Opinion
Case No. 17-31030 Adv. No. 19-3046 Adv. No. 19-3047
08-04-2020
In re: GYPC, INC., Debtor DONALD F. HARKER, III, TRUSTEE, Plaintiff v. CHRISTOPHER F. CUMMINGS, Defendant DONALD F. HARKER, III, TRUSTEE, Plaintiff v. ERIC WEBB, Defendant
Copies to: Patricia J. Friesinger Zachary B. White Daniel J. Gentry (Counsel for the Plaintiffs, electronically served) Casey M. Cantrell Swartz Michael L. Meyer W. Timothy Miller (Counsel for the Defendants, electronically served) Alfred J. Weisbrod, 111 W. First Street, Dayton, Ohio 45402 (Counsel for the Defendants)
Chapter 7 Decision on Motions of Defendants, Christopher F. Cummings and Eric Webb, To Reconsider This Court's April 23, 2020 Decision and Orders Denying the Defendants' Motions to Dismiss
I. Introduction
This matter is before the court on the Motion Of Defendant, Christopher F. Cummings, To Reconsider This Court's April 23, 2020 Decision And Order Denying Cummings' Motion To Dismiss (Adv. No. 19-3046; doc. 48) and the Motion Of Defendant, Eric Webb, To Reconsider This Court's April 23, 2020 Decision And Order Denying Webb's Motion To Dismiss (Adv. No. 19-3047; doc. 49) (collectively, the "Motions" ). For the reasons explained in this decision, the court denies the Motions.
The Motions are substantively identical to each other and therefore the court is addressing them together.
II. Facts and Procedural Background
Most of the facts, procedural background, and law relating to these contested matters are set forth in the Court's April 23, 2020 Decision (1) Denying Motions of Defendants Christopher Cummings and Eric Webb to Dismiss; (2) Denying Motions of Defendants to Disqualify Special Counsel; (3) Vacating Order Treating the Statute of Limitation Argument in Defendants' Motions to Dismiss as Motions for Summary Judgment; and (4) Granting Motions of the Chapter 7 Trustee to Amend the Complaints doc. 44 (Adv. No. 19-3046) & doc. 45 (Adv. No. 19-3047) (the "Decision") and are incorporated by reference. The court will supplement with the information contained in the filings made subsequent to the Decision.
Following the Decision, Cummings and Webb (collectively, the "Defendants") filed their respective Motions. The Motions assert that the court "applied extensive and complex rules of agency law (as set forth in the Restatement (Third) of Agency) to standard, boilerplate language contained in two employment applications presumably prepared by the agent at issue (Debtor's counsel) to conclude that Cummings and Eric Webb, the Debtor's principals, authorized the Debtor's Special Counsel (purportedly an agent of the agent at issue) to commence a last-minute, factually inaccurate lawsuit against the Directors without ever having spoken with either Cummings or Webb about the facts or the merits of the lawsuit." Motions at 1-2. The Motions further assert that the court effectively granted summary judgment to the Chapter 7 Trustee and will commit "reversible error" if it does not vacate the Decision and its accompanying orders and provide the Defendants an opportunity to conduct discovery regarding their motions seeking the dismissal of the adversary proceedings. Motions at 12. The Defendants' motions to dismiss sought dismissal based on an argument that the Special Counsel to the Chapter 11 Debtor in Possession lacked authority to file this adversary proceeding. The Defendants seek the following discovery on the authority issue:
1. Communications between Debtor's counsel and Special Counsel about the nature of Special Counsel's representation and authority;Motions at 11-12.
2. Communications between Debtor's counsel and Cummings and Webb about the nature of Special Counsel's representation and authority; and
3. Communications between Special Counsel and Cummings and Webb about the nature of Special Counsel's representation and authority.
III. Legal Analysis
A. Standard Governing Motions for Reconsideration
The Defendants have moved for reconsideration under Federal Rule of Civil Procedure 59, applicable by Federal Rule of Bankruptcy Procedure 9023. The Trustee argues that Federal Rule of Civil Procedure 54(b) is applicable, rather than Rule 59 because the order denying the motions to dismiss are interlocutory and not final appealable orders.
