Opinion
18-3371
12-20-2019
IN RE: KIRWAN OFFICES S.à.R.L., Debtor. STEPHEN P. LYNCH, Appellant, v. MASCINI HOLDINGS LIMITED, LAPIDEM LIMITED, Creditors-Appellees.
FOR APPELLANT: STEPHEN P. LYNCH, pro se, Moscow, Russia. FOR CREDITORS-APPELLEES: MARK A. MCDERMOTT (Jonathan Frank, on the brief), Skadden, Arps, Slate, Meagher & Flom LLP, New York, NY. FOR AMICUS CURIAE: Jean-David Barnea, Jeannette A. Vargas, Assistant United States Attorneys, for Geoffrey S. Berman, United States Attorney for the Southern District of New York, New York, NY.
SUMMARY ORDER RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT'S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION "SUMMARY ORDER"). A PARTY CITING TO A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the 20th day of December, two thousand nineteen. PRESENT: ROBERT D. SACK, DENNY CHIN, JOSEPH F. BIANCO, Circuit Judges. FOR APPELLANT: STEPHEN P. LYNCH, pro se, Moscow, Russia. FOR CREDITORS-APPELLEES: MARK A. MCDERMOTT (Jonathan Frank, on the brief), Skadden, Arps, Slate, Meagher & Flom LLP, New York, NY. FOR AMICUS CURIAE: Jean-David Barnea, Jeannette A. Vargas, Assistant United States Attorneys, for Geoffrey S. Berman, United States Attorney for the Southern District of New York, New York, NY.
Appeal from a judgment of the United States District Court for the Southern District of New York (McMahon, C.J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that the judgment of the district court is AFFIRMED.
Appellant Stephen P. Lynch, proceeding pro se, appeals from an October 11, 2018 judgment of the district court affirming a March 21, 2017 order of the bankruptcy court confirming a reorganization plan (the "Plan") for debtor Kirwan Offices S.à.r.L. ("Kirwan"). Lynch is one of Kirwan's three shareholders. The other two -- Lapidem Limited ("Lapidem") and Mascini Holdings Limited ("Mascini") (together, "Appellees") -- filed an involuntary bankruptcy petition against Kirwan and proposed the Plan. Lynch opposes the Plan because it strips him of his rights under the shareholder agreement (the "SHA").
Lynch makes five arguments on appeal: (1) he did not receive adequate notice of the Plan's confirmation hearing; (2) the bankruptcy court lacked subject matter jurisdiction to confirm part of the Plan; (3) certain provisions of the Plan illegally prevent him from pursuing future claims against Appellees; (4) his post-confirmation motions should have been granted; and (5) Appellees acted in bad faith when they brought the bankruptcy action in White Plains. We assume the parties' familiarity with the underlying facts, the procedural history of the case, and the issues on appeal.
"A district court's order in a bankruptcy case is subject to plenary review." In re Cacioli, 463 F.3d 229, 234 (2d Cir. 2006). "We review the bankruptcy court's findings of fact for clear error and its conclusions of law de novo." Id. "We review de novo rulings as to the bankruptcy court's jurisdiction." In re Motors Liquidation Co., 829 F.3d 135, 152 (2d Cir. 2016).
I. Notice
Lynch argues that the confirmation order is void because he did not receive adequate notice of the confirmation hearing in violation of the Due Process Clause of the Fifth Amendment and Article 15 of the Hague Convention on Service Abroad of Judicial and Extrajudicial Documents ("Hague Service Convention"), and because the notice period was improperly abbreviated. We are not persuaded.
First, failure to serve notice in conformity with the bankruptcy court's rules did not establish a due process violation because Lynch received actual notice of the filing and contents of the Plan, and he did not object to the notice of the confirmation hearing. United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 272 (2010) (holding failure to serve summons and complaint in conformity with the Bankruptcy Rules did not render a confirmation order void where the objecting party received actual notice and failed to object to inadequate service).
In contrast, Lynch did object to the email notice he received of the telephonic hearing. Moreover, while he objected to the confirmation of the Plan on other grounds, he did not object to the notice of the bankruptcy confirmation hearing.
Second, Lynch's reliance on Article 15 of the Hague Service Convention is misplaced, as that article applies to a "writ of summons or an equivalent document" and has no bearing on the service of notice of a hearing on confirmation of a reorganization plan. See Hague Service Convention Art. 15. The Supreme Court has noted that the scope of the Hague Service Convention is likely limited to "service of process," see Water Splash, Inc. v. Menon, 137 S. Ct. 1504, 1510 n.2 (2017), which is defined as "a formal delivery of documents that is legally sufficient to charge the defendant with notice of a pending action." Volkswagenwerk Aktiengesellschaft v. Schlunk, 486 U.S. 694, 700 (1988). Here, Lynch was not a nonparty who needed "notice of a pending action." Id. Instead, he had already voluntarily appeared in the bankruptcy proceedings and participated substantively, including, for example, by moving to dismiss the bankruptcy case (on other grounds) and to compel arbitration. Thus, the Hague Service Convention is not relevant here, and Espinosa controls.
