Whelan v. Heffler, Radetich

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

____________________

No. 99-11318
Summary Calendar
____________________

In the Matter Of: FIRST CITY BANCORPORATION OF TEXAS INC
Debtor
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STEPHEN P WHELAN; JERRY KRIM; HAROLD L HARRIS, Individually and
as Trustee of Mazel Inc Profit Sharing Plan and All Others
Similarly Situated in Class 8; GROUP OF SECURITIES LITIGATION
CLAIMANTS; HARVEY GREENFIELD

Appellants-Cross-Appellees

v.

HEFFLER, RADETICH & SAITTA, LLP; CARRINGTON, COLEMAN, SLOMAN &
BLUMENTHAL, LLP; C IVAN WILSON; ROBERT W BROWN

Appellees-Cross-Appellants

FIRST CITY BANCORPORATION OF TEXAS INC

Appellee

_________________________________________________________________

Appeal from the United States District Court
for the Northern District of Texas
3:99-CV-337-P
_________________________________________________________________

October 4, 2000

Before KING, Chief Judge, and JONES and STEWART, Circuit Judges.

1
PER CURIAM:*

Appellants-Cross-Appellees Stephen P. Whelan, Jerry Krim,

Harold L. Harris, individually and as trustee of Mazel, Inc.

Profit Sharing Plan and all others similarly situated in Class 8,

the group of Securities Litigation Claimants, and Harvey

Greenfield appeal the district court’s affirmance of the

bankruptcy court’s imposition of monetary sanctions against

attorney Harvey Greenfield pursuant to the plan of reorganization

in the underlying bankruptcy proceeding, Federal Rule of

Bankruptcy Procedure 9011, and 28 U.S.C. § 1927. Because we

conclude that we lack jurisdiction to review the district court’s

order, we dismiss the instant appeal.

I. FACTUAL AND PROCEDURAL BACKGROUND

First City Bancorporation of Texas, Inc. (“First City”)

filed for Chapter 11 relief in the United States Bankruptcy Court

for the Northern District of Texas, Dallas Division. Appellant-

Cross-Appellee Harvey Greenfield is an attorney who represented

Class 8 claimants, individuals who acquired First City stock

between April 19, 1988 and October 30, 1992, in the bankruptcy

proceeding. Greenfield participated in negotiating a settlement

of $7 million in cash and an estimated $3 million in stock for

*
Pursuant to 5TH CIR. R. 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.

2
the Class 8 claimants.

In October 1994, Appellees-Cross-Appellants Heffler,

Radetich & Saitta, LLP (“Heffler”) were hired by First City and

First City’s bankruptcy counsel, Carrington, Coleman, Sloman &

Blumenthal, LLP (“Carrington”), to administer the settlement fund

and notify all potential Class 8 claimants. Heffler printed

notices in several periodicals and mailed notices to potential

claimants, but the mailing was apparently incomplete. As a

result, it appears that over two thousand potential claimants

were not notified of the bar date for filing proofs of claim or

of an impending shareholder vote. Heffler conducted a second

mailing in March 1995. After the Joint Reorganization Plan was

confirmed in May 1995, Greenfield retained ACS Financial &

Securities Services to replace Heffler. Appellants allege that

subsequent efforts to compile an accurate mailing list revealed

that First City had destroyed the original stock transfer

records.

On January 31, 1996, Greenfield moved for leave1 to file a

summons and complaint to initiate an adversary proceeding on

behalf of Appellants-Cross-Appellees Jerry Krim, Harold L.

1
On December 21, 1995, the bankruptcy court issued an
order imposing monetary sanctions on Greenfield for “egregious,
obnoxious, and insulting behavior aimed at opposing counsel and
parties” and requiring him to seek leave of court before
appearing or filing further pleadings. Greenfield later appealed
this order. On June 5, 1997, the bankruptcy court lifted the
requirement that Greenfield move for leave of court before
appearing or filing pleadings.

3
Harris, individually and as trustee of Mazel, Inc. Profit Sharing

Plan and all others similarly situated in Class 8, and the group

of securities litigation claimants (collectively with Greenfield,

“Appellants”) (“First Complaint”). The First Complaint alleged

that Appellees-Cross-Appellants Heffler, Carrington, C. Ivan

Wilson,2 and Robert W. Brown3 (collectively, “Appellees”)

mishandled class notification procedures and fraudulently

concealed their mishandling. In a memorandum order issued on

July 3, 1996 (“July 3 order”), the bankruptcy court denied leave

to file the First Complaint and barred Greenfield from filing

further pleadings involving any of the parties named in the First

Complaint unless he represented a Class 8 member who was not

given notice of the confirmation hearing, and from naming any of

First City’s outside directors as defendants without showing that

they were directly involved in the notice process. In a separate

order dated March 25, 1998 (“March 25 order”), the bankruptcy

court awarded costs and fees to Appellees under Section 11.9 of

the Joint Plan of Reorganization.

