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Rosbottom v. Schiff

United States District Court, W.D. Louisiana, Shreveport Division

March 22, 2018

HAROLD L. ROSBOTTOM, JR.
v.
GERALD H. SCHIFF, TRUSTEE

          HORNSBY MAGISTRATE JUDGE.

          MEMORANDUM RULING

          ELIZABETH ERNY FOOTE UNITED STATES DISTRICT JUDGE.

         Pending before the Court is an appeal filed by the Appellant, Harold L. Rosbottom, Jr. ("Rosbottom"), of an order issued by the Bankruptcy Court dated June 8, 2016, denying a motion entitled "Rule 60(b) Motion to Vacate the Chapter 11 ' Confirmation Plan." [Record Doc. 1]. The Appellees are the Chapter 11 Bankruptcy Trustee, Gerald Schiff ("Schiff" or "Trustee"), Louisiana Truck Stop and Gaming, LLC ("LTSG"), and Leslie Fox ("Fox"). [Record Doc. 27]. For the reasons assigned herein, the decision of the Bankruptcy Court is AFFIRMED.

         FACTUAL AND PROCEDURAL BACKGROUND[1]

         Rosbottom filed for Chapter 11 bankruptcy in 2009 during a contentious divorce from his now ex-wife, Fox. Rosbottom originally functioned as the debtor-in-possession managing the Chapter 11 bankruptcy estate. However, during the course of the bankruptcy certain irregularities became apparent, prompting the Bankruptcy Court to appoint Schiff as Chapter 11 Trustee. [Bankr. Doc. 846]. The irregularities eventually led to a criminal indictment against Rosbottom for bankruptcy related crimes. See LUL v. Rosbottom. USDC, W.D. La., 5:11-cr-0272. On September 28, 2012, Rosbottom was convicted on eight counts, including conspiracy to commit bankruptcy fraud, transfer of assets, concealment of assets, false oath, and conspiracy to launder monetary instruments. Id. Rosbottom is currently serving a 120-month term in federal custody. Id.

         A few months later, Schiff filed a Chapter 11 Plan of Reorganization ("Plan") wherein Rosbottom's interests in the bankruptcy estate were equitably subordinated pursuant to 11 L).S.C. § 510(c) to all other interests, including Fox, due to his criminal conviction for bankruptcy crimes against the estate.[2] On April 22, 2013, the Bankruptcy Court held a confirmation hearing regarding the Plan, including the equitable subordination of Rosbottom's interests. [Bankr. Docs. 1742 and 2076]. On May 1, 2013, the Bankruptcy Court entered an order confirming the Plan of Reorganization. [Bankr. Doc. 1745].[3] On May 3, 2013, Rosbottom timely filed a Notice of Appeal with this Court. [Bankr. Doc. 1749; USDC, W.D. La, 5:13-cv-2431, Record Doc. 1]. However, on August 14, 2013, his appeal was dismissed for failure to prosecute. [USDC W.D. La., 5:13-cv-2431, Record Doc. 6].

         On April 25, 2016, Rosbottom filed a pro se motion in Bankruptcy Court entitled "Rule 60(b) Motion to Vacate Order Equitably Subordinating the Interest of HLR in the Post Administration Estate." [Bankr. Doc. 1944]. The motion sought to revoke the portion of the Bankruptcy Court's confirmation order concerning the equitable subordination of Rosbottom's interests in the estate. The Bankruptcy Court held a hearing on the motion on June 7, 2016. [Bankr. Doc. 2080]. Rosbottom appeared by telephone from FCI Butner, North Carolina. Fox and counsel for the Trustee appeared in person. Id.

         On June 8, 2016, the Bankruptcy Court denied Rosbottom's motion, and issued a written opinion. [Bankr. Doc. 2003]. First, the Bankruptcy Court considered whether notice and service of the Disclosure Statement, proposed Chapter 11 Plan, and related hearings were proper in light of the equitable subordination clause.[4] Rosbottom argued in his motion that the confirmation order of the Chapter 11 Plan should be vacated because he was not provided proper service or notice of certain pleadings, or of certain hearings. [Bankr. Doc. 1944]. The Bankruptcy Court disagreed, finding that the record reflected that Rosbottom received proper notice and service of the Disclosure Statement and the proposed Chapter 11 Plan. The Bankruptcy Court noted that the record reflected that Rosbottom received both electronic and paper copies. The Bankruptcy Court also noted that the record reflected that Rosbottom filed numerous objections to the proposed Chapter 11 Plan, which were considered and overruled. Thus, the Bankruptcy Court found no error with service or notice provided to Rosbottom under the Federal Rules of Bankruptcy Procedure ("FRBP"). The Bankruptcy Court also held that given the record, service was constitutionally sufficient. [Bankr. Doc. 2003 at 7].

