Sedgwick FundingCo, LLC v. Newdelman

• Court: United States Bankruptcy Court, E.D. California
• Decided: June 24, 2022
• Docket: 18-02180
• Status: Unknown

Opinion

1 NOT FOR PUBLICATION 2 3 UNITED STATES BANKRUPTCY COURT 4 EASTERN DISTRICT OF CALIFORNIA 5 6 In re: Case No. 15-29890-A-7

7 GRAIL SEMICONDUCTOR, A CALIFORNIA CORPORATION, 8

9 Debtor. 10

11 SEDGWICK FUNDINGCO, LLC, Adv. No. 18-2180-A 12 Plaintiff, OHS-1 13 V. MEMORANDUM 14 MITCHELL NEWDELMAN et al., 15 Defendants. 16 17 18 Argued and submitted on June 9, 2022 19 at Sacramento, California 20 Honorable Fredrick E. Clement, Bankruptcy Judge Presiding 21 Appearances: Marc A. Levinson, Russell P. Cohen, Robert 22 Loeb, Orrick, Herrington & Sutcliffe LLP; Norman Neville Reid, Erik Ives, Ryan 23 Schultz, Fox, Swibel & Carroll LLP for Sedgwick FundingCo, LLC; Ivan K. Mathew, 24 Ivan K. Mathew P.C. and Allan D. NewDelman for Mitchell NewDelman, Frank Holze, and 25 Willis Higgins 26 27 1 “Measure seven times, cut once.” Russian proverb. 2 I. FACTS 3 This is a dispute between the creditors of but one debtor. The 4 dispute arises from an intercreditor agreement, known to the parties 5 as the Priority Agreement. Intercreditor agreements define the rights 6 of creditors of a common debtor among themselves. The cast includes 7 Sedgwick FundingCo, LLC (“Sedgwick”), a litigation funding company, 8 and Willis Higgins, Mitchell NewDelman, as well as Frank Holze 9 (collectively “the NewDelman Group”), creditors which predate 10 Sedwick’s involvement. 11 The facts giving rise to the dispute and a summary of procedural 12 history is set forth in this court’s previous ruling. Mem. 2:1-38:13, 13 ECF No. 303. Other members of the company include: Grail 14 Semiconductor (the debtor); Richard Gilbert (a member of its board of 15 directors); the Niro firm and Ray Niro (Grail’s litigation counsel); 16 Gerchen Keller Capital, LLC (“GKC”) and its affiliate, Sedgwick (the 17 litigation funding lender); and Ashley Keller (a managing director of 18 GKC). 19 Sedgwick filed a complaint for declaratory relief, citing its 20 rights under the Priority Agreement. In response, the NewDelman Group 21 filed a counterclaim, asserting claims for breach of contract, breach 22 of the implied covenant of good faith and fair dealing, fraud, 23 conversion, constructive trust, unjust enrichment, and civil 24 conspiracy. 25 Discovery in this adversary proceeding is complete. Order ¶1, 26 ECF No. 98. 27 Sedgwick and the NewDelman Group filed cross-motions for summary 1 solely on Sedgwick’s declaratory relief claim, contending it “failed 2 to state a claim for relief, as [Sedgwick] has not performed the 3 obligations of the [Priority Agreement]. Not. Summ. J. 1:1-6, 6:23- 4 7:2, ECF No. 259. Sedgwick sought to summarily adjudicate: (1) its 5 complaint, i.e., declaratory relief regarding the enforceability, as 6 well as the interpretation, of the Priority Agreement; and (2) the 7 NewDelman Group’s counterclaim that it had engaged in a civil 8 conspiracy with third parties to commit concealment fraud against 9 them. 10 In support of those motions, the parties submitted: 125 pages of 11 briefs; 147 separate (and allegedly) undisputed facts; 17 pages of 12 stipulated facts, Stipulation of Agreed Facts and Authenticity of 13 Documents, ECF No. 240; 1,797 pages of exhibits, Common Ex., ECF No. 14 239-252; and 33 pages of affidavits, Aff. Gerchen, Keller, Thelen, and 15 Gilbert, ECF No. 252. Strangely enough, the central facts are not in 16 dispute. The parties attempted to configure their rights by way of 17 the Priority Agreement. It provided: 18 Reference is made to a[n] Amended Fee Agreement dated April 10, 2012[,] by and between Niro, Haller and Niro and Grail 19 Semiconductor, Inc., which is hereby incorporated by reference herein. Except as expressly modified in this 20 Agreement, the Amended Fee Agreement remains in full force and effect. 21 The last sentence of Paragraph 5 of the Amended Fee 22 Agreement at page seven (7) is hereby deleted and replaced with the following provision. 23 The amounts of the payments to Niro, Haller and Niro, 24 Gerchen Keller Capital LLC (GKC herein), [and] First Class Legal (First Class herein) shall be determined in 25 accordance with their respective agreements as of the date of this Priority Agreement with Grail Semiconductor, Inc., 26 and the individuals set forth below specifically referred to in the Amended Fee Agreement as ‘the above named 27 individuals’ shall be determined as follows: 1 the Amended Fee Agreement. 