By: Donald L Swanson
How does the “indicative rulings” process work when a settlement occurs while a bankruptcy dispute is pending on appeal before a U.S. circuit court of appeals? In such circumstance:
- the parties’ dispute has previously been resolved by a bankruptcy court order;
- then, the bankruptcy court order has been appealed to and ruled upon by a district court or Bankruptcy Appellate Panel; and
- the matter is then on appeal to a Circuit Court of Appeals, when settlement occurs between the parties under the Circuit Court’s mediation program.
So, the question becomes: What happens next for getting that settlement approved by all the courts involved in the case: i.e., the Bankruptcy Court, the District Court or BAP, and the Circuit Court of Appeals?
The answer is provided in and illustrated by the “indicative rulings” case reported as Cox v. Nostaw, Inc. (In re Central Illinois Energy Coop), 847 F.3d 873 (7th Cir. 2017). In Cox v. Nostaw, a Bankruptcy Court ruling had been affirmed on appeal by the District Court and then appealed to the Circuit Court, where the dispute settles in the Circuit Court’s mediation program.
What follows is a summary of the legal standards involved with the “indicative rulings” process in Cox v. Nostaw and a chronology of what happened under such process in all the courts involved.
Legal Standards
Legal standards for the indicative rulings process in this case are found in a combination of, (i) Fed.R.App.P. 12.1, and (ii) Fed.R.App.P. 6(b)(1)(D).
–Fed.R.App.P. 12.1
Fed.R.App.P. 12.1 is titled “Remand After an Indicative Ruling by the District Court on a Motion for Relief That Is Barred by a Pending Appeal,” and it says:
- (a) Notice to the Court of Appeals. If a timely motion is made in the district court for relief that it lacks authority to grant because of an appeal that has been docketed and is pending, the movant must promptly notify the circuit clerk if the district court states either that it would grant the motion or that the motion raises a substantial issue.
- (b) Remand After an Indicative Ruling. If the district court states that it would grant the motion or that the motion raises a substantial issue, the court of appeals may remand for further proceedings but retains jurisdiction unless it expressly dismisses the appeal. If the court of appeals remands but retains jurisdiction, the parties must promptly notify the circuit clerk when the district court has decided the motion on remand.
–Fed.R.App.P. 6(b)(1)(D)
Fed.R.App.P. 6 is titled “Appeal in a Bankruptcy Case or Proceeding.” Part (b) thereof is titled “Appeal From a Judgment, Order, or Decree of a District Court or Bankruptcy Appellate Panel Exercising Appellate Jurisdiction in a Bankruptcy Case or Proceeding.”
And its subpart (b)(1)(D) says, “(D) in Rule 12.1, ‘district court’ includes a bankruptcy court or bankruptcy appellate panel.”
Chronology
The case has a long series of events.
–Bankruptcy Court Beginnings
12/1/2009: Trustee initiates an adversary proceeding against Defendant to recover fraudulent transfers (Adv. Pro. No. 09-8143 in Central Illinois Bankruptcy Court)
7/11/2014: Trustee and Defendant each file a motion for summary judgment
11/20/2014: Bankruptcy Court enters an Order granting Defendant’s motion for summary judgment and denying Trustee’s motion
3/12/2015: Bankruptcy Court denies Trustee’s motion to reconsider
3/25/2015: Trustee appeals to District Court for Central Illinois
–Appeal to District Court
1/25/2016: District Court enters its Order and Opinion (in Case No. 15-1118) affirming the Bankruptcy Court’s Order
2/24/2016: Trustee appeals to the U.S. Circuit Court of Appeals for the Seventh Circuit
–Appeal to Seventh Circuit
11/1/2016: Seventh Circuit orders (in Case No. 16‐1389) that “all proceedings in this appeal are STAYED pending further court order” so that mediation efforts under the Circuit’s mediation program can proceed.
11/3/2016: Trustee and Defendant enter into a settlement agreement, subject to court approval under Fed.R.Bankr.P. 9019, for Defendant to pay $27,500 in full settlement and release of Trustee’s fraudulent transfer claims against Defendant.
–Back in Bankruptcy Court
11/3/2016: Trustee and Defendant file a “Joint Motion for Indicative Ruling with the Bankruptcy Court,” representing that, (i) mediation efforts under the Seventh Circuit’s mediation program resulted in a settlement that is contingent on court approval under Fed.R.Bankr.P. 9019, (ii) the bankruptcy court does not have authority to rule upon the settlement approval motion, but (iii) the bankruptcy court does have authority to provide an indicative ruling thereon. And the Joint Motion asks for “Issuance of a ruling indicating that this [bankruptcy] court would, subject to compliance with Bankr. R. 9019, enter an order approving” the settlement.
