George C. Hanks Jr., United States District Judge.
This is a bankruptcy appeal. The appellant, Mark Duke ("Duke"), is the owner and managing member of the bankruptcy debtor, Duke Investments, Ltd. ("DIL").
Duke formed DIL to acquire and develop oil and gas properties. About 15 years after founding DIL, Duke began looking for a new banker for DIL and was referred to Amegy Bank, N.A. ("Amegy"). Amegy entered into a loan agreement with Duke, who signed for DIL as the borrower and for himself individually as guarantor. Simultaneously with the loan agreement, Duke signed a derivative trading agreement with Amegy.
The relationship soured, and Amegy eventually sued DIL and Duke in Texas state court and posted some of DIL's properties
DIL filed an application with the bankruptcy court to retain WP as special counsel under a contingent-fee arrangement to prosecute the adversary proceeding brought by Duke and DIL against Amegy (Dkt. 2 at p. 26). The proposed contingent-fee agreement was submitted to the bankruptcy court for approval and was signed by Duke individually; by Duke as managing member of DIL; and by WP (Dkt. 2 at pp. 40-41). The proposed agreement included the following paragraph:
Dkt. 2 at pp. 40-41.
The bankruptcy court modified the proposed contingent-fee agreement to include the condition that, if the only recovery by Duke and DIL in their battle against Amegy was a reduction in the amount they owed to Amegy, Duke alone—and explicitly not DIL—would pay WP's contingent fee and expenses:
Dkt. 2 at p. 50.
In other words, in the event that WP could claim a victory (and thus entitlement to a contingent fee) without actually bringing
The adversary proceeding in which WP represented Duke and DIL settled. See Southern District of Texas bankruptcy case number 10-36556 at Dkt. 206. The settlement required Amegy to amend its proof of claim to assert a secured claim in the amount of $4,000,000.00—a reduction in the secured claim of $1,259,958.43. See Southern District of Texas bankruptcy case number 10-36556 at Dkt. 199, pp. 3-4. Since the recovery to Duke and DIL took the form of a reduction in Amegy's secured claim, Duke—and Duke alone—owed WP a contingent fee of $503,983.37; and WP filed an application for allowance of compensation in that amount (Dkt. 2 at pp. 53-63). To make sure that it was absolutely clear who had to pay the fee, Amegy filed a "limited objection" to WP's application in which Amegy expressed no reservations about the amount of fees claimed by WP but "d[id] object to [WP's] fees and expenses being paid from the [bankruptcy] estate" because, "pursuant to the terms of the [bankruptcy court's retention order] only Mark Duke is liable for payment of the fee award and the estate is not be [sic] liable for payment." See Southern District of Texas bankruptcy case number 10-36556 at Dkt. 230, p. 2. There was no response to Amegy's objection, which was a correct reading of the retention order. The bankruptcy court signed a fee award order awarding a $503,983.37 "contingency fee per order" and $3,405.50 in expenses to WP; to address Amegy's concerns, the bankruptcy judge included a statement in the fee order that "[t]he Debtor-in-possession shall not be liable for the awarded compensation" (Dkt. 2 at p. 75). There was no objection to the fee order, and Duke did not appeal it.
