United States District Court, M.D. Louisiana
RULING AND ORDER ON APPEALS OF ORDERS ISSUED BY THE
UNITED STATES BANKRUPTCY COURT FOR THE MIDDLE DISTRICT OF
W. deGRAVELLES, JUDGE UNITED STATES DISTRICT COURT MIDDLE
DISTRICT OF LOUISIANA.
this Court are appeals of December 13, 2017 oral rulings,
subsequently memorialized in minute orders, by the United
States Bankruptcy Court for the Middle District of Louisiana
in favor of Scott David Heinrich and Brandon Heinrich
(“Appellees”) and against Gregory Steven Duncan
(“Duncan”), Suzanne Alvine Simoneaux
(“Simoneaux”), and Louisiana Towing and Recovery,
LLC (“Louisiana Towing” and, collectively,
“Appellants”). (See Docs. 1, 2; see
also Doc. 13 (“Hrg. Tr.”)). The parties have
filed initial briefs, (Docs. 15, 16), and reply briefs,
(Docs. 17, 18). Oral argument is not necessary. For reasons
explained below, this Court AFFIRMS the appealed rulings.
Factual and Procedural History
12, 2016, Duncan and Simoneaux filed a voluntary petition for
Chapter 7 bankruptcy. In re Duncan, 16-bk-10810
(“Bankruptcy Petition”), Doc. 1. In October 2016,
bankruptcy trustee Samera Abide moved to employ Steven
Lemoine as “general counsel for the estate, including
but not necessarily limited to investigation and pursing
[sic] potential property of the estate that require such
legal services.” Id., Doc. 32. The bankruptcy
court granted the request, appointing Lemoine “as
attorney and general legal counsel for the estate under 11
U.S.C. § 327[.]” Id., Doc. 35.
November 15, 2016, Abide moved to sell Duncan and
Simoneaux's membership interest in LA-1 Towing and
Recovery, L.L.C. (“LA-1”) “to insiders free
and clear of encumbrances.” Id., Doc. 54.
According to that motion, one of the assets of the bankruptcy
estate was Duncan and Simoneaux's collective 50% share of
LA-1, with Appellees holding the remaining 50%. Id.
The motion characterized Appellees' membership interest
as a “fairly recent development” memorialized in
a March 16, 2016 operating agreement. Id. The motion
further stated that, upon finding out about the bankruptcy
proceeding, Appellees had contacted Abide to offer to
purchase Duncan and Simoneaux's interest. Id.
The motion stated that Abide had accepted Appellees'
offer, subject to court approval. Id. In an order
signed December 14, 2016, the bankruptcy court granted the
motion and authorized Abide to conduct the sale.
Id., Doc. 65. Pursuant to the bankruptcy court's
order, the sale was “without any warranty or recourse
whatsoever, express or implied, as to the condition thereof,
and without any warranty whatsoever, against redhibitory or
hidden or latent vices and defects (not fit for the use
intended) on the part of the trustee, not even for a return
of the purchase price, and without any representations of
warranty, express or implied, whatsoever of any kind as to
any matter, but with full substitution and subrogation to all
rights and actions of warranty against all preceding owners,
vendors or mortgagors of the property[.]” Id.
The bankruptcy petition was discharged on March 8, 2017.
Id., Doc. 79. By its terms, the order of discharge
did not “close or dismiss” the case, but rather
meant “that no one may make any attempt to collect a
discharged debt from the debtors personally.”
August 2017, Appellees filed a suit in state court against
Duncan, Simoneaux, and Louisiana Towing. See Heinrich, et
al. v. Duncan, et al., 17-ap-01039 (“Adversary
Proceeding”), Doc. 1-1 at 6-9. The petition for damages
first alleged that LA-1 had been “created” in
October 2015 by Duncan and Simoneaux and that, in May 2016,
Appellees and “Defendant” had executed an
operating agreement to “establish the business
principles for LA-1[.]” Id. at 6. The petition
for damages contended that Duncan, acting as manager of LA-1,
had breached the agreement and his fiduciary duties,
committed fraud and conversion, tortiously interfered with
contracts, conspired with Simoneaux, and violated the
Louisiana Unfair Trade Practices and Consumer Protection Act.
