis & Dingle Family Dentistry (In re EZ Pay Services, Inc.), 389 B.R. 751, 759-60 (Bankr.M.D.Fla.2007) (finding potential collateral estoppel effect of parallel state court action on Trustee suit amounted to a showing of irreparable injury meriting an injunction). Additionally, the Louisiana action contravenes the statutory and judicial policy favoring the finality of judgments approving sales in bankruptcy, and as such threatens to generally decrease the value of the assets sold in bankruptcy. See Tucker v. First Commercial Bank NA, No. 99-40208, 2000 WL 122408, at *2 (5th Cir. Jan. 4, 2000). Potential buyers will likely discount the value assigned to assets purchased at bankruptcy sales if they believe they will be susceptible to suit in a foreign jurisdiction long after the sale has occurred.
Finally, this case could set a dangerous precedent for bankruptcy trustees. If this Court's sale orders are allowed to be challenged in foreign jurisdictions, the trustees may be compelled to defend against such claims and, consequently, it will be far more difficult and expensive for the trustees to administer bankruptcy cases. See Beck v. Fort James Corp. (In re Crown Vantage, Inc.), 421 F.3d 963, 974-75 (9th Cir.2005); In re Linton, 136 F.3d 544, 545 (7th Cir.1998); In re Lickman, 286 B.R. at 830. Considering the critical policy considerations at stake in this case, the Court finds that there is a threat of irreparable
Equipment will not suffer harm if a preliminary injunction is entered prohibiting Equipment from prosecuting its claim in the Louisiana action for a limited period of time. Such an injunction does not impact the motion for summary judgment that is currently under advisement in the Louisiana District Court nor does it foreclose Equipment from bringing its arguments before this Court in the context of the present adversary proceeding. Additionally, insofar as Equipment's actions constitute a collateral attack of this Court's sale order, Equipment cannot claim it has been harmed by "a prohibition from doing that which [it] is not permitted to do in the first place." Henkel v. Lickman, 286 B.R. 821, 831 (M.D.Fla.2002).
This element requires a balancing of public interest with other competing social interests. Id. As set forth above, the policies underlying an orderly and effective judicial system would be well served by a preliminary injunction, and these interests outweigh any competing concerns in this case.
The Court has been unable to find a case in which the Fifth Circuit has addressed the issue of "unusual circumstances" in the context of an injunction related to a collateral attack on an order of a bankruptcy court. However, other
In re G.S.F. Corp., 938 F.2d 1467, 1475 (1st Cir.1991) (citations omitted); accord Central West Virginia Energy Co. v. Wheeling-Pittsburgh Steel Corp., No. 06-3906, 2007 WL 1675004, at *11 (6th Cir. June 11, 2007) (recognizing bankruptcy courts have the jurisdiction and power under case law and 11 U.S.C. § 105(a) to issue injunctions as may be necessary or appropriate to effectuate or prevent the frustration of orders that they have previously issued).
As explained in the analysis of the preliminary injunction standards, the Louisiana action appears to be a collateral attack of this Court's sale order. As such, the collateral attack constitutes an "unusual circumstance" warranting an injunction in this case.
Having considered all of the required factors, this Court finds that a preliminary injunction should issue to stay Equipment from prosecution of the Louisiana action for a period of twenty-one days from the date of this order to allow the Trustee time to file such motion(s) in the Louisiana action as the Trustee deems appropriate or necessary in light of this opinion.
In the Motion, the Trustee argues that this Court may "invoke and extend" the stay imposed under 11 U.S.C. § 362 to prohibit the Louisiana action insofar as Taylor is concerned. (Dkt. No. 5 at 13-14). In support of this proposition, the Trustee cites two Fifth Circuit cases. See Reliant Energy Servs., Inc. v. Enron Canada Corp., 349 F.3d 816, 825 (5th Cir. 2003); Arnold v. Garlock, Inc., 278 F.3d 426, 435-36 (5th Cir.2001).