Rule 59(e) allows a trial court to alter or amend a judgment based upon a motion being filed within 28 days after entry of the judgment. Fed. R. Civ. P. 59(e). Rule 59(e) applies to a final judgment. Hewitt v. McCrary, Case No. 17-cv-10917, 2019 U.S. Dist. LEXIS 50182, at *36 (E.D. Mich. Mar. 26, 2019). On the other hand, Rule 54(b), applicable by Federal Rule of Bankruptcy Procedure 7054, authorizes a trial court to revise a nonfinal, interlocutory order "at any time before the entry of a judgment adjudicating all the claims and all the parties' rights and liabilities." Fed. R. Civ. P. 54(b). Revising a final judgment under Rule 59 involves "a much higher threshold for relief" than revising a nonfinal, interlocutory order under Rule 54(b). Hewitt at *36. Under Rule 59, a judgment can be revised only to prevent "manifest injustice." Id. In addition, courts have more flexibility in revising interlocutory orders under Rule 54(b). Id. Thus, this court must first determine whether its orders denying the motions to dismiss based upon the Defendants' lack of authority argument and its orders vacating its orders converting the motions to dismiss to motions for summary judgment were final or interlocutory orders.
Because the orders in issue - the orders denying the motions to dismiss and the orders vacating the orders converting the Rule 12 motions to summary judgment motions - do not terminate the adversary proceedings, the orders are interlocutory. See Archie v. Lanier, 95 F.3d 438, 442 (6th Cir. 1996) (denial of a motion to dismiss is an interlocutory order); Kohut v. Metzler Locricchio Serra & Co., P.C. (In re MuniVest Servs., LLC), 500 B.R. 487, 510-11 (Bankr. E.D. Mich. 2013) (similar). Accordingly, Rule 54(b) is applicable.
While the Federal Rules of Civil Procedure do not provide for a "motion for reconsideration," district courts and bankruptcy courts may reconsider their own interlocutory orders under federal common law and Federal Rule of Civil Procedure 54(b). McCormack v. City of Westland, 2019 U.S. App. LEXIS 11125, at *6 (6th Cir. Apr. 15, 2019) (citing Rodriguez v. Tenn. Laborers Health & Welfare Fund, 89 Fed. App'x 949, 952 (6th Cir. 2004)). Reconsideration under Rule 54(b) is appropriate if there is a clear error of law, newly discovered or available evidence, an intervening change in the controlling law, or to prevent manifest injustice. McCormack at *6; Rodriguez at 959. The Defendants do not point to a change in the law or newly discovered evidence. However, liberally construing the Motions, they apparently argue that the court made "a clear error of law" and request the court to vacate its Decision and the accompanying orders to prevent "manifest injustice."
B. General Analysis and Summary
The Defendants argue that the court erred in denying their motions to dismiss by not allowing them to conduct discovery in support of those motions after they filed them: a) without having conducted the discovery in advance of filing the motions; b) when they filed those motions under Federal Rule of Civil Procedure 12(b)(6) and not Rule 56 (which governs motions for summary judgment); and c) when they voluntarily stayed discovery through an agreed order after they filed their motions. They argue that, in denying their dismissal motions, the court in effect granted summary judgment against them on the "authority to file" issue. They also assert that they believe "that the Ohio rules applicable to the special relationship between an agent who is an attorney and his or her client (here the Debtor, who could only act through its board—Webb and Cummings) are also be relevant to the Court's decision on the authority question." doc. 48 at 2 (Adv. No. 19-3046) and doc. 49 at 2 (Adv. No. 19-3047).
