Case: In re Cellular 101, Inc., 539 F.3d 1150 (9th Cir. 2008).
Status: Ready, Aim, Fire
A dispute with Channel, a local AT&T wireless services dealer, led to Cellular 101 filing for bankruptcy. AT&T then sued Cellular 101 in a separate state-court action. The bankruptcy court ordered Cellular 101 to make payment to Channel; Cellular 101 appealed. While the appeal was pending, Cellular 101 reached a settlement in AT&T's state-court action that, in effect, released Cellular 101 from the administrative claim that was the subject of the bankruptcy appeal. Cellular 101 failed to inform the appeals court of the settlement that released it from Channel's claims. After losing the appeal, Cellular 101 went back to the bankruptcy court and argued that the settlement with AT&T barred Channel's claim. Cellular 101 lost and appealed again. This time the appeals court held that Cellular 101's attempt to use the settlement agreement to avoid the effect of the prior appeal was a "manipulative" attempt to get "a second bite at the apple." The court wrote "having taken its shot, Cellular 101 does not get another opportunity to reach into its quiver for another arrow." As a result of its failure to raise the settlement in the earlier proceeding, the court of appeals held Cellular 101 had waived any subsequent affirmative defenses it may have had related to the settlement.
- You have an obligation to inform an appeals court about material changes that occur during the pendency of an appeal-even if the change occurs in a separate, but closely related, matter.
- Candor to the court is a non-negotiable obligation. Those who get caught trying to slyly game the system will surely anger the court and may see otherwise viable defenses or claims deemed waived as a result of their bad behavior.
It's always best to avoid public admonishments by the courts. It doesn't matter how good you are if your poor sportsmanship results in the court refusing to let you take a shot.
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