Case 07-11862 Doc 159 Filed 04/16/09 Entered 04/16/09 16:06:06 Main Document

Page 1 of 18

UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF LOUISIANA

In re: BANKRUPTCY CASE NO. 07-11862

SECTION “A”
RON WILSON and
LaRHONDA WILSON, CIVIL ACTION NO. 09-2383
SECTION “F” MAG “2"
Debtors.
CHAPTER 13

RELIEF REQUESTED FROM A

DISTRICT COURT JUDGE

UNITED STATES TRUSTEE’S ANSWER IN OPPOSITION TO MOTION OF SAND

CANYON CORPORATION f/k/a OPTION ONE MORTGAGE CORPORATION FOR (I)
LEAVE TO APPEAL PURSUANT TO 28 U.S.C. § 158(a)(3) AND (II) STAY PENDING
APPEAL OR EXPEDITED BRIEFING SCHEDULE

The United States Trustee, Region 5 (the “United States Trustee”), by and through his

duly authorized counsel, pursuant to 28 U.S.C. § 158(a) and Fed. R. Bankr. P. 8001 and 8003,

hereby answers in opposition to the Motion of Sand Canyon Corporation f/k/a Option One

Mortgage Corporation (“Option”) for (I) Leave to Appeal pursuant to 28 U.S.C. § 158(a)(3) and

(II) Stay Pending Appeal or Expedited Briefing Schedule (“Motion for Leave”) [Docket No. 148]

with respect to the bankruptcy court’s February 6, 2009 order denying Option’s motion to quash

[Docket No. 123, Exhibit 1 & Docket No. 124, Exhibit 2] and, March 27, 2009 order denying
Case 07-11862 Doc 159 Filed 04/16/09 Entered 04/16/09 16:06:06 Main Document
Page 2 of 18

Option’s motion for reconsideration, alteration or amendment [Docket No. 143].1 The United

States Trustee respectfully states as follows:

SUMMARY OF ARGUMENT

Option filed a motion to lift stay that was supported by an affidavit the bankruptcy court

determined to be “false.” In re Wilson, 2009 WL 304672, *2 (Bankr. E.D. La. 2009). The

affidavit was signed by Dory Goebel, who is both an officer and employee of Lender Processing

Services, Inc., f/k/a Fidelity National Information Services, Inc. (“Fidelity”). Id. at *1-2. The

bankruptcy court initiated collateral proceedings concerning the filing of the false affidavit. See

id. at *3. The United States Trustee2 appeared in the bankruptcy case and requested the entry of a

scheduling order on the bankruptcy court’s collateral proceeding. [Docket Nos. 40 & 41]. The

United States Trustee then issued formal discovery requests to Option. Option sought to quash

the United States Trustee’s discovery requests, however, the bankruptcy court denied Option’s

1
Option’s Motion was filed in the bankruptcy court seeking relief from the United States District Court for
the Eastern District of Louisiana. Motion for Leave, p. 27 n. 10. Accordingly, the UST’s Objection follows the
same convention. Except as otherwise noted, all references to docket entries refer to the bankruptcy case pending
before the United States Bankruptcy Court for the Eastern District of Louisiana, Case No. 07-11862 and are
designated “Docket No. ___.”

2
The United States Trustee is an official of the United States Department of Justice charged by statute to
oversee and supervise the administration of bankruptcy cases. 28 U.S.C. § 586(a). The United States Trustee acts as
a “watchdog” whose role “may be compared with . . . a prosecutor.” H.R. Rep. No. 95-595, 1 st Sess. 4, 110 (1977),
as reprinted in 1978 U.S.C.C.A.N. 5963, 5966, 6071. The legislative history regarding the creation of the United
States Trustee Program describes the proposed United States Trustee as the “enforcer[] of the bankruptcy laws,” and
notes that the United States Trustee would be responsible for bringing “proceedings in the bankruptcy courts in
particular cases in which a particular action taken or proposed to be taken deviate[d] from the standards established
by the . . . bankruptcy code.” H.R. Rep. No. 95-595, 1st Sess. 109 (1977), as reprinted in 1978 U.S.C.C.A.N. 5963,
6070.

