Smith Smythe Smith & Vivian: A Skit

What even are conflicts, amiright? Take it outside guys. INSERT MONTY PYTHON REFERENCE HERE. Also some research about post-judgment motions starting on like page 7.

ACTUAL April 2017 Inn of Court Presentation1

Post Judgment Motions in the Context of Plan Confirmation:

They’re Pretty Useless

Cast

The Machiavellian Attorney (“MA”) (“MYLES”)

The Principled Attorney (“PA”) (“AZIZ”)

Mr. “Mezz Lenders Have Rights Too!” (“Mezz”) (“JOE SKINNER”)

Mr. “Is a Honest Day’s Labor Not Worth Anything Around Here? (“Equity”) (“BOB HARDING”)

Setting

Tone

The Machiavellian Attorney merely wishes to watch the world drown… in a sea of motions and paperwork.

The Principled Attorney would like to keep his bar license.

Mezz really wants to sue Equity, but also wants to sue all of equity’s friends, family and colleagues, and is quite upset he can’t.

Equity really regrets taking that special dividend, and can’t believe that his “partners,” who literally sat on their asses while he built this company (and hired the shady CFO & shadier COO who instituted a new time tracking system in the name of “efficiency and profess”) are getting releases while he’s left high and dry. 

The Actual Script

MA

Hi Joe, Hi Bob, thanks for coming in.  And thanks for signing that new sophisticated waiver I drew up on a napkin last night at Cavanaugh’s.  It was right after the Inns of Court presentation on concurrent conflicts of interest, so I’m pretty sure that it’ll hold up.

PA

(To Crowd) He forced me to write it down for him after four hours of “networking.”  (Make Drinking Hand Gesture)

Mezz

Well, you guys have been my bankruptcy counsel for a long time and as long as I still come first, I don’t particularly care if you represent Mr. Harding during the bankruptcy.  Your litigation department can still represent me in that lawsuit against Mr. Harding and all of his buddies for breaching their fiduciary duties, right?

MA

Yes Joe, they’re on an entirely different floor from us, so there’s no conflict.  On top of that, the client matter number for the bankruptcy case is 55555-0001 and the matter number for your lawsuit is 55555-0002.  That’s what they call “screening.”

PA

(As MA speaks, grows more and more horrified and as MA concludes, rolls eyes so hard he nearly falls over)

PA

Mr. Harding, are you sure you’re comfortable with this arrangement?

Equity

As long as Mr. Skinner doesn’t whine when he’s barred from suing me. 

Mezz

Says the guy who spent his entire testimony in Court whining about the fact that (mocking tone) “he built this company and those idiot trust fund partners of his are the ones who hired the crooked CFO and COO.”

PA

(Horrified look continues throughout… Basically just have a horrified look permanently when not speaking)

MA

Calm down guys, remember, that conflict waiver said that any fistfights have to take place outside the building.

Look, the reason I called you too here today is because the Court issued an opinion and order confirming the Plan yesterday.  My associate Aziz and I are here to update you and start talking about next steps for both of you.  Aziz, why don’t you start?

PA

As I explained in my email to you both this morning, the Court’s order is not favorable to either of you. 

Joe, the Court held that third party releases in the Plan could be confirmed despite your objections, without giving you the opportunity to opt out of them. 

Mezz

(Wrathful look) So those crooks just get to take my money and run, huh.

PA

Bob, the Court upheld the third party releases in the Plan for your partners on the grounds that by contributing funds to the reorganized debtor they made a substantial contribution to the Plan.  It denied those third party releases to you, however, because it held that your proposed contribution of time and labor was not a substantial contribution.

Equity

(Look of resignation, sadness and frustration) But they’re the reason we’re in this mess! 

MA

Neither of you need to worry.  Smith Smythe Smith & Vivian doesn’t go down without a fight and we’ve still got plenty of options for both of you.  That’s the main reason we’re all here today; Aziz and I have been hard at work all day plotting out the different courses of action we can take next.

PA

(To Crowd) He was napping until noon to recover from all the “networking” (drinking hand gesture) he did last night.  I’ve been researching. 

Mezz

Well, what have you got for us?

Equity

We’re going to appeal right?  Aziz said in his email that he thinks there are strong grounds for me to appeal—(gets cut off)

MA

Yes, yes, we’re going to go over that later.  Aziz has already started drafting a memo analyzing arguments on appeal.  But what I really want to discuss with you both is post-judgment motions.

Mezz

Post Judgment Motions? (intrigued)

Equity

Post Judgment Motions? (hopeful)

PA

Post Judgment Motions?! (surprised and apprehensive)

MA

Yes, post judgment motions.  I was doing some research last night (PA: raises hand to cover forehead while rolling eyes) and I really think these options might be fruitful here.