2 Second Priority: GKC 3 Third Priority: First Class for reimbursement of loans and related interest up to seventeen million four hundred 4 thousand U.S. dollars (US $$17.4 million) as of the date of this Priority Agreement, and distributions of gross 5 Recoveries as defined in the Amended Fee Agreement thereafter by percentages pari passu with ‘the above named 6 individuals’ as follows: 7 First Class: Nineteen Percent (19.0%) of the gross Recoveries. 8 Mitchell J. NewDelman: Five percent (5%) of the gross 9 Recoveries. 10 Dr. Frank B. Holze: One percent (1%) of the gross Recoveries. 11 Willis E. Higgins: Three percent (3%) of the gross 12 Recoveries. 13 Donald S. Stern: Five percent (5%) of the gross Recoveries. 14 Ronald W. Hofer: Five percent (5%) of the gross 15 Recoveries. 16 All of the first, second and third priority payments shall be made concomitantly and directly by Niro, Haller and Niro 17 from their trust account to the first, second and third priority entities and individuals (or to the respective 18 order of such individuals, or their respective estate or administrator, if deceased or known to be incapacitated). 19 The remaining balance of the gross Recoveries shall be then paid to Grail Semiconductor, Inc. by Niro, Haller and Niro 20 from their trust account. 21 This agreement is the entire agreement between the parties hereto and is effective as of the date of the last 22 signature below. Separate signed copies shall be treated as a single original, and a signed, digitally scanned and 23 transmitted by e-mail attachment shall constitute execution and delivery by the respective party thereto. 24 Common Ex., Priority Agreement 754-764, ECF No. 246 (emphasis original 25 and added). A genuine dispute of facts exists as to whether the 26 Priority Agreement was, in fact, accepted by all parties to it. 27 The NewDelman Group contends that Sedgwick and its managing 1 director, Ashley Keller, Grail Semiconductor and its director, Richard 2 Gilbert, the Niro firm, and the Niro firm’s lead attorney on the case, 3 Ray Niro, conspired to sidestep the Priority Agreement, causing them 4 injury. The facts on which the NewDelman Group relies for its 5 contention are set forth in the stipulated facts and in a “Letter of 6 Intent,” prepared by Richard Gilbert and approved, but not signed, by 7 Sedgwick. Those facts are: 8 58. On October 12, 2015, [Richard] Gilbert sent [Ashley] Keller and Ray Niro each a draft of a written Letter of 9 Intent. A true and correct copy of the cover email and draft Letter of Intent sent by [Richard] Gilbert to 10 [Ashley] Keller is located at MSJ Ex. 73, and a true then correct copy of the cover email and draft letter of intent 11 sent by [Richard] Gilbert to [Ray] Niro is located as a part of MSJ Ex. 77. 12 [This letter will set out the understanding and intent 13 of Grail Semiconductor, Inc. (‘Grail’) and Gerchen Keller Capital, LLC (‘GKC’) with respect to certain 14 sums which will become due to GKC from Grail on the occasion of the receipt of proceeds from Grail’s 15 pending action against Mitsubishi Electric & [E]lectronics, USA, Inc., now pending in the Superior 16 Court of California in Santa Clara County (‘the MEUS Litigation’). 17 This understanding and intent arises from the belief 18 of Grail and GKC that the MEUS Litigation will shortly be resolved by way of compromise. Grail and GKC 19 recognize that there is uncertainty with respect to the nature and amount of claims of third parties which 20 might be asserted against the proceeds of such a compromise such that the ability of Grail to meet all 21 of its creditor obligations depending upon the amount of such proceeds is subject to question and, under 22 certain circumstances, could result in a distribution to GKC of less than the amount to which it is 23 contractually entitled to receive. 24 In light of the circumstances, Grail and GKC agree that it is in the interest of both entities to enter 25 into good faith negotiations for an agreed-upon reduction of the amounts currently payable to GKC by 26 Grail in accordance with its existing funding and other agreements in order to liquidate such obligation 27 in the best interest of Grail and GKC. It is further agreed that it is in the interests of both Grail and GKC that, should the MEUS Litigation be resolved by 1 compromise as anticipated, the full amount due GKC shall be immediately distributed by Grail to GKC with 2 the understanding that GKC warrants and represents that it shall, at all times during the course of 3 negotiations required by this Agreement, have sufficient liquid assets available to refund to Grail 4 the finally negotiated discount amount within five business days of the formal approval of such 5 agreement. 