Landsource Communities Develop v. ( 2020 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 20-1134
_____________
In re: LANDSOURCE COMMUNITIES DEVELOPMENT LLC,
a/k/a Lennar/LNR Funding,
a/k/a LENR Properties LLC,
a/k/a NWHL Investment, LLC, et al.,
Debtors
v.
CITIZENS AGAINST CORPORATE CRIME, LLC,
Appellant
_____________________________________
On Appeal from the United States District Court for the
District of Delaware
(District Court No.: 1:18-cv-01793)
District Judge: Colm F. Connolly
_____________________________________
Submitted under Third Circuit L.A.R. 34.1(a)
September 25, 2020
(Opinion Filed: December 3, 2020)
Before: McKEE, JORDAN and RENDELL, Circuit Judges.
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O P I N I O N*
_________
*
This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.
RENDELL, Circuit Judge.
Citizens Against Corporate Crime LLC (“CACC”) and its sole member and officer
Nicholas Marsch III, appeal the District Court’s order affirming the decision of the
Bankruptcy Court to reopen the Chapter 11 case of Debtor LandSource Communities
Development LLC and to enforce its order confirming the final reorganization plan. By
its order, the Bankruptcy Court enjoined CACC and Marsch—who was a participant in
the Chapter 11 proceedings—from litigating claims against another Chapter 11
participant, Lennar Corporation. The claims against Lennar, the Bankruptcy Court
concluded, were barred by the confirmation order. The District Court agreed with the
Bankruptcy Court, as do we and, therefore, we will affirm.
I.
As we write for the parties, and they are well-acquainted with the circumstances of
this case from their litigation here and in jurisdictions across the country,1 we set forth the
following background only as necessary to resolve this appeal.
In 2008, LandSource, a real estate development company, petitioned for Chapter
11 bankruptcy relief. At that time, Appellee Lennar was LandSource’s largest unsecured
creditor. The Creditor’s Committee, of which Marsch and his other company—
Briarwood Capital—were members, sought the release of Lennar’s claims to permit and
1
See, e.g., In re Nicholas Marsch, No. 10-02939-PB11, 2010 WL 5114726 (Bankr. S.D.
Cal. Dec. 2, 2010); In re Briarwood Capital, LLC, No. 10-02677-PB11, 2010 WL
2884944 (Bankr. S.D. Cal. July 20, 2010); Briarwood Capital, LLC. v. Lennar Homes of
Cal., Inc., Nos. D054803, D056061, 2010 WL 4873505 (Cal. Ct. App. Dec. 1, 2010);
Briarwood Capital, LLC v. Lennar Corp., 160 So. 3d 544 (Fla. Dist. Ct. App. 2015).
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maximize any distributions available for smaller unsecured creditors. Without such
release, the lion’s share of distributions from the bankruptcy estate would likely have
flowed to Lennar. Thus, the Creditor’s Committee negotiated a deal with Lennar.
Under the deal, Lennar agreed to contribute nearly $140 million to the estate and
to release its unsecured claims. In exchange, Lennar received, among other things, a
broad release and waiver of “any and all Claims . . . or liabilities whatsoever” held by
“any Person, in any way relating to the Debtors, the Chapter 11 Cases, or the Plan.” JA
11 (citing JA 1154) (emphasis added). Later, the Bankruptcy Court adopted the terms of
this deal into its order confirming the final Chapter 11 plan. Neither Marsch nor his
company, Briarwood, appealed from the final confirmation order.
Over seven-and-a-half years later, Marsch, as sole owner and officer, formed
Appellant CACC under Wyoming law and filed a whistleblower action against Lennar in
California court. CACC alleged that Lennar, by its conduct leading up to and through the
LandSource Chapter 11 bankruptcy, defrauded the California Public Employees’
Retirement System (“CalPERS”), which had been a major investor in LandSource. The
California Office of the Attorney General reviewed CACC’s allegations and complaint,
but ultimately declined to intervene.
