Menu    7 ABR 308 

 

 

 

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ALASKA

 

 

SEA HAWK SEAFOODS, INC.,


                                    Appellant,


            vs.


STATE OF ALASKA and VALDEZ FISHERIES DEVELOPMENT ASSOCIATION, INC.,


                                    Appellees.


Case No. A02-0059 CV (JKS)




O R D E R

 

INTRODUCTION

            Plaintiff Sea Hawk Seafoods, Inc. (“Sea Hawk”) seeks interlocutory review of a United States Bankruptcy Court decision. See Docket No. 1 at 1. Chief Judge Donald MacDonald of the United States Bankruptcy Court held that there is jurisdiction for the bankruptcy court to determine the scope of a settlement agreement between Sea Hawk and Valdez Fisheries Development Association (“VFDA”). See id., Attach. Docket No. 262 at 9. Specifically, the issue being litigated in the bankruptcy court is whether the settlement agreement bars Sea Hawk from bringing fraudulent conveyance claims against the State of Alaska in state court. See Docket No. 4 at 1. The issue presently before the Court is whether to grant Sea Hawk’s motion for leave to appeal and undertake interlocutory review of the bankruptcy court’s jurisdictional determination. See id. at 2.



DISCUSSION

             Pursuant to 28 U.S.C. § 158(a)(3), district courts have jurisdiction to hear appeals from interlocutory orders and decrees of bankruptcy judges. See 28 U.S.C. § 158(a)(3). An interlocutory appeal “shall be taken in the same manner as appeals in civil proceedings generally are taken to the courts of appeals from the district courts.” See 28 U.S.C. § 158(c)(2). Interlocutory appeals may be heard when an order “involves a controlling question of law as to which there is substantial ground for difference of opinion” and when “an immediate appeal from the order may materially advance the ultimate termination of the litigation.” See 28 U.S.C. § 1292(b). Appellate courts have exercised a “general policy of discouraging interlocutory appeals” unless there is a danger of irreparable harm “sufficient to TOP       7 ABR 309  outweigh the costs” of such an appeal. See 16 Charles Alan Wright, et al., Federal Practice and Procedure § 3920, at 8 (2d ed. 1996).

            A.        Controlling Question of Law and Substantial Ground for Difference of Opinion

            It is undisputed that the issue of whether the bankruptcy court has jurisdiction to interpret the settlement agreement is a controlling question of law. See 28 U.S.C. § 1292(b); Docket No. 6. Reversal of the bankruptcy court’s finding that it has jurisdiction would require that the matter be dismissed and heard in state court. See Docket No. 1, Attach. Docket No. 267 at 8. It is not clear, however, that there are substantial grounds for difference of opinion on the jurisdictional issue. According to Sea Hawk, the Court should observe a “relatively low threshold of doubt” in determining whether a difference of opinion is substantial enough to merit interlocutory review because “[a]mong the categories of rulings that may be obviously suited for interlocutory appeal . . . are . . . challenges to subject-matter jurisdiction.” See Docket No. 7 at 2 (quoting 16 Charles Alan Wright, et al., Federal Practice and Procedure § 3930 at 422; § 3931 at 453 (2d ed. 1996)). However, courts in other districts have held that a “mere claim” that the lower court’s ruling was incorrect does not demonstrate a substantial difference of opinion, see Wasau Bus. Ins. Co. v. Turner Constr. Co., 151 F. Supp. 2d 488, 491 (S.D.N.Y. 2001), and that a substantial ground for a difference of opinion is “synonymous with a substantial likelihood that the appellant’s position will prevail on appeal,” see Seven-Up Co. v. O-So Grape Co., 179 F. Supp. 167, 172 (S.D. Ill. 1959). Given that the Alaska Superior Court, Alaska Supreme Court, and the bankruptcy court all agree that the proper court to interpret the settlement agreement is the bankruptcy court, there may not be a “substantial likelihood” of Sea Hawk prevailing on appeal. See Docket No. 1, Attach. Docket No. 262 at 1–2. Moreover, an independent analysis suggests that Sea Hawk is not likely to prevail on appeal.