6 As further consideration of this agreement, GKC agrees that it will cooperate with Grail in the negotiation 7 and settlement of competing claims against the proceeds of the MEUS Litigation. Common Ex., Letter 8 of Intent 931-932, ECF No. 249 (emphasis added); Agreed Facts 16:6-10.] 9 59. On October 14, 2015, Douglas Gruener (GKC’s general 10 counsel) sent [Richard] Gilbert (with a copy to [Ashley] Keller) an updated version containing proposed edits to the 11 draft Letter of Intent. A true and correct copy of the cover email and updated draft Letter of Intent sent by 12 Douglas Gruener to [Richard] Gilbert is located at MSJ Ex. 76.[1] 13 60. On October 14, 2015, [Richard] Gilbert responded to 14 Douglas Gruener and Ashley Keller that ‘he was fine with these changes and will recommend it [to Grail’s Board of 15 Directors].’ [Richard] Gilbert further advised that Ray Niro had requested additional language in the Letter of 16 Intent for the Niro Law Firm to limit Grail’s use of the negotiated refund. On October 14, 2015 [Ashley] Keller 17 responded to [Richard] Gilbert in a message stating ‘Our language is fine with us. No further restriction 18 required.’ A true and correct copy of the October 14, 2015 e-mail chain described herein is located at MSJ Ex. 75. 19 Stipulation of Agreed Facts and Authenticity of Documents 16:6-21, ECF 20 No. 240 (emphasis added). 21 After oral argument, the court issued a 79-page decision granting 22 in part and denying in part each motion. Mem., ECF No. 303. The 23 memorandum followed the structure proffered by Sedgwick in its motion, 24 first treating Sedgwick’s attempt to summarily adjudicate its rights 25 under its complaint, i.e., the Priority Agreement, and second 26 attempting to dispose of the NewDelman Group’s counterclaims, i.e., 27 1 For the purposes of this dispute, Gruner’s edits are not significant. Mem. 1 Illinois state law tort claims. Among other things, the court found 2 the Priority Agreement facially ambiguous and that a genuine issue of 3 fact exists as to its interpretation. The court also found a civil 4 conspiracy between Sedgwick and third parties to defraud the NewDelman 5 Group. When resolving Sedgwick’s motion as to the counterclaims, the 6 court erroneously referred to granting the NewDelman Group’s motion 7 for summary judgment. See Mem. 59:16-18 (standing and preference 8 issues), 67:3-5 (conversion), 78:27-79:2 (civil conspiracy), ECF No. 9 303. The order granting in part and denying in part the motions 10 replicated the error. Order para. 3(C)(1),(2),(5),(6). Insofar as 11 the court granted affirmative relief to the NewDelman Group, the 12 ruling is properly described as granting summary judgment in favor of 13 a nonmovant. Fed. R. Civ. P. 56(f)(1), incorporated by Fed. R. Bankr. 14 P. 7056. 15 II. PROCEDURE 16 Sedgwick moves for reconsideration, asking the court to vacate 17 its ruling granting summary judgment in favor of a nonmovant, i.e., 18 the NewDelman Group, as to civil conspiracy, fraudulent concealment, 19 and judicial estoppel and to grant its motion for summary judgment as 20 to the correct interpretation of the Priority Agreement. Fed. R. Civ. 21 P. 54(b), incorporated by Fed. R. Bankr. P. 7054(a). It argues two 22 species of errors. First, Sedgwick contends that the court did not 23 provide it “notice and a reasonable time to respond” to issues which 24 were not raised by the NewDelman Group’s motion for summary judgment. 25 Fed. R. Civ. P. 56(f), incorporated by Fed. R. Bankr. P. 7056. In 26 Sedgwick’s view, those issues are civil conspiracy, fraudulent 27 concealment, the existence of a principal-agency relationship between 1 Sedgwick believes that the court incorrectly determined that the 2 Priority Agreement was facially ambiguous and that summary judgment in 3 its favor should have been entered. 