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Pikeville Pikeville Energy Group, LLC v. Phaedra Spradlin

April 19, 2013

PIKEVILLE PIKEVILLE ENERGY GROUP, LLC, APPELLANT,
v.
PHAEDRA SPRADLIN, AS TRUSTEE OF ALMA ENERGY, LLC, ET AL.,
APPELLEE.
GARY J. RICHARD, ET AL.,
APPELLANTS,
v.
PHAEDRA SPRADLIN, AS TRUSTEE OF ALMA ENERGY, LLC, ET AL., APPELLEE.



MEMORANDUM OPINION AND ORDER

The parties in these appeals have been locked in a long and litigious adversary proceeding in bankruptcy court. The defendants in that proceeding appeal the Bankruptcy Court's order denying them leave to file, after the deadline had passed, their cross designation of items and statement of additional issues to be raised on appeal. See No. 12-127, R. 12.*fn1 They also appeal the Bankruptcy Court's orders dismissing their cross-claims against the plaintiffs and other parties no longer involved in this case. See No. 12-113, R. 1 at 1. The Bankruptcy Court abused its discretion in denying the defendants leave to file their materials late, and lacked subject-matter jurisdiction to rule on any of the defendants' cross-claims. Thus, the Court reverses all three of the Bankruptcy Court's orders.

BACKGROUND

This Memorandum Opinion and Order resolves the second and third appeals from the parties' adversary proceeding in bankruptcy court. The adversary proceeding is described in greater detail in the Court's two prior opinions addressing the parties' appeals. See Spradlin v. Pikeville Energy Grp., LLC, No. 12-cv-111-ART, 2012 WL 6706188, at *1 4 (E.D. Ky. Dec. 26, 2012), R. 15 at 2 8; No. 12-127, R. 27 at 1 3. The second appeal addresses the Bankruptcy Court's decision to deny the defendants leave to file, after the deadline, their cross designation of items and their statement of additional issues to be raised on appeal. See No. 12-127, R. 1 at 1 ¶ 2.*fn2 The third appeal addresses the Bankruptcy Court's decision to dismiss the defendants' first amended cross-claims against the plaintiffs as well as the defendants' cross-claims against parties no longer involved in this case. See No. 12-113, R. 1 at 1 ¶¶ 1 4.

DISCUSSION

I.The Bankruptcy Court's Order Denying an Extension of Time in Pikeville Civil Action No. 7:12-cv-127

The defendants filed a notice of cross appeal on September 8, 2012, indicating that they planned to challenge several of the Bankruptcy Court's decisions by appealing to the district court. See Adversary Proceeding, R. 647. Under Bankruptcy Rule 8006, they had until September 24, 2012, to file their cross designation of items to be included in the record on appeal and their statement of additional issues to be raised. The defendants missed that deadline. See No. 12-127,R. 1-4 at 1. Two days later, they filed a motion seeking leave to file their cross designation and statement of the issues. See Adversary Proceeding, R. 651. They explained that their designated appellate counsel's father had died on September 7, 2012, and his struggles in the wake of his father's death caused him to miss the deadline. See Adversary Proceeding, R. 654 at 2. The Bankruptcy Court determined that this was not the kind of "excusable neglect" that merits an extension of time under Bankruptcy Rule 9006(b)(1), and denied their motion. No. 12-127,R. 1-4.

The issue on appeal is whether the Bankruptcy Court abused its discretion by denying the motion. The Bankruptcy Court clearly erred in finding bad faith under the equitable factors and, in turn, abused its discretion in balancing the equitable factors at play. Thus, the Court will reverse the Bankruptcy Court's order.

A.Rule 9006(b)(1) and the Standard of Review

The Bankruptcy Court denied the defendants' motion pursuant to Rule 9006(b)(1)'s excusable-neglect standard. No. 12-127,R. 1-4 at 2. Rule 9006(b)(1) requires courts to make factual findings and then consider those facts under five equitable factors.*fn3 See Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P'ship, 507 U.S. 380, 395 (1993) (articulating the five factors). Courts must weigh: (1) the risk of prejudice to the nonmoving party; (2) the delay's length and potential impact on the judicial proceedings; (3) the moving party's reason for the delay; (4) whether the delay was within the moving party's reasonable control; and (5) whether the moving party acted in good faith. Id.; see also Norpak Corp. v. Eagle-Picher Indus., Inc. (In re Eagle Picher Indus., Inc.), 131 F.3d 1185, 1188 (6th Cir. 1997) (identifying the same five factors).

This Court reviews the Bankruptcy Court's factual findings for clear error and its equitable determinations for an abuse of discretion. See Pioneer, 507 U.S. at 398 (reviewing decision under Fed. R. Bankr. P. 9006(b)(1) for an abuse of discretion); In re Eagle-Picher Indus., Inc., 285 F.3d 522, 527 (6th Cir. 2002).

B. The Bankruptcy Court's Findings and Determinations

Here, the Bankruptcy Court held that the first two factors favored the defendants, but the last three tipped the balance against granting an extension. The Bankruptcy Court found that the defendants were only two days late and determined that such a small delay would not prejudice the plaintiffs (factor one). No. 12-127, R. 1-4 at 3. Similarly, it concluded that two days would not significantly delay or impact the judicial proceedings (factor two). Id. But the Bankruptcy Court examined the reason for the delay (factor three) and the defendants' control over it (factor four), and concluded that the defendants could have easily avoided an untimely filing. While the Bankruptcy Court noted that the death of appellate counsel's father was a sad occasion, it found that he had been able to file notice of the cross-appeal the day after his father's death. Id. If he had been able to make that filing in the immediate aftermath of his father's death, the Bankruptcy Court reasoned, then surely he could have filed the cross designation and the statement of issues within the next sixteen days. Id. The Bankruptcy Court also pointed out that appellate counsel could have easily asked co-counsel to make the filings. Id. From these facts, it determined that the defendants' delay had been within their control and that their reason did not mitigate their culpability. Id. Finally, the Bankruptcy Court found that the defendants had shown bad faith throughout the proceedings, and concluded that their prior bad faith justified finding that the good-faith factor (factor five) did not favor the defendants. Id. Thus, the Bankruptcy Court denied the defendants' motion for an extension of time. The defendants object to the Bankruptcy Court's finding that there was no good faith, No. 12-127,R. 12 at 20 22, and its determination that there was no excusable neglect under the Pioneer factors, id. at 20 22.

Factual Finding of Bad Faith: The Bankruptcy Court clearly erred in finding that the defendants acted in bad faith here. No. 12-127,R. 1-4 at 3. The Bankruptcy Court addressed the good-faith factor in a single sentence:

As to Defendants' good faith, they have consistently been before the Court for sanctions and derailed the court-ordered mediation, the details of which are described in the ...


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