Schiano v. Salkin

NICHOLAS SCHIANO, Appellant, v. SONYA SALKIN, Appellee.

CASE NO. 19-60015-SMITH

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA

August 23, 2019

ORDER ON BANKRUPTCY APPEAL

THIS MATTER is before the Court on Nicholas Schiano's appeal from two orders entered by the United States Bankruptcy Court for the Southern District of Florida, which granted the Chapter 7 Trustee's/Appellee's Motions to Approve Stipulation of Settlement and Release and to Approve Stipulation of Settlement as to Disposition of Domain Names. Based on the existing appellate record,¹ the Court finds that Mr. Schiano lacks standing to pursue this appeal.

I. JUDICIAL NOTICE

As a preliminary matter, the Court addresses the Trustee's Motion for Judicial Notice of Ruling by Eleventh Circuit Court of Appeal or For Alternate Relief [DE 31] and the Supplement to Appellee's Motion for Judicial Notice [DE 33]. In the Motion, the Trustee asks the Court to take judicial notice of the Eleventh Circuit Court of Appeals' recent rulings in Friedman v.Nicholas Schiano, et al., No. 18-10742, which was filed on February 26, 2018.² In the Friedman appeal, Mr. Schiano challenged the district court's entry of default judgment of approximately $1.3 million in favor of Judgment Creditors Matthew Friedman and Scale Media, Inc. in another case. Mr. Schiano has not filed any papers in opposition to the Trustee's Motion for Judicial Notice.

"Courts 'may judicially notice a fact that is not subject to reasonable dispute because it: (1) is generally known within the trial court's territorial jurisdiction; or (2) can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned.'" Collier HMA Physician Mgmt., LLC v. NCH Healthcare Sys., Inc., No. 218CV408FTM38MRM, 2019 WL 277733, at *2 (M.D. Fla. Jan. 22, 2019) (citing Fed. R. Evid. 201(b)) (taking "judicial notice of the subject matter of the state trial and appellate court filings and recogniz[ing] the judicial acts each order represents."). Courts are therefore "free to take judicial notice of subsequent developments in cases that are a matter of public record and are relevant to the appeal." Rothenberg v. Sec. Mgmt. Co., 667 F.2d 958, 961 (11th Cir. 1982). This includes "judicial notice of another court's order . . . for the limited purpose of recognizing the judicial act that the order represents or the subject matter of the litigation and related filings." In re Delta Res., Inc., 54 F.3d 722, 725 (11th Cir. 1995) (internal marks and citation omitted) (taking judicial notice of bankruptcy court's order and its findings as a matter of law); see also McBride v. Crews, No. 3:14CV131/LAC/EMT, 2014 WL 4983501, at *1 (N.D. Fla. Oct. 6, 2014) (taking "judicial notice of information available on the database maintained by the Clerk of Court for the Eleventh Circuit Court of Appeals, https://ecf.ca11.uscourts.gov," that "Petitioner filed an application for leave tofile a successive habeas petition" and the "Eleventh Circuit denied the application on July 30, 2014.").

This Court takes judicial notice of the Friedman appeal and the Eleventh Circuit's rulings in the case. Developments in that case are a matter of public record and are relevant to this appeal. Mr. Schiano has extensively referenced the Friedman appeal in his papers and throughout the record, and has not opposed the Trustee's Motion. The Motion for Judicial Notice is granted.

II. BACKGROUND

The genesis of this case lies in a business relationship gone awry. Mr. Schiano owned a bar mitzvah entertainment company and an internet marketing company. Appellant's Corrected Br. ("Br.") [DE 26] at 5. Judgment Creditor Mathew Friedman worked for Mr. Schiano's bar mitzvah entertainment company. Br. at 5. At some point, Mr. Friedman opened his own internet marketing company. Br. at 5. Later, Mr. Friedman and his company, Scale Media, Inc. (collectively, "the Judgment Creditors"), filed suit against Mr. Schiano for injunctive relief, defamation per se, and violations of the Florida Deceptive and Unfair Trade Practices Act. R. at 297-98, 323. The Judgment Creditors alleged that Mr. Schiano published false and damaging statements about them online to divert business away from the Judgment Creditors to Mr. Schiano. Id. The district court in that case entered default judgment against Mr. Schiano for approximately $1.3 million. R. at 303-04, 315-21.