4 The NewDelman Group opposes the motion, arguing that summary 5 judgment was properly granted under Rule 56(f) or Rule 56(g), as to 6 the state law torts clams and that the motion for reconsideration 7 merely rehashes Sedgwick’s original arguments with respect to the 8 interpretation of the Priority Agreement. The NewDelman Group also 9 prays recovery of attorney’s fees for responding to the motion. 10 III. LAW 11 A. Rule 54 12 Rule 54 governs judgments in federal court. As pertinent here, 13 it provides: 14 When an action presents more than one claim for relief-- whether as a claim, counterclaim, crossclaim, or third- 15 party claim--or when multiple parties are involved, the court may direct entry of a final judgment as to one or 16 more, but fewer than all, claims or parties only if the court expressly determines that there is no just reason for 17 delay. Otherwise, any order or other decision, however designated, that adjudicates fewer than all the claims or 18 the rights and liabilities of fewer than all the parties does not end the action as to any of the claims or parties 19 and may be revised at any time before the entry of a judgment adjudicating all the claims and all the parties' 20 rights and liabilities. 21 Fed. R. Civ. P. 54(b), incorporated by Fed. R. Bankr. P. 7054(a) 22 (emphasis added); see also Smith v. Massachusetts, 543 U.S. 462, 475, 23 (2005) (courts have the inherent power to modify interlocutory 24 orders); Kona Enterprises, Inc. v. Estate of Bishop, 229 F3d 877, 890 25 (9th Cir. 2000). 26 An order granting in part and denying in part a motion for 27 summary judgment is subject to revision under Rule 54(b). Burge v. Parish of St. Tammany, Solis v. 1 Jasmine Hall Care Homes, Inc., 610 F.3d 541, 543-544 (9th Cir. 2010). 2 Such motions are properly directed to procedural, i.e., notice, and 3 substantive errors. Hoard v. Hartman, 904 F.3d 780, 792 (9th Cir. 4 2018) (Rule 56(f)(3)); U.S. v. Dieter, 429 U.S. 6, 8 (1976). 5 B. Rule 56 6 In the pertinent part, Rule 56 reads: 7 (a) Motion for Summary Judgment or Partial Summary Judgment. A party may move for summary judgment, 8 identifying each claim or defense--or the part of each claim or defense--on which summary judgment is sought. The 9 court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the 10 movant is entitled to judgment as a matter of law. The court should state on the record the reasons for granting 11 or denying the motion. 12 ... 13 (f) Judgment Independent of the Motion. After giving notice and a reasonable time to respond, the court may: 14 (1) grant summary judgment for a nonmovant; 15 (2) grant the motion on grounds not raised by a party; 16 or 17 (3) consider summary judgment on its own after identifying for the parties material facts that may 18 not be genuinely in dispute. 19 (g) Failing to Grant All the Requested Relief. If the court does not grant all the relief requested by the motion, it 20 may enter an order stating any material fact--including an item of damages or other relief--that is not genuinely in 21 dispute and treating the fact as established in the case.

22 Fed. R. Civ. P. 56(a),(f),(g), incorporated by Fed. R. Bankr. P. 23 7056(emphasis added). 24 1. Rule 56(f)(1) 25 That the court may grant summary judgment in favor of a nonmovant 26 is beyond question. Fed. R. Civ. P. 56(f)(1) (subdivision (f)) was 27 added in 2010 to “bring into [the] text a number of related procedures 1 that have grown up in practice”, Adv. Committee Notes); Cool Fuel, 2 Inc. v. Connett, 685 F.2d 309, 311 (9th Cir. 1982) (recognizing the 3 authority of the court prior to adoption of Rule 56(f) to enter 4 summary judgment sua sponte against the movant); Gospel Missions of 5 Am. v. City of Los Angeles, 328 F.3d 548, 553 (9th Cir. 2003) (same). 6 The central issue in granting summary judgment sua sponte or in 7 favor of a nonmovant is whether “the losing party has had a ‘full and 8 fair opportunity to ventilate the issues involved in the matter.’” 9 Albino v. Baca, 747 F.3d 1162, 1176 (9th Cir. 2014), quoting Cool 10 Fuel, Inc., 685 F.2d at 312; Kassbaum v. Steppenwolf Productions, 11 Inc., 236 F.3d 487, 494 (9th Cir. 2000); Buckingham v. U.S., 998 F.2d 12 735, 742 (9th Cir. 1993), quoting Portsmouth Square v. Shareholders 13 Protective Comm., 770 F.2d 866, 869 (9th Cir. 1985). 14 There are three threshold inquiries for summary judgment entered 15 in favor of a nonmovant. First, the party against whom judgment is to 16 be entered “must be given reasonable notice that the sufficiency of 17 his claim will be in issue.” Albino, 747 F.3d at 1176; Buckingham, 18 998 F.2d at 742. Sedgwick argues that Rule 56(f)(1) (summary judgment 19 in favor a nonmovant) requires notice “independent of the motion.” 