In response to the California whistleblower case, Lennar moved the Bankruptcy
Court to reopen the LandSource Chapter 11 case and to enforce its final plan
confirmation order by enjoining CACC and Marsch from proceeding with the suit. After
a hearing, the Bankruptcy Court granted both Lennar’s motion to reopen and its motion
to enforce, concluding that:
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(1) it is undisputed that Marsch was the “sole and
controlling member” of CACC and that Marsch
“formed CACC as a way of trying to get around and
avoid the release and injunction provision provided in
the confirmed Chapter 11 plan of LandSource which
was not appealed and [h]as long, long since become
final;
(2) there is “no question” that “Mr. Marsch is in privity with
CACC [and] Briarwood and is bound by the injunction
and release;” and
(3) “the people of California do not oppose the relief that
Lennar has requested” and the “actual relief sought by
Lennar is limited to Mr. Marsch and CACC.”2
JA 17–18 (citing JA 2329). CACC appealed and the District Court affirmed in a
thorough, well-reasoned thirty-three-page opinion. This timely appeal followed.
II.
The District Court had jurisdiction under 28 U.S.C. § 158(a)(1). We have
jurisdiction under 28 U.S.C. § 158(d).
“We exercise plenary review of an order from a district court sitting as an
appellate court in review of a bankruptcy court.” In re Exide Techs., 607 F.3d 957, 961–
62 (3d Cir. 2010) (citing In re CellNet Data Sys., Inc., 327 F.3d 242, 244 (3d Cir. 2003)).
In so doing, we review legal determinations by a bankruptcy court de novo and review
factual findings for clear error. Id. (citing In re Gen. DataComm Indus., Inc., 407 F.3d
616, 619 (3d Cir. 2005)). However, a bankruptcy court’s decision on a motion to reopen
bankruptcy proceedings, like decisions interpreting its own confirmation orders, is
2
JA 2219 (filing from the California Attorney General expressing his “non-opposition to
Lennar Corporation’s Motion to Enforce the Injunction and Release in Debtor’s Joint
Chapter 11 Plan and Confirmation Order[.]”).
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afforded greater deference and reviewed for abuse of discretion. In re Shenango Group
Inc., 501 F.3d 338, 346 (3d Cir. 2007) (“[A] bankruptcy court’s interpretation of its own
order ought to be subject to review for an abuse of discretion.”); In re Zinchiak, 406 F.3d
214, 224 (3d Cir. 2005) (“[T]he decision of the Bankruptcy Court to reopen a previously
closed bankruptcy proceeding is reviewed for abuse of discretion.”).
III.
CACC’s and Marsch’s appeal rests on the contention that by reopening the
bankruptcy case and enforcing the terms of the confirmation order against them, the
Bankruptcy Court effectively and unfairly “enjoined non-parties never before the court,
including millions of Californians, the California Department of Justice Office of the
Attorney General, and even lawyers, from ever seeking relief under the False Claims Act
laws of California and its qui tam remedy.” Appellant’s Br. 18, ECF No. 20. As we
explain below, we, like the District Court, disagree with this central premise. After
explaining why this premise is fundamentally flawed, we reject each of CACC’s and
Marsch’s three other alleged errors that they contend warrant reversal.
While CACC and Marsch characterize the Bankruptcy Court’s and District
Court’s rulings as affecting “non-parties never before the [Bankruptcy] [C]ourt,” the
undisputed facts show that the only parties affected are CACC and Marsch—who himself
appeared before the Bankruptcy Court in connection with the LandSource Chapter 11
case over a decade ago. Indeed, Marsch did not merely appear before the Bankruptcy
Court as the head of Briarwood, one of the unsecured creditors, but he played a central
role in the final reorganization plan as a member of the Creditors’ Committee. It was the
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Creditors’ Committee, after all, who negotiated the terms of the general release and
waiver, which Marsch now seeks to circumvent.
