Windstream Holdings, Inc. v. Charter Communications, Inc.

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF NEW YORK

_________________________________________x

In re: Chapter 11

WINDSTREAM HOLDINGS, INC., et al., Case No. 19-22312 (RDD)

Debtors. (Jointly Administered)

_________________________________________x

WINDSTREAM HOLDINGS, INC., et al.,

Plaintiffs,

v. Adv. Pro. No. 19-08246

CHARTER COMMUNICATIONS, INC. and

CHARTER COMMUNICATIONS OPERATING,

LLC,

Defendants.

_________________________________________x

MEMORANDUM OF DECISION ON DEFENDANTS’ OBJECTIONS

TO “BANKRUPTCY COURT’S REPORT AND RECOMMENDATIONS”

Appearance:

Thompson Coburn LLP, by John Kingston, Michael Nepple, and Brian Hockett, for Defendants

Charter Communications, Inc. and Charter Communications Operating, LLC (“Defendants”)

Hon. Robert D. Drain, United States Bankruptcy Judge

On January 28, 2020 this Court entered five orders in this adversary proceeding either

granting in part and denying in part motions to strike expert reports and/or testimony or granting

such motions [Dkt. Nos. 250 - 255] (collectively, the “Orders”). Each of the Orders was an

interlocutory order; none finally decided the underlying claims before the Court in this adversary

proceeding or ended the decision-making process with respect to those claims. See Ritzen Grp.,

Inc. v. Jackson Masonry, LLC, 205 L.Ed.2d 419, 424, 2020 U.S. LEXIS 526 (2020) (“Orders in

bankruptcy cases qualify as ‘final’ when they definitively dispose of discrete disputes within the

overarching bankruptcy case.”); O’Toole v. McTaggart (In re Trinsum Group, Inc.), 467 B.R.

734, 741 (Bankr. S.D.N.Y. 2012) (“[An] adversary proceeding being the relevant judicial unit,

the order ending the adversary proceeding would generally be the only final order.”).

Nevertheless, the Defendants filed a pleading on February 11, 2020 (the “Pleading”)

captioned “Objections to Bankruptcy Court’s Report and Recommendations” that characterizes

the Orders1 as the Court’s “report and recommendations under Fed. R. Bankr. P. 9033” and seeks

to initiate the process set forth in that Rule.

Bankruptcy Rule 9033 applies in two circumstances: (i) where the contested matter or

adversary proceeding over which the bankruptcy court is presiding is not “core” under 28 U.S.C.

§ 157(b)(2), and (ii) where the bankruptcy court’s exercise of “core” jurisdiction under 28 U.S.C.

§ 157(b)(2) violates the United States Constitution’s prohibition of non-Article III courts’ entry

of final judgments. Advisory Committee Note to Fed. R. Bankr. P. 9033 (2016). In such

situations, under 11 U.S.C. § 157(c)(1) and local rules or standing orders2 entered throughout the

country after Stern v. Marshall, 564 U.S. 462 (2011), bankruptcy courts must issue proposed

findings of fact and conclusions of law (not, as the Pleading states, a “report and

recommendation”), or their final orders will be deemed such, for consideration by the district

court and de novo review of those matters to which any party has timely and specifically

objected under the procedure set forth in Rule 9033.

Fed. R. Bankr. P. 9033(b) and (c) provide for (i) the service and filing of objections to

proposed findings of fact and conclusions of law within 14 days after service of such findings

1 The Pleading lists another order of the Court, which granted a motion to seal a portion of an earlier pleading [Dkt.

149], but with the exception of listing that order does not address it.

2 See Amended Standing Order of Reference of Chief Judge Lorretta A. Preska, dated January 31, 2012 (M-431),

applicable to all bankruptcy cases in the Southern District of New York.

and conclusions, extendable by the bankruptcy judge for cause by no more than 21 days, (ii) the

response to such objections within 14 days thereafter, and (iii) the transcription of the record to

the district court, or such portions as all parties may agree or the bankruptcy judge deems

sufficient, unless the district judge otherwise directs, and thereafter, of course, (iv) consideration

and a decision by the district court. It is a reasonably efficient procedure when a matter or

proceeding has been finally resolved, adding on to the normal time for the commencement and

consideration of an appeal as of right only the period for responses to the objections and,

perhaps, up to a 21-day extension for objections. It clearly would be a procedural nightmare,

however, to have to follow Bankruptcy Rule 9033 for interlocutory orders in matters and

proceedings that only might conclude with a final order subject to Stern v. Marshall or 28 U.S.C.