20 Reply 7:11, ECF No. 343. This is not a correct statement of the law. 21 “[W]hile explicit notice [of the court’s intent to invoke Rule 22 56(f)(1)] is strongly encouraged, it is not required so long as the 23 appellants ‘had a full opportunity to present to the district court 24 [their legal] theory and the facts supporting that theory.’” Osborne 25 v. Cnty. of Riverside, 323 F. App'x 613, 614 (9th Cir. 2009), citing 26 Portsmouth, 770 F.2d at 869–70. Both before and after the 2010 27 amendments to Rule 56 (which explicitly added summary judgment in 1 summary judgment in favor of a nonmovant without independent notice 2 from the court. Celotex Corp. v. Catrett, 477 U.S. 317, 326 (1986) 3 (“district courts are widely acknowledged to possess the power to 4 enter summary judgments sua sponte, so long as the losing party was on 5 notice that she had to come forward with all of her evidence”); 6 Albino, 747 F.3d at 1176. Summary judgment may be granted in favor of 7 a nonmovant provided the moving party has “be[en] given reasonable 8 notice that the sufficiency of his or her claim will be in issue.” 9 Buckingham, 998 F.2d at 742. “As the movants for summary judgment in 10 this case, defendants were on notice of the need to come forward with 11 all their evidence in support of this motion, and they had every 12 incentive to do so.” Albino, 747 F.3d at 1177; see also Nozzi v. 13 Housing Authority of the City of Los Angeles, 806 F.3d 1178, (9th Cir. 14 2015). Courts have routinely found notice sufficient—even without 15 independent notice by the court--where “the court’s sua sponte 16 determination is based on issues identical to those raised by the 17 moving party.” Coach Leatherware Co., Inc. v. Ann Taylor, Inc., 933 18 F.2d 162, 167 (2nd Cir. 1991) (trademark infringement) (emphasis 19 added); Albino, 747 F.3d at 1176 (exhaustion of administrative 20 remedies); Nozzi, 806 F.3d at 1199-1200 (due process). 21 Second, the respondent must have had the opportunity to gather 22 the facts, probably by way of discovery, to oppose summary judgment. 23 Albino, 747 F.3d at 1176-1177. “Reasonable notice implies adequate 24 time to develop the facts on which the litigant will depend to oppose 25 summary judgment.” Buckingham, 998 F.2d at 742; Portsmouth, 770 F.2d 26 at 869. “Discovery must either have been completed, or it must be 27 clear that further discovery would be of no benefit.” Ramsey v. Coughlin Albino 1 1177 (“Defendants had ample opportunity to conduct discovery”); 2 Portsmouth, 770 F.2d at 870. 3 Third, the party facing summary judgment must have “had adequate 4 opportunity to show that there is genuine issue and that his opponent 5 is not entitled to judgment as a matter of law.” Ramsey, 94 F.3d at 6 74; Kassbaum, 236 F.3d at 494; Albino, 747 F.3d at 1176-1177. As the 7 Ninth Circuit Court of Appeals once observed, the party against whom 8 sua sponte or nonmovant summary judgment is contemplated must have had 9 “a full and fair opportunity to develop and present facts and legal 10 arguments in support of its position.” Portsmouth, 770 F.2d at 869. 11 2. Rule 56(g) 12 In contrast, Rule 56(g) applies only in limited circumstances. 13 If the court does “not grant all the relief requested by the motion,” 14 the court may order that a specific “material fact” is not genuinely 15 in dispute. Fed. R. Civ. P. 56(g), incorporated by Fed. R. Bankr. P. 16 7056. It contains no such notice requirement. Fed. R. Bankr. P. 17 56(g). 18 IV. DISCUSSION 19 Rule 56(f)(1), which authorizes a court to grant summary judgment 20 in favor of a nonmovant, rather than 56(g) governs this dispute. Rule 21 56(g) is inapplicable because the NewDelman Group did not move for 22 summary judgment with respect to the issues presented and because this 23 court’s findings and orders are conclusions of law, not material 24 facts. 25 A. Judicial Estoppel 26 Sedgwick contends that the court erred by invoking the doctrine 27 of judicial estoppel: (1) without advanced notice to Sedgwick; and (2) 1 Motion to Approve Compromise para. 7, 397, and Settlement Agreement 2 para. 8(c), 405, ECF No. 244, satisfied the elements of judicial 3 estoppel. Mem. P.&A. 18:11-21:23, ECF No. 329. This court agrees. 