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August 25, 2008

9th Circuit Court of Appeals Annoyed That It Was Not Advised of Settlement

Lowrey v. Channel Communications, Inc. (In re Cellular 101, Inc) ---- F. 3d ----, 2008 WL ------------- (9th Cir. August 2008)

Issue:   Must a party inform the court of appeals of a settlement which might make the appeal moot [and might not]?

Holding:   Yes, otherwise the right to argue the terms of the settlement later are waived.
appeal from the BAP

Judge Clifton
This chapter 11 debtor sued Channel Communications and AT&T prepetition claiming that those companies interfered with the debtor’s right to buy Channel if it were to be sold.  After the debtor filed chapter 11, Channel and AT&T filed a chapter 11 plan which permitted the sale of Channel to AT&T to go forward resulting in a payment to the debtor of some $2 million.  Channel and AT&T then requested $400,000 in attorneys fees for their substantial contribution to the reorganization.  The debtor objected but the court allowed about half of the request.  The debtor appealed.  The debtor, Channel and AT&T then settled everything but the debtor determined to go forward with the appeal and no one informed the court of appeals of the settlement.  The court of appeals affirmed the ruling and Channel then sought payment of the allowed fees.  The debtor then objected saying that the settlement included the fees which therefore had already been paid.  The bankruptcy court granted the request for payment saying that either the release did not apply to the payment or the appeal was moot and the debtor should have so informed the court of appeals.  The debtor appealed that order.  The BAP affirmed saying that the debtor should have advised the court of appeals and therefore waived the argument. 

The 9th Circuit affirmed.  “The Supreme Court has held that all counsel have a duty ‘to bring to the federal tribunal’s attention, without delay, facts that may raise a question of mootness.’”  “Regardless of [the debtor’s]  motives, we cannot permit the court to be subject to such manipulation.  We conclude that by failing to raise the release issue in the prior appeal, [the debtor] waived its right to assert the defense in subsequent proceedings.  Settlement and release is an affirmative defense and is generally waived if not asserted in the answer to a complaint.”  “[The debtor] argued that ‘even if it had raised the release issue during the prior appeal, we would have been required to remand the matter for factual findings, implying that its failure to inform the court of the settlement agreement was harmless and should be without consequence.”  “[R]egardless of the likelihood that remand for factfinding might have been necessary, the decision whether and when to remand the matter was one for the court to make, not [the debtor].  [The debtor] usurped the decision as to how the case should be organized when it proceeded with the arguments it had already presented on appeal and elected not to advise the court of an event which it believed disposed of the claim.  The bankruptcy court was correct in its assessment that, having taken its shot, [the debtor] does not get another opportunity to reach into its quiver for another arrow.”  The court commented that a complete settlement would divest the court of appeals of jurisdiction.  The debtor argued that Channel was asserting [while the matter was pending at the court of appeals] that the claim for fees was not released in the settlement anyway.  The court of appeals could not therefore resolve that issue because it was not before it.   

August 25, 2008 in 9th Circuit Briefs | Permalink

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