2
Case 07-11862 Doc 159 Filed 04/16/09 Entered 04/16/09 16:06:06 Main Document
Page 3 of 18

motion to quash and subsequent motion for reconsideration. Option seeks to appeal those

discovery orders.

Interlocutory appeals of discovery orders are ordinarily denied to avoid piecemeal

litigation. At a minimum the movant must demonstrate exceptional circumstances, which do not

exist here. Moreover, appellate review of discovery orders is available from a final order of

contempt.

Option urges the Court to consider the factors set forth in 28 U.S.C. § 1292(b) in

exercising its discretion to grant Option leave to appeal. However, Option fails to demonstrate

the appropriateness of an appeal under those conjunctive factors. Therefore, the Motion for

Leave must be denied.

BACKGROUND

1. Option filed a motion to lift stay, seeking termination of the 11 U.S.C. § 362

automatic stay with respect to the home of the debtors, Ron and LaRonda Wilson. [Docket No.

20]. Option supported its motion with an affidavit of debt signed by Dory Goebel. Id.

2. In connection with Option’s motion to lift stay, the Court entered its May 9, 2008

Order to Show Cause (the “Show Cause Order”). [Docket No. 30] requiring certain persons to

appear on June 26, 2008 “to explain the amounts due on the mortgage loan” of the debtors.

3. After a hearing on June 26, 2008, at which Dory Goebel failed to appear, the

bankruptcy court denied the motion to lift stay. [Docket No. 36].

4. On June 30, 2008, the United States Trustee filed a Notice of Appearance in the

instant case. [Docket No. 40]. The United States Trustee simultaneously filed a motion

3
Case 07-11862 Doc 159 Filed 04/16/09 Entered 04/16/09 16:06:06 Main Document
Page 4 of 18

requesting that the bankruptcy court enter a scheduling order in connection with the proceeding

surrounding the Show Cause Order. That motion was granted pursuant to an order entered by the

bankruptcy court on July 11, 2008.

5. In connection with its findings at the June 26, 2008 hearing, the bankruptcy court

entered two additional orders on July 11, 2008. First, the court entered an order continuing its

Show Cause Order and directing that Dory Goebel and a representative of Option One appear on

August 21, 2008 and explain the amounts due on the mortgage loan of the Debtors. [Docket No.

46]. That Order also decreed that “Dory Goebel and Option are jointly sanctioned $5,000.00 for

filing a false affidavit . . . ” and jointly sanctioned Dory Goebel and Option $5,000 for failing to

appear at the June 26th hearing. Id.

6. Second, the bankruptcy court sua sponte entered an additional Order to Show Cause

directing that a representative of Fidelity also appear on August 21, 2008 to explain the amounts

due on the mortgage loan of the debtors.3 [Docket No. 45].

7. At the conclusion of an evidentiary hearing on August 21, 2008, during which the

United States Trustee appeared and examined witnesses, the Court expanded the show cause

proceedings (Aug. 21, 2008 Transcript 268:19-20) and authorized the United States Trustee to

conduct discovery. See Mem. to Record August 21, 2008, Docket No. 70; Aug. 21, 2008

Transcript 208-09, 264, and 268-69.

3
Fidelity moved to appear in the Debtors’ Chapter 13 case on July 9, 2008. [Docket No. 43]. The
bankruptcy court’s July 18, 2008 Order Authorizing Fidelity National Foreclosure Solutions to Appear and Be Heard
granted Fidelity’s July 9, 2008 motion and directed that a hearing to “address Fidelity’s action and process” would
be scheduled for August 21, 2008. [Docket No. 49].

4
Case 07-11862 Doc 159 Filed 04/16/09 Entered 04/16/09 16:06:06 Main Document
Page 5 of 18

8. On October 1, 2008, the United States Trustee issued written discovery requests to

Fidelity, Option, and an attorney, D. Clay Wirtz. On October 2, 2008, the United States Trustee

issued a subpoena duces tecum to The Boles Law Firm (“Boles”).

9. Fidelity, Boles, and Option each filed motions to quash the United States Trustee’s

discovery requests. [Docket Nos. 76, 79 & 80]. The United States Trustee objected to those

motions. [Docket Nos. 82, 87, 90]. The Court heard oral argument on November 21, 2008. In re

Wilson, 2009 WL 304672, *2 (Bankr. E.D. La.). On February 6, 2009, the Court entered an

Order denying those motions. Id. at *1.