§ 157(c)(1). Here, for example, trial is scheduled for March 30, 2020, and, notwithstanding that

the adversary proceeding would appear to be trial ready, the Rule 9033 process that the Pleading

attempts to initiate, with an ultimate ruling by the District Court, realistically would not end by

that date.

The Defendants contend, though, that compliance with Bankruptcy Rule 9033 is required

with respect to the Orders. The Pleading gives two reasons for that contention. First,

Defendants state that 28 U.S.C. § 157(c) and Stern v. Marshall “do[] not limit the matters on

which a bankruptcy court is to submit proposed findings and conclusion[s] to final orders and

likewise do[] not limit the matters for which de novo review by the district [court] is mandated

where timely and specific objections have been asserted.” Pleading at 2. Second, Defendants

state that, because they have demanded a jury trial on certain of the claims in this proceeding,

“Permitting a bankruptcy court to issue an unreviewable interlocutory order that could

potentially constrain the authority of the Article III judge presiding over a jury trial by, e.g.,

operation of the ‘law-of-the-case’ doctrine or the reconsideration limitations imposed by

S.D.N.Y. Local Civil Rule 6.3, would violate Defendants’ constitutional rights under . . . the

Seventh Amendment.” Id. at 3.

The Defendants are wrong. They cite no cases on point and discuss none of the

precedents -- including the case previously cited to them by this Court during a prior hearing --

that specifically refute their two contentions. Because their Rule 9033 process is self-executing,

moreover, the Defendants are trying to impose its unwarranted delay, uncertainty and cost

without scheduling a hearing or triggering briefing regarding their unsupported assertions. The

Court therefore takes the unusual step of issuing this Memorandum of Decision sua sponte to cut

short the ill effects of that gambit.

By the Judiciary Act’s plain terms and as interpreted by the case law and leading

commentator on bankruptcy, the requirement that bankruptcy courts submit proposed findings of

fact and conclusions of law in non-core matters to the district court applies only to “final orders

or judgments.” 28 U.S.C. § 157(c)(1); In re Pan Am Corp., 159 B.R. 396, 400 (S.D.N.Y. 1993);

Lesser v. A-Z Assocs. (In re Lion Capital Group), 46 B.R. 850, 854 (Bankr. S.D.N.Y. 1985)

(noting that a contrary approach “would require wholesale deferral of all interlocutory matters . .

. to the district courts thereby swamping district court calendars”); 1 Collier on Bankruptcy ¶

3.03[2] (16th ed. 2019); see generally In re Trinsum Group, Inc., 467 B.R. 734, 739 (Bankr.

S.D.N.Y. 2012) (“Pre-Stern case law clearly established that, in such instances, bankruptcy

courts may enter interlocutory orders; only entry of a final order or judgment requires the

bankruptcy court to submit proposed findings of fact and conclusions of law to the district

court.”).

A bankruptcy court loses the power to enter interlocutory orders in matters pending

before it under 28 U.S.C. § 157(c)(1) only upon its voluntary submission of proposed findings of

fact and conclusions of law with respect to such rulings3 or the district court’s withdrawal of the

reference under 28 U.S.C. § 157(d). Orion Pictures Corp. v Showtime Networks (In re Orion

Pictures Corp.), 4 F.3d 1095, 1101-1102 (2d Cir. 1993); Gecker v. Marathon Fin. Ins. Co., 391

B.R. 613, 616 (N.D. Ill. 2008).

The same rule applies to interlocutory orders in contested matters and adversary

proceedings where the bankruptcy court is constitutionally precluded from entering final orders

or judgments. By its own terms Stern v. Marshall’s constitutional limitation applies only to the

bankruptcy courts’ power to enter “final” judgments, 564 U.S. at 501-02, and it is now very well

established that bankruptcy courts consistent with Stern v. Marshall may handle all pretrial

proceedings short of a final ruling -- including entry of interlocutory orders dismissing fewer

than all of the claims in an adversary complaint, granting partial summary judgment, or making

discovery and evidentiary rulings -- without the need to issue proposed findings of fact and

conclusions of law and invocation of Fed. R. Bankr. P. 9033. See, e.g., In re Lehman Bros.