Without repeating the court's analysis of the "extensive and complex rules of agency law" relating to the authority issue contained in its Decision, the court notes that the Defendants' arguments fail to address, or erroneously address the following points: 1) that it was the debtor in possession, GYPC, who was the principal which needed to authorize the filing of the adversary proceedings, not the Defendants per se; 2) that express authorization from the Defendants was neither necessary nor possible - actual authority from GYPC sufficed to authorize Special Counsel's conduct and the Defendants were disqualified from being able to grant any such authority due to their conflicts of interest; 3) it is the agent's viewpoint, in this case Special Counsel, which is relevant to the determination of the granting of actual authority to act, not the principal's or officers or directors of the principal — GYPC; 4) it was not "boilerplate" language, as argued by the Defendants, in the Application to Employ Special Counsel which the court relied upon, but rather, very specific authorizing language which authorized Special Counsel to file the adversary proceedings; and 5) why parol evidence should be introduced to vary, limit, or modify the express terms of the Special Counsel Application to Employ (est. doc. 152) and the Application to Employ the Thomsen law firm as counsel to the Debtor In Possession (est. doc. 69) (collectively, the "Applications to Employ") and the orders approving those Applications to Employ (est. docs. 71 & 162) (collectively, the "Employment Orders"). In addition, the Defendants' argument that the court effectively granted summary judgment, without allowing discovery, is erroneous.
The court recognizes that Defendants' argument is that, as the directors and officers of the debtor in possession, they needed to expressly authorize the filings, or a bankruptcy trustee needed to do so.
The parties have not raised the issue of whether the Defendants, as individuals, have standing to raise the corporate authority issue. The Defendants are asserting that Special Counsel did not have authority from GYPC to file the adversary proceedings not on behalf of GYPC, but rather on their own personal behalf. Neither GYPC, nor the Trustee as successor to the debtor in possession, has disputed Special Counsel's authority to file these adversary proceedings.
C. It is Irrelevant if "Boilerplate" Language was Used in the Applications to Employ. Even Assuming Otherwise, the Pertinent Language of the Special Counsel Application to Employ Was Not "Boilerplate"
The Defendants assert that the Decision relied on "standard, boilerplate language" in determining that the Applications to Employ and Employment Orders authorized Special Counsel's filing of the Adversary Proceedings. First, "boilerplate" or not, the Applications to Employ and the Employment Orders must be construed in accordance with their terms, regardless of whether those terms are "boilerplate" or uncommon, tailored terms. Second, the pertinent language relied upon by the court is not "standard, boilerplate language."
The Applications to Employ and the Employment Orders must be construed in accordance with their explicit language. Ohio Farmers Ins. Co. v. Hughes-Bechtol, Inc. (In re Hughes-Bechtol, Inc.), Nos. 98-4257, 98-4309, 2000 U.S. App. LEXIS 18741, at *9-10 (6th Cir. July 27, 2000) ("The principles of contract interpretation as recognized by this court first require looking to the explicit language of, in this case, the cash collateral order for 'clear manifestations of intent.'") (citations omitted). Whether or not the language is "boilerplate," this court is still obligated to interpret the meaning of that language and apply it to the facts presented. See Cont'l Tire N. Am. v. Titan Tire Corp., No. WM-09-010, 2010 WL 1223981, at *9 (Ohio Ct. App. Mar. 31, 2010) ("Appellant's assertion that such a prayer [for relief requesting attorney fees] is boiler plate that somehow provides inferior notice is unpersuasive."). See also JPMorgan Chase Bank, NA v. Corral, No. 10 CAE 09 0079, 2011 WL 3198270, at *15 (Ohio Ct. App. July 14, 2011) (Attorney fee provision contained in a contract governing a commercial transaction was enforceable even though contained within a "boilerplate" provision.); Macejko v. Ortiz, No. 06 MA 158, 2008 WL 697688, at *5 (Ohio Ct. App. Mar. 13, 2008) (citing ABM Forms, Inc. v. Woods, 692 N.E.2d 574, 578-79 (Ohio 1998)). (Release held enforceable despite being contained within boilerplate language with the court stating: "The law presumes a person has read and understood legal documents he or she has signed."). The Applications to Employ approved through the Employment Orders are enforceable according to their terms.
