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In re Lisanti Foods

October 11, 2006

IN RE: LISANTI FOODS, INC., ET AL. DEBTORS.
JOSEPH M. LISANTI, JR., ET AL. APPELLANTS,
v.
JAY LUBETKIN, CHAPTER 11 TRUSTEE OF LISANTI FOODS, INC., ET AL., AND THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF LISANTI FOODS, INC., ET AL. APPELLEES.



The opinion of the court was delivered by: Lifland, District Judge

OPINION

Before the Court is a motion by Joseph M. Lisanti, Jr., Rosemarie Lisanti, Lisanti Realty of Arizona, Inc, Lisanti Realty Corp., Lisanti Enterprises, LLC, Texas Trucking Corp., JL Trucking LLC, New Jersey Trucking Corp., and Arizona Freight Haulers, Inc. (collectively, "Appellants") for relief from this Court's Order of August 9, 2005 affirming the Bankruptcy Court's order confirming the Second Amended Joint Plan of Reorganization (the "Plan"). For the reasons stated herein, Appellants' motion will be denied.

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

Lisanti Foods, Inc., Lisanti Foods of Arizona, Inc., and Lisanti Foods of Texas, Inc. (collectively, "Debtors") were wholesale distributors of Italian specialty foods and food related products. Lisanti Realty of Arizona, Inc., Lisanti Realty Corp., Lisanti Enterprises, LLC, Texas Trucking Corp., JL Trucking LLC, New Jersey Trucking Corp., and Arizona Freight Haulers, Inc. (collectively, "Non-Debtor Entities") operated distribution centers and delivered the specialty foods and related products to the Debtors' customers. Joseph M. Lisanti, Jr. is the former president of Lisanti Foods, Inc. Mr. Lisanti and his sister, Rosemary Lisanti, are the sole officers, shareholders and/or members of each of the Debtors and Non-Debtor Entities.

Debtors filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code on November 20, 2002. Shortly thereafter, the cases were consolidated for joint administration, and an Official Committee of Unsecured Creditors was appointed pursuant to §§ 1102(a) and (b) of the Bankruptcy Code. In January 2003, the Bankruptcy Court, inter alia, approved the sale of substantially all of Debtors' assets, and appointed Jay L. Lubetkin as Chapter 11 Trustee with regard to the liquidation and distribution of the Debtors' consolidated estate. On October 14, 2004, Lubetkin and the Committee of Unsecured Creditors (collectively, "Appellees") filed the Plan and a related Disclosure Statement with the Bankruptcy Court.

Appellants objected to confirmation of the Plan on several grounds. As relevant to this motion, Appellants argued that Appellees could not meet the requirements of § 1123(a)(5), which requires a plan to "provide adequate means for the plan's implementation." 11 U.S.C. § 1123(a)(5)(C). Specifically, Appellants contended that the Plan's implementation scheme was dependent on the Bankruptcy Court granting substantive consolidation of the Debtors' estates, and that Appellees could not demonstrate facts sufficient to meet the criteria for substantive consolidation under Third Circuit caselaw.

On December 17 and 18, 2003, the Bankruptcy Court heard argument on whether the proposed Plan satisfied the requirements of the Code. On April 13, 2004, the Bankruptcy Court conducted further hearings on confirmation of the Plan, during which it detailed reasons for finding that the Plan should be confirmed. This decision was memorialized in a Confirmation Order dated May 17, 2004. Appellants appealed from the Confirmation Order arguing, inter alia, that confirmation of the Plan was error because the Plan proponents, i.e. the Appellees, failed to demonstrate the necessary prerequisites for substantive consolidation. This Court affirmed the Bankruptcy Court's Order in a Memorandum and Order dated August 9, 2005. See In re Lisanti Foods, Inc., No. 03-3868, Memorandum and Order of August 9, 2005, at 11("The Bankruptcy Court did not abuse its discretion when it found that the proponents demonstrated the prerequisites for substantive consolidation.").

On August 18, 2005, Appellants filed a Notice of Appeal from this Court's decision to the United States Court of Appeals for the Third Circuit. In October 2005, Appellants' counsel became aware that the Third Circuit had issued an opinion on August 15, 2005, addressing when substantive consolidation should be available and by what test it should be measured. See In re Owens Corning, 419 F.3d 195 (3d Cir. 2005).*fn1 Believing that "the Third Circuit Court of Appeals might determine to remand the Appellants' pending appeal of the Order back to this Court with instructions to reconsider the same in accordance with the Owens Corning case," Appellants' counsel contacted this Court to inquire whether the Court would rather allow the appeal to proceed or have Appellants seek reconsideration in this Court.

