Old Republic Ins. Co. v. Hakes (In re Hakes)

IN RE: Danny Lee Hakes, Debtor.

Old Republic Insurance Co., Plaintiff (Appellee), v. Danny Lee Hakes, Defendant (Appellant).

Case No. 14-32139

Adv. Pro. No. 14-03199

Case No. 15-12720

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION

February 8, 2016

Chapter 13

Honorable Daniel Opperman

Honorable Sean F. Cox

OPINION & ORDER

This is a bankruptcy appeal from a Chapter 13 Adversary Proceeding. Appellant Danny Lee Hakes's ("Hakes" or "Debtor") appeal relates to the bankruptcy court's "Order Denying Defendant's Motion For Reconsideration Of March 16, 2015, Order Holding Adversary Proceeding In Abeyance." (Adv. Pro. Docket #31). The parties have briefed the issues and the Court entertained oral argument as to Debtor's appeal on January 21, 2016. For the reasons set forth below, the Court shall AFFIRM the bankruptcy court's order.

BACKGROUND

On July 29, 2014, Debtor Danny Lee Hakes filed a Chapter 13 petition for bankruptcy in the United States Bankruptcy Court for the Eastern District of Michigan. The action was assigned to the Honorable Daniel Opperman, United States Bankruptcy Judge, and was assigned as Case No. 14-32139.

Pending State Court Action

At the time Debtor filed his bankruptcy case, he was a Defendant in a civil action pending in the Genesee County Circuit Court ("State Court Action"). (Bankr. Docket # 79, Bankr. Opinion at 1).

The State Court Action was filed by Old Republic Insurance Company ("Old Republic") on October 12, 2012. Id. In it, Old Republic seeks declaratory relief and restitution for First Party No Fault benefits it paid to Debtor as a result of an accident that occurred on June 23, 2003. Id. Old Republic claims that Debtor obtained payments for Attendant Care Services by means of fraud and/or misrepresentation. (Docket # 9, Old Republic's App. Br. at 2). In October 2013, Old Republic stopped paying Debtor PIP benefits. (Docket #7, Debtor's App. Br. at 8). In response, Debtor filed a counterclaim. (Old Republic's App. Br. at Ex. 2). In it, Debtor seeks damages for intentional infliction of emotional distress, fraud, conspiracy to commit intentional torts, breach of contract, and violations of Michigan No Fault laws. Id.

Bankruptcy Court Filings

On July 29, 2014, while the State Court Action was still pending, Debtor Danny Lee Hakes petitioned for bankruptcy. On November 24, 2014, Old Republic filed a proof of claim in the amount of $622,590 for "Money Received by False Representation." (Old Republic's App. Br. at Ex. 3, Proof of Claim.). That same day, Debtor filed an objection to the proof of claim. (Bankr. Docket #61). Debtor contends that Old Republic is precluded from bringing its proof of claim under the applicable statute of limitations, and under theories of judicial estoppel and equitable estoppel. Id.

On November 24, 2014, Old Republic also filed a complaint against Debtor pursuant to11 U.S.C. 523(a)(2), pending as Adversary Proceeding No. 14-3199. (Adv. Pro. Docket #1). In its complaint, Old Republic objects to the dischargeability of its claims because of the fraud and misrepresentation allegedly committed by Debtor under Michigan law. Debtor filed a counterclaim against Old Republic, seeking declaratory relief from the court as to his entitlement to No Fault benefits, as well as attendant relief and costs. (Adv. Pro. Docket #9).

On December 18, 2014, Old Republic filed a "Motion for Abstention from Determination of claims, Lift of Stay, and Abeyance of Adversary Proceeding Pending Resolution of Prepetition Lawsuit." (Bankr. Docket #64, Old Republic's Motion). The motion sought the following three things from the bankruptcy court: 1) relief from the automatic stay in order to allow the State Court Action to proceed in circuit court; 2) abstention from making a determination as to its Proof of Claim until the validity of its claims were determined in the State Court Action; and 3) abeyance of the Adversary Proceeding until the State Court Action was resolved. Old Republic argued that its proof of claim and Debtor's claim discharge objections all involved a determination of the issues that were already being adjudicated in the State Court Action.

Bankruptcy Court's Opinion Regarding Old Republic's Abstention, Lift of Stay, and Abeyance Motion

On March 16, 2015, the bankruptcy court granted Old Republic's motion through an Order Granting Motion for Relief from Stay (Bankr. Docket # 80) and an Order Holding Adversary Proceeding in Abeyance (Adv. Pro. Docket #31, Abeyance Order), both entered in connection with a contemporaneous Opinion Granting Motion for Relief from Stay re: Abstention from Determination of Claims, Lift of Stay to Continue Prepetition Lawsuit and Abeyance of Adversary Proceeding Pending Resolution of Prepetition Lawsuit Filed By OldRepublic Bank. (Bankr. Docket #79, Bankr. Opinion).