11/7/2016: the Bankruptcy Court issues an “Indicative Ruling” saying, “the Court finds and indicates that, subject to the disposition of any objection filed by a creditor or the United States Trustee, the proposed settlement and compromise would be determined to be fair, reasonable and in the best interests of creditors and would be approved by the Court if remanded for that purpose.”
–Returning to Seventh Circuit
11/17/2016: Trustee files a Motion to Dismiss and Remand with the Seventh Circuit, representing that, (i) mediation efforts resulted in a settlement that “is contingent on” approval under Fed.R.Bankr.P. 9019, (ii) “Pursuant to Bankr. Rule 8008. Fed.R.Civ.P. 62.1, and Fed.R.App.P. 12.1 the Trustee and [Defendant] filed a Joint Motion for Indicative Ruling with the bankruptcy court,” and (iii) “the bankruptcy court issued its indicative ruling,” a copy of which is attached. Such Motion asks the Seventh Circuit to “dismiss this appeal and remand the case to the United States District Court . . . with instructions to remand the case to the [Bankruptcy Court] with instructions that, subject to the disposition of any objection filed by a creditor or the United States Trustee, the court shall enter an order approving the Settlement.”
2/8/2017: Seventh Circuit issues its Opinion on the indicative rulings issue, declaring:
- “When, as in this case, an appeal is from the district court’s affirmance of a bankruptcy court order, a remand to the bankruptcy court for approval of settlement requires coordination between three courts”;
- “Further, Rule 12.1 and [Circuit] Rule 57 both authorize relief only after the district court has said that it is inclined to grant a motion barred by the pending appeal”;
- “Although the parties obtained an indicative ruling from the bankruptcy court, there is no record that they sought or obtained an indicative ruling from the district court”;
- “To ensure that each of the coordinating courts agree, the proper procedure when asking this court to remand to the district court and then to the bankruptcy court is to obtain an indicative ruling from both courts that will need to act”; and
- “Because [Trustee] has not done this, his motion is DENIED without prejudice to renewal after obtaining an indicative ruling from the district court.”
–Back at District Court
2/10/2017: Trustee and Defendant file their “Joint Motion for Indicative Ruling” containing the same representations made to the Bankruptcy Court and the Seventh Circuit and asking for, “Issuance of a ruling indicating that this court would enter an order indicating that it would remand this case to the [Bankruptcy Court] for approval of the Settlement Agreement subject to compliance with Bankr. Rule 9019.”
2/14/2017: District Court issues its Order finding that the settlement “is reasonable, and is in the best interest of the bankruptcy estate of the Debtor” and “indicates that it is inclined to approve the settlement, and remand this case to the bankruptcy court for further proceedings, should the Court of Appeals remand for that purpose.”
–Returning to Seventh Circuit
2/15/2017: Trustee files a Motion to Dismiss and Remand, providing the same representations as before but, this time, attaching the District Court’s Indicative Ruling.
3/15/2017: Seventh Circuit grants Trustee’s Motion, remands “to the district court pursuant to [Fed.R.App.P. 12.1] and Circuit Rule 57 for proceedings consistent with its order of February 14, 2017,” dismisses the appeal, and issues its mandate.
–Then to District Court
3/27/2017: District Court enters its Order remanding the case to the Bankruptcy Court “for proceedings consistent with the Seventh Circuit’s Order” and “for approval of the Settlement Agreement subject to compliance with Bankr. Rule 9019.”
–Back in Bankruptcy Court
4/20/17: A creditor files its Objection to the proposed settlement, asking for “Entry of an Order rejecting the Trustee’s proposed Settlement.”
6/6/2017: Bankruptcy Court enters its Order Approving Settement and Compromise, in which the Court, (i) requires that, “within 10 days of court approval of this settlement,” Defendant “shall tender to the office of the attorney for the Trustee a check . . . in the sum of $27,500.00,” and (ii) declares that, upon satisfaction of such payment condition, “the alleged payment avoidance liability . . . will be considered satisfied in full” and “the adversary proceeding will be dismissed with prejudice.”
6/27/2027: Bankruptcy Court enters its “Order” that “Defendant . . . having complied with the terms of the Order of June 6, 2017, It Is Hereby Ordered that the adversary action is dismissed with prejudice.
THE END.
Conclusion
Wow. That was hard . . . for a $27,500 recovery.
But that’s how “indicative rulings” are handled, according to the Seventh Circuit Court of Appeals, when settlement of a bankruptcy dispute happens while the dispute is pending on appeal before a circuit court of appeals.
One practice suggestion: perhaps it would be helpful to combine a Rule 9019 approval process with the initial request for an indicative ruling from the bankruptcy court. That might save a step or two along the way.
NOTE: This is the fourth in a series of four articles on how “indicative rulings” processes work for settlements entered while a ruling is on appeal: under Fed.R.Civ.P. 62.1, Fed.R.Bankr.P. 8008 and Fed.R.App.P. 12.1.
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