On October 26, 2005, this Court held a conference call with counsel for Appellants and Appellees. At the conclusion of the conference call, the Court informed that parties that it would entertain a request by Appellants for relief from the Order pursuant to Federal Rule of Civil Procedure 60(b). On November 1, 2005, Appellants filed the instant motion for relief from this Court's August 9, 2005 Memorandum and Order. Appellants have informed the Court that in conjunction with the filing of the motion, they moved in the Third Circuit for a stay of briefing pending a determination by this Court on the instant motion. The Third Circuit granted the motion on November 29, 2005.

II. DISCUSSION

A. Timeliness

As a threshold matter, Appellees dispute the timeliness of this motion. In order to determine whether the motion was timely, this Court must first decide what procedural rule governs the motion. Appellants characterized their motion as a motion under Federal Rule of Civil Procedure 60(b), made applicable to bankruptcy cases by Rule 9024(b) of the Federal Rules of Bankruptcy Procedure. Rule 9024(b) provides that "Rule 60 F.R.Civ.P. applies in cases under the [Bankruptcy] Code." Appellees contend that Rule 60 may not be invoked here, arguing that the Federal Rules of Civil Procedure do not apply to bankruptcy proceedings unless a rule is specifically made applicable by a provision of the Federal Rules of Bankruptcy Proceedings,*fn2 and that Rule 9024(b) only authorizes Rule 60 motions to be brought with respect to judgments or orders of a bankruptcy court-not as to judgments or orders of a district court exercising appellate jurisdiction in a bankruptcy case. Bankruptcy Rule 8105, Appellees claim, provides the sole vehicle for challenging district court judgments in a bankruptcy context.*fn3

Several courts have examined this question and adopted the position advanced by Appellees. See, e.g., Butler v. Merchants Bank & Trust Co. (In re Butler, Inc.), 2 F.3d 154, 155 (5th Cir. 1993) ("Bankruptcy Rule 9023, which adopts Fed.R.Civ.P. 59, applies only to appeals from the bankruptcy court to the district court, and not to appeals from the district court to the court of appeals. When the district court is acting as an appellate court in a bankruptcy case, 'Bankruptcy Rule 8015 provides the sole mechanism for filing a motion for rehearing.'") (quoting Matter of Eichelberger, 943 F.2d 536, 538 (5th Cir.1991)); Zegeye v. Keshishian (In re Zegeye), No. DKC 2004-1387, 2005 U.S. Dist. LEXIS 3463 (D. Md. March 4, 2005) ("When the district court is acting as an appellate court in a bankruptcy case, Rule 8015 provides the sole mechanism for filing a motion for rehearing."); Harris v. Albany County Office, No. 03-1406, 2005 U.S. Dist. LEXIS 2321, *4 (N.D.N.Y. Feb. 16, 2005) ("Although rules 59 and 60 are made applicable to cases under the Bankruptcy Code, their application has been found to be limited. Courts specifically addressing the issue have held that rules 59 and 60 apply to judgments or orders of the bankruptcy court, but are inapplicable to judgments or orders of a district court sitting in an appellate capacity."); In re Brenner, Nos. 89-8322, 89-8680, 1991 U.S. Dist. LEXIS 16468, *6 (E.D. Pa. Nov. 8, 1991) ("Fed. R. Civ. P. 60(a), like Fed. R. Civ. P. 59, does not apply to motions [for relief] from a judgment of a district court exercising appellate jurisdiction in a bankruptcy case."); In re Conn Aire, Inc., 91 B.R. 462, 462 n.2 (M.D. Tenn. 1988) (finding that Rule 9024 makes Rule 60 applicable only to challenges to bankruptcy court orders).

The most thorough and persuasive analysis of this issue was performed by the United States Court of Appeals for the District of Columbia Circuit in The English-Speaking Union v. Johnson, 353 F.3d 1013 (D.C. Cir. 2004). In The English-Speaking Union, the district court, exercising appellate jurisdiction over an order of a bankruptcy court, dismissed an appeal for want of prosecution. The Union filed a motion to vacate the dismissal order pursuant to Rule 60. The district court held that Bankruptcy Rule 8015 was the sole vehicle by which the Union could challenge the district court's order, and accordingly treated the motion as one filed pursuant to Rule 8015. On appeal, the D.C. Circuit addressed this question in some detail. The Court noted that the advisory committee note to Bankruptcy Rule 9024 "suggests that Rule 60 applies in narrower circumstances in the bankruptcy context: 'For the purpose of this rule all orders of the bankruptcy court are subject to Rule 60 F.R. Civ. P.'" Id. at 1019 (quoting Fed. R. Bankr. P. 9024 advisory committee's note). The Court then pointed out that [r]eading Rule 9024 to apply only to bankruptcy court proceedings is also supported by Bankruptcy Rule 8002, which postpones the time for appealing from the bankruptcy ...


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