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In re S.S. Body Armor I., Inc.

United States Court of Appeals, Third Circuit

June 25, 2019

In re: S.S. BODY ARMOR I., INC., f/k/a Point Blank Solutions Inc. f/k/a DHB Industries, Inc., et al., Debtors
v.
CARTER LEDYARD & MILBURN LLP, Appellant

          Argued April 16, 2019

          APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE (D.C. Civ. Action No. 1-18-cv-00634) District Judge: Hon. Gregory M. Sleet .

          Laura D. Jones James E. O'Neill Pachulski Stang Ziehl & Jones Alan J. Kornfeld [ARGUED] Pachulski Stang Ziehl & Jones Counsel for Debtor-Appellee SS Body Armor I, Inc.

          Michael Busenkell Gellert Scali Busenkell & Brown Gary D. Sesser [ARGUED] Carter Ledyard & Milburn Counsel for Plaintiff-Appellant Carter Ledyard & Milburn.

          Scott J. Leonhardt James H. Hulme Frederick B. Rosner Messana Rosner & Stern Counsel for Defendant-Appellee Recovery Trustee.

          Before: AMBRO, GREENAWAY, JR., and SCIRICA, Circuit Judges.

          OPINION

          Greenaway, Jr., Circuit Judge.

         This procedurally-complex case stems from financial crimes at a public company, which led to a peculiar confluence of events: criminal convictions of the company's top executive, the executive's unforeseen death while in custody, several class action and derivative lawsuits, a number of proposed settlement agreements, ongoing bankruptcy proceedings, and numerous disputes spanning across three levels of the federal judiciary in three separate jurisdictions. At this point, however, we are faced with a single appeal that raises two specific issues-a jurisdictional issue and a merits issue. Here, upon assuring ourselves of our appellate jurisdiction, we will affirm the underlying order for the reasons set forth below.

         I. BACKGROUND

         In the mid-2000s, David Brooks ("Brooks"), Chairman and Chief Executive Officer ("CEO") of SS Body Armor I, Inc. ("Debtor"), was charged with a panoply of financial crimes. In response to a slew of class action and derivative lawsuits consolidated in the United States District Court for the Eastern District of New York ("EDNY"), Debtor proposed a global settlement agreement ("First Settlement Agreement") worth approximately $48 million and that, among other things, indemnified Brooks for liability under section 304 of the Sarbanes Oxley Act of 2002 ("SOX 304"), 15 U.S.C. § 7243.[1]

         D. David Cohen ("Cohen"), former General Counsel and a shareholder of Debtor, objected to the First Settlement Agreement on the ground that the SOX 304 indemnification provision was unlawful. After the EDNY district court overruled his objection and approved the settlement agreement, Cohen pursued an appeal to the United States Court of Appeals for the Second Circuit ("Second Circuit"), represented by Carter Ledyard & Milburn LLP ("CLM"). The Second Circuit agreed with Cohen, holding that the settlement agreement's indemnification of Brooks violated SOX 304 and thus required vacatur of the EDNY district court's order approving of the agreement. In so doing, the Second Circuit noted that the EDNY district court would ultimately have to determine the appropriate attorneys' fees to award CLM.

         Around the time the Second Circuit upended the First Settlement Agreement, Debtor initiated Chapter 11 bankruptcy proceedings in the United States Bankruptcy Court for the District of Delaware ("Bankruptcy Court"). With that, the Bankruptcy Court effectively took control over the EDNY litigation, as any settlement would need to be approved by the Bankruptcy Court. Eventually, the Bankruptcy Court confirmed Debtor's liquidation plan that, among other things, established a recovery trustee ("Recovery Trustee") to pursue Debtor's interest in further recouping its losses from the ongoing EDNY and SDFL actions.

         While the bankruptcy proceedings continued, Brooks died in prison. Because his criminal appeal had not yet concluded, some of his convictions and the concomitant restitution obligations imposed during the prosecution were abated. In light of this shift in the landscape, various stakeholders negotiated another global settlement agreement ("Second Settlement Agreement") to resolve all outstanding claims. Under that agreement, approximately $142 million of Brooks' restrained assets were agreed to be distributed to various victims of his financial crimes. Of that $142 million, roughly $70 million has recently been remitted to Debtor.

