BEST PRACTICES IN LITIGATING ADVERSARY PROCEEDINGS AND CONTESTED - PDF document

BEST PRACTICES IN LITIGATING ADVERSARY PROCEEDINGS AND CONTESTED MATTERS David O. Simon, Esq. Kari B. Coniglio, Esq. Joseph M. Romano, Esq. Edward A. Bailey, Esq.

Best Practices in Litigating Adversary Proceedings and Contested Matters This panel will cover issues we frequently see in bankruptcy litigation, and recommendations for the best manner to address them, all in compliance with the Bankruptcy Code and Federal Rules of Bankruptcy Procedure. The issues will include: I. Contested Matters v. Adversary Proceedings (and when the latter are necessary) A. What’s the difference?: The difference between a contested matter and an adversary proceeding is that a contested matter involves a contested request for relief in the context of the main bankruptcy proceeding (pursuant to Rule 9014 of the Federal Rules of Bankruptcy Procedure), while an adversary proceeding involves the filing of a complaint, commencing a separate proceeding governed by the “7000” series of the Bankruptcy Rules. B. Adversary Proceedings 1. Overview of Bankruptcy Rule 7001: Matters that must be resolved in an adversary proceeding include: a. a proceeding to recover money or property, other than a proceeding to compel the debtor to deliver property to the trustee, or a proceeding under §554(b) or §725 of the Code, Rule 2017, or Rule 6002; b. a proceeding to determine the validity, priority, or extent of a lien or other interest in property, but not a proceeding under Rule 3012 or Rule 4003(d); c. a proceeding to obtain approval under §363(h) for the sale of both the interest of the estate and of a co-owner in property; d. a proceeding to object to or revoke a discharge, other than an objection to discharge under §§727(a)(8), 1 (a)(9), or 1328(f); e. a proceeding to revoke an order of confirmation of a chapter 11, chapter 12, or chapter 13 plan; f. a proceeding to determine the dischargeability of a debt; g. a proceeding to obtain an injunction or other equitable relief, except when a chapter 9, chapter 11, chapter 12, or chapter 13 plan provides for the relief; h. a proceeding to subordinate any allowed claim or interest, except when a chapter 9, chapter 11, chapter 12, or chapter 13 plan provides for subordination; a proceeding to obtain a declaratory judgment relating to any of the foregoing; or i. a proceeding to determine a claim or cause of action removed under 28 U.S.C. §1452. 2. Bankruptcy Rule 7002 makes the Federal Rules of Civil Procedure applicable B.R. 7002 states: Whenever a Federal Rule of Civil Procedure applicable to adversary proceedings makes reference to another Federal Rule of Civil Procedure, the reference shall be read as a reference to the Federal Rules of Civil Procedure as modified in this Part VII.