Third, bankruptcy courts have authority to abbreviate the notice period "for cause." Fed. R. Bankr. P. 9006(c)(1). We decline to consider Lynch's argument that the bankruptcy court abused its discretion in doing so here because this argument was available to Lynch in the bankruptcy court, but he did not raise it. See In re Johns-Manville Corp., 759 F.3d 206, 219 (2d Cir. 2014) (failure to raise an argument in bankruptcy court constitutes waiver, even if the argument was subsequently raised in the district court).
II. Subject Matter Jurisdiction
The Plan affects Lynch's rights under the SHA because it includes provisions (the "Exculpation Clauses") releasing and enjoining claims against Appellees related to the restructuring efforts and/or the Plan. Lynch contends the bankruptcy court lacked subject matter jurisdiction to approve the Exculpation Clauses. Lynch's appeal and the Government's amicus brief raise several distinct jurisdictional questions regarding the bankruptcy court's authority to enter an order including the Exculpation Clauses. We need not reach these issues, however, because they are barred in part by the doctrine of res judicata and resolved in part by Lynch's implicit consent to the bankruptcy court's entry of a final order. We address these two issues in turn.
A. Res Judicata
Under the doctrine of res judicata, or claim preclusion, "[a] final judgment on the merits of an action precludes the parties . . . from relitigating issues that were or could have been raised in that action." Federated Dep't Stores, Inc. v. Moitie, 452 U.S. 394, 398 (1981) (citations omitted). "A voluntary dismissal with prejudice is an adjudication on the merits for purposes of res judicata." Chase Manhattan Bank, N.A. v. Celotex Corp., 56 F.3d 343, 345 (2d Cir. 1995).
In Travelers Indemnity Co. v. Bailey, 557 U.S. 137 (2009), a bankruptcy court issued an order enjoining certain claims against the debtor's insurer and incorporated that order into a confirmation order that this Court affirmed. Id. at 141-42. Years later, the bankruptcy court interpreted its prior orders to enjoin third-party claims that, in this Court's view, were outside the bankruptcy court's jurisdiction. Id. at 142-46. The Supreme Court held that the principle of res judicata barred that jurisdictional inquiry: the bankruptcy court's orders "became final on direct review (whether or not proper exercises of bankruptcy court jurisdiction and power)" and were "not any the less preclusive because the attack is on the Bankruptcy Court's conformity with its subject-matter jurisdiction, for even subject-matter jurisdiction may not be attacked collaterally." Id. at 152 (internal alterations, quotation marks, and citations omitted).
Here, Lynch's jurisdictional claims are barred by res judicata. Lynch appealed the bankruptcy court's order, which set forth the following rulings: (1) it had jurisdiction over the petition and Lynch's motion to dismiss or intervene, which raised, inter alia, the issue that the petition and proceeding in the bankruptcy court would violate Lynch's rights under the SHA; (2) it denied the motion in part; (3) it preserved certain issues raised by Lynch for a future hearing; and (4) it asserted and retained jurisdiction "to hear and to determine all matters arising from the interpretation and/or implementation of this Order." See In re Kirwan Offices S.a.R.L., S.D.N.Y. 16-22321 (RDD), doc. 43. Because the bankruptcy court's confirmation order -- including with respect to the Exculpation Clauses -- reflected an exercise of its previously affirmed jurisdiction, we agree that the question of whether these issues fall within the court's core jurisdiction is barred by res judicata.
B. Consent
This does not end our inquiry, however, because the Supreme Court held in Stern v. Marshall that, as a constitutional matter, a final order must be entered by an Article III court in certain core proceedings. 564 U.S. 462, 499 (2011). This barrier to the bankruptcy court's entry of a final judgment may be overcome by the parties' express or implied consent. Wellness Int'l Network, Ltd. v. Sharif, 135 S. Ct. 1932, 1948 (2015). Policies in favor of "increasing judicial efficiency and checking gamesmanship" underlie this rule. Id.
We need not decide whether Stern would otherwise require entry of a final order by the district court, because we find that Lynch implicitly consented to the bankruptcy court's jurisdiction. First, he presented at least some of his SHA claims to the bankruptcy court when he moved to dismiss the bankruptcy petition and to compel arbitration. Second, Lynch declined to participate in the confirmation hearing or otherwise object to the proposed Plan prior to its entry, despite having notice of them and their effect on his rights. Because Lynch voluntarily presented these claims to the bankruptcy court, and because his objection to the court's jurisdiction came only after it entered the confirmation order, the policies of "increasing judicial efficiency and checking gamesmanship" are implicated, id., and we conclude that his conduct establishes implicit consent.
