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Duncan v. Heinrich

United States District Court, M.D. Louisiana

July 26, 2018





         Before 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.”)).[1] 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.


         A. Factual and Procedural History

         On July 12, 2016, Duncan and Simoneaux filed a voluntary petition for Chapter 7 bankruptcy. In re Duncan, 16-bk-10810 (“Bankruptcy Petition”), Doc. 1.[2] 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.

         On 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.” Id.

         In 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.

         In 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.

         Duncan 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.

         On 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).

         During 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).

         The 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).

         In 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).

         The 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).

         The 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, ...

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