United States: Follow The Rules: 11th Circuit Holds That District Court Must Follow Federal Rules Of Bankruptcy Procedure On Rule 50(b) Motion

On April 8, 2016, the Eleventh Circuit Court of Appeals held that a district court trying a bankruptcy case arising under title 11 of the United States Code is obliged to follow the Federal Rules of Bankruptcy Procedure, instead of the Federal Rules of Civil Procedure, in computing the deadline for filing post-trial motions.

The story behind this procedural ruling began eight years earlier, when several companies filed an involuntary chapter 7 bankruptcy petition against Maury Rosenberg.  The bankruptcy court granted Rosenberg's motion to dismiss the petition with prejudice because the companies were not eligible creditors.  The bankruptcy court retained jurisdiction to award Rosenberg his costs, reasonable attorney's fees, and damages under section 303(i) of the Bankruptcy Code.  Rosenberg then filed an adversary complaint against the defendants seeking: (1) attorney's fees and costs for defending the involuntary petition, (2) compensatory and punitive damages for filing the petition in bad faith, and (3) attorney's fees incurred in the prosecution of the adversary proceeding.  The district court granted the defendants' motion to withdraw the reference because the claims for damages under section 303(i)(2) of the Bankruptcy Code were analogous to common-law claims for malicious prosecution.  The damages claims were tried before a jury in district court; Rosenberg's claims for attorney's fees and costs remained in bankruptcy court.

The jury found that the defendants acted in bad faith and awarded Rosenberg compensatory and punitive damages, and on March 14, 2013, the district court entered final judgment.  Twenty-eight days later, defendants moved for judgment as a matter of law under Fed. R. Civ. P. 50(b).  Rosenberg moved to strike the motion as untimely, arguing that the deadline for filing a Rule 50(b) motion under Fed. R. Bankr. P. 9015(c) was fourteen days after entry of the judgment.

The Eleventh Circuit addressed whether the Federal Rules of Civil Procedure or the Federal Rules of Bankruptcy Procedure supplied the deadline for filing a Rule 50(b) motion for a district court trying a bankruptcy case arising under title 11.  First, the court noted that a "plain reading" of the Federal Rules of Bankruptcy Procedure make clear that the Federal Bankruptcy Rules have primacy in cases arising from title 11, and that the Federal Rules of Civil Procedure only apply to the extent that they have been explicitly incorporated by the Bankruptcy Rules.  Therefore, F.R.C.P. 50(b) must be read "through the lens" of the Bankruptcy Rules, which incorporates F.R.C.P. 50(b), with the "explicit limitation that renewed motions for judgment must be filed within 14 days of the entry of the judgment."  See Fed. R. Bankr. P. 9015(c).

Next, although the precise question had not been decided by other district or circuit courts, the Eleventh Circuit found guidance in decisions of other courts for holding that the Federal Rules of Bankruptcy Procedure apply.  For example, both the Fourth and Seventh Circuits have applied the Bankruptcy Rules in determining whether service of process was sufficient.  See In re Celotex Corp., 124 F.3d 619, 630 (4th Cir. 1997); Diamond Mortg. Corp. v. Sugar, 913 F.2d 1233, 1243-44 (7th Cir. 1990).  In addition, the Third Circuit ruled in Phar-Mor, Inc. v. Coopers & Lybrand, 22 F.3d 1128, 1238 (3d Cir. 1994) that "Bankruptcy Rules govern non-core, 'related to' proceedings before a district court."  Also relevant was a decision by the District of Delaware in which the district court concluded that the Federal Rules of Bankruptcy Procedure apply in counting the days to determine the timeliness for filing a motion for a new trial, rather than the Federal Rules of Civil Procedure, which do not count weekends and holidays.  VFB LLC v. Campbell Soup Co., 336 B.R. 81 (D. Del. 2005).

The Eleventh Circuit rejected the cases cited by defendants.  Although the Sixth Circuit has applied a 28-day filing deadline from the Federal Rules of Civil Procedure instead of the 14-day deadline in the Bankruptcy Rules with regard to a motion to alter or amend a judgment under Fed. R. Civ. P. 59, the Eleventh Circuit explained that in that case, the court provided "no analysis of the issue" and explained that there was "no indication that the parties urged or that the court even considered applying the deadline found in the Bankruptcy Rules."  Therefore, that case did not support applying the Federal Rules of Civil Procedure to a case arising under title 11.  The Eleventh Circuit also noted that applying the 14-day deadline "does not create an overly onerous obligation on parties proceeding in district court any more than it does in bankruptcy court."

The Eleventh Circuit also rejected defendants' argument that even if the 14-day deadline was applied, the time did not begin to run until the bankruptcy court entered the final judgment on Rosenberg's claims for attorney's fees.  The court was "unpersuaded" and explained that because the matters were tried by different judges, on different courts, operating under different timetables set by their respective dockets, deeming the two cases as one for purposes of when an appeal may be taken "makes little sense."

The decision provides clear guidance for practitioners litigating bankruptcy claims in district court.  Finding that "both the plan language of the rules and the weight of authority counsel for the application of the Bankruptcy Rules to bankruptcy proceedings tried in district court," the Eleventh Circuit's decision has potentially broader applicability to other procedural deadlines as well.

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