In his Opinion, Judge Opperman characterized the parties' competing positions as follows:

[In support of abstention], Old Republic asserts that the State Court Action involves determinations of Michigan law, which includes a jury demand. According to Old Republic, a trial on this matter will last several weeks, and will involve 'testimony from at least three independent medical examiners, a forensic accounting expert, all of [Debtor's] physicians (covering a lifetime of treatment), at least 14 different alleged attendant care providers, [Debtor's] expert witnesses, and numerous other witnesses (including police officers and other individuals with knowledge of [Debtor's] conditions, actions, and activities).' (Old Republic Motion, at 3, ¶ 11). Old Republic also asserts that the Genesee County Circuit Court had actively overseen this case for twenty-one (21) months prior to Debtor's bankruptcy filing, and has extensive knowledge of the facts, background and parties' positions as is evidenced by rulings made by the Genesee County Circuit Court regarding dispositive motions filed by both Debtor and Old Republic, as well as 'voluminous discovery,' numerous discovery disputes, 'at least 37 motions filed, and 14 court hearings.' (Old Republic Motion, at 2, ¶ 7).

Debtor takes the position that when Old Republic filed a claim in this bankruptcy case, it 'invoked this Court's 'core' subject matter jurisdiction.' Debtor asserts that this, coupled with Old Republic filing the dischargeability adversary proceeding against him, 'necessarily invoked Bankruptcy resulting, sole jurisdiction over Old Republic Insurance's claims against' him. (Debtor's Response Memorandum, at 2).

(Bankr. Opinion at 2-3).

The court rejected Debtor's argument and concluded that the circumstances warranted permissive abstention pursuant to 28 U.S.C. § 1334(c). In reaching this conclusion, the bankruptcy court considered the 13 non-exclusive factors relied upon by courts when determining whether or not permissive abstention is appropriate. After analyzing all of the factors, the Court granted Old Republic's motion:

Accordingly, the Motion for Permissive Abstention of Old Republic is granted. Because the Court abstains from hearing this claim determination, lift of stay to continue this matter in the Genesee County Circuit Court is a natural consequence of abstention, and it is unnecessary for this Court to separately rule on the motionfor relief from stay. The same holds true for Old Republic's request to hold the dischargeability adversary proceeding in abeyance. Once the State Court Action is fully litigated and decided, any determination as to the dischargeability of any debt Debtor owes Old Republic will then be determined by this Court.

. . . .

The Court will enter a separate Order to hold Adversary Proceeding No. 14-3199 in abeyance.

(Bankr. Opinion at 6-7).

The Bankruptcy Court's Denial of Debtor's Motion For Reconsideration

On March 22, 2015, Debtor filed a Motion for Reconsideration of the bankruptcy court's March 16, 2015, Order Holding Adversary Proceeding in Abeyance, which was entered in connection with the court's Opinion granting Old Republic's Motion for Relief from Stay. (Adv. Pro. Docket #32, Motion for Reconsideration). In his motion, Debtor argued that the bankruptcy court committed palpable errors, in: 1) abstaining from determining whether to allow or disallow Old Republic's filed Proof of Claim in 14-32139, in favor of allowing a future non-bankruptcy, state court jury, to make that determination; 2) not stating how the abstention and the dischargeability abeyance are to proceed; and 3) invalidly outsourcing the determination of the Chapter 13 Estate's own claims against Old Republic to that same, to-be-formed-in-the-future, state court jury. (Motion for Reconsideration at 9).

The bankruptcy court denied that motion in an "Order Denying [Debtor's] Motion for Reconsideration of March 16, 2015, Order Holding Adversary Proceeding in Abeyance." (Adv. Pro. Docket #43).

Debtor's Notice of Appeal

On August 4, 2015, Debtor filed a Notice of Appeal, appealing "from the order of the Bankruptcy Court - 'Order Denying Defendant's Motion For Reconsideration of March 16, 2015, Order Holding Adversary Proceeding in Abeyance,' entered in this Adversary Proceeding on July 30, 2015." (Docket # 1).

STANDARD OF REVIEW

Here, Debtor appeals from the bankruptcy court's "Order Denying Defendant's Motion for Reconsideration of March 16, 2015, Order Holding Adversary Proceeding in Abeyance." (Docket # 1, Notice of Appeal).

An order which grants or denies a motion for reconsideration is reviewed for an abuse of discretion, except that any aspect of the ruling that relies upon issues of law is subject to de novo review. Greenwell v. Parsley, 541 F.3d 401, 403 (6th Cir. 2008).

The denial of a Rule 59(e) motion for reconsideration is reviewed for abuse of discretion. "'Under this standard [of review], the [court's] decision and decision-making process need only be reasonable.'" The granting of a Rule 59(e) motion "is an extraordinary remedy and should be used sparingly." This is because a motion pursuant to Rule

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