Second, the pertinent language was not "boilerplate." Boilerplate is defined as "[f]ixed or standardized contractual language that the proposing party often views as relatively nonnegotiable." Black's Law Dictionary (11th ed. 2019). Special Counsel was appointed through the Order Authorizing Application to Employ Patricia J. Friesinger And Coolidge Wall Co., L.P.A. As Special Counsel for Debtor-In-Possession, GYPC, Inc. Nunc Pro Tunc to the Date of The Filing of This Application (est. doc. 162) which approved the Application to Employ Patricia J. Friesinger And Coolidge Wall Co., L.P.A. As Special Counsel for Debtor-In-Possession, GYPC, Inc. Nunc Pro Tunc to the Date of The Filing of This Application (est. doc. 152) (the "Special Counsel Application to Employ"), which in pertinent part states:
The professional legal services [Friesinger] is to render shall include but is not necessarily limited to, the following: (a) managing a large number of anticipated avoidance action adversary proceedings, including making settlement demands and filing separate adversary proceedings against targets of avoidance actions as identified in the [Debtor's] filed Statement of Financial Affairs, as filed prior to conversion of the case, and (b) performing other legal services as may be required that are in the best interest of the estate or its creditors. The professional services to be rendered by [Friesinger] shall specifically exclude pursuing any avoidance action against any professionals for pre and/or post-petition transfers. Potential avoidance action against any professionals are specifically excluded from [Friesinger's] representation, the undersigned will retain separate representation of the [Debtor] for purposes of such transfers.Special Counsel Application to Employ at 1-2 (emphasis added).
The prefatory "General Notes" to the Schedules and Statement of Financial Affairs (est. doc. 19) contain the following statement:
Insiders. Expect [sic] as may be otherwise indicated in the Statement or Schedules, the Debtor has included all payments made during the one-year period preceding the Petition Date to any person deemed an "insider," as that term is defined in Bankruptcy Code Section 101(31). Persons listed as "insiders" have been included for information purposes only. The Debtor does not take any position with respect to (a) such person's influence over the control of the Debtor, (b) the management responsibilities or functions of such person, or
(c) whether such person could successfully argue that he or it is not an "insider" under applicable law.General Notes to Schedules and Statement of Financial Affairs, Est. doc. 19. Then, the Statement of Financial Affairs discloses the following payments to insiders within one year prior to the filing of the bankruptcy case:
30. Payments, distributions, or withdrawals credited or given to insiders Within 1 year before filing this case, did the debtor provide an insider with value in any form, including salary, other compensation, draws, bonuses, loans, credits on loans, stock redemptions, and options exercised?
[ ] No
[×] Yes. Identify below.
| Name and address of recipient | Amount of money or description and value ofproperty | Dates | Reason forproviding the valueSalary, benefits,and bonussuccess fee fromsale of Marquetteassets | |
|---|---|---|---|---|
| 30.1 | Christopher F. Cummings475 Stonehaven RoadDayton, Ohio 45429 | $438,033.70 | 2016 and 2017 | |
| Relationship to debtorOfficer - USM and Marquette | ||||
| 30.2 | Eric Webb10500 Coral Belle CourtPeoria, IL 61615 | $498,167.54 | 2016 and 2017 | Salary, benefits,and bonussuccess fee fromsale of Marquetteassets |
| Relationship to debtorOfficer - USM and Marquette |
D. The Court Interpreted the Applications to Employ and Employment Orders as a Matter of Law
A bankruptcy court has authority to interpret and enforce its own orders. Travelers Indem. Co. v. Bailey, 557 U.S. 137, 150 (2009); Bombart v. Family Ctr. at Sunrise, LLC, 520 B.R. 300, 303 (S.D. Fla. 2014). Construing the Employment Orders in tandem with the underlying Applications to Employ, the Decision concluded that through the Applications to Employ and the Employment Orders GYPC authorized the filing of these adversary proceedings.
E. The Ohio Code of Professional Conduct and the General Corporation Law of Delaware Support the Decision
The Defendants admit in their initial motions to dismiss that they had disqualifying conflicts of interest with respect to any decision as to whether the adversary proceedings should be filed. They state:
If the Directors had been asked to approve the filing of this adversary proceeding, there is a substantial question under applicable nonbankruptcy law whether they could have properly approved the commencement of this adversary because as the recipients of the alleged avoidable transfers, they each had a personal interest in the alleged claims materially adverse to the interests of the Debtor.doc. 3 at 8 (Adv. No. 19-3046); doc. 4 at 8 (Adv. No. 19-3047). Of course, this contradicts their argument that the complaints must be dismissed because they did not personally expressly authorize adversary proceedings to be filed against themselves. How could they authorize those filings if they were disqualified from doing so?