10. On February 16, 2009, Option filed a Motion for Reconsideration, Alteration or

Amendment (the “Motion to Reconsider”) of the bankruptcy court’s February 6th order denying

the motion to quash. [Docket No. 129] . After a hearing on March 26, 2009, the bankruptcy

court entered its order denying Option’s Motion to Reconsider. [Docket No. 143].

11. On April 6, 2009, Option simultaneously filed its Notice of Appeal [Docket No. 149]

and Motion for Leave to Appeal. [Docket No. 148].

ARGUMENT

A. Discovery Orders are Interlocutory and Ordinarily Not Appealable.

12. Discovery orders are interlocutory and are ordinarily not appealable. See e,g, Church

of Scientology v. U.S., 506 U.S. 9, 18 n.11, 113 S.Ct. 447 (1992)(dictum); U.S. v. Ryan, 402 U.S.

530, 91 S.Ct. 1580 (1971) (federal grand jury subpoena); Cobbledick v. U.S., 309 U.S. 323, 60

S.Ct. 540 (1940) (federal grand jury subpoena). The Fifth Circuit has consistently ruled in

accord with this basic tenet. See, e.g., Piratello v. Philips Electronics North America Corp., 360

5
Case 07-11862 Doc 159 Filed 04/16/09 Entered 04/16/09 16:06:06 Main Document
Page 6 of 18

F.3d 506, 508 (5th Cir. 2004) (discovery order in post-judgment proceedings); and A-Mark

Auction Galleries v. American Numismatic Assoc., 233 F.3d 895, 897 (5th Cir. 2000) (subpoena

duces tecum).

13. The common rationale for denying interlocutory appeals of discovery orders is that

appellate review of such issues results in piecemeal litigation unnecessarily wasting judicial

resources and likely grinding the underlying action to a halt. See Clark-Dietz & Assocs. -Eng'rs,

Inc. v. Basic Constr. Co., 702 F.2d 67, 69 (5 th Cir. 1983), In re Babcock & Wilcox Co. No. 00-

1154, 2000 WL 823473, *1 (E.D. La. June 22, 2000); Saddle Creek Energy Development v.

Eagle Domestic Drilling Operations, No. 07-MC-217, 2007 WL 1702398 (S.D. Tex. June 12,

2007) citing In re Global Marine, Inc., 108 B.R. 1007, 1009 (S.D. Tex 1988). Moreover, in the

context of discovery orders, appellate review is available from a final order of contempt. “[I]n

the rare case when appeal after final judgment will not cure an erroneous discovery order, a party

may defy the order, permit a contempt citation to be entered against him, and challenge the order

on direct appeal of the contempt citation.” Firestone Tire & Rubber Co. v. Risjord, 449 U.S. 368,

377, 101 S.Ct. 669, 675 (1981) (dicta); and Piratello, 360 F.3d at 508.

14. The United States Trustee has not yet filed a motion to compel discovery responses

or made any request that Option be held in contempt. Thus, the bankruptcy court has not ruled

on a motion for contempt. Rather, the bankruptcy court has expressed that it would continue to

entertain requests with respect to individual issues of privilege or trade secrets in connection with

responding to the United States Trustee’s discovery requests.4

4
“[I]f you believe that you need a protective order on a specific item that’s proprietary or privileged, I’ll
hear that at the time . . . .” March 26, 2009 Transcript, 74:17-19.

6
Case 07-11862 Doc 159 Filed 04/16/09 Entered 04/16/09 16:06:06 Main Document
Page 7 of 18

15. The Court should deny Option’s Motion for Leave. That would provide two options

to Option. It can comply with the discovery requests. Alternatively, it can refuse to comply and

appeal the Order in the context of a subsequent civil contempt order.

B. The District Court Should Exercise its Discretion and Deny Fidelity’s Motion for
Leave to Appeal.

1. There is No Mandated Standard for the District Court to hear 28 U.S.C.

§158(a) Appeals.