4 Sedgwick was not given notice that the court believed the doctrine was 5 applicable to the adversary proceeding and, by doing so, did not give 6 Sedgwick a full and fair opportunity to be heard on the issue. 7 Albino, 747 F.3d at 1176; see also, In re Auyeung, No. BAP EC-14-1382, 8 2015 WL 3609301, at *11 (9th Cir. BAP 9th Cir. June 9, 2015) 9 (discussing application of judicial estoppel sua sponte). Having 10 found notice insufficient, the court does not reach the merits of its 11 application to the facts presented by this case. 12 B. Civil Conspiracy and Fraudulent Concealment 13 The court believes that Sedgwick had a full and fair opportunity 14 to be heard on the issues. By contending “there is no admissible 15 evidence to support the NewDelman Group’s outlandish fraudulent 16 conspiracy theories,” Mot. 2:19-3:2, ECF No. 255, Sedgwick placed the 17 sufficiency of its claim in issue and had notice to come forward with 18 all of its evidence. Albino, 747 F.3d at 1176. There exists identity 19 of issues between the court’s ruling and the movant’s motion for 20 summary judgment. Coach Leatherware Co., 933 F.2d at 167. The 21 factual and legal issues were extensively briefed and argued. Mem. 22 38:1-43:23, ECF No. 257. In support of the cross-motions for summary 23 judgment Sedgwick and the NewDelman Group filed 17 pages of stipulated 24 facts and 1,797 pages of exhibits. Moreover, the ruling of which 25 Sedgwick now complains is rooted in three stipulated facts and a 26 Letter of Intent (to which no objection was made). 27 Notwithstanding the belief that Sedgwick enjoyed the full benefit 1 issues and augment the evidentiary record on the issues of civil 2 conspiracy and fraudulent concealment. The question of whether to 3 reconsider previous rulings is committed to the sound discretion of 4 the trial court. Sch. Dist. No. 1J, Multnomah County v. ACandS, Inc., 5 5 F.3d 1255, 1263 (9th Cir.1993). And the court now exercises that 6 discretion. The precise contours of the adequacy of notice and 7 opportunity to be heard are ragged and subject to dispute, even in the 8 appellate courts. See Coach Leatherware Co., 933 F.2d 162, at 172 9 (majority finding party had sufficient incentive to oppose, dissent 10 did not); Albino, 747 F.3d at 1176 (split decision). The standard for 11 defeating summary judgment is low; a party opposing summary judgement 12 need only show competing inferences to create a genuine issue of fact. 13 Fresno Motors, LLC v. Mercedes Benz USA, LLC, 771 F.3d 1119, 1125 (9th 14 Cir. 2014). Where a court invokes its authority to enter judgment for 15 a nonmoving party the opportunity for procedural prejudice is great. 16 Coach Leatherware Co., Inc., 933 F.2d at 167. Moreover, the issues 17 underlying the grant of summary judgment against Sedgwick are 18 numerous, complex, and nuanced. For these reasons the court believes 19 prudence suggests granting Sedgwick the opportunity to be heard 20 further. 21 C. Construction of The Priority Agreement 22 Unlike the remainder of the motion, Sedgwick argues error, rather 23 than the lack of notice, with respect to the interpretation of the 24 Priority Agreement. Kona Enterprises, Inc. v. Estate of Bishop, 229 25 F.3d 877, 890 (9th Cir. 2000) (error); Mem. P.& A. 21:26-25:3, ECF No. 26 329. In Sedgwick’s view, the Priority Agreement “unambiguously 27 creates a waterfall structure,” requiring payment to GKC/Sedgwick in 1 No. 327. 2 This court disagrees. The agreement is facially ambiguous and, 3 considering parol evidence, a genuine dispute of material fact exists. 4 Mem. 49:10-55:8, ECF No. 303. Sedgwick reads the “precedence 5 provisions,” i.e., “priority” vs. “pari passu,” and the timing 6 provisions, i.e., “priority” vs. “concomitantly,” and as separately 7 functioning provisions, addressing first the priority of the parties’ 8 right to payment and secondarily the timing of payment. In this 9 court’s view, the provisions function in an integrated fashion, 10 arising from the overlapping meaning of the words, “priority” 11 (suggesting precedence in time and right), “concomitantly” (something 12 that accompanies), and “pari passu” (at an equal rate or pace). Mem. 13 53:1-22, ECF No. 303. 