Id. at 6-7. Particularly, the suit claimed that
Duncan was “grossly negligent” in managing LA-1,
secretly using company funds for personal purposes, and that
he and Simoneaux had transferred assets, property, and funds
from LA-1 to Louisiana Towing, a “virtually identical
new and competing business enterprise” recorded with
the Secretary of State on September 15, 2016, and
subsequently sold their interests in LA-1 to Appellees having
concealed the aforementioned “theft[s].”
Id. at 7-8. Appellees claimed that they had
dissolved LA-1 in April 2017. Id. at 8.
September 2017, Duncan and Simoneaux removed the state court
suit to federal court, citing 28 U.S.C. § 1452(a) and
contending that the state court suit “involv[ed] claims
made and property transferred in this bankruptcy
proceeding.” Id., Doc. 1 at 1-2. The notice of
removal maintained that the state court suit involved
“allegations of tortious and fraudulent actions . . .
which occurred before the discharge granted by this court . .
. and which alleged obligations, if true, would be discharged
by the court's order of March 8, 2017.”
Id. at 3. Appellees moved to abstain and/or remand
to state court, arguing principally that the bankruptcy court
lacked jurisdiction and was required to abstain.
Id., Docs. 5 & 6. Appellees further argued that
permissive abstention was appropriate. Id.
Appellants opposed, arguing first that the state court
petition “cites alleged conduct of [Duncan and
Simoneaux] as far back as October 22, 2015[.]”
Id., Doc. 22 at 2. Appellants also argued that,
after the bankruptcy petition was filed and before the sale,
Lemoine undertook an investigation of “alleged
‘fraud'” in connection with the sale of
Duncan and Simoneaux's interests in LA-1. Id. at
3-4. Appellants also contended that Appellees had
“complete access” to LA-1's records at the
relevant time. Id. at 4-5. Appellants noted that it
was “impossible” to tell from the state court
petition which claims were based on actions occurring before
the bankruptcy petition was filed. Id. at 5.
Appellants argued that permitting remand would “allow
the state court to question whether the bankruptcy court had
made the correct decision and whether [Abide] bears
responsibility for those [sic] decisions.” Id.
and Simoneaux also filed a Motion for Contempt of Bankruptcy
Court and Sanctions, arguing that the state court suit was
filed in “willful violation of an order of [the
bankruptcy] court involving claims made and property
transferred in this bankruptcy proceeding.” Bankruptcy
Petition, Doc. 100. Appellees objected, arguing that the suit
sought damages only for acts committed after the bankruptcy
petition was filed, although their pleading did not
“plainly state that fact.” Id., Doc.
106. Appellees subsequently filed a supplemental brief and
exhibits identifying conduct undergirding their claims that
occurred after the bankruptcy petition was filed.
Id., Docs. 116 & 116-1.
December 13, 2017, the bankruptcy court heard argument on the
Motion to Remand and the Motion for Contempt and Sanctions.
(See Hrg. Tr. at 1). With respect to the Motion for
Contempt and Sanctions, Appellants' counsel contended
that Appellees had violated the automatic stay that was
effective as of the bankruptcy petition's filing date or
the permanent injunction that replaced it following the
discharge. (Id. at 4-5). Appellants' counsel
observed that “the issue in this case may be
pre-petition claims versus post-petition claims” and
argued that the allegations in the state court suit were
“general and vague.” (Id. at 5).