            In their reply briefs, the parties have addressed the two jurisdictional issues raised by the Court: 1) is this case governed by Kokkonen v. Guardian Life Insurance. Co. of America, 511 U.S. 375 (1994), and 2) if so, did Judge MacDonald retain jurisdiction when he approved the settlement? The State of Alaska and VFDA take the position that Kokkonen is distinguishable, that the fraudulent conveyance claim is a related proceeding to the bankruptcy case, and that paragraph eight of the settlement agreement specifically retains jurisdiction. See Docket No. 6 at 3–4. By contrast, Sea Hawk asserts that Kokkonen does TOP       7 ABR 310  govern this case and that the bankruptcy court lacks jurisdiction despite the retention provision in the settlement agreement. See Docket No. 7 at 4.

                        1.         Kokkonen

            According to the State of Alaska and VFDA, this case is distinguishable from Kokkonen in several important ways. First, the parties in Kokkonen entered into a stipulation and order of dismissal with prejudice, while the order in this case dismissed the bankruptcy proceedings without prejudice. Compare Kokkonen, 511 U.S. at 377, with Docket No. 6, Ex. 1. Second, the order in Kokkonen did not refer to the settlement agreement or reserve jurisdiction to enforce or interpret it, whereas the dismissal in this case specifically refers to the settlement agreement as a condition of the dismissal with the phrase “the conditions of the settlement agreement having been fulfilled.” See id. Third, the issue in Kokkonen was whether the district court retained jurisdiction to enforce a settlement agreement through an otherwise unrelated breach of contract claim, whereas the issue in this case is interpretation—not enforcement—of the settlement agreement. Compare Kokkonen, 511 U.S. at 378, with Docket No. 6, Ex. 3 at 5.

            As the Court observed in the order at Docket No. 4, unlike Kokkonen (where plaintiff sought enforcement of a state law claim for breach of contract in the federal court that had previously approved the settlement agreement), see Kokkonen, 511 U.S. at 381, no party to the present dispute is suggesting that the bankruptcy court should address Sea Hawk’s fraudulent conveyance claim against the State of Alaska on its merits, see Docket No. 4 at 2. Finally, as the bankruptcy court has concluded, Sea Hawk’s claim against the State of Alaska is arguably a related proceeding to the original bankruptcy proceedings unlike the unrelated subsequent claims brought in Kokkonen. Compare Kokkonen, 511 U.S. at 381, with Docket No. 1, Attach. Docket No. 262 at 6–7. For all these reasons, this case is not analogous to Kokkonen, and the bankruptcy court may indeed have continued jurisdiction over interpretation of the settlement agreement.

            Sea Hawk notes correctly that in Kokkonen it was held that the district court lacked jurisdiction to enforce settlement of a case previously litigated in that court. See Docket No. 7 at 3 (citing Kokkonen, 511 U.S. at 378). But Sea Hawk ignores crucial distinctions between the facts of Kokkonen and the instant proceeding. As noted above, the question before the bankruptcy court is interpretation of the settlement agreement supervised and TOP       7 ABR 311  approved by that court, not enforcement of unrelated state law breach of contract claims brought pursuant to the agreement as in Kokkonen. Compare Kokkonen, 511 U.S. at 378, with Docket No. 6, Ex. 3 at 5. Additionally, in Kokkonen the court specified that the district court could have retained jurisdiction by incorporating the settlement contract into the dismissal order or by retaining jurisdiction in the settlement agreement with the parties’ consent. Kokkonen, 511 U.S. at 381–82. This is just what was done by the bankruptcy court in the present case. See Docket No. 6, Exs. 2; 3.

                        2.         Retention of Jurisdiction

            The settlement agreement between Sea Hawk and VFDA contains the following language:

8. RETENTION OF JURISDICTION. VFDA and Sea Hawk agree that the U.S. Bankruptcy Court for the District of Alaska shall have continued jurisdiction over any disputes that may arise concerning the interpretation or performance of the parties’ obligations under this Settlement Agreement, including obligations that continue after Closing.

 

See Docket No. 6, Ex. 3 at 5. Thus, Judge MacDonald specifically retained jurisdiction to interpret the settlement agreement. Sea Hawk argues that paragraph eight does not effectively reserve jurisdiction because the State of Alaska was not a party to the agreement and because the bankruptcy court has limited jurisdiction. See Docket No. 7 at 4. First, Sea Hawk’s fraudulent conveyance claim against the State of Alaska was filed as a supplemental proceeding in Sea Hawk’s original action against VFDA and was pending during the bankruptcy proceedings. See Docket No. 1, Attach. Docket No. 262 at 3. The bankruptcy court was “well aware of the existence of this claim” throughout the litigation and settlement negotiations. See id. The record shows that attorney Diane Vallentine appeared at the settlement hearing on behalf of the State of Alaska, Division of Investments. See Docket No. 6, Ex. 2 at 1. The order dismissing the bankruptcy case is signed by attorneys representing VFDA and Sea Hawk and by Attorney General Mary Ellen Beardsley, attorney for the State of Alaska. See Docket No. 6, Ex. 1 at 2. The State of Alaska was thus a party to the agreement.