However, their argument then proceeds that since they were disqualified, that the adversary proceedings could only be authorized through the appointment of a Chapter 11 trustee who would then replace them as the management of GYPC and who could make that decision, or by a Chapter 7 trustee after the case was converted from Chapter 11 to Chapter 7. As detailed in the Decision, this argument fails to recognize that the Applications to Employ filed by GYPC, as approved through the Employment Orders, authorized Special Counsel's filing of the Adversary Proceedings. In addition, as explained below, Delaware corporation law recognizes such court approval processes in a Chapter 11 bankruptcy case in lieu of director or shareholder approval.
And despite the Defendants' reference in the Motions to the contrary, the Ohio Code of Professional Conduct supports the Decision, along with Delaware corporation law. First, however, while the Ohio Rules of Professional Conduct govern an Ohio lawyer's ethical responsibilities towards his or her client, the Rules do not provide substantive law which are superimposed upon parties. That is, while Ohio ethical rules impose obligations on lawyers with respect to their conduct in relation to their clients, these rules do not define attorneys' obligations, responsibilities, or authority arising out of court orders or other governing instruments. See Reiner v. Kelley, 457 N.E.2d 946, 951-52 (Ohio Ct. App. Apr. 7, 1983) (rule of professional conduct was "not one determining the substantive rights of parties arising from direct or indirect relationships"). See also Hightower v. Hightower, No. 16AP-182, 2016 Ohio App. LEXIS 4738 (Ohio Ct. App. Nov. 22, 2016) (Ohio Rules of Superintendence do not create substantive rights for litigants).
Second, Ohio Rule of Professional Conduct 1.13 makes clear that when a lawyer is representing an entity, the lawyer's allegiance is to the organization, not its constituents. It provides that:
A lawyer employed or retained by an organization represents the organization acting through its constituents. A lawyer employed or retained by an organization owes allegiance to the organization and not to any constituent or other person connected with the organization. The constituents of an organization include its owners and its duly authorized officers, directors, trustees, and employees.Ohio Prof. Cond. Rule 1.13(a). Thus, Special Counsel's obligations were owed to GYPC, not to the Defendants. Delaware corporate law then authorizes corporate action to be taken as ordered by the bankruptcy court having the same effect as if specifically authorized by the corporation:
Any corporation of this State, an order for relief with respect to which has been entered pursuant to the Federal Bankruptcy Code, 11 U.S.C. § 101 et seq., or any successor statute, may put into effect and carry out any decrees and orders of the court or judge in such bankruptcy proceeding and may take any corporate action provided or directed by such decrees and orders, without further action by its directors or stockholders. Such power and authority may be exercised, and such corporate action may be taken, as may be directed by such decrees or orders, by the trustee or trustees of such corporation appointed or elected in the bankruptcy proceeding (or a majority thereof), or if none be appointed or elected and acting, by designated officers of the corporation, or by a
representative appointed by the court or judge, with like effect as if exercised and taken by unanimous action of the directors and stockholders of the corporation.Del. Code, tit. 8, § 303(a). This Delaware corporate statute is an express recognition that in a Chapter 11 many actions are proposed by the debtor-in-possession, a trustee, or other parties which are not approved through the normal corporate approval process - and formally sanctions the court approval process in lieu of the ordinary corporate process. In this instance, the court authorized Special Counsel through the Employment Orders to file the Adversary Proceedings as provided for in the Special Counsel Application to Employ. Then, as Special Counsel appointed by the court, Special Counsel had the corporate authority under § 303 to file the Adversary Proceedings. Express authority from the disqualified directors was not necessary. Thus, whether viewed from the agency law lens detailed in the Decision or the Delaware Corporate law, Special Counsel was cloaked with the authority to file the Adversary Proceedings.