III. Exculpation Clauses
Lynch next argues that, even if the bankruptcy court had the authority to enter an order containing the Exculpation Clauses, it was improper to do so because the clauses were not "necessary" to the reorganization plan and "unusual circumstances" were not present, as required by our decision in In re: Metromedia Fiber Network, Inc., 416 F.3d 136, 142-43 (2d Cir. 2005). Appellees argue that Lynch waived this issue by failing to object at the time of confirmation. We agree that this issue was waived. See In re Johns-Manville Corp., 759 F.3d at 219. Lynch is incorrect that he was not provided an opportunity for a hearing. As discussed above, Lynch had notice of the motion to abbreviate the confirmation notice period and of the Plan, and he failed to object to either. See supra Section I.
IV. Post-Confirmation Motion
The bankruptcy court did not abuse its discretion in denying Lynch's post-confirmation motion under Fed. R. Civ. P. 59(a), (e) and 60(b)(3), (4), (6), which are incorporated in all relevant respects by Fed. R. Bankr. P. 9023 and 9024. Lynch sought relief from the confirmation order on the grounds that (1) Appellees had misrepresented the facts establishing venue, (2) the judgment was void because the bankruptcy court had exceeded its jurisdiction, and (3) the Exculpation Clauses were not justified under the facts of the case. In the alternative, he seeks reconsideration or retrial on the confirmation order.
As to Lynch's Rule 60(b)(3) motion, asserting that Appellees engaged in misconduct or fraud related to venue, Lynch has waived the issue because he provides no explanation why the bankruptcy court erred in finding that Kirwan had an asset establishing venue. See Norton v. Sam's Club, 145 F.3d 114, 117 (2d Cir. 1998) ("Issues not sufficiently argued in the briefs are considered waived and normally will not be addressed on appeal."). As to Lynch's Rule 60(b)(4) motion, asserting that the bankruptcy court's order was void for lack of jurisdiction, we disagree for the reasons discussed above. See supra Section II. As to Lynch's Rule 60(b)(6) motion, he argued that the bankruptcy court wrongly decided that the Exculpation Clauses were warranted under the facts of this case. But this Court has warned that "a Rule 60 motion may not be used as a substitute for appeal and that a claim based on legal error alone is inadequate." United Airlines, Inc. v. Brien, 588 F.3d 158, 176 (2d Cir. 2009) (internal quotation marks omitted). Lynch also did not meet the "strict" standard for a Rule 59 motion, because he did not "point to controlling decisions or data that the court overlooked." Analytical Surveys, Inc. v. Tonga Partners, L.P., 684 F.3d 36, 52 (2d Cir. 2012) (internal quotation marks omitted). To the extent he reiterated prior objections to the bankruptcy court's jurisdiction, this was not a proper basis for a Rule 59 motion. See id. (a reconsideration motion "is not a vehicle for . . . presenting the case under new theories . . . or otherwise taking a second bite at the apple" (internal quotation marks omitted)).
V. Bad Faith
Finally, we decline to consider Lynch's new claim on appeal that Appellees acted in bad faith by filing their petition in White Plains. See In re Johns-Manville Corp., 759 F.3d at 219. Lynch concedes that he did not previously raise this claim -- that Appellees participated in their counsel's "repeated scheme . . . to improperly funnel Russian (and perhaps other) clients to the Westchester single-judge" bankruptcy court -- but asserts that he only belatedly learned of this practice and that the judge was not randomly assigned. Appellant's Reply Br. at 3, 7. But the number of judges in the White Plains bankruptcy court is public information that was available to him throughout the proceedings. And, even accepting Lynch's premise that Appellees anticipated a strategic advantage by filing in White Plains, this does not establish that Appellees acted in bad faith by selecting that venue. Cf. Iragorri v. United Techs. Corp., 274 F.3d 65, 71-72 (2d Cir. 2001) (in the context of a motion to dismiss for forum non conveniens, courts balance the extent to which the choice of forum was motivated by proper considerations, such as connections to the action and convenience of the parties, against the extent to which it appears that the choice of forum was "motivated by forum-shopping reasons").
We note that Lynch does not present any reasons why Washington, D.C. would be a more appropriate venue than New York if Kirwan had assets in both locations.
* * *
We have considered all of Lynch's remaining arguments and find them to be without merit. Accordingly, we AFFIRM the judgment of the district court.
FOR THE COURT:
Catherine O'Hagan Wolfe, Clerk of Court