PA

Myles, what do you mean by post-judgment motions?  Are you talking about a motion to alter or amend judgment under Federal Rule of Civil Procedure 59(e), which is made applicable to contested matters through the Federal Rule of Bankruptcy Procedure 9023?  Or a motion for relief from judgment under Federal Rule 60(b), made applicable to contested matters through Bankruptcy Rule 9024?  Or a motion for amended or additional findings under Federal Rule 52(b), made applicable to contested matters by Bankruptcy Rule 7052 and 9014?

MA

All of them! (gleefully).  But that’s not all!  We can make a motion for a new trial under Federal Rule 59(a)(1).  And I spotted some typos in the confirmation order, so we can make a motion to have those corrected under Federal Rule 60(a).

PA

Myles, I don’t think either of those motions would be well received here.    

MA

Why?

PA

I’m looking at my notes here—in Davis v. Mountaire Farms, Inc., 598 F. Supp. 2d at 587, the District Court stated that there are four situations in which a new trial is commonly granted.  Two of those deal with jury trials—where the jury’s verdict is against the clear weight of the evidence or where the jury’s verdict was facially inconsistent.  And it seems unlikely we have a factual basis for the other two—where newly discovered evidence surfaces that would likely alter the outcome of the trial or where improper conduct by an attorney or the court unfairly influenced the verdict. 

Equity

I have evidence that would have altered the outcome of the trial, if only the judge hadn’t excluded it when he ruled on that motion in limine!

Mezz

And I think that email chain we decided not to submit into evidence would have changed the outcome!  It clearly shows that senior lenders coerced the other three participants in the mezzanine loan agreement into voting for the plan.

PA

Unfortunately, regardless of how persuasive either of those pieces of evidence would have been, they aren’t a basis for a new trial under Rule 59.  According to Bankruptcy Court in In re ID Liquidation One, LLC, 2013 WL 6701911, “new evidence in this context means evidence that a party could not earlier submit to the court because that evidence was not previously available.” 

MA

Ok, ok, I see your point.  But there are some pretty obvious typos and clerical errors in the confirmation order.  I bet a clerk wrote it (winking delivery).

PA

Are those typos relevant?  Did they affect the meaning of the Court’s order?  Will correcting them benefit us in any way?

MA

Well, not really I guess.

PA

Then we probably shouldn’t spend Bob and Joe’s money drafting a motion to correct them, right?  Just mention the typos to the Judge at the next Bankruptcy Inn of Court.

(turn to crowd)

This presentation group does not recommend pestering your judges with typo corrections during their off hours.  Do so at your own risk. 

MA

Ok, I see your point.

Equity

You mentioned a motion to alter the Court’s judgment?  Do you think the Court would grant that here?

MA

Well, we all think that the Court was obviously wrong.  And with a little bit more briefing, I’m certain we can convince the Judge to change its judgment.  So why wouldn’t we make a motion.  (Que PA having a pained expression on his face).

PA

Well, hold on a second.  According to In re Conex Holdings, LLC, 524 B.R. 55, 58 (Bankr. D. Del. 2015), there are three grounds for amending or altering a judgment: “(i) there has been an intervening change in controlling law; (ii) new evidence has become available; or (iii) there is a need to prevent manifest injustice or to correct a clear error of law or fact.”  And since the Third Circuit hasn’t handed down a new decision on third party releases since yesterday, the first one isn’t available.

MA

Millennium Labs?

PA

President Trump will be out of office before the Third Circuit finally deals with that hot potato.  Wait a second, I heard a month ago that betting markets think there’s a 50% chance of that happening by the end of the year.  Let me rephrase that: the 2020 election will be over by the time the Third Circuit finally stops giving that case the cold shoulder.

Equity

New evidence?

PA

Same standard as in a motion for new trial.  If we discover completely “new” evidence, it might be worth considering.  But right now, we don’t have the sort of evidence needed.

Mezz

Well what about that third reason, clear error of law or fact?  The Court obviously got it wrong, so we should prove that in our briefing like Myles said.

PA

Unfortunately, that isn’t adequate grounds either.  The Bankruptcy Court has held in a many holdings that a motion for reconsideration may not be used to rehash arguments which have already been briefed and decided by the Court.  The Court in In re W.R. Grace & Co., 398 B.R. at 371 made this very, very clear, stating that—“[l]itigants who fail in their first ‘attempt to persuade a court to adopt its position may not use a motion for reconsideration either to attempt a new approach or correct mistakes it made in its previous one…[or] to argue new facts or issues that inexcusably were not presented to the court in the matter previously decided.’”