Holdings, 2019 U.S. Dist. LEXIS 77887, at *38-39 (S.D.N.Y. May 18, 2019); Am. Media, Inc.

v. Anderson Mgmt. Servs. (In re Anderson News, LLC), 2015 U.S. Dist. LEXIS 109896, at *4-5

(D. Del. August 19, 2015); Boyd v. King Par. LLC, 2011 U.S. Dist. LEXIS 130070, at *5-6

(W.D. Mich. Nov. 10, 2011); Tomasino v. Inc. Vill. of Islandia (In re Suffolk Reg’l Off-Track

Betting Corp.), 591 B.R. 127, 129 (Bankr. E.D.N.Y. 2018); Culture Project, Inc. v. Bertha

3 Although a bankruptcy court is permitted to accelerate review of an otherwise interlocutory order by filing, under

Fed. R. Bankr. P. 7016(b)(2), proposed findings of fact and conclusions of law before the end of the contested

matter or adversary proceeding, the strong federal policy against piecemeal appeals under Fed. R. Bankr. P. 7054

ordinarily counsels against it. In re Trinsum Group, Inc., 467 B.R. at 738, 742. To be clear, this Court has made no

such determination here, nor have the Defendants sought one under Fed. R. Bankr. P. 7016(b)(2) or sought

permission from the District Court to file an interlocutory appeal of the Orders under 28 U.S.C. § 158(a)(3).

Found. (In re Culture Project, Inc.), 2017 Bankr. LEXIS 1925, at *15-16 (Bankr. S.D.N.Y. July

11, 2017); Jones v. Brand (In re Belmonte), 551 B.R. 723, 726 (Bankr. E.D.N.Y. 2016); Rapid-

Am. Corp. v. Travelers Cas. & Sur. Co. (In re Rapid-Am. Corp.), 2016 Bankr. LEXIS 2224, at

*22 (Bankr. S.D.N.Y. June 7, 2016); Messer v. Bentley Manhattan Inc. (In re Madison Bentley

Assocs., LLC), 2015 Bankr. LEXIS 3507, at *52-52 n. 9 (Bankr. S.D.N.Y. Oct. 16, 2015); In re

Trinsum Group, Inc., 467 B.R. at 739-40.

It is not my normal practice to use lengthy string cites. This list, which easily could be

doubled with other citations, is warranted here, however, because of Defendants’ remarkable

omission of any of the relevant caselaw, which unfortunately is far from the first time that they

have done so in this adversary proceeding. The only decision that they have cited, Southard v.

Barrett (In re HHE Choices Health Plan, LLC), 2019 Bankr. LEXIS 3593 (Bankr. S.D.N.Y. Nov.

15, 2019), is distinguishable.

In that case, the District Court had made it clear that because the Bankruptcy Court could

not under Stern v. Marshall issue a final decision on the merits of certain claims, nor conduct the

jury trial that had been demanded, withdrawal of the reference would likely be warranted when

the proceeding was “trial ready.” Southard v. Barrett, (In re HHH Choices Health Plan, LLC),

2019 U.S. Dist. LEXIS 53121, at *6-8 (S.D.N.Y. Mar. 28, 2019). It is equally clear from a

review of the docket that Bankruptcy Judge Wiles reached the end of his pre-trial rulings with his

opinion and that the matter was in fact trial ready.4 Under such circumstances, it was appropriate

for Judge Wiles to exercise his discretion to issue proposed findings of fact and conclusions of

law. If there is any doubt that the decision stands only for that proposition, it is worth noting that

the same judge ruled in In re Culture Project, Inc., 2017 Bankr. LEXIS 1925, consistent with all

4 The District Court’s docket reflects that the reference was withdrawn promptly after the Rule 9033 process ended

in the Bankruptcy Court.

of the other caselaw, that proposed findings of fact and conclusions of law are not required for

interlocutory orders and must be incorporated into them as appropriate only when the bankruptcy

court renders a final decision or in the judge’s discretion under Fed. R. Bankr. P. 7016(b)(2):

Any final judgment in this adversary proceeding . . . will eventually require entry

of proposed findings of fact and conclusions of law that will be subject to

objection and to district court review. However, the pending motion to dismiss

applies only to some (not all) of the asserted claims, and applies only to claims

against one defendant. A ruling on the motion is therefore an interlocutory ruling

and not a final judgment. This Memorandum Decision will be incorporated into

the Court’s findings of fact and conclusions of law if and when a final judgment is

entered.

