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April 15 — A district court must follow the Federal Rules of Bankruptcy Procedure rather than the Federal Rules of Civil Procedure when trying a case arising under the Bankruptcy Code and addressing a motion for judgment notwithstanding the verdict, the U.S. Court of Appeals for the Eleventh Circuit held April 8.
Judge Stanley Marcus concluded that the plain language of the rules and the weight of authority require the application of the Bankruptcy Rules to bankruptcy proceedings tried in a district court. Because the defendants' motion for judgment notwithstanding the verdict was filed after the expiration of the deadline for filing such motions under the Bankruptcy Rules, the defendants' motion was untimely and should have been denied, the court said.
The defendants' Fed. R. Civ. P. Rule 50(b) motion wasn't timely and, thus, the court reversed and vacated the district court's order, and remanded the case for the district court to reinstate the jury's award.
In November 2008, Jane Fox, on behalf of several companies (defendants/appellees DVI Receivables) filed an involuntary Chapter 7 bankruptcy petition against plaintiff/appellant Maury Rosenberg, asserting a claim based on an individual limited guaranty Rosenberg had made in connection with equipment leases for medical imaging centers. An involuntary bankruptcy is when a creditor files a petition against a debtor to force the debtor into bankruptcy. Under Bankruptcy Code Section 303(b)(1), there must be three or more petitioning creditors.
The bankruptcy petition was originally filed in the U.S. Bankruptcy Court for the Eastern District of Pennsylvania, but was later transferred to the U.S. Bankruptcy Court for the Southern District of Florida. Subsequently, the bankruptcy court granted Rosenberg's motion to dismiss the petition because the DVI Entities weren't eligible creditors, but retained jurisdiction to award Rosenberg his costs, reasonable attorneys' fees, and damages.
Rosenberg then filed an adversary complaint against the defendants under Section 303(i) seeking attorneys' fees and costs incurred while defending the involuntary petition, compensatory and punitive damages caused by filing in bad faith, and attorneys' fees and costs incurred while prosecuting the adversary proceeding. Rosenberg asked for a jury trial on all triable issues, but the defendants didn't consent to a jury trial in the bankruptcy court, but got the case moved to district court. Rosenberg's claim for attorneys' fees and costs, however, remained in the bankruptcy court.
After a trial in the district court, the jury found that the defendants acted in bad faith when they filed the involuntary petition and awarded Rosenberg $1.1 million in compensatory damages and $5 million in punitive damages.
The defendants then moved for judgment as a matter of law under Rule 50(b) 28 days later. Rule 50(b) allows parties 28 days to file a motion. Fed. R. Bankr. P. 9015(c), however, requires that such motions be filed no later than 14 days after the entry of judgment.
The district court concluded that the Federal Rules of Civil Procedure applied and that the Rule 50(b) motion had been timely filed. Ultimately, the district court entered an amended final judgment holding the defendants liable only for $360,000 in compensatory damages for emotional distress.
On appeal, the Eleventh Circuit looked at the plain language of the federal rules. Fed. R. Bankr. P. 1001 makes the Bankruptcy Rules apply to cases and proceedings under Title 11, whether before the district judges or the bankruptcy judges of the district, the appeals court said, citing Fed. R. Bankr. P. 1001 advisory committee's note to 1987 amendments. Fed. R. Civ. P. 81(a)(2) provides for the “primacy of the Federal Bankruptcy Rules in bankruptcy proceedings adjudicated in district court,” the court said.
Under a plain reading of the rules, the court said 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. Fed. R. Bankr. P. 9015(c) incorporates Fed. R. Civ. P. 50 with the explicit limitation that renewed motions for judgment must be filed within 14 days of the entry of judgment, the court said. Thus, 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 require.
The court rejected the defendants' argument that the time to file a renewed motion for judgment in a bankruptcy case that is tried in the district court begins only when a bankruptcy clerk enters judgment on its docket. “The defendants' reasoning leads to an absurd result, which we decline to endorse,” the court said.
Judges Peter T. Fay and William Pryor Jr. joined the opinion.
Paul J. Battista, Allison R. Day, and Carlos E. Sardi of Genovese Joblove & Battista, PA, Miami, represented plaintiff/appellant Maury Rosenberg; Larry I. Glick and Peter H. Levitt of Shutts & Bowen, LLP Miami, represent defendants/appellees DVI Receivables et al.
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