         Next, the Bankruptcy Court considered whether it erred by not issuing written findings of fact or conclusions of law regarding the equitable subordination of Rosbottom's interest in the estate. Id. Rosbottom argued that the lack of written findings warranted vacating the Plan. The Bankruptcy Court disagreed, noting that FRBP 7052 specifically provides that findings of fact and conclusions of law may be orally entered in the record in open court, which is what happened in this instance.

         Finally, the Bankruptcy Court found that even if there were a legal error in the confirmation process, the confirmation order remains final and binding upon Rosbottom because he had notice of the alleged errors and failed to prosecute his appeal. Based on this finding, the Bankruptcy Court found that "a motion under Rule 60(b)(4) is not a substitute for a timely appeal." [Bankr. Doc. 2003 at 8 (citing Kocher v. Dow Chem. Co., 132 F.3d 1225, 1229 (8th Cir. 1997))]. The Bankruptcy Court concluded that Rosbottom's motion was a collateral attack of the confirmation order. Rosbottom timely appealed the Bankruptcy Court's order. [Record Doc. 1-1].

         JURISDICTION

         This Court has appellate jurisdiction over final judgments, orders, and decrees issued by the bankruptcy court. 28 U.S.C. § 158(a)(1).

         STANDARD OF REVIEW

         In reviewing a decision by the Bankruptcy Court, this Court functions as an appellate court, applying the same standards of review generally applied to federal appellate courts. Webb v. Reserve Life Ins. Co., 954 F.2d 1102, 1103-04 (5th Or. 1992). This court reviews discretionary decisions made by the Bankruptcy Court under an abuse of discretion standard. In re ASARCO LLC, 702 F.3d 250, 257 (5th Cir. 2012). This court reviews a Bankruptcy Court's findings of fact for clear error. Id. Legal conclusions are reviewed de novo. Id.

         LAW AND ANALYSIS

         Rosbottom has raised both procedural and substantive issues concerning the confirmation of the Plan in his appeal of the Bankruptcy Court's denial of his Rule 60(b) motion. Rosbottom argues that the confirmed Plan should be vacated due to alleged deficiencies with notice and service during the confirmation process. He also argues that the confirmation order is insufficient because the Bankruptcy Court did not issue separate findings of fact and conclusions of law or a separate judgment. The Court will review these issues.

         Rosbottom also asserts various arguments regarding the substance of the confirmed Plan, including issues of fairness, equity, and the accuracy of calculations contained within the Plan. The Court will not review Rosbottom's arguments regarding the substance of the confirmed Plan because these are matters that should have been addressed in a direct appeal of the Plan. For the reasons assigned herein, the Plan and confirmation order are final and Rosbottom has waived all arguments relating to the substance of the confirmed Chapter 11 Plan.

         I. Federal Rule of Civil Procedure 60(b) - Generally

         Federal Rule of Civil Procedure 60(b) provides that a court may grant relief from a final judgment under certain circumstances when "just terms" are present. Relief from a final judgment may be granted for any of the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence that could not have been discovered in time to move for a new trial under Rule 59(b); (3) fraud, misrepresentation, or misconduct by opposing party; (4) the judgment is void; (5) the judgment has been satisfied, released, or discharged; or (6) any other reason that justifies relief. Fed.R.Civ.P. 60(b).

         A motion pursuant to "Rule 60(b) may not be used as a back-door substitute for an omitted appeal, and, in all but the most exceptional circumstances, a party's neglect to prosecute a timely appeal will bar relief under the rule." Carter v. Fenner, 136 F.3d 1000, 1006 (5th Cir. 1998) (citing Hoult v. Hoult 57 F.3d 1, 3 (1st Cir. 1995)). Although presented as a Rule 60(b) motion, Rosbottom's motion is clearly an attempt to collaterally attack the substance of the confirmed Plan. Rosbottom does not explain why he filed a timely appeal of the confirmed Plan and then neglected to pursue the appellate process. Regardless, the abandonment of his appeal renders the Plan and its contents final and binding. Eubanks v. FDIC. 977 F.2d 166, 171 (5th Cir. 1992); Republic Supply Co. v. Shoaf, 815 F.2d 1046, 1050 (5th Cir. 1987). There is a firm rule within the Fifth Circuit that a Rule 60(b) motion is not a substitute for an appeal. In re Air Crash at Dallas/Fort Worth Airport, 852 F.2d 842, 844 (5th Cir. 1988). Accordingly, this Court will not entertain Rosbottom's arguments regarding alleged unfairness of the Plan, including whether it was proper to equitably subordinate his interests and in the amount described in the Plan. However, the Court will review Rosbottom's motion to the extent it raises legitimate issues appropriately considered under Rule 60(b).[5]

         II. Federal Rule of Civil Procedure ...


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