14 But even if the court were to adopt Sedgwick’s construction, that 15 the phrases function independently, the Priority Agreement is still 16 ambiguous. Sedgwick rightly argues that the word “priority” suggests 17 precedence in right by class of creditors, i.e., “Second Priority” 18 creditors are paid in full before “Third Priority” creditors. But the 19 Priority Agreement’s treatment of Third Priority creditors (including 20 the NewDelman Group) creates the ambiguity. That agreement provides: 21 Second Priority: GKC 22 Third Priority: First Class for reimbursement of loans and related interest up to seventeen million four hundred 23 thousand U.S. dollars (US $$17.4 million) as of the date of this Priority Agreement, and distributions of gross 24 Recoveries as defined in the Amended Fee Agreement thereafter by percentages pari passu with ‘the above named 25 individuals’ as follows: 26 First Class: Nineteen Percent (19.0%) of the gross Recoveries. 27 Mitchell J. NewDelman: Five percent (5%) of the gross 1 Dr. Frank B. Holze: One percent (1%) of the gross Recoveries. 2 Willis E. Higgins: Three percent (3%) of the gross 3 Recoveries. 4 Donald S. Stern: Five percent (5%) of the gross Recoveries. 5 Ronald W. Hofer: Five percent (5%) of the gross 6 Recoveries. 7 Common Ex., Priority Agreement 754-764, ECF No. 246 (emphasis added). 8 As written, the phrase “pari passu with ‘the above named 9 individuals” refers to classes with a lower numeric designation, i.e., 10 GKC/Sedgwick. At the hearing on the cross-motions for summary 11 judgment, Sedgwick conceded the ambiguity by arguing that the verbiage 12 was, in fact, a scrivener’s error and it should have read “the below- 13 named individuals.” 14 MR. IVES: 15 ... 16 Pari-passu only deals with splitting up the amounts for theses listed percentages. And that issue is a discrete 17 one, Your Honor, that I think is separate from the concomitant clause, and that is not ambiguous. 18 Respectfully, it is incredibly clear with the only reference being, I believe, Mr. Higgins, in drafting it, 19 should have said the below-named individuals instead of the above-named, because it doesn’t—it’s just (unintelligible). 20 THE COURT: Well, doesn’t that create the triable issue? 21 MR. IVES: I don’t believe so... 22 THE COURT: Summary judgments. So[,] you’re wanting to 23 change the language...and that doesn’t create a triable issue. 24 MR. IVES: I don’t think so, Your Honor, because no party 25 disputes the interpretation of that. 26 THE COURT: Well, but the problem is summary judgement is...that there’s no dispute of facts, not whether the 27 parties dispute it, but whether there is none even if the Court finds beyond what you thought, and you’re entitled to 1 yourself straight into a genuine issue of fact. 2 MR. IVES: And respectfully, Your Honor, I don’t believe that—that there can be any other interpretation of this 3 cause, the pari-passu clause. This is as plainly— 4 THE COURT: And you say—what? 5 MR. IVES: --clear as I believe it can be, which is that— this pari—-unlike the other clauses that apply at every 6 level, this par-passu clause falls only within the third layer. It is only reference to that issue, it’s only 7 reference to individuals, the only individuals that are listed there. 8 ... 9 THE COURT: But it says ‘by percentages [in] pari-passu with 10 the above-named individuals.’ Doesn’t that refer to at least GKC? 11 MR. IVES: Your Honor, again, I don’t believe there’s any 12 dispute between the parties, and this is purely a scribner’s (sic) error that no one caught which is it 13 should say First Class Legal and below-named individuals... 14 Hr’g Tr. 23:21-25:14, January 19, 2022, ECF No. 338 (emphasis added). 15 The court does not believe its original ruling was erroneous and 16 that competing evidence precludes summary judgment. Moreover, 17 Sedgwick’s argument that the Priority Agreement contained a 18 scrivener’s error further demonstrates the ambiguity in the agreement. 19 As to the interpretation of the Priority Agreement, the motion will be 20 denied. 21 D. Sedgwick’s Remedy 22 Sedgwick’s motion for reconsideration asks the court to vacate 23 specific portions of its order granting and denying summary judgment. 24 Mot. Recons. 3:20-24, ECF No. 327. 