GYPC is a Delaware corporation. See Est. Doc. 2.
F. Discovery Is Not Necessary Because the Issues Presented Were Purely Legal Issues and Parol Evidence May Not Be Used to Vary the Meaning of the Orders
Determination of purely legal issues need not and should not be delayed for the pursuit of discovery unnecessary to the determination of the legal issues. Williams v. United States Postal Serv., Case No. 1:09-cv-752, 2011 U.S. Dist. LEXIS 69396, at *21 (S.D. Ohio June 28, 2011) ("[T]he plaintiffs cannot prolong the resolution of what are otherwise purely legal issues by ambiguous references to the need for, and the general importance of discovery.") (citations omitted). See also rsc The Quality Measurement Co. v. IPSOS-ASI, Inc., 196 F. Supp. 2d 609, 619 (S.D. Ohio 2001) ("In this case, the only element of preclusion that possibly might require any discovery is whether the party to whom preclusion is to be applied was a party or in privity with a party to the earlier litigation. In this case, however, that point is not disputed. Therefore, the Court finds that it is appropriate to determine whether any of Plaintiff's claims are barred by claim or issue preclusion without awaiting any further discovery."). It is undisputed that the Defendants did not expressly authorize the filing of the adversary proceedings, leaving the issue of whether the Applications to Employ and the Employment Orders authorized the filings. Discovery is not necessary for the court to construe the Applications to Employ and the Employment Orders.
In addition, when a retention order or any other order is unambiguous, parol evidence may not be introduced to vary its meaning. In re Borders Group, Inc., Case No. 11-10614 (MG), 2011 Bankr. LEXIS 5544, at *12-13 (Bankr. S.D.N.Y. Dec. 5, 2011). In Borders a retention order was provided to the court by the parties and signed and entered by the court providing a fee to an entity if the entity "ran a 'sale process' with respect to the Debtor's assets[.]" Id. At *3. The entity ran such a sale but was not able to procure a purchaser as a result of those efforts. The unsecured creditors' committee argued that the entity was not entitled to a fee for its efforts since it was not successful in its efforts. The court disagreed with the committee, noting that the order was clear and unambiguous on its face and that parol evidence could not be introduced to add to or vary the terms of the order. Likewise, another bankruptcy court refused to permit parol evidence to vary the terms of a consent order which was not "facially ambiguous." Ramco-Remodel Am. Corp. v. Wallis (In re Ramco-Remodel Am. Corp.), 536 B.R. 206, 210-11 (Bankr. W.D. Tenn. 2015) (applying Tennessee law).
Ohio law likewise prohibits the introduction or use of parol evidence to vary or contradict the meaning of an unambiguous terms. Ohio Historical Soc. V. Gen. Maint. & Eng'g Co., 583 N.E.2d 340, 344 (Ohio Ct. App. 1989); Pharmacia Hepar, Inc. v. City of Franklin, 676 N.E.2d 587, 592 (Ohio Ct. App. 1996).
In their replies to the Motions, Cummings and Webb strenuously argue that the Applications to Employ did not expressly authorize Special Counsel to file this litigation and argue that the Applications to Employ are ambiguous in that regard. In doing so, they ignore that the General Counsel Application to Employ granted authority to the Thomsen firm to "[c]ommence and conduct any and all litigation necessary and appropriate to assert rights held by the Debtor, protect assets of the Debtor's estate, or otherwise further the goal of completing the successful reorganization of the Debtor[.]" General Counsel Application to Employ, Est. Doc. 69 at 5 (emphasis added). The Special Counsel Application to Employ could not have been more specific that it was authorizing the filing of the avoidable transfers identified by the Statement of Financial Affairs:
Doc. 66 (19-3046) and Doc. 65 (19-3047).