Appellants' counsel also said that “the issue here
. . . relate[d] to an objection to the sale of the assets of
the estate.” (Id.). Appellants' counsel
also argued that “the interests of the debtors were in
the bankruptcy estate” and that Lemoine had
investigated “claims of fraud and the possibility that
there were assets of LA-1 transferred to, to another
company[.]” (Id. at 6-7). The bankruptcy court
confirmed that Appellants had not objected to the sale or
appealed from it when it occurred. (Id. at 8).
Appellants' counsel also argued that the state court suit
“willfully attacked . . . [Abide's] tacit
approval” of the sale, contravening the goals of
bankruptcy proceedings. (Id. at 9). In response to
court questioning, Appellants' counsel reiterated that
“the basis for bankruptcy court jurisdiction” was
Appellees' “attack on” the bankruptcy
court's judgment and sale. (Id. at 10).
his argument, Appellees' counsel admitted that the state
court petition was “thin” and reiterated that the
state court suit sought recovery only for post-petition
claims and was also not attacking the “sale
order.” (Id. at 11-12). Appellees' counsel
argued that, during the sale, Appellees had acquired
LA-1's claims concerning “whatever occurred within
LA-1, ” i.e., the alleged transfer of
LA-1's assets, property, and funds, and that these were
not claims of the estate. (Id. at 12-14).
Appellees' counsel acknowledged that Appellees had not
yet filed an amended petition in state court but stated that
they were holding off on doing so until the removal and
remand issues were resolved. (Id. at 13-14). In
reply, Appellants' counsel emphasized his concern that a
state court judge might review whether the bankruptcy court
or Abide's actions were “right.”
(Id. at 16).
bankruptcy court orally denied the Motion for Contempt and
Sanctions, noting that Appellees' counsel had repeatedly
and consistently clarified that the state court suit
challenged only post-petition conduct and that, as a result,
the claims in the state court suit had not been discharged in
bankruptcy. (Id. at 21-23).
support of the Motion to Remand, Appellees' counsel
reiterated that Appellees' claims were claims “of
LA-1” arising post-petition and, for many of the same
reasons addressed supra, adjudication of those
claims would have no effect on the administration of any
bankruptcy estate. (Id. at 24-26). Appellants'
counsel similarly reiterated that the state court suit would
permit the state court to review the actions of the
bankruptcy court and Abide. (Id. at 27-28).
Appellants' counsel acknowledged during argument,
however, that there was “no objection and the sale
[was] final[.]” (Id. at 28). He argued,
however, that under state law a possible remedy for a
“fraudulent sale is the rescission of that sale.”
(Id. at 31).
bankruptcy court granted the Motion to Remand, observing
initially that Duncan and Simoneaux “did not oppose
[Abide's] motion to sell their membership interest in
LA-1 to [Appellees]” and did not appeal the order
approving the sale to Appellees, and Appellees did not name
Abide as a defendant in the state court suit or seek the
bankruptcy court's permission to do so. (Id. at
31, 35). The bankruptcy court also characterized the state
court suit as attacking only post-petition actions by Duncan
and Simoneaux. (Id. at 35-36). On that basis, the
bankruptcy court concluded that it lacked jurisdiction, as
the state court suit raised only state law claims unrelated
to administration of the bankruptcy estate. (Id. at
36-37). The bankruptcy court ruled that, although LA-1's
interest was property of the estate at the time of Duncan and
Simoneaux's alleged wrongful acts, it no longer was, and
the estate had “no claim arising out of the alleged
misconduct.” (Id. at 38). The bankruptcy court
also noted that Duncan and Simoneaux had received a discharge
in bankruptcy, and their pre-petition liabilities were
“gone.” (Id.). The bankruptcy court
further ruled that “discretional” or
“permissive” abstention and remand for equitable
reasons was appropriate under 28 U.S.C. § 1334(c)(1) and
28 U.S.C. § 1452. (Id. at 39-40).
bankruptcy court issued minute entries consistent with its
oral rulings. Adversary Proceeding, Doc. 26; Bankruptcy
Petition, Doc. 120. Appellants filed notices of appeal in
both proceedings on December 27, ...