Appellants appealed the March 25 order awarding fees to

Appellees,4 but did not appeal the July 3 order denying

2
Chief Executive Officer and Chairman of the Board of
Directors for First City.
3
President and member of the Board of Directors for First
City.
4
The bankruptcy court had originally awarded costs and
fees in an order dated January 3, 1997 (“January 3 order”), but

4
Greenfield’s motion for leave to file the First Complaint.

Instead, Greenfield filed a purported class action complaint

(“Second Complaint”) in the Philadelphia division of the United

States District Court for the Eastern District of Pennsylvania

(“Philadelphia district court”). The Second Complaint named as

an additional plaintiff Appellant-Cross-Appellee Stephen P.

Whelan, a shareholder who had contacted Greenfield in the summer

of 1995, and named Appellees, J-Hawk Corporation, and Weil,

Gotshal & Manges, LLP as defendants. Apart from the addition of

Whelan and the additional defendants as parties, the Second

Complaint was substantively identical to the First Complaint.

The Philadelphia district court dismissed the Second Complaint

without prejudice for lack of jurisdiction, but denied Appellees’

motion for fees and costs, stating that Appellees had

unnecessarily briefed the merits of the complaint.

In March 1998, Greenfield returned to the bankruptcy court

in the Northern District of Texas to file another complaint

(“Third Complaint”). The Third Complaint, like the Second

Complaint, named Whelan as a plaintiff, and otherwise contained

the same claims and factual allegations as the First and Second

Complaints. Appellees moved for dismissal of the Third

issued the subsequent March 25 order reducing the amount of the
costs and fees awarded pursuant to Appellants’ motion for
reconsideration. On appeal, the district court remanded to the
bankruptcy court to reinstate the amount of fees awarded in the
original January 3 order.

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Complaint; for summary judgment in the alternative; and for

sanctions, fees, and expenses under Federal Rule of Bankruptcy

Procedure 9011, 28 U.S.C. § 1927, and § 11.9 of the Joint Plan of

Reorganization. Appellees further requested that Greenfield be

held in contempt of court. In August 1998, the bankruptcy court

dismissed the Third Complaint under Federal Rule of Civil

Procedure 12(b)(6) due to the absence of a cognizable injury to

the named plaintiffs and the failure of the complaint to state an

actionable claim.5

On December 16, 1998, the bankruptcy court held a hearing on

Appellants’ motion for sanctions and for fees and costs. The

bankruptcy court issued an order on February 1, 1999 (“February 1

order”), in which it permanently enjoined Greenfield from

practicing before the United States Bankruptcy Court for the

Northern District of Dallas (except in connection with pending

proceedings pertaining to the First City bankruptcy and with any

appeals of those proceedings). The bankruptcy court also stated

that Greenfield had violated Federal Rule of Bankruptcy Procedure

9011 and 28 U.S.C. § 1927 by filing the Second and Third

Complaints, and that reasonable fees and expenses in the amount

of $64,000 were appropriate sanctions under Rule 9011 or,

5
Appellants appealed the dismissal. The United States
District Court for the Northern District of Texas affirmed, and
Appellants appealed to the Fifth Circuit, which affirmed the
district court. See In re First City Bancorporation of Texas,
Inc., No. 99-10587 (5th Cir. Dec. 23, 1999).

6
alternatively, as reimbursement under § 11.9 of the Joint Plan of

Reorganization. This amount only represented fees and expenses

arising from Greenfield’s filing of the Third Complaint, as the

bankruptcy court determined that it was bound by the ruling of

the Philadelphia district court denying Appellees fees and

expenses incurred in connection with the Second Complaint.

Appellees then filed a motion for reconsideration of the

bankruptcy court’s determination that it was barred by res

judicata from awarding Appellees fees and expenses in connection

with the filing of the Second Complaint. In an order issued on

February 22, 1999 (“February 22 order”), the bankruptcy court

granted the motion and awarded $10,000 to Brown and Wilson and

$20,000 to Carrington as fees and expenses. Appellants timely

appealed both the February 1 order and the February 22 order to

the Northern District of Texas.

The district court issued a memorandum opinion on October

13, 1999. The district court affirmed the bankruptcy court’s

award of reasonable fees and expenses under § 11.9 of the Joint

Reorganization Plan. The district court also found that the

bankruptcy court did not abuse its discretion by awarding

sanctions under Rule 9011 and 28 U.S.C. § 1927. Furthermore, the

court affirmed the February 22 order awarding fees and expenses

incurred by Appellants in responding to the Second Complaint.