2. The professional legal services Special Counsel is to render shall include but is not necessarily limited to, the following: (a) managing a large number of anticipated avoidance action adversary proceedings, including making settlement demands and filing separate adversary proceedings against targets of avoidance actions as identified in the Applicant's filed Statement of Financial Affairs[.] . . . Further, as additional transferees are determined (other than those listed in the Statement of Financial Affairs)[.] . . .Special Counsel Application to Employ at 1-2 (emphasis added). While the General Counsel Application to Employ authorized the Thomsen firm, as general counsel, to commence and conduct all litigation necessary and appropriate to collect and preserve GYPC's assets, the Special Counsel Application expressly authorized Special Counsel to pursue the avoidable transfers identified in the Statement of Financial Affairs. As has been described, the avoidable transfers that are the subject of the Adversary Proceedings are identified in the Statement of Financial Affairs. Accordingly, the Applications to Employ unambiguously authorized the filing of the adversary proceedings.
3. The statute of limitations for filing of avoidance action adversary proceedings is March 30, 2019 and the Applicant's Statement of Financial Affairs indicates approximately 400 separate targets of potential avoidance actions.
The Defendants' argument as to the interpretation of the Applications to Employ require that one read into the Special Counsel Application to Employ the phrase "and approved by Applicant's directors" after the phrase "and filing separate adversary proceedings against targets of avoidance actions as identified in the Applicant's filed Statement of Financial Affairs." However, parol evidence cannot be read into an unambiguous document nor contradict its unambiguous terms. Constr. Interior Sys. v. Marriott Family Rests., 984 F.2d 749, 757 n. 5 (6th Cir. 1993); Lamer v. Metaldyne Co., LLC, 240 Fed. Appx. 22, 32 (6th Cir. 2007). Accordingly, the Supreme Court held that when a contract does not contain a warranty, a warranty cannot be added to the terms of a contract through the introduction of parol evidence. De Witt v. Berry, 134 U.S. 306 (1890). The Defendants cannot now add to the Special Counsel Application to Employ an additional term - that all of the avoidable transfer proceedings be approved by GYPC's directors - even though those transfers were identified in the Statement of Financial Affairs and the court approved the Application after notice provided to all parties in interest, including the Defendants.
In sum, the approved Special Counsel Application to Employ is unambiguous. The Special Counsel was authorized to file avoidable transfer actions as identified in the Statement of Financial Affairs, with claims against the professionals excepted. The claims against the Defendants were identified in the Statement of Financial Affairs and were not exempted.
G. The Court Did Not Grant Summary Judgment
Finally, the Defendants argue that the court erred in granting summary judgment against them on the authority issue without their being able to conduct the discovery outlined above. That is not correct - the court did not grant summary judgment. Their argument is premised in large part upon the fact that both sets of parties, the Trustee and the Defendants submitted affidavits and declarations and other materials in support of and in opposition to the motions to dismiss (the "Supplemental Materials"). Because the parties filed the Supplemental Materials that went beyond the pleadings, the court believed at the time that it was appropriate to convert the motions to motions for summary judgment. See Fed. R. Civ. P. 12(d) (applicable by Fed. R. Bankr. P. 7012). However, upon reviewing the dockets for the estate case and the adversary proceedings, the Applications to Employ, the Statement of Financial Affairs, and the Employment Orders, the court determined that there were no material issues of fact which prevented the court from being able to resolve the authority issue as a matter of law and that the matter could be determined as a matter of law based upon the filings on the court's docket.
The Defendants' motion to dismiss argued that Special Counsel lacked authority to file the adversary complaints is premised upon the theory that Special Counsel lacked express authority from the Defendants to file the complaints. However, Special Counsel does not dispute that the Defendants did not grant express authority to file the adversary proceedings. Rather, Special Counsel assert that it had actual authority:
The special counsel received authority through the Special Counsel Application to review the transfers identified on the Statement of Financial Affairs and to bring avoidance actions based upon that review. As such, the
authority given to the special counsel was authority to bring avoidance actions as deemed appropriate by special counsel, in consultation with the Debtor's general bankruptcy counsel, from the list of transfers on the Statement of Financial Affairs. The transfers to the Defendant were identified in a general fashion on the Statement of Financial Affairs, in response to Question 30.Doc. 11 at 7 (19-3046); Doc. 12 at 7 (19-3047) (emphasis added; footnote omitted). No factual dispute exists as to whether the Defendants personally and expressly authorized the filing of the adversary proceedings.