Mr. Schiano subsequently filed for chapter 7 bankruptcy in the United States Bankruptcy Court for the Southern District of Florida. On November 16, 2018, the trustee appointed in the bankruptcy case, Appellee Sonya Salkin, filed two motions seeking approval of a settlement between the bankruptcy estate and the Judgment Creditors. The first motion sought the bankruptcy court's approval of a settlement involving various internet domain names owned or controlled byMr. Schiano pre-petition, for which the Judgment Creditors offered $15,000 as consideration. R. at 22-31. In the second motion, the Trustee asked the bankruptcy court to approve a settlement pertaining to other issues between the bankruptcy estate and the Judgment Creditors, including a claim for slander and defamation against the Judgment Creditors which Mr. Schiano had listed on Schedule A/B of his bankruptcy petition. R. at 1, 25-36.³ As consideration for this second agreement, the Judgment Creditors agreed to waive their claim to garnished bank funds (a sum of $10,840.72) and to pay an additional sum of $5,000 to the bankruptcy estate, and the parties agreed to exchange releases. R. at 25-36. Mr. Schiano failed to bid or out-bid the Judgment Creditors for these assets. See Dec. 12, 2018 Hr'g Tr. ("Tr.") at 10-13, 22, 28-32, 35-36, 40-42, 44-45, 47, 51, 54-55, 59-62, 75-76.

Mr. Schiano objected to both settlement agreements and, on December 12, 2018, the bankruptcy court held a hearing on the objections and proposed settlements. Explaining his reasoning on the record at the hearing, the bankruptcy judge found that the settlements were in the best interest of the bankruptcy estate and that the Trustee had exercised her reasonable business judgment. Tr. at 40-42, 75:20-76; R. at 48-51, 58-59. At the hearing, and later in written orders, the bankruptcy court approved both settlements. Id. The bankruptcy court also found that Mr. Schiano lacked standing to object to the settlements because he had no "apparent economic interest in th[e] estate . . . [which] is by all appearances hopelessly insolvent." Tr. at 82:14-19. This appeal followed.

This Court consolidated Mr. Schiano's appeal of the order approving the settlement concerning the domain names and the appeal of the order approving the more general settlement.See DE 12. Mr. Schiano argues on appeal that: (1) he has standing to object to the settlements and to bring this appeal; (2) the Trustee failed to present evidence, and the bankruptcy court failed to make specific findings in its orders, that the settlements were fair, equitable, and in the best interest of the estate; (3) to the extent his defamation claim against the Judgment Creditors may include an equitable claim for injunctive relief, the defamation claim is not part of the bankruptcy estate and the Trustee is therefore prohibited from settling the claim; and (4) to prevent the Judgment Creditors from using their default judgment as a blocking position to chill open and competitive bidding, the bankruptcy court should have stayed determination of the propriety of the settlements until after the Eleventh Circuit decided the Friedman appeal. Br. at 12-49; Am. Reply Br. at 2-26.

The appeal has been fully briefed, the Court has reviewed the record, and this matter is ripe for adjudication.

III. STANDARD OF REVIEW

District courts function as appellate courts in reviewing a bankruptcy court's decision. Williams v. EMC Mortg. Corp. (In re Williams), 216 F.3d 1295, 1296 (11th Cir. 2000). "A district court reviews a bankruptcy court's legal conclusions de novo, and a bankruptcy court's factual findings for clear error." In re Cummings, 381 B.R. 810, 822-23 (S.D. Fla. 2007) (citation omitted). The appellant bears the burden of showing that the bankruptcy court's factual findings are clearly erroneous. Id. "A finding of fact is not clearly erroneous unless this court, after reviewing all the evidence, is left with the definite and firm conviction that a mistake has been committed." Id. (internal marks and citation omitted).

IV. DISCUSSION

The Court necessarily begins its analysis by deciding whether Mr. Schiano has established standing to pursue this appeal. "Article III of the United States Constitution restricts the power offederal courts to adjudicating actual 'cases' and 'controversies.'" Wooden v. Bd. of Regents of Univ. Sys. of Georgia, 247 F.3d 1262, 1273 (11th Cir. 2001) (citing U.S. Const. art. III, § 2, cl. 1). "Perhaps the most important of the Article III doctrines grounded in the case-or-controversy requirement is that of standing." Id. (citation omitted); see also Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 102 (1998) ("Standing to sue is part of the common understanding of what it takes to make a justiciable case."). A party seeking to invoke a federal court's jurisdiction must demonstrate standing to bring the action. Wooden, 247 F.3d at 1273-74. "Because standing is jurisdictional, a dismissal for lack of standing has the same effect as a dismissal for lack of subject matter jurisdiction under Fed. R. Civ. P. 12(b)(1)." Cone Corp. v. Fla. Dep't of Transp., 921 F.2d 1190, 1203 n.42 (11th Cir. 1991). Therefore, "[i]f a party lacks standing to bring a matter before the court, the court lacks jurisdiction to decide the merits of the underlying case." Nat'l Franchisee Ass'n v. Burger King Corp., 715 F. Supp. 2d 1232, 1238 (S.D. Fla. 2010).

In the context of bankruptcy cases, "only a person aggrieved has standing to appeal a bankruptcy court's order." In re Westwood Cmty. Two Ass'n, Inc., 293 F.3d 1332, 1335 (11th...