DIL's bankruptcy continued for five more years. See Southern District of Texas bankruptcy case number 10-36556 at Dkt. 438. During that time, WP unsuccessfully attempted to get Duke to pay the contingent fee by filing a motion for a writ of garnishment and an adversary complaint alleging fraudulent transfer of assets. See Southern District of Texas bankruptcy case number 10-36556 at Dkt. 387 and Dkt. 403. After DIL's bankruptcy closed, WP filed a motion under Federal Rule of Civil Procedure 60(a) asking the bankruptcy court to reopen the bankruptcy and correct its order awarding the contingent fee and expenses to WP (Dkt. 2 at pp. 76-79). Specifically, WP asked the bankruptcy court to "correct the Fee Order...to include the direct liability of Mr. Duke for the fees and expenses awarded" (Dkt. 2 at p. 78). Duke opposed the motion, arguing that the requested correction would constitute an impermissible substantive change to the bankruptcy court's original fee order (Dkt. 2 at p. 87). In Duke's view, the bankruptcy court's original fee order only provided "that DIL was not liable for [WP's] fees[.] The [bankruptcy court] was
The bankruptcy judge understandably was quite unhappy with Duke's refusal to pay WP's fee. In light of the earlier proceedings, the judge was in utter disbelief that Duke could in good faith argue that the original fee order did not order him to pay WP. In response to a question from Duke's counsel about how WP's proposed correction targeted a clerical error, the bankruptcy judge said:
The bankruptcy judge reiterated the intent of the original fee order later in the hearing:
After the hearing, the bankruptcy court granted WP's Rule 60(a) request, entering an order in which it stated "that by oversight and clerical error the original fee order ... failed to recite the Court's clear intentions, including the express intentions of the parties that Mr. Duke be personally liable for the awarded fees and expenses" (Dkt. 2 at p. 102). The order clarified "that the amounts awarded are payable to [WP] solely by [Duke], and there shall be no claim against [DIL]" (Dkt. 2 at p. 102).
Duke appealed to this Court, challenging the bankruptcy court's Constitutional authority and jurisdiction to adjudicate the matter of whether he owed attorney's fees to WP. Duke also characterizes the bankruptcy court's corrective order as a "substantive change" to the original fee order that was not permissible under Rule 60(a) (Dkt. 4 at p. 22).
Federal district courts have jurisdiction to hear appeals from the "final judgments, orders, and decrees" of bankruptcy judges. 28 U.S.C. § 158(a). A bankruptcy court's order granting a final fee application is an appealable order. In re Delta Produce, L.P., 845 F.3d 609, 617-18 (5th Cir. 2016) (holding that the district court lacked jurisdiction over appeals from interim fee orders but had jurisdiction over appeal from final fee order). An appeal to a district court from the bankruptcy court "shall be taken in the same manner as appeals in civil proceedings generally are taken to the courts of appeals from the district courts[.]" 28 U.S.C. § 158(c)(2). This Court reviews the bankruptcy court's legal conclusions de novo but may only disregard a fact finding made by the bankruptcy court if that fact finding is clearly erroneous. In re Perry, 345 F.3d 303, 309 (5th Cir. 2003).
Although the parties' briefing goes on at length regarding a bankruptcy court's jurisdictional and Constitutional limitations, the Court emphasizes that this is an appeal from an order entered under Federal Rule of Civil Procedure 60(a), not an appeal from the bankruptcy court's original fee order. "A district court's entry of a corrected judgment under Rule 60(a) is itself an appealable order, but the scope of the appeal is limited to the court's disposition of the Rule 60(a) motion and does not bring up for review the underlying judgment." Rivera v. PNS Stores, Inc., 647 F.3d 188, 201 n. 55 (5th Cir. 2011) (quotation marks and brackets omitted). Thus, appealing a corrective order entered under Rule 60(a) does not extend the time to appeal the original underlying order:
Duke did not appeal the bankruptcy court's original order granting WP's final fee application, and the 14-day period to appeal that order has long since expired. See Fed. R. Bankr. P. 8002. Duke only appealed the bankruptcy court's corrective order. Accordingly, if the appealed-from order complied with Rule 60(a), this Court lacks jurisdiction to consider any of Duke's challenges to the bankruptcy court's Constitutional authority and jurisdiction to adjudicate the matter of whether he owed attorney's fees to WP. Sommers v. Bank of America, N.A., 835 F.3d 509, 511-12 & n. 2 (5th Cir. 2016) ("Because the notice of appeal was [untimely], we have no jurisdiction to review that order even though the appellant's objections go to the district court's jurisdiction."); see also Wellness International Network, Ltd. v. Sharif, ___ U.S. ___, 135 S.Ct. 1932, 1942-49, 191 L.Ed.2d 911 (2015) (holding that parties can impliedly consent to adjudication by a bankruptcy court) ("The entitlement to an Article III adjudicator is a personal right and thus ordinarily subject to waiver.") (citation and quotation marks omitted).
