E-Alert Case Updates

U.S. District Court Examines the Motion to Alter or Amend Judgment Standard

Earnest Demel v. Nortel Networks, Inc.
No. 14-1215 (United States District Court for the District of Delaware, September 10, 2015)
by Richard J. Medoff, Law Clerk
Semmes, Bowen & Semmes (www.semmes.com)

Available at:
http://www.ded.uscourts.gov/sites/default/files/opinions/lps/2015/september/14-1215.pdf

In Earnest Demel v. Nortel Networks, Inc., a case involving an appeal of an order from the United States Bankruptcy Court for the District of Delaware pursuant to 28 U.S.C. § 158, the United States District Court for the District of Delaware concluded that the Bankruptcy Court’s decision was not unreasonable, arbitrary, or an abuse of discretion. Thus, Judge Leonard P. Stark affirmed the Bankruptcy Court’s order.

By way of factual background, on January 14, 2009, Appellee Nortel Networks, Inc. (“Nortel”) filed a petition for chapter 11 bankruptcy relief in the United States Bankruptcy Court for the District of Delaware (“the Bankruptcy Court”). Appellant Earnest Demel (“Demel”) was a former employee of Nortel. In January 2007, Demel initiated an action in the United States District Court for the Southern District of New York seeking to recover long-term disability benefits ("LTD benefits") and disability pension benefits from his former employer's benefits plans. After Nortel filed for bankruptcy, Demel additionally filed a proof of claim against Nortel's bankruptcy estate based on those same benefits in the amount of $1,924,557.70.

Demel, represented by counsel, entered into settlement negotiations with Nortel regarding his proof of claim. The resulting settlement agreement (“the Settlement") granted Demel an allowed general unsecured claim for $125,000 against Nortel’s estate. In the Settlement, Demel agreed to release all other claims he may have had against Nortel and the various benefits plans. On October 14, 2010, the Bankruptcy Court issued an Order approving the Settlement.

After unsuccessfully seeking to recover payment for his $125,000 allowed claim in the Southern District of New York, Demel ceased pursuing litigation in that court. Demel then filed a Motion to Amend the Settlement pursuant to Fed. R. Bankr. P. 9023 and 9024 ("the Motion"). In the Motion, Demel requested that the Bankruptcy Court amend the settlement amount, which in his view was unconscionable. On August 19, 2014, the Bankruptcy Court issued an Order denying Demel’s request. Demel then filed a timely notice of appeal from that Order to the United States District Court for the District of Delaware, arguing that the Bankruptcy Court erred by failing to amend the Settlement.

Appeals from United States Bankruptcy Courts are governed by 28 U.S.C. § 158. Pursuant to § 158, appeals from a United States Bankruptcy Court must “be taken only to the district court for the judicial district in which the bankruptcy judge is serving.” 28 U.S.C. § 158. The District Court has mandatory jurisdiction to hear appeals "from final judgments, orders, and decrees" and discretionary jurisdiction over appeals "from other interlocutory orders and decrees." 28 U.S.C. § 158(a). When reviewing a case on appeal, the District Court reviews the Bankruptcy Court's legal determinations de novo, its factual findings for clear error, and its exercise of discretion for abuse thereof. In re United Healthcare Systems, Inc., 396 F.3d 247, 249 (3d Cir. 2005).

Fed. R. Bankr. P. 9023, which incorporates Fed. R. Civ. P. 59, provides that a bankruptcy court can alter or amend a judgment. “A proper motion to alter or amend judgment 'must rely on one of three major grounds: (1) an intervening change in controlling law; (2) the availability of new evidence [not available previously]; or (3) the need to correct clear error [of law] or prevent manifest injustice."' N. River Ins. Co. v. CIGNA Reinsurance Co., 52 F.3d 1194, 1218 (3d Cir. 1995). "The denial of a motion for reconsideration is reviewed for an abuse of discretion." Id. An abuse of discretion exists whenever a judicial action is "arbitrary, fanciful, or unreasonable, or when improper standards, criteria, or procedures are used." In re Am. Classic Voyages, Co., 298 B.R. 222, 225 (D. Del. 2003).

On the merits of his appeal, Demel first argued that the Bankruptcy Court erred by failing to increase the amount of his Settlement. Demel asserted that the Settlement was unconscionable because it reduced his proof of claim from approximately $1.9 million to $125,000. He cited various factors that contributed to this allegedly unjust result including: lack of bargaining power, misleading statements, and unjustified influence.

The District Court began its analysis by noting that the Bankruptcy Court had rejected these arguments, finding that Demel had not produced any new facts to indicate that Nortel procured the settlement through fraud. The District Court further noted that the Bankruptcy Court had explained that Demel had voluntarily agreed to the Settlement while represented by counsel, and simply because Demel now regrets the Settlement does not upset the conclusion that the Settlement was fair and reasonable at the time it was entered. Moreover, the District Court stated that the Bankruptcy Court had further explained that Demel was not likely even eligible for his asserted LTD Claim.

Accordingly, the District Court concluded that the Bankruptcy Court’s decision not to amend the Settlement on this basis was not unreasonable or arbitrary and; therefore, the Bankruptcy Court did not abuse its discretion.

Demel next argued that he had not authorized Mr. Stone, his purported counsel, to sign the Settlement. The District Court noted that the Bankruptcy Court had not considered this argument, as Demel had first raised it on appeal. Thus, the District Court refused to consider this argument, noting that "when a party fails to raise an issue in the bankruptcy court, the issue is waived and may not be considered by the district court on appeal." In re Kaiser Grp. Int’l Inc., 399 F.3d 558, 565 (3d Cir. 2005).

Accordingly, the District Court held that the Bankruptcy Court did not err in denying Demel’s Motion to Amend, and affirmed the Bankruptcy Court’s August 19, 2014 Order.