Karagjozi v. Bruck (In re Kara Homes, Inc.)

IN RE: KARA HOMES, INC. et al., Debtor.

ZUDHI KARAGJOZI, Plaintiff, v. DAVID BRUCK, ESQ., et al., Defendants.

Adversary Case No. 12-01185

Case No. 06-19626

UNITED STATES BANKRUPTCY COURT DISTRICT OF NEW JERSEY

October 3, 2019

NOT FOR PUBLICATION

Caption in Compliance with D.N.J. LBR 9004-2(c)

Chapter 11

Hearing Date: August 29, 2019

Judge: Michael B. Kaplan

Bruce J. Duke, Esq.

Tabernacle Legal Group

P.O. Box 1418

648 Tabernacle Road

Medford, NJ 08055

Counsel for Plaintiff

Shalom D. Stone, Esq.

Stone Conroy LLC

25A Hanover Road

Ste 301

Florham Park, NJ 07932

Co-Counsel for Defendants

Justin Perry Walder, Esq.

Pashman Stein Walder Hayden, P.C.

21 Main Street

Court Plaza South, Ste 200

Hackensack, NJ 07601

Co-Counsel for Defendants

MEMORANDUM OPINION GRANTING DEFENDANTS' MOTION FOR RECONSIDERATION

This matter comes before the Court on a Motion for Reconsideration (ECF No. 141) filed by Defendants David Bruck, Esq. and Greenbaum, Rowe, Smith & Davis LLP ("Defendants") seeking reconsideration of this Court's July 26, 2019 Opinion and Order¹ which denied Defendants' Motion (ECF No. 116) seeking dismissal of the Amended Complaint under Federal Rule of Civil Procedure 12(c). On August 22, 2019, Plaintiff Zudhi Karagjozi ("Plaintiff") filed a letter (ECF No. 146) which he labels as a response to the motion for reconsideration, but which does not provide any substantive objections or arguments. Instead, Plaintiff suggests his own amendment to the Court's Order and requests the addition of specific language. At the hearing on August 29, 2019, the parties engaged in oral argument and the Court reserved on its decision. The Court has reviewed the parties' submissions and considered fully the arguments. This Court has jurisdiction over this contested matter under 28 U.S.C. §§ 1334(a) and 157(a) and the Standing Order of the United States District Court dated July 10, 1984, as amended September 18, 2012, referring all bankruptcy cases to the bankruptcy court. For the reasons set forth below, the Defendants' Motion for Reconsideration (ECF No. 141) is GRANTED and the Court reconsiders its prior Order denying Defendants' Motion to Dismiss. Accordingly, the Court will recommend dismissal of the Amended Complaint in its entirety and submit proposed findings of fact and conclusions of law to the district court pursuant to 28 U.S.C. § 157(c)(1) and Federal Rule ofBankruptcy Procedure 9033.² The following constitutes the Court's findings of fact and conclusions of law as required by FED. R. BANKR. P. 7052.³

I. Background

The factual background and procedural history of this matter are well known to the parties and will not be repeated in detail here. For purposes of this Opinion, the Court provides the following summary:

In 2006, Plaintiff's company, Kara Homes, Inc. was having cash flow problems. Plaintiff sought the advice of legal counsel and consulted with Defendants; specifically, Defendant Bruck. Ultimately, on the advice of Defendant Bruck, Kara Homes, Inc. filed a voluntary bankruptcy under chapter 11 on October 5, 2006. The Court approved Defendants as counsel for the Debtor, Kara Homes, Inc. and on September 26, 2007, the Court entered an Order confirming the Debtor's Plan of Reorganization.

More than four years later, on January 13, 2012, Plaintiff filed a Complaint in the Superior Court of New Jersey, Law Division, alleging—among other things—professional negligenceagainst Defendants. Defendants believed that the Complaint implicated Defendants' handling of the Kara Homes, Inc. bankruptcy proceedings and removed the case to the bankruptcy court (ECF No. 1). Plaintiff filed a motion to remand (ECF No. 10), which was denied because the bankruptcy court determined that the Complaint contained allegations relating to the chapter 11 bankruptcy case. (ECF No. 14). Ultimately, Plaintiff filed an Amended Complaint which dropped all claims relating to the Kara Homes, Inc. bankruptcy and, on the basis of that amendment, the bankruptcy court remanded the case to state court (ECF No. 24, 26). The case then proceeded in state court over the next several years.

On the eve of trial in state court, Plaintiff served a trial brief which Defendants believed again implicated arguments and claims concerning the Kara Homes, Inc. chapter 11 case. Accordingly, Defendants once again removed the case to bankruptcy court (ECF No. 28). Plaintiff filed a motion to remand the matter to state court (ECF No. 40). After substantial briefing, motion practice, and oral argument, this Court denied the request to remand for reasons set forth on the record during a December 14, 2016 hearing (ECF No. 54, 58). Plaintiff then filed a motion for leave to appeal (ECF No. 62), which was denied by the district court (ECF No. 71). Likewise, Plaintiff's motion to withdraw the reference (ECF No. 60) was also denied by the district court (ECF No. 77), and the case then proceeded before this Court, including a period of time in which the parties attempted mediation.

