- Eleventh Circuit Holds That Bankruptcy Rules Apply to Adversary Proceedings in District Court, Orders Reinstatement of $6-Million Verdict on Procedural Grounds
- July 8, 2016
- Law Firm: Eversheds Sutherland (US) LLP - Washington Office
- When a federal district court oversees adversary bankruptcy proceedings, is the post-trial deadline to request judgment as a matter of law governed by Federal Rule of Civil Procedure 50(b), which allows 28 days to file such a motion—or by Bankruptcy Rule 9015(c), which allows only 14 days? The Eleventh Circuit applied the Bankruptcy Rules’ shorter deadline in Rosenberg v. DVI Receivables XIV, LLC, 818 F.3d 1283 (11th Cir. Apr. 8, 2016), thus ordering reinstatement of a $6.12-million jury award against several companies found liable for filing an involuntary bankruptcy petition in bad faith.
The case arose from a dismissed involuntary petition under Chapter 7 of the Bankruptcy Code. The debtor, Maury Rosenberg, had signed a personal guaranty in favor of the servicer of securitized equipment leases for his medical-imaging business. After unsuccessful attempts to renegotiate the underlying debt, the lessors—but not the servicer—filed involuntary bankruptcy petitions against Rosenberg and his companies in 2008. The bankruptcy court ultimately dismissed the petition against Rosenberg with prejudice, partly on the ground that the petitioners lacked standing to enforce Rosenberg’s personal guaranty. In re Rosenberg, 414 B.R. 826 (Bankr. S.D. Fla. 2009).
Rosenberg then filed an adversary complaint under 11 U.S.C. § 303(i), which allows a debtor who obtains the dismissal of an involuntary bankruptcy petition to seek attorney’s fees, as well as damages from any petitioner that filed the petition in bad faith. Rosenberg’s claim for attorney’s fees was adjudicated in the bankruptcy court. But his claim for bad-faith damages was tried in the district court, where a jury awarded him $1.12 million in compensatory damages and $5 million in punitive damages.
The defendants moved for judgment as a matter of law 28 days after the entry of judgment, as allowed by Federal Rule of Civil Procedure 50(b). Rosenberg objected that the motion was untimely under Bankruptcy Rule 9015(c), which states that “Rule 50 . . . applies in cases and proceedings except that any renewed motion for judgment or request for a new trial shall be filed no later than 14 days after the entry of judgment.” The district court agreed with the defendants, reduced the compensatory damages to $360,000, and set aside the award of punitive damages altogether.
In an opinion by Judge Stanley Marcus, the Eleventh Circuit reversed the district court’s timeliness determination, vacated the judgment as a matter of law, and remanded for reinstatement of the jury’s entire award. Framing the “central issue” as “whether the Federal Rules of Civil Procedure or the Federal Rules of Bankruptcy Procedure apply to the timeliness of perfecting a Rule 50(b) motion filed in a district court trying a bankruptcy case,” the court of appeals held that “both the plain language of the rules and the weight of authority counsel for the application of the Bankruptcy Rules to bankruptcy proceedings tried in district court.” Rosenberg, 818 F.3d at 1286, 1292.
Quoting the advisory committee notes to Bankruptcy Rule 1001, the court explained that the Bankruptcy Rules apply to all “cases and proceedings under title 11, whether before the district judges or the bankruptcy judges of the district.” The court buttressed its conclusion with Federal Rule of Civil Procedure 81(a)(2), which states that “[t]hese rules apply to bankruptcy proceedings to the extent provided by the Federal Rules of Bankruptcy Procedure.” Reading these rules together, the court reasoned that “in bankruptcy proceedings, the Federal Bankruptcy Rules have primacy while the Federal Civil Rules only apply to the extent they have been explicitly incorporated by the Federal Bankruptcy Rules.” Rosenberg, 818 F.3d at 1288.
The court thus held that “the deadline for filing a Rule 50(b) motion for judgment as a matter of law in bankruptcy proceedings is 14 days after the entry of judgment, not the 28 days that Rule 50 would ordinarily contemplate.” Rosenberg, 818 F.3d at 1288. And the upshot for the parties was that by relying on Rule 50’s 28-day deadline, the defendants had missed their chance to challenge a $6-million verdict—even though most of it (according to the district court) was unsupported by the evidence.
On April 22, the defendants filed a petition for rehearing and rehearing en banc, relying on technical arguments that their post-trial motion was timely even under the Bankruptcy Rules. But regardless of the outcome for the parties, Rosenberg is a valuable reminder that when it comes to deadlines, you’re better safe than sorry.