Reliant Energy Servs., Inc., 349 F.3d at 825 (internal quotations omitted) (in part, quoting A.H. Robins Co., Inc. v. Piccinin, 788 F.2d 994, 999 (4th Cir.1986)); see also Arnold, 278 F.3d at 436 (similarly stating that as an exception to the general rule, a
The Trustee notes that she executed an agreement with Taylor under which she agreed to:
(Dkt. No. 5 at 14) (citing Bankr. Dkt. No. 156). Furthermore, the Trustee has received a formal demand to indemnify Taylor/Taylor Auction for any costs and/or damages incurred through the Louisiana action. (Dkt. No. 1, Ex. D). Considering these facts and the case law cited above, the Trustee argues that "[t]he contractual obligation of the Trustee to provide absolute indemnity to Taylor Auction is a formal tie between the Debtor and [Taylor Auction] . . . and an identity of interest sufficient to extend the automatic stay provision of § 362 to Taylor Auction." (Dkt. No. 5 at 15).
The "automatic stay" of Section 362 has several distinct sub-parts. See 11 U.S.C. § 362(a)(1)-(8). Thus, the Court has considered which of these sub-parts are extended under the Reliant and Arnold decisions. While these opinions do not explicitly answer this question, the Court notes the Reliant and Arnold adopted the pertinent stay extension policy from the Fourth Circuit's A.H. Robins Co. decision. In fact, the Fifth Circuit referred to the subject extension of the 362 stay as the "A.H. Robins Co.'s exception." Reliant Energy Servs., Inc., 349 F.3d at 825. The specific sub-part of Section 362 addressed in the A.H. Robins Co. decision is 11 U.S.C. § 362(a)(1). See A.H. Robins Co., Inc., 788 F.2d at 998-999.
In full, Section 362(a)(1) provides that, subject to certain exceptions, the filing of a bankruptcy petition operates as a stay, applicable to all entities, of:
11 U.S.C. § 362(a)(1) (emphasis added). Under the plain terms of this provision, the Section 362(a)(1) stay does not apply to lawsuits arising out of post-petition activity. Accordingly, the suit brought by Interstate against Taylor, arising out of post-petition activity, i.e., the CDP Auction, is not stayed by Section 362(a)(1), or any judicial extension of that particular statutory provision.
However, the Court notes that the claim against Taylor in the Louisiana action may invoke issues regarding subject matter jurisdiction under the Barton doctrine. See Barton v. Barbour, 104 U.S. 126, 26 L.Ed. 672 (1881). Under this doctrine, "a court appointed trustee cannot be sued for actions taken in the trustee's official capacity unless leave is first obtained from the court that appointed the trustee." In re WRT Energy Corp., 402 B.R. 717, 721-22 (Bankr.W.D.La.2007) (setting out the history of the Barton doctrine and its applicability to bankruptcy trustees). Courts have held that this doctrine applies to suits against auctioneers and lawyers appointed by the trustee and approved by the court to represent the estate, reasoning that when these auctioneers and lawyers act at the direction of the trustee for
As was noted at the outset of this opinion, at the conclusion of the Hearing, the Court asked counsel for Equipment and Cahaba to specifically identify any exhibits that they needed additional time to review. Equipment identified Trustee Exhibits 2, 6 and 7; Cahaba did not independently identify any exhibits. The Court granted Equipment and Cahaba until 5:00 p.m. on Monday, June 27, 2011, to review Trustee Exhibits 2, 6 and 7 and file any necessary evidentiary objections. Subsequently, Equipment filed objections to Trustee Exhibits 2 and 7, but withdrew its objection as to Trustee Exhibit 6 (Dkt. No. 38); Cahaba joined Equipment in these actions (Dkt. No. 41). The Trustee filed a response to Equipment's and Cahaba's objections (Dkt. No. 43). The Court will analyze the Defendants' objections below.