16. Section 158(a) of title 28 authorizes a district court to grant leave to appeal an

interlocutory order from a bankruptcy court, but does not provide any standard for determining

whether to grant leave to appeal. Ichinose v. Homer National Bank (Matter of Ichinose), 946

F.2d 1169, 1177 (5th Cir. 1991). In every case, the decision to grant or deny leave to appeal a

bankruptcy court’s interlocutory order is committed to the district court’s discretion. Stumpf v.

McGee (In re O’Connor), 258 F.3d 392, 399-400 (5th Cir. 2001); In re Verges, 2007 WL 955042,

* 1 (E.D. La.).

17. The Fifth Circuit has observed that, in assessing whether to grant an interlocutory

appeal of a bankruptcy court order, many courts analogize to the standard under 28 U.S.C. §

1292(b). Ichinose, 946 F.2d 1177.5 The Fifth Circuit has not determined, however, whether such

5
See also In re Walker, No. 06-35035, 2007 W L 294157 at * 1 (S.D. Tex. January 29, 2007) (noting that
while the Fifth Circuit has not affirmatively decided the issue it has recognized that most courts apply the criteria set
forth in section 1292); Barkley v. U.S. ex rel U.S. Dep't of Treasury, No. Civ. A. 07-1631, 2007 W L 3445136 at *3
(W .D. La., Nov 13, 2007) (same).

7
Case 07-11862 Doc 159 Filed 04/16/09 Entered 04/16/09 16:06:06 Main Document
Page 8 of 18

analogy is the correct or mandated approach. See Ichinose, at 1177 (“We have not previously

considered whether it is proper for a district court to adopt the § 1292(b) standard for § 158(a)

purposes, and we do not do so here”).

18. The guiding principle for interlocutory bankruptcy appeals is that “[g]enerally, a

district court should grant leave sparingly, ‘since interlocutory bankruptcy appeals should be the

exception, rather than the rule.’ Wells Fargo Bank, N.A. v. Jones, 391 B.R. 577, 585 n. 24 (E.D.

La. 2008). Thus, motions for leave to appeal interlocutory orders should only be granted in

exceptional circumstances. See Escondido Mission Vill. L.P. v. Best Prod. Co., Inc. (In re

Escondido), 137 B.R. 114, 116 (S.D.N.Y. 1992) (to grant leave to appeal an interlocutory order,

except in exceptional circumstances, “would contravene the well-established judicial policy of

discouraging interlocutory appeals and avoiding the delay and disruption which results from such

piecemeal litigation”) (internal citation omitted).

19. The determination whether such exceptional circumstances exist is a matter within

the sound discretion of the Court. See In re Sunflower Racing, Inc., 218 B.R. 972, 978 (D. Kan.

1998) (leave to appeal an interlocutory order should only be granted in exceptional

circumstances; the decision whether to grant leave is a matter “within the sound discretion of the

appellate court”); In re Stiles, 29 B.R. 389, 390 (M.D. Tenn. 1982) (“even where interlocutory

appeals may be granted, they are permissible only in exceptional or extraordinary situations”).

The burden is on Option to demonstrate such exceptional circumstances. In re Countrywide

Home Loans, Inc., No. 08-617, 2008 WL 2388285 *5 (W.D. Pa. June 11, 2008) (“Countrywide,

8
Case 07-11862 Doc 159 Filed 04/16/09 Entered 04/16/09 16:06:06 Main Document
Page 9 of 18

as the party seeking an interlocutory appeal, bears the burden of demonstrating exceptional

circumstances”) (citation omitted).

20. The Court should exercise its discretion to deny the Motion for Leave because

Option has failed to establish any exceptional circumstances justifying departure from the well

founded principles disfavoring interlocutory appeals. Denying the Motion for Leave will not

deprive Option of a remedy and comports with the principles discouraging piecemeal appeals.

2. Even Under § 1292(b) Factors, the Court Should Deny Option’s Request for
Leave to Appeal.

21. If the Court considers the § 1292(b) factors in deciding whether to grant Option leave

to appeal,6 the Court should consider whether: (1) the issue involves a controlling question of

law; (2) the question is one where there is substantial ground for difference of opinion; and (3)

the question is such that an immediate appeal would advance the ultimate termination of the

litigation. Ichnose, 946 F.2d at 1177. Under those standards, the District Court should deny the

Motion for Leave.