However, the district court found that the bankruptcy court

7
abused its discretion by imposing a lifetime injunction against

practicing in the bankruptcy court for the Northern District of

Texas on Greenfield. Citing this circuit’s rule that sanctioning

courts must “utilize the sanction that furthers the purposes of

Rule 11 and is the least severe sanction adequate to such

purpose,” see Thomas v. Capital Sec. Servs., Inc., 836 F.2d 866,

878 (5th Cir. 1988), the district court found that a lifetime

injunction was “almost certainly not the least severe sanction

available to deter Greenfield’s conduct.” Consequently, the

district court reversed the portion of the February 1 order that

permanently enjoined Greenfield from practicing before the

bankruptcy court in the Northern District of Texas, and remanded

to the bankruptcy court with instructions to “reconsider its

sanction in light of the Fifth Circuit precedent cited above, and

to tailor any injunction against Greenfield accordingly.”

Appellants timely appeal the judgment of the district court to

this court.

II. DISCUSSION

Appellants argue that reimbursement under § 11.9 of the

Joint Reorganization Plan was inappropriate, and that the

imposition of sanctions was improper, whether under Bankruptcy

Rule 9011, or 28 U.S.C. § 1927. Appellees contend that this

court lacks jurisdiction over the instant appeal because the

district court did not issue a final order. We agree.

8
 Our jurisdiction over bankruptcy appeals is defined by 28

U.S.C. § 158(d). That section provides: “The courts of appeals

shall have jurisdiction of appeals from all final decisions,

judgments, orders, and decrees entered under subsections (a) and

(b) of this section.” 28 U.S.C. § 158(d). Subsection (a) grants

district courts “jurisdiction to hear appeals from final

judgments, orders, and decrees . . . of bankruptcy judges entered

in cases and proceedings referred to the bankruptcy judges under

section 157 of this title.” 28 U.S.C. § 158(a). Thus, this

court may only review final decisions of a district court that,

in turn, dispose of a final decision of a bankruptcy court. See

In re Pro-Snax Distributors, Inc., 157 F.3d 414, 420 (5th Cir.

1998) (citing §§ 158(a), (d)). As we have previously stated,

“[t]he salutary purpose of the rule set forth in § 158 is to

avoid piecemeal appeals.” In re County Management, Inc., 788

F.2d 311, 314 (5th Cir. 1986) (citing In re Delta Servs. Indus.,

782 F.2d 1267, 1269 (5th Cir. 1986)).

The rule in this circuit is that “a district court order is

not a final order under section 158(d) where that order reverses

an order of the bankruptcy court and remands the case to the

bankruptcy court for significant further proceedings.” In re

Caddo Parish-Villas South, Ltd., 174 F.3d 624, 626 (5th Cir.

1999). Under our precedents, a district court’s remand order

requires “significant further proceedings” when it “calls on the

bankruptcy court to perform a judicial function [rather than] a

9
purely ministerial function.” Id. at 628. We have, moreover,

defined a “judicial function” as one which “necessitates further

fact-finding [or] the use of substantial discretion on the part

of the bankruptcy court.” Pro-Snax, 157 F.3d at 420-21 (footnote

omitted). In contrast, we have explained that a “ministerial

function” comprises “purely mechanical, computational, or in

short ‘ministerial’ task[s], whose performance is unlikely to

generate a new appeal or to affect the issue that the

disappointed party wants to raise on appeal from the order of

remand.” Caddo, 174 F.3d at 628 (quoting In re Fox, 762 F.2d 54,

55 (7th Cir. 1985)) (internal quotation marks omitted). Under

this standard, one of our sister circuits has found that when a

district court affirms a finding that sanctions are warranted but

remands for the bankruptcy court to reconsider the particular

sanctions awarded, the district court has remanded for

“significant further proceedings” and its order does not

constitute a final decision. See In re Rex Montis Silver Co., 87

F.3d 435, 438 (10th Cir. 1996); cf. In re Excello Press, Inc.,

967 F.2d 1109, 1111 (7th Cir. 1992) (finding remand for

ministerial task when both parties agreed that “to implement the

district court’s judgment, the bankruptcy court would merely

subtract $1,500 from the original award of sanctions”).

Here, the district court remanded “that portion of the

Original Sanctions Order which permanently enjoined Greenfield

10
from practicing before the United States Bankruptcy Court for the

Northern District of Texas, Dallas Division.” In so doing, it

instructed the bankruptcy court to “reconsider its choice of

sanction” in light of Fifth Circuit precedent requiring a

sanctioning court to award the least severe sanction adequate to

further the purpose of Federal Rule of Civil Procedure 11 (and

thus, by analogy, Federal Rule of Bankruptcy Procedure 9011).