That the Bankruptcy Court and District Court’s rulings affect only Marsch and
CACC is also evident from the plain terms of the Bankruptcy Court’s order, which
granted injunctive relief expressly “limited to Mr. Marsch and CACC.” JA 30. The
Bankruptcy Court enjoined only Marsch and CACC from pursuing claims against
Lennar—no one else. In fact, the Bankruptcy Court eliminated any risk that its order
might be misconstrued as affecting the rights of parties beyond Marsch and CACC in
recognizing that “the people of California,” for whom Marsch and CACC purport to
speak, in fact, “do not oppose” enjoining Marsch’s and CACC’s whistleblower claims.
JA 2223 (emphasis added); see also JA 42–43 (limiting applicability of its order to
CACC and Marsch). In view of the undisputed record and the care of the Bankruptcy
Court in crafting its order, we are unpersuaded that this matter affects any party beyond
CACC and Marsch.
Having concluded that the essential premise of CACC’s and Marsch’s argument is
meritless, we easily dispense with their other arguments advanced in favor of reversal.
Contrary to their contentions, we hold that the District Court did not err in concluding:
(1) that the Bankruptcy Court acted within its discretion in reopening the case; (2) that
the Bankruptcy Court acted within its discretion in denying their motion for permissive
abstention; and (3) that CACC and its sole owner and officer, Marsch, were bound by the
terms of the plan confirmation order.
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First, the Bankruptcy Court acted well within its discretion in reopening the
LandSource Chapter 11 case. We regularly recognize the wide latitude of the bankruptcy
courts to “reopen a closed case ‘to administer assets, to accord relief to the debtor or for
other cause.’” In re Lazy Days’ RV Center, Inc., 724 F.3d 418, 422 (3d Cir. 2013)
(quoting 11 U.S.C. § 350(b)). Such latitude is appropriate because it is the bankruptcy
court that can “provide the best interpretation of its own order[.]” Id. at 423 (quoting In
re Zinchiak, 406 F.3d at 224) (internal quotation marks omitted). Bankruptcy courts
often reopen cases “to resolve [] dispute[s] regarding Settlement Agreement[s] it had
previously confirmed . . . . ” Id. This is precisely what the Bankruptcy Court did here
and we agree with the District Court that the decision to reopen was fully within the
Bankruptcy Court’s discretion because it was “for the limited purpose of interpreting and
enforcing [its own] Confirmation Order.” JA 24.
Second, we have no jurisdiction to review the District Court’s and Bankruptcy
Court’s decisions not to invoke permissive abstention under 28 U.S.C. § 1334(c)(1).
Section 1334(c)(1) provides that a district court may “in the interest of justice . . .
abstain[] from hearing a particular proceeding arising under title 11 or arising in or
related to a case under title 11.” 28 U.S.C. § 1334(c)(1). “Any decision to abstain or not
to abstain made under subsection (c) . . . is not reviewable by appeal or otherwise by the
court of appeals . . . . ” 28 U.S.C. § 1334(d) (emphasis added). We have explained that
“appeals of orders denying permissive abstention unquestionably are not allowed.” In re
Seven Fields Dev. Corp., 505 F.3d 237, 252 (3d Cir. 2007). Thus, we have no
jurisdiction to review the denial of CACC’s and Marsch’s underlying motion for
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permissive abstention. If we had jurisdiction, however, we would agree with the District
Court’s well-reasoned conclusion that the Bankruptcy Court did not abuse its discretion
in refusing to abstain.
Third, we agree with the District Court’s factual conclusion that CACC and
Marsch, as CACC’s sole owner and officer in privity with Briarwood, are bound by the
terms of the Bankruptcy Court’s confirmation order including the broad, unambiguous
provisions by which Marsch and Briarwood released and waived all claims against
Lennar. As the District Court explained, the terms of the confirmation order and the
release and waiver provisions contained in it plainly bar Marsch’s and CACC’s claims
because their claims clearly “relate to” the Chapter 11 bankruptcy case. We discern no
error in either the judgment of the District Court or the Bankruptcy Court.
IV.
For these reasons, we will affirm the District Court’s order.
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