22. The Section 1292(b) factors must be examined through the lens that interlocutory

appeals are generally “disfavored because they ‘interfere with the overriding goal of the

bankruptcy system, expeditious resolution of pressing economic difficulties.’” DuPree v. Kaye,

No. 3:07-CV-0768-B, 2008 WL 294532 at *2 (N.D. Tex. February 4, 2008) (internal citations

omitted); Chambers v. First United Bank & Trust Co., No. 4:08-mc-007, 2008 WL 5141264 at

6
Notwithstanding any of the specific § 1292(b) factors, the Court has the discretion to deny the Motion for
Leave.

9
Case 07-11862 Doc 159 Filed 04/16/09 Entered 04/16/09 16:06:06 Main Document
Page 10 of 18

*1 (E.D. Tex. December 5, 2008) (“Courts also have generally been inclined to deny leave to

appeal interlocutory orders of the bankruptcy court in the interest of promoting efficient

administration of the estate.”).

23. Moreover, the § 1292(b) criteria “are conjunctive, not disjunctive.” Ahrenholz v.

Board of Trustees of University of Illinois, 219 F.3d 674, 676 (7th Cir. 2000) (cited approvingly

on other grounds, Marlbrough v. Crown Equipment Corp., 392 F.3d 135, 136 (5th Cir. 2004));

Warner v. Unsecured Creditors Committee (In re Warner), 94 B.R. 734, 739 (M.D. Fla.

1988)(“criteria listed in 28 U.S.C. § 1292(b) are conjunctive”; district court dismissing appeal

due to absence of all § 1292(b) factors); and Northwest Airlines, Inc. v. City of Los Angeles, No.

05-17930, 2008 WL 4755377, * 6 (S.D.N.Y. October 28, 2008) (“criteria for certifying a

question under § 1292(b) ‘are conjunctive, not disjunctive’”). Thus, the failure to demonstrate

any of the three factors dooms the requested appeal.

a. There is No Controlling Question Of Law.

24. Option must establish that the Order implicates a “controlling” question of law. An

appropriate question would be “a pure question of law, something the court of appeals could

decide quickly and cleanly without having to study the record.” Ahrenholz v. Board of Trustees

of University of Illinois, 219 F.3d 674, 677 (7th Cir. 2000) (denying leave for interlocutory

appeal as not presenting “controlling question of law”). This contrasts with “a question of fact or

matter for the discretion of the trial court,” which would be an inappropriate question for the

district court to take on interlocutory appeal. See Garner v. Wolfinbarger, 430 F.2d 1093, 1097

10
Case 07-11862 Doc 159 Filed 04/16/09 Entered 04/16/09 16:06:06 Main Document
Page 11 of 18

(5th Cir. 1970) (finding question of corporate claim of privilege against its own shareholders an

appropriate question of law).

25. “In general, discovery orders do not present ‘controlling questions of law’ capable of

significantly advancing litigation so as to justify interlocutory appeal.” Stone Container Corp. v.

Owens-Illinois, Inc., 528 F.Supp. 794, 796 (N.D. Ga. 1981)(declining certification under §

1292(b)).

26. Option indicates that the controlling question of law concerns the bankruptcy court’s

reliance on 11 U.S.C. § 105(a):7 “Whether the bankruptcy court’s authority under Section 105(a)

of the Bankruptcy Code authorized it to permit a non-party to serve discovery requests (on the

Court’s behalf) on Option One, a former party.” Option Motion for Leave, ¶ 34(b).

27. The United States Trustee has consistently asserted that regardless of the Court’s

power under § 105(a), Fed. R. Bankr. P. 9014 provides direct authority for the issuance of the

