Restructuring

It is spring and the stands will soon ring with the oft-heard refrain, the clarion call of players and fans alike, “Hey ump, read the rules!”  In Rosenberg v. DVI Receivables XIV, LLC, the Eleventh Circuit Court of Appeals recently issued a similar admonition, holding that the district court was required to apply the filing deadline found in the Bankruptcy Rules, not the deadline found in the Federal Rules of Civil Procedure, to the defendants’ FRCP 50(b) motion for judgment as a matter of law after a jury trial. 
Rosenberg v. DVI Receivables XIV, LLC, involved a complex procedural and factual history.  In November 2008, the defendants filed an involuntary chapter 7 bankruptcy petition against Maury Rosenberg to collect on an individual limited guarantee Rosenberg made for equipment leases in connection with his chain of medical imaging centers.  In August 2009, the bankruptcy court granted Rosenberg’s motion to dismiss the involuntary petition, and in December 2010, Rosenberg filed an adversary complaint against the defendants under section 303(i) of the Bankruptcy Code to recover, among other things, attorney’s fees and costs incurred while defending the involuntary petition and compensatory and punitive damages caused by the defendants’ bad faith filing of the involuntary petition.  The defendants did not consent to a jury trial in the bankruptcy court and moved to withdraw the reference to the district court.  The district court withdrew the reference as to the claims for compensatory and punitive damages, leaving the attorney’s fees claims with the bankruptcy court, and tried the claims to a jury.  The jury awarded compensatory and punitive damages to Rosenberg, and the district court entered a final order on March 14, 2013.  The defendants moved for judgment as a matter of law on April 11, 2013, 28 days later.  Rosenberg moved to strike the motion as untimely.
The central issue before the district court was whether the deadline in the Bankruptcy Rules or the Federal Rules applied to the defendants’ motion.  Under FRCP 50(d), a motion for judgment as a matter of law is timely if it is filed within 28 days after the entry of a judgment.  Bankruptcy Rule 9015(c) provides a 14-day deadline to file such a motion.  The district court denied the motion to strike, found that the Federal Rules applied to the defendants’ motion, and granted the defendants’ motion on the merits.  Rosenberg appealed, arguing, among other things, that because the FRCP 50(b) motion was untimely under the Bankruptcy Rules, the district court should not have considered the merits of the motion for judgment on the pleadings.
The Eleventh Circuit focused its analysis on the plain language of the rules.  The court first considered Bankruptcy Rule 1001, which unambiguously provides that the Bankruptcy Rules apply to all proceedings arising under title 11.  Noting that there was no dispute that the adversary proceeding arose under chapter 11, the court then addressed FRCP 81(a)(2), which provides that the Federal Rules of Civil Procedure apply to bankruptcy proceedings only to the extent provided by the Bankruptcy Rules.  Applying the plain language of the rules, the Eleventh Circuit found that it must read FRCP 50 through the lens of the Bankruptcy Rules with all the limitations that apply.  In ruling that the 14-day deadline of the Bankruptcy Rules applied to the defendants’ FRCP 50(b) motion, the Eleventh Circuit noted that its holding was consistent with how its sister circuits have addressed which set of rules to apply in similar circumstance, citing In re Celotex Corp., and Diamond Mortg. Corp. v. Sugar.  The court found the defendant’s citation of Stephenson v. Malloy inapposite.  In Stephenson, the Sixth Circuit applied the 28-day filing deadline found in the Federal Rules and not the 14-day deadline found in the Bankruptcy Rules to a motion for reconsideration under FRCP 59.  The Eleventh Circuit found that Stephenson did not weigh in favor of applying the Federal Rules to proceedings in chapter 11 because there was no analysis of the issue in the Sixth Circuit’s opinion or any evidence that the court considered that the Bankruptcy Rules should apply.  Rather, the Stephenson court focused its analysis on judicial estoppel.
The court also considered the defendants’ arguments that even if Bankruptcy Rule 9015(c) applied, the motion was nonetheless timely because the matter was not final until the bankruptcy court issued its ruling on Rosenberg’s attorney’s fees claims on April 11, 2013.  The court found this argument unpersuasive, recognizing that when the district court withdrew the adversary proceeding and left the attorney’s fees claims with the bankruptcy court, it created two separate proceedings operating on their own timetables and dictated by the demands of each court’s docket.  Therefore, treating the proceedings as a single matter for the purposes of appeal would not make sense.
Because the defendants’ motion was untimely, the court did not address whether the district court correctly decided the motion on the merits.  Finding the defendants’ other arguments unavailing, the Eleventh Circuit vacated the district court’s order granting the defendants’ relief under FRCP 50(b) and remanded to the district court for reinstatement of the jury award.
Though not a surprising holding, Rosenberg v. DVI Receivables XIV, LLC serves as a useful reminder to practitioners that it is their responsibility to know the applicable rules and that knowing the rules can mean the difference between winning or losing your client’s case.  Here at the Weil Bankruptcy Blog we have a healthy (dare we say reverential) respect for the Bankruptcy Rules because, as every sport’s aficionado knows, if you plan to play the game, it’s best to know the rules.