On April 5, 2019, Defendants filed a motion seeking dismissal of the Amended Complaint on the basis of res judicata, exculpation, and judicial estoppel (ECF No. 121). In an Opinion dated July 26, 2019, this Court denied the motion because the claims in the Amended Complaint—ascharacterized by Plaintiff in his responsive certification (ECF No. 125)—did not relate to the exculpation clause or any of the judicial doctrines asserted in Defendants' motion. Specifically, Plaintiff acknowledged that his claims do not, and would not, relate to the bankruptcy proceedings, the decision to file the bankruptcy, the filing of the petition, or any actions that occurred after the October 5, 2006 filing date. In a footnote, this Court noted that it was unclear how Plaintiff could establish that his injuries were caused by Defendants' alleged misconduct without introducing into evidence any facts relative to the bankruptcy filing on October 5, 2006, or events which transpired thereafter. Nevertheless, the Court observed that Plaintiff had voluntarily accepted that burden and the Court permitted the matter to proceed to trial with the limitations proposed by Plaintiff. Defendants now ask the Court to reconsider the Opinion and Order denying the motion to dismiss.

II. Standard of Review

A. Motion for Reconsideration

The Court notes that, in support of their motion, Defendants cite to Federal Rule of Civil Procedure 59(e), which is made applicable to the bankruptcy court under Federal Rule of Bankruptcy Procedure 9023. However, Rule 59 encompasses a Motion for a New Trial or to Alter or Amend a Judgment and "the rule only applies to final judgments, not interlocutory orders." Zitter v. Petruccelli, No. 15-6488, 2017 WL 1837850, at *2 (D.N.J. May 8, 2017). Here, the Court is tasked with reconsideration of an interlocutory order, thus, Rule 59(e) does not apply.

The Court also notes that the Federal Rules of Bankruptcy Procedure do not recognize a "motion for reconsideration." Such a motion is not mentioned in the Federal Rules of Civil Procedure, nor is it provided for in our Local Bankruptcy Rules. Nevertheless, this Court haspreviously determined that it possesses the inherent power to reconsider its orders at any time before final judgment. See In re Dots, LLC, 562 B.R. 286, 291 (Bankr. D.N.J. 2017) (collecting cases and discussing bankruptcy court's authority to reconsider its interlocutory orders at any time when it is consonant with justice to do so). The Third Circuit has likewise reached this conclusion. In re Energy Future Holdings Corp., 904 F.3d 298 (3d Cir. 2018), cert. denied sub nom. NextEra Energy, Inc. v. Elliott Assocs., L.P., 139 S. Ct. 1620, 203 L. Ed. 2d 898 (2019) (holding that while the bankruptcy rules do not expressly authorize motions for reconsideration, bankruptcy courts, like any other federal court, possess inherent authority, and such authority permits courts to reconsider prior interlocutory orders at any point during which the litigation continues, as long as the court retains jurisdiction over the case).

Furthermore, litigants may seek relief from orders of the bankruptcy court under Federal Rule of Bankruptcy Procedure 9024, which incorporates Federal Rule of Civil Procedure 60(b). Notably, while Rule 60(b) applies only to final orders or judgments in the district court, Congress distinguished Bankruptcy Rule 9024 from its federal counterpart and made it applicable to all orders of the bankruptcy court. See FED. R. BANKR. P. 9024 advisory committee notes ("For the purpose of this rule all orders of the bankruptcy court are subject to Rule 60."). Accordingly, the authority for a bankruptcy court to grant relief from an interlocutory order can stem from both its inherent powers and Bankruptcy Rule 9024.

B. Motion Under Federal Rule of Civil Procedure 12(c)

Rule 12(c) of the Federal Rules of Civil Procedure is made applicable to bankruptcy proceedings by Rule 7012 of the Federal Rules of Bankruptcy Procedure. Where, as here, a motionis filed after the pleadings are closed, the motion is appropriately titled a motion for judgment on the pleadings under Rule 12(c). See Kamden-Ouaffo v. Plaza Square Apartments, 740 F. App'x 766, 767 n.1 (3d Cir. 2018) (citing Spruill v. Gillis, 372 F.3d 218, 223 n.2 (3d Cir. 2004)). Nevertheless, the applicable legal standards for motions under 12(c) and 12(b)(6) are the same. Id.; see also e.g., In re Qureshi, No. 14-35109, 2015 WL 5254717, at *4 (Bankr. D.N.J. Sept. 8, 2015); In re Tarragon Corp., No. 09-10555, 2012 WL 71597, at *3 (Bankr. D.N.J. Jan. 10, 2012).

In determining the sufficiency of a complaint under Rule 12(b)(6), courts may "consider only the complaint, exhibits attached to the complaint, matters of public record, as well as undisputedly authentic documents if the complainant's claims are based upon the documents." Logan v. Bd. of Educ. of Sch. Dist. of Pittsburgh, 742 F. App'x 628, 631-32 (3d Cir. 2018) (quoting Hartig Drug Co. Inc. v. Senju Pharm. Co., 836 F.3d 261, 268...