The bankruptcy court's corrective order states "that by oversight and clerical
Rule 60(a) allows a court to "correct a clerical mistake or a mistake arising from oversight or omission whenever one is found in a judgment, order, or other part of the record." Fed. R. Civ. P. 60(a). Courts can exercise their Rule 60(a) authority at any time, but Rule 60(a) "can only be used to make the judgment or record speak the truth and cannot be used to make it say something other than what originally was pronounced." Rivera, 647 F.3d at 194 (quotation marks omitted). Generally, the cases look to three largely overlapping criteria to determine whether a mistake can be corrected under Rule 60(a), those criteria being:
A court's decision to enter a corrected judgment or order under Rule 60(a) is reviewed for an abuse of discretion, but "the determination of whether it is Rule 60(a) that authorizes the correction—as opposed to Rule 59(e) or Rule 60(b)—is a question of law that [is reviewed] de novo." Id. at 193.
Here, the record is clear that the bankruptcy court intended to make Duke personally liable for WP's contingent fee and expenses when it entered the original fee order. DIL's application to employ WP as special counsel included a proposed contingent-fee agreement signed by Duke, DIL, and WP in which the final paragraph announced the parties' intention to submit the contingent-fee agreement to the bankruptcy court for approval and to submit any disputes relating to the contingent-fee agreement to the bankruptcy court for resolution:
Before approving the agreement, the bankruptcy court—without objection from any party—specifically altered it to protect the bankruptcy estate by including the condition that, if the only recovery by Duke and DIL against Amegy was a reduction in the amount they owed to Amegy, Duke alone would pay WP's contingent fee and expenses. The bankruptcy court included this condition in a formal retention order, again without objection. Moreover, when the only recovery by Duke and DIL against Amegy did in fact turn out to be a reduction in Amegy's secured claim, Amegy filed a limited objection to WP's final fee application to clarify that Duke, and not DIL's bankruptcy estate, would pay WP's contingent fee. To address Amegy's concerns, the bankruptcy judge included a statement in the fee order that "[t]he Debtor-in-possession shall not be liable for the awarded compensation." The "debtor-in-possession" language was unnecessary, but it further reinforced the only reasonable reading of the bankruptcy court's retention order and original fee order: Duke would pay WP's fee and expenses, and DIL would not pay them. In his comments at the hearing on WP's Rule 60(a) motion, the bankruptcy judge perhaps said it best:
The bankruptcy judge did not exceed his authority under Rule 60(a) when he entered the appealed-from corrective order, as the bankruptcy court, in entering the corrective order, neither "resolve[d] an issue of substantive law it had not previously reached" nor "modif[ied] its resolution of any of the issues it had reached." Rivera, 647 F.3d at 200. "Where the record makes it clear that an issue was actually litigated and decided but was incorrectly recorded in or inadvertently omitted from the judgment, the district court can correct the judgment under Rule 60(a), even where doing so materially changes the parties' positions and leaves one party to the judgment in a less advantageous position." Id. at 199. In its retention order, the bankruptcy court mandated that Duke guarantee WP's fee and expenses in the event that the only recovery by Duke and DIL in their adversary action against Amegy was a reduction in the amount they owed to Amegy—which, in the end, was exactly the recovery that Duke and DIL obtained. The retention order and the fee order required Duke to pay WP's fee and expenses; the failure of the bankruptcy court to expressly write "Duke must pay WP's fee and expenses" into the original fee order was, at most, the inadvertent omission of a determination that the record definitively shows the bankruptcy court to have already made. See, e.g., Chavez v. Balesh, 704 F.2d 774, 775-77 (5th Cir. 1983) (holding that a district court acted properly under Rule 60(a) in adding a liquidated damages award to a final judgment when the district court's accompanying findings of fact and conclusions of law included a finding that the plaintiff was entitled to liquidated damages).
In short, the bankruptcy court's corrective order was permissible under Rule 60(a). "The correction simply caused the [order] to accurately memorialize what the court had previously decided[,]" Rivera, 647 F.3d at 200—namely, that Duke would pay WP's fee and expenses. The bankruptcy court properly utilized Rule 60(a) and did not abuse its discretion. For the reasons given and under the authority cited in
The Court