Id., at *15-16 (citations omitted). See also In re Rapid-Am. Corp., 2016 Bankr. LEXIS 2224, at

*22 (“Given the policy against piecemeal appeals generally, the Court will submit its proposed

findings and conclusions at the conclusion of the adversary proceeding.”); In re Madison Bentley

Assocs., 2015 Bankr. LEXIS 3507:

This court’s decision today is interlocutory as it addresses only liability on Count

II but leaves open the question of damages, and denies outright summary

judgment for both parties on Count I. The Court is mindful, however, that the

damage calculation on Count II appears to be the only matter left that would be

appropriate for this Court to address. The District Court is constitutionally

charged with entering any final judgment in this case, which here appears to

require a trial on the merits of Count I. As all discovery in this matter has been

completed, the parties should consider whether it is appropriate in the near future

to seek to withdraw the reference in this case to the District Court so that this

matter can proceed to a final judgment.

Id., at *52-53 n. 9; Citibank, N.A. v. Bombshell Taxi, LLC, 2017 U.S. Dist. LEXIS 112469, at

*2 and *12-13 (E.D.N.Y. July 19, 2017), where the district court considered the bankruptcy

court’s proposed findings of fact and conclusions of law with respect to a summary judgment

ruling that finally resolved all issues between two of the parties in the adversary proceeding, but

not the bankruptcy court’s discovery rulings, which the court held should have been the subject

of a request for an interlocutory appeal if review was to be sought.

The Defendants’ contention that the Seventh Amendment right to a jury trial compels the

issuance of findings of fact and conclusions of law for a bankruptcy court’s interlocutory rulings

in matters or proceedings where a jury trial might ultimately be conducted is equally incorrect.

As held in First Fid. Bank, N.A., N.J. v. Hooker Invs., Inc. (In re Hooker Invs., Inc.), 937 F.2d

833, 837 (2d Cir. 1991), the possible collateral effect of an interlocutory order on a party’s jury

trial right would not transform the order into a final determination. Thus, the bankruptcy court

may decide a party’s right to a jury trial in an interlocutory ruling, let alone make rulings that

might collaterally affect such a right, without the requirement to submit proposed findings of fact

and conclusions of law. In re Belmonte, 551 B.R. at 726. See generally, Sigma Micro Corp. v.

Healthcentral.com (In re Healthcentral.com), 504 F.3d 775, 787 (9th Cir. 2007), noting courts’

universal holdings, including in In re Orion Pictures Corp., 4 F.3d at 1102-02, that “a Seventh

Amendment jury trial right does not mean the bankruptcy court must instantly give up

jurisdiction and that the case must be transferred to the district court. Instead, the bankruptcy

court is permitted to retain jurisdiction over the action for pre-trial matters.” (Citations omitted.)

Among the reasons for allowing the bankruptcy court to retain jurisdiction over pre-trial matters

where ultimately a party might be entitled to a jury trial, the court stated, “[A]llowing the

bankruptcy court to retain jurisdiction over pre-trial matters, does not abridge a party’s Seventh

Amendment right to a jury trial. A bankruptcy court’s pre-trial management will likely include

matters of ‘discovery,’ ‘pre-trial conferences,’ and routine ‘motions,’ which obviously do not

diminish a party’s right to a jury trial. Moreover, even if the bankruptcy court were to rule on a

dispositive motion, it would not affect a party’s Seventh Amendment right to a jury trial, as these

motions merely address whether trial is necessary at all. . . . They merely involve legal issues as

to whether any trial is necessary.” Id. at 787 (citations omitted; emphasis in the original).

Conclusion

For the foregoing reasons, the Court determines that the Pleadings are an improper

procedural gambit and should be disregarded. Counsel for the Plaintiff shall submit an order

consistent with this Memorandum of Decision.

Dated: White Plains, New York

February 19, 2020

United States Bankruptcy Judge