In re: S.S. BODY ARMOR I., INC., f/k/a Point Blank Solutions Inc. f/k/a DHB Industries, Inc., et al., Debtors
CARTER LEDYARD & MILBURN LLP, Appellant
April 16, 2019
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 .
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.
J. Leonhardt James H. Hulme Frederick B. Rosner Messana
Rosner & Stern Counsel for Defendant-Appellee Recovery
Before: AMBRO, GREENAWAY, JR., and SCIRICA, Circuit Judges.
Greenaway, Jr., Circuit Judge.
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
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.
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.
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.
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.
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
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.
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
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.
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.
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.
Finality of District Court's Order
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. 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," ...