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Chesapeake Bay Enterprises, Inc. v. Pillsbury Winthrop Shaw Pittman, LLP

United States District Court, E.D. Virginia, Richmond Division

November 25, 2014

CHESAPEAKE BAY ENTERPRISES, INC., Appellant,
v.
PILLSBURY WINTHROP SHAW PITTMAN, LLP, et al., Appellees.

MEMORANDUM OPINION (AFFIRMING THE DECISION OF THE UNITED STATES BANKRUPTCY COURT)

HENRY E. HUDSON, District Judge.

This appeal from the United States Bankruptcy Court (the "Bankruptcy Court") evolves from the process of liquidating the core assets of the debtor, Potomac Supply Corporation, located in Kinsale, Virginia. The central dispute before this Court focuses on rulings by the Bankruptcy Court pertaining to the disposition of a $500, 000 deposit held in escrow by Pillsbury Winthrop Shaw Pittman, LLP ("Pillsbury"), counsel for the debtor. The appellant, Chesapeake Bay Enterprises, Inc. ("CBE"), claims immediate entitlement to the $500, 000, which it deposited with Pillsbury as part of an asset purchase agreement.

In granting Pillsbury's motion for summary judgment and dismissing the claims against Pillsbury for conversion of the deposit and breach of fiduciary duty, the Bankruptcy Court concluded that Pillsbury's retention of the deposit was proper pending that court's resolution of competing claims of ownership. This appeal followed.

Both CBE and Pillsbury have filed memoranda supporting their respective positions. The facts and legal contentions are adequately presented in the materials before the Court. Since the findings of the Bankruptcy Court stand on sound footing, oral argument would not aid in the decisional process.

The standard of review applied by this Court is well-settled. The Bankruptcy Court's legal conclusions are reviewed de novo and its factual findings for clear error. In re Harford Sands, Inc., 372 F.3d 637, 639 (4th Cir. 2004). For the reasons that follow, this Court will affirm the decision of the Bankruptcy Court articulated in its opinion of April 23, 2014.[1] Although the underlying facts are a bit convoluted, the issues presented on this appeal turn on well-established tort jurisprudence. The issues for review on this appeal distill to the following:

1. Did the Bankruptcy Court err in taking under advisement the issue of whether CBE waived its Seventh Amendment constitutional right to a trial by jury on its third party claims against Pillsbury for conversion and breach of fiduciary duty? Is the Bankruptcy Court's action reviewable on appeal? If so, is the Bankruptcy Court's decision to take the issue under advisement moot, given the dismissal of the other claims on summary judgment?
2. Did the Bankruptcy Court err in concluding that entitlement to the $500, 000 deposit held by Pillsbury was genuinely in dispute? Did the Bankruptcy Court properly find that CBE could not demonstrate a right to immediate possession of the deposit and that Pillsbury was therefore entitled to summary judgment as a matter of law on CBE's claim of conversation?
3. Given the pending controversy over entitlement to the $500, 000 deposit that Pillsbury was holding in escrow, did the Bankruptcy Court err in finding that Pillsbury was entitled to summary judgment as a matter of law on CBE's claim of breach of fiduciary duty?

Before turning to the more substantive issues, the Court will quickly dispense with CBE's contention that the Bankruptcy Court denied its request for a jury trial on its third party claims against Pillsbury for conversion and breach of fiduciary duty. As Pillsbury stresses in its brief, this Court's appellate jurisdiction is limited by 28 U.S.C. § 158(a), entitled "final judgments, orders, and decrees [of the Bankruptcy Court]." 28 U.S.C. § 158(a)(1). Finality imports the notion that a decision is neither tentative, provisional, nor contingent.

It appears from the record in this case that the Bankruptcy Court, without objection by CBE's counsel, took under advisement the issue of whether the asset purchase agreement contract waived CBE's right to a jury trial. The Bankruptcy Court concluded that this issue should be deferred pending a decision on CBE's motion to withdraw the reference. (Appellee's Br. 12, ECF No. 19.) Obviously, the Bankruptcy Court's decision to take under advisement CBE's request for a jury trial was not the type of final order contemplated under 28 U.S.C. § 158(a)(1). Furthermore, a decision to defer action on an issue is not an appealable interlocutory or collateral order. 28 U.S.C. § 158(a)(2) and (3).

Therefore, this Court is without jurisdiction to weigh the providence of the bankruptcy judge's action. Moreover, even if this Court had jurisdiction to review the bankruptcy judge's course of action, it would be moot since the underlying claims for which CBE sought a jury trial were dismissed on summary judgment. This claim will, therefore, be dismissed for want of jurisdiction.

In order to fully grasp the Bankruptcy Court's analysis, some back story is necessary to provide context. According to the uncontested factual findings by the Bankruptcy Court, Potomac initially filed a petition under Chapter 11 in January 2012. At that time, Potomac's primary secured creditor was Regions Bank, which held obligations exceeding $17, 000, 000. Potomac retained Pillsbury as its bankruptcy counsel. After some attempt at reorganization, the proceedings shifted to liquidation of Potomac's assets. In July 2012, Potomac sought and received leave of court for sale of substantially all of Potomac's core assets (Bankr. E.D. Va., April 24, 2014 Op. Granting Mot. Summ. J. 2-3, ECF No. 10 (hereinafter "Op.").)

On a parallel track, Potomac was simultaneously negotiating with CBE for the sale of its core assets. In furtherance of this process, Pillsbury, as counsel for Potomac, on September 13, 2012, sent specific instructions for wiring a good faith deposit to CBE's counsel. CBE was advised to send the $500, 000 good faith deposit to Wells Fargo Bank naming Pillsbury as the beneficiary in trust for Pillsbury's client. In anticipation of a formal purchase agreement, CBE wired $50, 000 to Pillsbury on September 17, 2012, and an additional $450, 000 to Pillsbury on September 18, 2012. Communications accompanying the deposit indicated that the funds were to be held in trust for CBE. During this period, CBE was apparently exploring further financing from Great Eastern Investment Fund, LLC. ( Id. at 4-5.)

On September 21, 2012, Potomac and CBE entered into an Asset Purchase Agreement ("APA") for the sale of Potomac's core assets. The APA delineated the contractual obligation of each party prior to closing. An integral part of the APA was the requirement of a $500, 000 deposit at its execution and an additional $500, 000 deposit within fifteen days thereafter "pursuant to an escrow agreement to be executed by Seller, Buyer and the Deposit Escrow Holder on ...


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