See Thomas v. Capital Sec. Servs., Inc., 836 F.2d 866, 878 (5th

Cir. 1988). This instruction requires the bankruptcy court to

consider the extent to which an injunction of a particular

duration will serve to educate, compensate, and deter repetition

of the sanctioned conduct, see Jennings v. Joshua Indep. Sch.

Dist., 948 F.2d 194, 196 (5th Cir. 1991) (citing Jennings v.

Joshua Indep. Sch. Dist., 877 F.2d 866, 322 (5th Cir. 1989) (on

denial of rehearing)); to consider alternatives to the lifetime

injunction; to possibly make further findings of fact; and in all

likelihood, to prescribe an injunction of different duration than

that originally imposed in the February 1 order. Thus, the

analysis that the district court’s instruction obliges the

bankruptcy court to perform is a far cry from a “purely

mechanical, computational, or ministerial task.” We therefore

conclude, like the Tenth Circuit in Rex Montis, that the remand

requires the performance of a judicial function by the bankruptcy

court, and that, as a result, the district court’s memorandum

opinion and order is not a final order under § 158.

11
 Unsurprisingly, Appellants do not argue that the district

court’s order should be considered final because the remand calls

for the performance of a ministerial, rather than judicial,

function. Instead, Appellants contend that we have jurisdiction

because the district court’s decision regarding the portion of

the February 1 order determining that sanctions were appropriate

and awarding monetary sanctions is final. Appellants point to

the fact that no further proceedings in the bankruptcy court are

necessary with regard to this portion of the February 1 order.

In their reply brief, furthermore, Appellants characterize this

non-remanded portion of the February 1 order as a discrete and

separable issue that may be appealed while the remanded portion

of the order is pending before the bankruptcy court.

Appellants cite several factually and legally inapposite

cases in support of the proposition that one portion of an order

may be appealed although another portion is remanded. See

Beneficial Consumer Discount Co. v. Poltonowicz, 47 F.3d 91, 93

(3d Cir. 1995)(reviewing district court’s dismissal of action

with prejudice under exception to 28 U.S.C. § 1447(d)’s bar

against appellate review of district court’s decision to remand

to state court for lack of subject matter jurisdiction); Colorado

Dep’t of Soc. Serv. v. United States Dep’t of Health, 29 F.3d

519, 522 (10th Cir. 1994) (reviewing agency commissioner’s

disallowance of four separate claims for administrative costs

even though a fifth claim had been remanded). We are not

12
persuaded that this authority should govern the case before us.

Furthermore, our own research has revealed no case in which a

court of appeals applying a rule of finality similar to our own

has assumed jurisdiction over an appeal of a district court’s

affirmance of the decision to award sanctions when the district

court remanded to the bankruptcy court for a determination of the

actual award.

Even if we were to very generously construe Appellants’

brief to assert that appellate jurisdiction lies under the

collateral order exception, that argument would also fail. In

order for this exception to § 158's final order requirement to

apply, the order appealed from must “(1) ‘conclusively determine

the disputed question,’ (2) ‘resolve an important issue

completely separate from the merits of the action,’ and (3) ‘be

effectively unreviewable on an appeal from a final judgment.’”

In re Aegis Speciality Mktg., Inc., 68 F.3d 919, 921-22 (5th Cir.

1995) (per curiam) (citations and internal quotation marks

omitted). “‘These conditions are conjunctive: failure of any

one results in the failure of jurisdiction.’” Id. at 922

(citations omitted). Although Appellants’ arguments on the first

two requirements are hardly persuasive, their inability to

establish the third is fatal. There is no conceivable reason

that the bankruptcy court’s decision to award sanctions would not

be reviewable on an appeal to the district court from a final

order of the bankruptcy court determining the scope of the

13
injunction against Greenfield, once the injunction is

reconsidered on remand. We therefore conclude that we lack

jurisdiction over this appeal.6 To find otherwise would run

contrary to the “salutory purpose” of § 158: “to avoid piecemeal

appeals.” See County Management, 788 F.2d at 314.

III. CONCLUSION

For the foregoing reasons, we DISMISS the instant appeal for

want of jurisdiction.

6
Because we lack jurisdiction over the instant appeal, we
do not reach the question of whether we have jurisdiction over
Appellees’ cross appeal. Furthermore, in the absence of
appellate jurisdiction, we do not have the authority to stay or
suspend the appeal pending the bankruptcy court’s ruling on
remand and cannot accede to Appellants’ request that we do so.
The record will be returned to the district court.

14