The issue instead was could and did the Debtor in Possession through the Applications to Employ, the Statement of Financial Affairs, and the Employment Orders grant authority to Special Counsel to file the adversary proceedings or was express authority from the Defendants necessary. Alternatively, if the Defendants were disqualified from deciding whether to approve the filing of the adversary proceedings, was it required that a Chapter 11 trustee be appointed, or the case converted to Chapter 7 to allow a trustee to make that decision? This scenario raised legal issues, rather than factual questions. The Decision ruled that express authority from the Defendants was not necessary and the approved Applications to Employ, read in concert with the Statement of Financial Affairs provided actual authority to file the adversary proceedings.
A court may review and rely upon the court's docket and filings on its docket, including its own orders, without treating the matter as a summary judgment proceeding under Federal Rule of Civil Procedure 56:
In determining whether to grant a Rule 12(b)(6) motion, the court primarily considers the allegations of the complaint, although matters of public record, orders, items appearing in the record of the case, and exhibits attached to the complaint, also may be taken into account.Amini v. Oberlin College, 259 F.3d 493, 502 (6th Cir. 2001); Nieman v. NLO, Inc., 108 F.3d 1546, 1554 (6th Cir. 1997) (same). See also Malin v. JPMorgan, 860 F. Supp. 2d 574, 578 (E.D. Tenn. 2012) ("The submitted copies of plaintiffs' bankruptcy petitions, the motions for relief from the automatic stay, and the orders of the Bankruptcy Court, are matters of public record and therefore the Court's taking judicial notice of the bankruptcy filings do not convert this motion into one for summary judgment.") (citations omitted); The Defendants' motions to dismiss were made under Federal Rule of Civil Procedure 12(b)(6). Doc. 58 (19-3046) & Doc. 59 (19-3047).
The Sixth Circuit has rejected the notion that a trial court cannot decide dismissal issues as a matter of law when materials outside the pleadings are submitted to the court. Thus, the court stated:
We therefore reject the defendants' contention on appeal that since materials outside of the pleadings were submitted to the district court, the district court's judgment was necessarily one of summary judgment on the merits with res judicata effect. While a motion to dismiss can certainly be treated by a district court as a motion for summary judgment when supplemental materials are filed, see Mozert v. Hawkins County Pub. Schools, 765 F.2d 75, 78 (6th Cir. 1985), the court in the instant case clearly did not do so. The court succinctly stated that it was granting the defendants' motion to dismiss and was dismissing the plaintiffs' complaints without prejudice. This shows no contemplation of entering a summary judgment in favor of the defendants.Atkins v. Louisville & N. R. Co., 819 F.2d 644, 647 (6th Cir. 1987). See also Jones v. City of Carlisle, 3 F.3d 945, 947 n. 3 (6th Cir. 1993) (citing Atkins) ("However, the Motions to Dismiss were not transformed into summary judgment motions because the district court specifically stated that it was granting a Rule 12(b)(6) dismissal and it is apparent from the decision that the district court did not rely on the outside evidence submitted in rendering its decision.").
Accordingly, since the motions did not present contested issues of fact and were made under Rule 12(b)(6) and the court did not consider the any of the supplemental evidentiary materials the parties included in their filings, the court appropriately considered the applications to employ, related orders, and the Statement of Financial Affairs in ruling on the legal issues presented and consideration of those items did not convert the motions into motions for summary judgment.
IV. Conclusion
For the foregoing reasons, the Motions are denied. The Court is contemporaneously entering orders consistent with this Decision.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
/s/ _________
Guy R. Humphrey
United States Bankruptcy Judge Dated: August 4, 2020 Copies to: Patricia J. Friesinger
Zachary B. White
Daniel J. Gentry
(Counsel for the Plaintiffs, electronically served) Casey M. Cantrell Swartz
Michael L. Meyer
W. Timothy Miller
(Counsel for the Defendants, electronically served) Alfred J. Weisbrod, 111 W. First Street, Dayton, Ohio 45402 (Counsel for the Defendants)