25 This remedy is disproportionate to the procedural prejudice, if 26 any. Circuit law provides that a motion for reconsideration and/or 27 the opportunity to brief the issues raised and to augment the record 1 cures any notice deficiency. O’Keefe v. Van Boening, 82 F.3d 322, 324 2 (9th Cir. 1996) (“We do not decide whether it was error to enter 3 summary judgment sua sponte, because if there were error, it was 4 rectified when the district court reconsidered the matter”); Winters 5 v. Diamond Shamrock Chem. Co., 149 F.3d 387, 402 (5th Cir. 1998); 6 Curley v. Perry, 246 F.3d 1278, 1284 (10th Cir.2001); Watchtower Bible 7 & Tract Soc'y of New York, Inc. v. Municipality of San Juan, 773 F.3d 8 1, 13 (1st Cir. 2014); Simmons v. Reliance Standard Life Ins. Co. of 9 Texas, 310 F.3d 865, 870 (5th Cir. 2002) (“[i]f the party opposing the 10 motion for summary judgment is “afforded an opportunity ... to present 11 the court with evidence supporting [its] arguments” in a motion for 12 reconsideration, the court's failure to provide an opportunity to 13 respond is harmless error.”). 14 Here, most of Sedgwick’s contentions sound, at least in part, in 15 a lack of notice and opportunity to file briefs, as well as augment 16 the evidentiary record. As a result, Sedgwick’s invitation to vacate 17 the order granting, in part, summary judgment is unnecessary. The 18 court will not vacate its prior order at this time; rather, it will 19 issue an order authorizing the parties to file briefs and augment the 20 evidentiary record. If Sedgwick can demonstrate a factual dispute or 21 that the NewDelman Group is not entitled to judgment as a matter of 22 law, the court will amend its order granting partial summary judgment 23 to the NewDelman Group and such an order sufficiently resolves any 24 prejudice. 25 E. The NewDelman Group’s Request for Attorneys’ Fees 26 Without specifying the authority for this court to act, the 27 NewDelman Group seeks attorneys’ fees incurred in opposition this 1 actions in prosecuting the motion are in bad faith. Id. 2 As a rule, in the United States parties each bear their own 3 attorneys’ fees and may not recover those fees from the other party, 4 even if they prevail. Hensley v. Eckerhart, 461 U.S. 424, 429 (1983); 5 Fogerty v. Fantasy, Inc., 510 U.S. 517, 533 (1994); Nantkwest, Inc. v. 6 Iancu, 898 F.3d 1177, 1179-1180 (Fed. Cir. 2018). Three exceptions 7 exist: (1) where a contract between the parties provides that one 8 party, i.e., the prevailing party, may recover attorneys’ fees; (2) 9 where a statute or rule provides for the recovery of fees by the 10 prevailing party; and (3) where the court exercises it inherent 11 equitable powers to shift fees. Robert E. Jones et al., Federal Civil 12 Trials and Evidence § 19:251 (2022). The court’s inherent powers 13 include the power to shift attorneys’ fees to a party that has acted 14 “in bad faith, vexatiously, wantonly, or for oppressive reasons.” 15 Alyeska Pipeline Service Co. v. Wilderness Soc., 421 U.S. 240, 258-259 16 (1975); Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. 17 545, 557 (2014). 18 No such inappropriate conduct is present here. Sedgwick’s motion 19 pulls this court into the inscrutable world of notice and opportunity 20 to be heard in the context of summary judgment granted in favor of a 21 nonmovant. In some instances, Sedgwick’s concerns are well-taken or, 22 at least, present a sufficiently close question that the opportunity 23 for further briefing and/or the augmentation of the evidence record is 24 prudent. Neither objective, nor subjective, bad faith is present. 25 The NewDelman Group’s request for attorney’s fees will be denied. 26 V. CONCLUSION 27 For the reasons herein, Sedgwick’s motion to vacate the order 1 to the proper construction of the Priority Agreement is denied. But 2 the court will allow the parties to file briefs and to augment the 3 evidentiary record with regard to limited issues on which the court 4 granted summary judgment against Sedgwick. The NewDelman Group’s 5 request for attorney’s fees is denied. The court will issue an order 6 from chambers. ’ Dated: June 24, 2022 □□□

Fredrick E. Clement 10 United States Bankruptcy Judge 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 20

1 Instructions to Clerk of Court

2 Service List - Not Part of Order/Judgment

3 The Clerk of Court is instructed to send the Order/Judgment or other court generated document transmitted herewith to the parties below. The Clerk of Court will send the document 4 via the BNC or, if checked ____, via the U.S. mail.

6 Attorneys for the Plaintiff Attorneys for the Defendants(s)

7 Bankruptcy Trustee (if appointed in the case) Office of the U.S. Trustee Robert T. Matsui United States Courthouse 8 501 I Street, Room 7-500 9 Sacramento, CA 95814

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