            Second, Sea Hawk argues against jurisdiction on the basis that bankruptcy courts are courts of limited jurisdiction and that under Kokkonen federal courts may not assert ancillary jurisdiction without independent grounds. See Docket No. 7 at 3. Sea Hawk cites Kokkonen and Flanagan v. Arnaiz, 143 F.3d 540, 544 (9th Cir. 1998), to support the TOP       7 ABR 312  assertion that in order to retain subject matter jurisdiction the court must both set forth a provision in the settlement agreement and state retention of jurisdiction in the dismissal order. See id. at 4. But the court in Kokkonen held that the court “is authorized to embody the settlement contract in its dismissal order or, what has the same effect, retain jurisdiction over the settlement contract.” See Kokkonen, 511 U.S. at 381–82 (emphasis supplied). Jurisdiction exists in this case both because Sea Hawk’s fraudulent conveyance claim against the State of Alaska is a related proceeding to the bankruptcy action and because the bankruptcy court expressly retained jurisdiction in the settlement agreement and by incorporating the settlement agreement into its dismissal order.

            B.        Material Advancement of the Litigation

            Even where there is substantial grounds for a difference of opinion, the Court need not grant interlocutory review unless doing so will also advance the ultimate termination of the litigation. See 28 U.S.C. § 1292(b). The State of Alaska and VFDA argue that it would be more efficient to allow the matter to go forward in bankruptcy court and to have all appeals brought at the same time after final judgment rather than piecemeal litigation. See Docket No. 6 at 2. They point out that Sea Hawk is likely to appeal the bankruptcy court’s final judgment on the scope of the settlement agreement and that all issues, including the jurisdictional question, can be appealed together, decreasing time and expense to the parties. See id.

            Sea Hawk argues that the time and effort of lengthy procedures in bankruptcy court will be wasted if it is ultimately decided that the court lacks jurisdiction. See Docket No. 7 at 8. In support of this conclusion, Sea Hawk quotes the bankruptcy court’s assertion that “[a]n adequate record must be made so that this court can submit detailed findings of fact for the district court to review.” See id. at 7. Contrary to Sea Hawk’s assertion, the record developed in the bankruptcy court proceeding will likely provide a basis for review in subsequent proceedings. Sea Hawk’s position depends on the assumption that this Court or the Ninth Circuit Court of Appeals will reverse the bankruptcy court’s finding that there is jurisdiction, a conclusion that is far from certain. See Docket No. 267 at 22. Moreover, even if the Court were to hear the appeal and reverse the bankruptcy court’s decision, Sea Hawk’s suit would then resume in state court with the very issue the state court has said it cannot resolve—the scope of the settlement agreement—still undetermined. See id. at 8 TOP       7 ABR 313  (stating that “the order . . . if reversed, must necessarily terminate the litigation (at least in the Bankruptcy Court)”) (emphasis supplied). Thus, it is not likely that the result Sea Hawk seeks will facilitate the speedy resolution of the litigation.

            Even if the Court were to grant review and affirm the bankruptcy court’s decision, the parties will waste time and expense on the appeal. See Docket No. 6 at 2. Sea Hawk is likely either to appeal that decision to the Ninth Circuit or to bring a second appeal to this court challenging the bankruptcy court’s ultimate interpretation of the settlement agreement. See id. Either scenario is an additional source of expense and delay in the termination of this matter. Granting immediate interlocutory review will not likely advance the ultimate termination of the litigation between Sea Hawk and the State of Alaska and VFDA, nor will it save the parties time or expense.IT IS THEREFORE ORDERED:

            Sea Hawk’s motion at Docket No. 1 seeking interlocutory appeal is DENIED.

 

            Dated at Anchorage, Alaska, this 5th day of August 2002.

 

 

/s/ JAMES K. SINGLETON, JR.

United States District Judge