The "Law of the Case" Doctrine Applied in the Most Recent 9th Circuit BAP Opinion, Written by Judge Dunn

by Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, Andy@BLSforAttorneys.com



FDIC v. Kipperman (In re Commercial Money Center, Inc)'
BAP Case No. SC-07-1298-DCMo
August 4. 2008

This most recent of the 9th Circuit BAP opinions was written by Judge Randall Dunn in his capacity as a BAP judge. The facts and procedural background are so involved that they take the first nearly 18 pages of his opinion, in part because this is the second appeal in the adversary proceeding. But the focus of this Litigation Report is on just one particular aspect: the doctrine of "the law of the case."

As stated in this opinion, "[u]nder the law of the case doctrine, a court is barred from reconsidering an issue that already has been decided in the same court or in a higher court on the same case. [Citation omitted.] For the law of case doctrine to apply, the issue must have been decided, either expressly or by necessary implication."

The overall legal issue to be decided on appeal involved the perfection of security interests: did a creditor, NetBank, perfect its security interest in equipment lease payments owed to debtor, Commercial Money Center, and its security interest in surety bonds procured by debtor to guarantee these lease payments, so as to withstand trustee's avoidance powers under §§ 544 and 547(b)? These secured assets were worth about $47 million. The bankruptcy court had ruled that NetBank had failed to perfect its security interest in these two sets of assets, thus allowing the trustee to avoid these security interests.

Just one of the sub-issues was whether the "law of the case" doctrine barred NetBank from arguing that some of the surety bonds were "instruments" rather than "supporting documents" under Nevada's Article 9 of the UCC. If they were instruments then this creditor could argue that it had perfected its security interest by possession before the 90-day preference period, and so the trustee could not avoid that security interest .

The bankruptcy court had held (after the BAP had remanded back to it after the first appeal) that the law of the case doctrine barred this argument because 1) NetBank had argued earlier, before the first appeal, that the surety bonds were supporting obligations, 2) the trustee also asserted the same, and 3) therefore "the bankruptcy court believed it implicitly determined that the surety bonds were supporting obligations by finding that NetBank did not perfect its security interest in the lease payments and that the trustee was entitled to summary judgment avoiding NetBank's security interest in all of the transferred assets, including the surety bonds."

But the BAP held to the contrary, that the law of the case doctrine did not apply here. The bankruptcy court "neither expressly nor implicitly decided whether the surety bonds were instruments or supporting obligations . . . [; it] simply assumed that the surety bonds were supporting obligations because both NetBank and the trustee argued that the surety bonds were supporting obligations and determined that NetBank did not have a perfected security interest in the lease payments." Therefore, the BAP concluded that NetBank could raise the issue that the security interests in some of the surety bonds were instruments and not supporting documents, and therefore were perfected.

However, after all that, the BAP analyzed the convoluted facts of the case, applied the UCC's definitions to these two types of assets, and held that as a matter of law the surety bonds were indeed supporting documents and not instruments, therefore NetBank's security interests in them were not perfected, and thus were avoidable by the trustee. Earlier in the opinion the BAP had also held that NetBank had not perfected its security interest in the lease payments either, and so those security interests were avoidable by the trustee as well. Since the bankruptcy court on remand had come to the same conclusions, the BAP affirmed its summary judgment in favor of the trustee.

BOTTOM LINE: For the law of the case doctrine to bar a court from considering an issue, that issue must have already been decided, either expressly or by necessary implication, in the same court or in a higher court on the same case. It is not enough, as here, for both adversaries and the court to have earlier ASSUMED that a particular issue was resolved a particular way without such a decision having been either expressly made necessarily made by implication. The challenge of logic is distinguishing between an issue having been merely assumed instead of having been "decided by necessary implication."

by Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, Andy@BLSforAttorneys.com

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