7
Option also cites as another controlling question of law “[w]hether the [July 11, 2008 Order, Docket No.
46] was a final order precluding the bankruptcy court from issuing further sanctions against Option One.” Motion
for Leave, ¶ 34(a). Option’s argument hinges on the notion that “the Sanctions Order did not reserve the right to
issue further sanctions.” Motion for Leave, ¶ 40. That assertion, however, misstates the record. The bankruptcy
court expressly reserved the right to award further sanctions against Option. First, the Court stated its reservation at
the June 26, 2008 hearing, where Option’s counsel was present: “I will take up the issues of what further sanctions I
will impose against Option One at the continued Order to Show Cause.” June 26, 2008 Transcript 47:24-48:1.
Second, in a Memo to Record that the Clerk of the Court entered the same day, June 26, 2008, the following entry
was made: “The Court reserves the right to award further sanctions.” Memo to Record, Docket No. 36. Although the
Sanctions Order does not expressly state a reservation of the possibility of further sanctions, it does not state that all
sanctions had been finally resolved against Option. At best, the Sanctions Order is neutral about the possibility of
further sanctions against Option. Otherwise, the balance of the record is clear that further sanctions could be awarded
against Option. For an order to be final, it “must adjudicate the rights and liabilities of all parties properly before the
court.” Witherspoon v. White, 111 F.3d 399, 401 (5 th Cir. 1997) (citing Arango v. Guzman Travel Advisors Corp.,
621 F.2d 1371, 1374 (5 th Cir. 1990). In contrast, where an order “disposing of less than all parties was entered
pursuant to Rule 54(b), the judgment is not considered final.” Witherspoon, 111 F.3d at 403 (assessing judgment
entered by district court and citing Thompson v. Betts, 754 F.2d 1243, 1245 (5 th Cir. 1985) for proposition that,
“absent a Rule 54(b) certification, a partial disposition of a multi-party action is not a final decision under [28]
U.S.C. § 1921").

11
Case 07-11862 Doc 159 Filed 04/16/09 Entered 04/16/09 16:06:06 Main Document
Page 12 of 18

discovery in the show cause proceeding. See, e.g, In re Count Liberty, LLC, 370 B.R. 259, 271

(Bankr. C.D. Cal. 2007) (amended show cause proceeding is a “contested matter”); In re Corella,

No. 4-06-00864-EWH, 2008 WL 704313, *2 (Bankr. D. Ariz. March 14, 2008) (a petition for

rule to show cause commenced a contested matter under Bankruptcy Rule 9014). While the

bankruptcy court cited § 105(a) in authorizing the United States Trustee’s issuance of formal

discovery it did not expressly accept or reject the United States Trustee’s contention under Fed.

R. Bankr. P. 9014.8

b. The Litigation Would Only Be Lengthened By An Interlocutory Appeal.

28. If this Court allows Option’s appeal and eventually reverses the Bankruptcy Court’s

Order, it will lengthen, not shorten, the ultimate termination of the litigation.

29. The bankruptcy court could sua sponte require Option to produce the same

documents and witnesses that the United States Trustee has sought through discovery. See July

11, 2008 Order, Docket No. 45, compelling attendance of a representative Option to appear and

testify; and transcript of March 26, 2009 hearing on Option’s Motion for Reconsideration, 15:7-

14.9 It was the bankruptcy court that sua sponte initiated the show-cause proceedings. Prior to

the United States Trustee’s issuing discovery, the bankruptcy court determined that certain

8
The bankruptcy court, though, did question one component of the United States Trustee’s argument that
the United States Trustee is a “party,” able to issue discovery under the formal discovery rules, Fed. R. Civ. P. 26-37
(made applicable in contested matters pursuant to Fed. R. Bankr.P. 9014 and 7026-7037).

9
Court: “It seems to me more expensive . . . for the Court to say, you know, I think the U.S. Trustee’s
Office has made a point. Fly all five people down here. It may take us two weeks, but we’ll put them on one at a
time and I will question them.”

12
Case 07-11862 Doc 159 Filed 04/16/09 Entered 04/16/09 16:06:06 Main Document
Page 13 of 18

testimony in the show-cause proceeding was conflicting and necessary information was missing.

August 21, 2008 Transcript 264:13-267:17.

30. Indeed, at the March 26, 2009 hearing the bankruptcy court indicated that if the

United States Trustee’s discovery was terminated, it would not end the court’s investigation.10

The court described a scenario wherein the court itself could require production of the same

documents and testimony from the same witnesses as requested by the United States Trustee in

its discovery requests:

I could in a sense conduct my own discovery, collect all those exhibits [the
documents subject to pending requests for production], start reading them saying, well,
you know, this document refers to something else. I’d like to see those papers as well.
And this could go on for six months, it could go on for a year, and you could come as
often as I ordered you to come and put as many people on the stand as I ordered you to
come until I was satisfied.

