Kelley v. Westford Special Situations Master Fund, L.P.
- Katherine Menendez
- 0:19-cv-01073
- U.S. District Court · District of Minnesota
- 4
In Kelley v. Westford Special Situations Master Fund, L.P., Judge Menendez denied the Defendants' motion for a new trial, finding they failed to show the original bench trial resulted in a miscarriage of justice and were merely trying to relitigate issues already decided.
Investment fund defendants affiliated with the Westford and Epsilon fund families, and individual defendant Steve Goran Stevanovich, who sought a new bench trial and were denied. Also relevant to bankruptcy trustees pursuing avoidance claims and parties in cases where prior bankruptcy court findings may be given law-of-the-case effect.
What happened
In Kelley v. Westford Special Situations Master Fund, L.P., Douglas A. Kelley, acting as trustee of the PCI Liquidating Trust, brought claims against a large group of investment funds and related entities known collectively as the Westford and Epsilon defendants, along with individual defendant Steve Goran Stevanovich. After a bench trial (a trial decided by a judge, not a jury), the defendants asked the court to order a new trial, arguing the original trial was unfair.
The defendants' main complaint was that the court wrongly relied on a prior bankruptcy court ruling — Judge Kischel's Substantive Consolidation Order, which had merged the assets and liabilities of certain related companies — to settle factual questions without letting the defendants re-litigate those issues. They also argued this approach violated their constitutional right to due process, meaning their right to a fair opportunity to be heard. The court rejected both arguments. It found the defendants had already raised and lost most of these arguments earlier in the case, making their new motion an improper attempt to get a second chance at issues already decided. On the due process argument specifically, the court noted the defendants had participated fully in the original three-day bankruptcy trial before Judge Kischel — they were represented by lawyers, filed written arguments, examined and cross-examined witnesses, and Mr. Stevanovich himself testified — so they could not credibly claim they were denied a meaningful opportunity to be heard.
Judge Menendez denied the motion for a new trial, concluding that the defendants had not demonstrated any miscarriage of justice and that their arguments amounted to an attempt to relitigate settled matters rather than identifying a genuine legal error.
The detailed version
This order arises from a long-running federal civil case in the District of Minnesota in which Douglas A. Kelley, as Trustee of the PCI Liquidating Trust, sued numerous investment entities affiliated with the Westford and Epsilon fund families, as well as individual defendant Steve Goran Stevanovich, asserting avoidance claims — legal claims allowing a bankruptcy trustee to recover transfers of money made before a bankruptcy that are deemed improper under the law.
Following a bench trial (a trial before a judge without a jury), the defendants filed a Motion for a New Trial under Rule 59(a)(1)(B) of the Federal Rules of Civil Procedure, which permits a district court to grant a new trial after a nonjury proceeding when the original trial resulted in a miscarriage of justice due to a verdict against the weight of the evidence, an excessive damages award, or legal errors.
The defendants' central argument was that the court erred in applying the law-of-the-case doctrine. That doctrine holds that a court's earlier rulings in a case generally govern subsequent stages of the same case. In a September 12, 2022 Order, Judge Menendez had ruled — consistent with a bench ruling from a hearing a few days earlier — largely in favor of the Trustee's 'Law of the Case' motion, holding that a prior bankruptcy court ruling known as the Substantive Consolidation Order (issued by Judge Kischel) had already resolved numerous factual questions relevant to the Trustee's avoidance claims, so those issues did not need to be re-tried. Substantive consolidation is a bankruptcy doctrine under which the assets and debts of related entities are merged as if they were one entity. The defendants argued this approach deprived them of due process and improperly narrowed the trial issues.
Judge Menendez found that nearly all of the defendants' arguments in support of a new trial were the same arguments they had raised and lost in opposition to the original 'Law of the Case' motion. A motion for a new trial, the court emphasized, is not a vehicle for relitigating previously decided issues.
The one genuinely new argument — the due process claim — was also rejected. The court found the defendants could not establish they were denied a meaningful opportunity to be heard in connection with Judge Kischel's Substantive Consolidation Order. The court noted that Judge Kischel had held a three-day trial on the motion to substantively consolidate the estates of Petters Companies, Inc. and related entities, including a special purpose entity (SPE) involved in the vast majority of the transactions at issue. The defendants were parties to those proceedings, were represented by counsel, filed briefing, called and questioned witnesses including experts, cross-examined witnesses, and Mr. Stevanovich personally testified. The court further noted that at the September 9, 2022 hearing in this case, defendants' counsel was largely unable to identify facts they would develop at trial on almost all of the issues raised in the Trustee's 'Law of the Case' motion, and in some instances conceded that issues did not need to be litigated.
Judge Menendez denied the motion for a new trial (Docket No. 306) in full.
Reviewer note from the AI+
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