         Meanwhile, still seeking its attorneys' fees for preserving the SOX 304 claim nearly a decade prior, CLM initiated a series of filings. First, it filed a fee application in the Bankruptcy Court. In that application, CLM indicated that it billed 1, 502.2 hours and incurred fees totaling $549, 472.61 in connection with the SOX 304 claim. Using a lodestar multiplier of 3.38, CLM thus sought an attorneys' fees award of $1.86 million, representing 1% of the potential SOX 304 liability it had preserved. In ruling on the fee application, the Bankruptcy Court purported to award CLM attorneys' fees but did not quantify the exact amount of the award. Instead, the Bankruptcy Court ruled that the amount of the award would be determined in the future, if and when Debtor actually received any funds on account of the SOX 304 claim. The Bankruptcy Court's ruling made clear, however, that CLM would not be entitled to any award if Debtor were to never receive any funds on account of the SOX 304 claim. Concerned of the potential to receive nothing, CLM appealed the fee application order ("Fee Application Appeal") to the United States District Court for the District of Delaware ("District Court"). Fully briefed, the Fee Application Appeal remains pending at the District Court.

         CLM next filed a motion with the Bankruptcy Court requesting that a $25 million reserve be set aside from which its attorneys' fees could be paid. Without determining the exact amount of attorneys' fees owed to CLM, the Bankruptcy Court granted the motion in part, ordering Debtor to set aside $5 million from any settlement funds until resolution of CLM's fee application. Believing $5 million to be insufficient, CLM appealed the Bankruptcy Court's fee reserve order ("Fee Reserve Appeal") to the District Court. Fully briefed, the Fee Reserve Appeal also remains pending at the District Court.

         In the Bankruptcy Court, CLM then moved for a stay of any distributions from the Second Settlement Agreement pending its Fee Reserve Appeal. The Bankruptcy Court denied the motion. CLM subsequently appealed-in a new appeal, not the pending Fee Reserve Appeal-the Bankruptcy Court's stay denial order ("Stay Denial Appeal") to the District Court. In its Stay Denial Appeal, CLM filed an emergency motion ("Emergency Stay Motion") requesting the District Court to stay distributions from the Second Settlement Agreement pending resolution of the Fee Reserve Appeal, in which it was now requesting a $15 million fee reserve. Debtor and the Recovery Trustee (collectively "Appellees") opposed the motion, which the District Court eventually denied. From that denial, CLM now appeals to us.

         This case thus presents us with two questions. First, do we have jurisdiction to hear this appeal? Second, if we have jurisdiction, did the District Court correctly deny CLM's Emergency Stay Motion? For the reasons set forth below, we answer each question in the affirmative.

         II. JURISDICTIONAL ISSUE

         CLM argues that we have appellate jurisdiction because the District Court's denial of the Emergency Stay Motion qualifies as a final order under 28 U.S.C. § 158(d)(1) or, alternatively, as an injunctive order under 28 U.S.C. § 1292(a)(1). We agree on the first ground for jurisdiction and thus do not reach the second ground.

         Under 28 U.S.C. § 158(d)(1), we have jurisdiction over appeals of "all final decisions, judgments, orders, and decrees" entered by a district court reviewing a bankruptcy court's order in an appellate capacity. For us to have jurisdiction under the statute, however, both relevant district court and bankruptcy court orders must be final. See In re White Beauty View, Inc., 841 F.2d 524, 525-26 (3d Cir. 1988); In re Klaas, 858 F.3d 820, 825 (3d Cir. 2017). We address the finality of each order in turn.

         A. Finality of District Court's Order

         Since we have no direct precedent on the finality of the relevant District Court order, we look chiefly to In re Revel AC, Inc., 802 F.3d 558 (3d Cir. 2015) (Ambro, J.), our most factually analogous case.[2] There, the bankruptcy court entered an order authorizing a debtor to sell its casino property free and clear of any tenancies. See Revel, 802 F.3d at 564. An aggrieved tenant appealed the sale authorization order to the district court and moved to stay the sale pending the appeal. See id. After the district court denied a stay, but while the underlying appeal was still pending in the district court, the tenant appealed the stay denial to us. See id. at 566. Importantly, the sale was scheduled to close imminently and, once it did, the tenant's possessory interest in the property would be lost forever given a statute under which reversing a sale authorization order does not affect the validity of the sale itself. See id. at 564-65, 567. Noting that "the upshot of declining the [tenant's] stay request [was] to prevent it from obtaining a full airing of its issues on appeal and a decision on the merits," ...


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