That is a very practical concern for me. . . . I am perfectly capable of questioning a

witness on the stand. It seemed to me that it was less burdensome, frankly, to your client
to conduct what I would call normal, civil discovery.

Transcript of March 26, 2009 Hearing on Post-Judgment Motions filed by Fidelity, Option, and

Boles, 15:24-16:11.

31. In sum, in light of the bankruptcy court’s power to sua sponte continue its

investigation without issuance of discovery by the United States Trustee, and in light of the

conflicting testimony and missing information that the bankruptcy court determined, reversal of

the discovery order will not terminate the collateral proceeding that the bankruptcy court is

10
The bankruptcy court gave no specific ruling on how its show-cause proceedings would continue after
resolution of any appeal to the District Court.

13
Case 07-11862 Doc 159 Filed 04/16/09 Entered 04/16/09 16:06:06 Main Document
Page 14 of 18

conducting. Rather, disallowing the United States Trustee’s discovery will likely only serve to

lengthen that process.

C. Option’s Request for a Stay and Expedited Briefing Schedule Compounded Within
the Motion for Leave Must be Denied.

32. Besides seeking leave to appeal, Option has requested within the confines of the

Motion for Leave that the Court grant a stay pending appeal and also enter an expedited briefing

schedule. The United States Trustee objects to both requests for relief as procedurally

inappropriate and substantively unwarranted.

1. The Request for a Stay and a Modification of Briefing Schedules is

Procedurally Improper.

33. The bankruptcy court informed Option at the hearing on its motion for

reconsideration that it would not grant a stay pending appeal. Thus, Option knew that it must turn

to this Court to request a stay pending appeal. Option Motion for Leave, p. 27 n. 10 (“The

bankruptcy court confirmed that it would not grant a stay pending appeal and advised counsel for

Option One to “go straight to the District Court”). However, rather than separately filing a

motion seeking such relief, Option simply appended it to its Motion for Leave. Option similarly

appended a further request seeking to expedite the briefing schedule to the Motion for Leave.

34. Even though both forms of relief were subject to different procedural requirements,

Option compounded its requests in the Motion for Leave. In doing so, it has created unnecessary

procedural anomalies. For example, Fed. R. Bankr. P. 8003(b) provides that motions for leave to

appeal are submitted without oral argument unless otherwise ordered. In coupling other forms of

14
Case 07-11862 Doc 159 Filed 04/16/09 Entered 04/16/09 16:06:06 Main Document
Page 15 of 18

relief within the Motion for Leave, Option may be abridging upon the United States Trustee’s

right to a hearing on Option’s requests for a stay and expedited briefing schedule.

35. Because the relief requested by Option is procedurally improper, the District Court

should deny Options’ request for a stay and expedited briefing schedule. The District Court

should require Option to renew its request for relief, if at all, by filing appropriate separate

motions.

2. Neither a Stay Pending Appeal Nor an Expedited Briefing Schedule is

Warranted.

a. Option’s Request for a Stay Pending Appeal Should be Denied

36. In the Fifth Circuit, the standards for granting or denying a stay pending appeal are:

(1) likelihood that the party seeking the stay will prevail on the merits; (2) whether the movant

would suffer irreparable harm if the stay is not granted; (3) whether the other parties would suffer

substantial harm if the stay is granted; and (4) whether the public interest would be harmed if the

stay is granted. Hunt v. Bankers Trust Co., 799 F.2d 1060, 1067 (5th Cir. 1986).

37. First, Option first claims that it “easily satisfies” the likelihood of success” test. In

contrast, these matters were fully briefed, argued, and re-argued in the bankruptcy court

proceedings below. The bankruptcy court reached the opposite conclusion about Option’s

arguments. Moreover, in the context of a request for leave to appeal, the standard is slightly

different. Because interlocutory appeals are only granted in exceptional circumstances, Option

must demonstrate that it is likely to obtain leave to appeal the interlocutory order. In re Mounce,

No. 04-5182, 2008 WL 2714423, * 1 n. 4 (Bankr. S.D. Tex. July 10, 2008). Option has failed to

meet its burden.