MA

Well, if you can’t argue the Court was clearly wrong, what does clear error of law or fact even mean?

PA

Looking at the cases, it generally refers to instances where the Court inadvertently assumed a fact or legal position that there was no basis for.  The District Court explained in Stanziale v. Nachtomi, 2004 WL 1812705 that a court may grant a motion for reconsideration “if it appears that the court has patently misunderstood a party, has made a decision outside the adversarial issues presented by the parties, or has made an error not of reasoning, but of apprehension.”  For example, in In re Allied Sys. Holdings, Inc., 524 B.R. 598, the Court reconsidered a ruling denying a motion to dismiss because in its original decision, the Court had erroneously included a find that the claims were core, even though the parties neither briefed nor argued that issue.

MA

Ok, well that’s something to explore in the opinion.  But what about Federal Rule 60(b)?  I looked at the Rule and it provides six different grounds for granting a party relief from judgment.  Surely one of those is applicable here. 

PA

Actually, motions under Federal Rule 60(b) are usually dead on arrival in the context of confirmation. 

MA

(Shocked)….What?

PA

Dead on arrival, for two reasons.  First, pursuant to 11 USC § 1127, “only plan proponents or the reorganized debtor may seek to modify a plan post-confirmation.”  In re Northfield Labs. Inc., 467 B.R. 582, 588 (Bankr. D. Del. 2010).  As the Bankruptcy Court explained in In re Innovative Clinical Sols., Ltd., 302 B.R. at 144, section “1127(b) provides the sole means for modifying a confirmed plan.”  To the extent that the motion for relief from judgment is an attempt to modify the provisions of a confirmed plan, it simply fails. 

Mezz

Well, so what does that mean for me?

PA

Bob, that effectively means that a motion for relief from judgment won’t do you much good.  Your objection is based on the lack of an opt-out to the third party releases.  Since the plan itself provides no opt out for third party releases, your motion for relief from judgment would effectively be an alteration of the terms of the Plan.

Equity

Well, the Plan provided for me to be released.  What does that mean for me?

PA

Joe, your situation is more interesting.  It was the confirmation order itself, and not the Plan, that denied you a release.  It’s still unclear, however, whether a motion for relief from judgment will be of use for you.

Equity

Why?

PA

Well, the biggest point to make is that 11 USC § 1144 specifically provides that a court may revoke a confirmation order “if and only if such order was procured by fraud.”  In In re Fesq, 153 F.3d 113, the Third Circuit Court of Appeals held that an equivalent provision in 11 USC § 1330 meant that the only grounds for relief from a Chapter 13 confirmation order are under Federal Rule 60(b)(3), which allows relief from judgment on the basis of fraud.  All other avenues of relief under Federal Rule 60(b) are foreclosed.  The Bankruptcy Court has twice held that 11 USC § 1144 operates the exact same for Chapter 11 confirmation orders, in In re Northfield Labs. Inc., 467 B.R. 582 (Bankr. D. Del. 2010); In re Genesis Health Ventures, Inc., 340 B.R. 729 (D. Del. 2006).

Equity

So that means I can’t bring a motion for reconsideration either?

PA

Maybe.  In two cases, In re Rickel & Assocs., Inc., 260 B.R. 673 and In re 401 East 89th Street Owners, Inc., 223 B.R. 75, the Southern District of New York has drawn a distinction between revocation of a confirmation order and modification of it.  In 401 East 89th Street, the Plan has provided for an assessment fee on all the co-op owners in the building, as a funding mechanism for the Plan.  If a co-op owner failed to pay, their stock in the debtor and leases to their co-ops were terminated.  However, the Court modified its Order of Confirmation to relieve the movants, who were co-op owners that the Debtor failed to serve with the proper notices throughout the case.  As the Court saw it, it neither revoked the Confirmation Order nor amended the provisions of the Plan; it simply relieved the movants from the effects of the Plan to a limited degree.  It’s unclear whether this distinction is recognized in the Third Circuit.  In In re Northfield Labs. Inc., 467 B.R. at 588, the Bankruptcy Court noted that “[t]he plain language of section 1144. . . . only provides for revocation of an entire confirmation order.  It is unclear whether partial revocation is permissible pursuant to section 1144.”  It held that because the movant failed to show that “partial revocation” was permitted by law, the Court was required to deny the movant relief.  It doesn’t appear likely that the movant in Northfield cited to these SDNY cases.

CANT FIND FINAL VERSION, JUST THIS DRAFT :(