Trustee Exhibit 2 consists of 30 pages of email communications between the Trustee, McNamara, Hunter Fuzzell ("Fuzzell"), David Eblen ("Eblen") and Jeff Tyree, counsel for CDP, regarding the identification of equipment that was in CDP's possession that Cahaba or Equipment owned and the efforts of these individuals to coordinate the retrieval of said items from CDP's possession on behalf of the alleged owners. The emails supplemented the testimony provided by the Trustee in open court.
The Defendants object to the admission of Trustee Exhibit 2, arguing that this exhibit is irrelevant and that this exhibit constitutes inadmissible hearsay. In regard to the hearsay objection, the Defendants specifically argue that:
(Dkt. No. 38 at 2).
In response, the Trustee asserts that the emails from McNamara, Fuzzell and Eblen are admissible under the exception to the hearsay rule for admissions of a party opponent. See Fed.R.Evid. 801(d)(2). More specifically, the Trustee argues that these individuals were agents for Equipment and/or Cahaba, and that these emails concerned a matter within the scope of that agency. Indeed, the emails from McNamara indicate he is acting on behalf of Cahaba and Equipment. Furthermore, the emails from Fuzzell and Eblen are sent from "cahabadisaster.com" email accounts. Emails from Fuzzell also include a series of signature lines which highlight his title, "Chief Operating Officer Cahaba Disaster Recovery, LLC." (Trustee Ex. 2). At least one email from Eblen includes a signature line which states: "Cahaba Disaster Recovery, LLC." Id. Moreover, the Trustee asserts that the emails are admissible as relevant evidence for several reasons, for instance, the emails demonstrate that the Trustee actively attempted to assist the Defendants in ascertaining what assets they needed to retrieve from CDP's
The Court agrees with the Trustee both in regard to the question of relevancy and the applicability of the exception to the hearsay rule for admissions of a party opponent in regard to the emails from McNamara, Fuzell and Eblen. See Fed. R.Evid. 801(d)(2). Furthermore, Equipment's specific hearsay objection must be rejected. The Fifth Circuit has observed, "[t]estimony offered to prove that the party had knowledge or notice is not hearsay." Morrison v. Western Builders of Amarillo, Inc. (In re Morrison), 555 F.3d 473, 483 (5th Cir.2009); see also Alaniz v. Zamora-Quezada, 591 F.3d 761, 776 n. 39 (5th Cir.2009) ("testimony . . . not hearsay because it was offered to prove that the employer was on notice rather than for the truth of the matter asserted"); U.S. Bank Nat. Ass'n v. Ables & Hall Builders, 696 F.Supp.2d 428, 436 n. 6 (S.D.N.Y.2010) (emails were admissible because they were admitted to show that the sender did in fact send emails regarding a topic rather than to establish the truth of the matters asserted within the emails); Fed.R.Evid. 801(c). Accordingly, the Defendants' objections to Trustee Exhibit 2 are overruled.
Trustee Exhibit 7 consists of a four-page document entitled "CDP, Inc. Transactions by Account." The first page of this exhibit notes that CDP has a book basis of $125,000 in a "Steel Spud [Barge] `CGB-68017.'" The Defendants argue that the document is unsigned, unauthenticated and inadmissible under the hearsay rule. The Trustee argues that the business record exception to the hearsay rule applies. See Fed.R.Evid. 803(6). She also argues that her testimony was sufficient to authenticate the document. Finally, the Trustee argues that Trustee Exhibit 7 was submitted not to establish the truth of the matter asserted in the document, i.e., that CDP in fact had paid $125,000 for Barge CGB-68017, but rather to prove that the Debtor believed that it owned Barge CGB-68017, whether rightly or wrongly, and thus this exhibit is not hearsay.