15
Case 07-11862 Doc 159 Filed 04/16/09 Entered 04/16/09 16:06:06 Main Document
Page 16 of 18

38. Another aspect of the “likelihood of success” factor concerns the practicalities of

further proceedings below. Even without the aid of information obtained through the discovery

issued by the United States Trustee, the bankruptcy court should proceed with its collateral

proceeding. The bankruptcy court has already described in detail the conflicting testimony it has

received and information that the court believes is missing, but necessary, to the court’s inquiry.

Reasons Opinion, 2009 WL 304672 at *2; and Aug. 21, 2008 Transcript, 264:13 - 267:17. The

bankruptcy court has an interest in continuing its inquiry regardless of the United States Trustee’s

involvement. A reversal in favor of Option could prove pyrrhic.

39. Second, Option itself acknowledges that it will not suffer irreparable harm in the

absence of a stay. Option recognizes that it could elect to defy the bankruptcy court order and

pursue a final order of contempt. See Option Motion for Leave, ¶ 88 (noting that possibility of

no appellate review “absent Option One’s being held in contempt.”)

40. Third, the bankruptcy court pointed out the potentially greater, not lesser, expense in

these proceedings if the United States Trustee is not permitted to proceed with discovery. At the

March 26, 2009 hearing, the bankruptcy court described a scenario wherein, without the benefit

of the discovery process, the court would face calling in witnesses and ordering the production of

documents. The bankruptcy court conceived that as a “more expensive” and time-consuming

approach. March 26, 2008 Transcript, 15:10. “That is a very practical concern for me. . . . I am

perfectly capable of questioning a witness on the stand. It seemed to me that it would be less

burdensome, frankly, to your client to conduct what I would call normal, civil discovery.” Id.,

16:6-11.

16
Case 07-11862 Doc 159 Filed 04/16/09 Entered 04/16/09 16:06:06 Main Document
Page 17 of 18

41. Finally, the public interest factor weighs heavily in favor of the United States

Trustee. The United States Trustee is the representative of the public interest.11 An important

public interest will be delayed or impeded if the United States Trustee is not permitted to obtain

information about the process that led to the filing of the inaccurate motion to lift stay. It was

Option, not the United States Trustee, that triggered the procedural process now complained

about by filing an inaccurate and improper motion to lift stay.

42. Thus, even if the Court considers Option’s procedurally improper request for a stay,

Option fails to demonstrate the four factors necessary for the issuance of a stay. The Court

should deny Option’s request.

b. Option’s Request for Expedited/Simultaneous Briefing Schedule Should

be Denied.

43. Setting aside the procedural impropriety of Option’s request for an expedited briefing

schedule, Option alleges no substantive reason whatsoever necessitating simultaneous briefing.

See Motion for Leave, ¶ 95. Simultaneous briefing would be unfair to the United States Trustee

and eviscerate without justification the United States Trustee’s express right to read, research,

and respond to Option’s brief. Fed. R. Bankr. P. 8009(a)(1) - (2). The District Court should not

lessen the time within which the United States Trustee is permitted to file his brief, if the Court

elects to hear Option’s appeal.

WHEREFORE, the United States Trustee prays that the Court:

1. Deny Option’s Motion for Leave to Appeal;

11
See footnote 2 supra.

17
Case 07-11862 Doc 159 Filed 04/16/09 Entered 04/16/09 16:06:06 Main Document
Page 18 of 18

2. Deny Option’s request for a stay pending appeal;

3. Deny Option’s request for expedited/simultaneous briefing schedule;

4. Grant such general relief to which the United States Trustee may be entitled.

Respectfully submitted,

R. MICHAEL BOLEN
United States Trustee
Region 5, Judicial Districts of
Louisiana and Mississippi

by: s/ Mary Langston

MARY LANGSTON (22818)
Assistant U.S. Trustee
400 Poydras Street, Suite 2110
New Orleans, LA 70130
Telephone no. (504) 589-4018
Direct telephone no. (504) 589-4093
Facsimile no. (504) 589-4096

SEAN M. HAYNES (TN # 14881)

LR 11.2 Trial Attorney
Admitted pro hac vice
Office of United States Trustee
200 Jefferson Avenue, Suite 400
Memphis, TN 38103
Telephone no. (901) 544-3251
Direct telephone no. (901) 544-3486
Facsimile no. (901) 544-4138

18