3. Local Rules Concerning Rule 7001: a. Rule 1073-1(b) Assignment of Cases- Adversary proceedings and matters arising in or related to a case shall be assigned to the Judge to whom the case is assigned. b. Rule 7003-1 Cover Sheet - At the commencement of each adversary proceeding, and Adversary Proceeding Cover Sheet in the form prescribed by the Administrative Office of the United States Courts, available from the Clerk, must be completed and filed with each complaint that is not filed electronically. c. Rule 9019-2 Alternative Dispute Resolution - Alternative Dispute Resolution is available in adversary proceedings or contested matters. 4. Pleading Issues and Case-Law a. Bell Atlantic Corp. v. Twombly , 550 U.S. 544 (2007). The U.S. Supreme Court, in an antitrust conspiracy case, examined the pleading requirements of Rule 8(a) of the Federal Rules of Civil Procedure. The Court held that legal conclusions are insufficient to state a claim, and that a “formulaic recitation” of the elements of a claim do not satisfy Rule 8(a). Rather, the complaint must contain sufficient factual allegations to “nudge” a plaintiff’s claims “across the line from conceivable to plausible.” Id. at 570. b. Ashcroft v. Iqbal , 129 S.Ct. 1937 (2009). In Iqbal , the Supreme Court confirmed that the heightened “plausibility” pleading standard was not confined to just antitrust cases. The Court in Iqbal suggested a two-pronged approach: (1) the court should first set aside allegations that are no more than conclusions, and (2) determine whether the remaining factual allegations plausibly give rise to an entitlement to relief. Id. at 1950. c. The plausibility pleading standard has been adopted by the Sixth Circuit. See Hensley Manufacturing v. ProPride, Inc. , 579 F.3d 603, 609 (6 th Cir. 2009). It has also been applied to bankruptcy cases. See In re American Camshaft Specialties, Inc. , 410 B.R. 765 (Bankr. E.D. Mich. 2009). C. Contested Matters 1. Overview of Bankruptcy Rule 9014: “In a contested matter not otherwise governed by these rules, relief shall be requested by motion, and reasonable notice and opportunity for hearing shall be afforded the party against whom relief is sought. No response is required under this rule unless the court directs otherwise.” a. Notes of Advisory Committee: “Whenever there is an actual dispute, other than an adversary proceeding, before the bankruptcy court, the litigation to resolve that dispute is a contested matter.” Fed. R. Bankr. P. 9014 Advisory Committee Note. b. What kinds of cases are contested matters? Most bankruptcy court litigation is conducted through contested matters. 1. Dismissal or conversion of a case under Rule 1017(d) 2. Objections to confirmation of a plan under Rule 3020(b)(1) 3. Relief from automatic stay and use of cash collateral under Rule 4001(a) 2

4. Avoidance of a lien under §552(f) under Rule 4003(d) 5. Assumption or rejection of executory contracts or unexpired leases under Rule 6006(a). D. Turnover Motions and Adversary Proceeding 1. Sixth Circuit and Northern District of Ohio case law indicates that the Bankruptcy rules require that a party seeking a turnover file that request as an adversary proceeding rather than as a motion in another bankruptcy proceeding. See, e.g., Camall Co. v. Steadfast Ins. Co., 16 Fed. Appx. 403, 407 (6th Cir. 2001 ); In re Armstrong, 2015 Bankr. LEXIS 3121 (Bankr. N,D. Ohio Sep. 9, 2015); In re Mobley, 2012 Bankr. LEXIS (Bankr. N.D. Ohio Dec. 6, 2012); TranSouth Fin. Corp. v. Sharon , 234 B.R. 676, 689 (B.A.P. 6th Cir. 1999) (Stosberg, J., dissenting). II. Service of Process A. Rule 7004 v. FRCP Rule 4: Rule 7004 differs from Rule 4 in two main ways: how process is served and who can be served. 1. How Is Service Made? In non-bankruptcy civil litigation, Rule 4 requires that the complaint be served on the defendant by a process server (someone at least 18 years old and not a party to the case). This method is also available in a bankruptcy case, but Bankruptcy Rule 7004 goes a step further and allows service by first class mail. Rule 7004(b)(1)-(6) lists the method for using first class mail for different types of entities: a. Individuals (other than an infant or incompetent person): By mailing a copy of the summons and complaint to the individual’s dwelling house or usual place of abode or to the place where the individual regularly conducts a business or profession. b. Infant or incompetent person: By mailing a copy of the summons and complaint to the person upon whom process is prescribed to be served by the law of the state in which service is made when an action is brought against such a defendant in the courts of general jurisdiction of that state. The summons and complaint should be addressed to the person required to be served at that person’s dwelling house or usual place of abode or at the place where the person regularly conducts a business or profession. c. Domestic or foreign corporation, partnership, or unincorporated association: By mailing a copy of the summons and complaint to the attention of an officer, a managing or general agent, or to any other agent authorized by appointment or by law to receive service of process and, if the agent is one authorized by statute to receive service and the statute so requires, by also mailing a copy to the defendant. d. The United States: By mailing a copy of the summons and complaint addressed to the civil process clerk at the office of the United States attorney for the district in which the action is brought and by mailing a copy of the summons and complaint to the Attorney General of the United States at Washington, District of 3