During the Hearing, the Trustee described Trustee Exhibit 7 as a quick book listing of CDP's assets as of the date of CDP's conversion from Chapter 11 to Chapter 7. The Trustee recalled that in CDP's Chapter 11 proceedings there had been an issue regarding CDP's broad, general descriptions of its assets in its Chapter 11 Schedules, and, in response, CDP's accountant had prepared Trustee Exhibit 7 for the conversion hearing. (Bankr. Dkt. Nos 115 and 118). The exhibit is dated June 22, 2009, the day of the conversion hearing. According to the Trustee, this exhibit was tendered to the Trustee after her appointment.
The Court finds that the Trustee's testimony is sufficient to authenticate Trustee Exhibit 7. See Jack B. Weinstein & Margaret A. Berger, Weinstein's Federal Evidence Manual § 8.01[2] (Matthew Bender & Co./LexisNexis 2010) ("[e]xhibits may be authenticated by the testimony of witnesses with knowledge that they are what the proffering party claims them to be"). The Court also finds that Trustee Exhibit 7 is not hearsay because it has been submitted only to establish that CDP believed it owned Barge CGB-68017 at the time of conversion, rather than to establish that CDP in fact owned Barge CGB-68017. See Business Elecs. Corp. v. Sharp Elecs. Corp., 780 F.2d 1212, 1219 (5th Cir.1986) (finding evidence was not hearsay because it was not offered to prove the truth of the statements in the documents but rather to
In accord with the analysis above;
(Trustee Ex. 2 at 6). Another email from McNamara to the Trustee, dated August 14, 2009, further confirms that McNamara's firm had been "retained by both Cahaba and Equipment Leasing to retrieve their collateral." (Trustee Ex. 2 at 18).
(Equipment Ex. 1 at 1). Taylor testified that this is a standard provision that he places in all of his advertisements, and that most auctioneers employ this same form of disclaimer in their advertisements.
Id. (in part, quoting 2 Collier on Bankruptcy ¶ 362.05 (15th ed. 1982)). After making this broad statement, the Johns-Manville court proceeded to stay certain actions in various courts that hindered the Chapter 11 bankruptcy reorganization proceeding that was pending before it. The Court does not find Johns-Manville persuasive in this case.
(Bankr. Dkt. No. 156). Considering the terms of the above-quoted agreement and the third-party claim asserted against Taylor in the Louisiana action, Taylor tendered a letter to the Trustee on May 18, 2011, formally demanding that the Trustee indemnify Taylor for damages and/or expenses arising out of the Louisiana action. (Dkt. No. 1, Ex. D). As a result, the Trustee is currently incurring liability for litigation costs associated with the Louisiana action which, without more, will be passed on to CDP's bankruptcy estate. See generally 11 U.S.C. §§ 327, 328 and 330; accord Schechter v. Illinois (In re Markos Gurnee P'ship), 182 B.R. 211, 215 (Bankr.N.D.Ill. 1995) (explaining that generally when a litigious demand is made against the Trustee in her official capacity the trustee is not personally liable and any judgment against her is payable only out of the estate). Thus, the Louisiana action will have an ever-increasing, negative impact on CDP's liquidation proceeding since CDP's creditors will receive fewer assets to address CDP's outstanding debts. Courts have found injunctions against actions brought against third parties may be merited when the actions threaten to impact the bankruptcy case/estate via an indemnification agreement. See In re FairPoint Commc'ns, Inc., No. 11-Civ.-946-CM, 2011 WL 1533178, at *7-8 (slip copy) (citing In re El Paso Refinery, LP, 302 F.3d 343, 349 (5th Cir.2002)) (noting that Fifth Circuit found bankruptcy court had jurisdiction to enjoin third party litigation that would set off a chain of indemnification provisions leading directly to the debtor and independently finding that a bankruptcy court has jurisdiction to issue an injunction against third party litigation when the bankruptcy estate may be obligated to indemnify party to that litigation); In re G.S.F. Corp., 938 F.2d 1467, 1475 (1st Cir.1991) (citing In re A.H. Robins Co., 880 F.2d 694, 701 (4th Cir. 1989)) (third party actions may be enjoined where they would affect the bankruptcy in one way or another such as by way of indemnity or contribution).
