In re Armstrong

• Decision Date: 24 June 2003
• Docket Number: Bankruptcy No. 00B-26592.,BAP No. UT-02-007.
• Parties: In re Donald E. ARMSTRONG, Debtor. Donald E. Armstrong, Appellant, v. Kenneth A. Rushton, Trustee, and Steppes Apartments, Ltd., Appellees.
• Court: U.S. Bankruptcy Appellate Panel, Tenth Circuit

294 B.R. 344

In re Donald E. ARMSTRONG, Debtor Donald E. Armstrong, Appellant, v. Kenneth A. Rushton, Trustee, and Steppes Apartments, Ltd., Appellees.

BAP No. UT-02-007.

Bankruptcy No. 00B-26592.

United States Bankruptcy Appellate Panel of the Tenth Circuit.

June 24, 2003.

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Donald E. Armstrong, pro se.

Lon A. Jenkins (Penrod W. Keith with him on the brief), of LeBoeuf, Lamb, Greene & MacRae, L.L.P., Salt Lake City, UT, for Kenneth A. Rushton.

Jeffrey L. Shields (Zachary T. Shields with him on the brief), of Callister, Nebeker & McCullough, Salt Lake City, UT, for Steppes Apartments, Ltd.

Before McFEELEY, Chief Judge, BOHANON, and CORDOVA¹, Bankruptcy Judges.

ORDER DENYING MOTION

MCFEELEY, Chief Judge.

The matter before the Court is the Motion for Reconsideration of the Court's May 9, 2003 Opinion ("Motion"), filed May 19, 2003, by the Appellant. The Motion is opposed by both Appellees. The Appellant has filed replies to the Appellees' responses. The Court has reviewed the pleadings and applicable case law and determines that the Motion should be denied.

Neither Federal Rule of Bankruptcy Procedure 8015 nor Rule 8015-1 of this Court's Local Rules states the substantive requirements for motions for reconsideration. However, when those Federal and Local Rules are silent, Local Rule 8018-11(b) provides that we may order application of the Federal Rules of Appellate Procedure or the Tenth Circuit Rules. Federal Rule of Appellate Procedure 40(a)(2) declares that a petition for rehearing before one of the United States Courts of Appeals "must state with particularity each point of law or fact that the petitioner believes the court has overlooked or misapprehended and must argue in support of the petition." Tenth Circuit Rule 40.1(A) adds that: "A petition for rehearing should not be filed routinely. Rehearing will be granted only if a significant issue has been overlooked or misconstrued by the court." We believe that the standards set by these rules should apply to the Motion.

The Appellant argues that the Court's Opinion erred when it referred to the Utah Default Ruling as a Utah state court decision and that the Rooker-Feldman doctrine prevents his liability. The Appellant is correct that the Utah Default Ruling is a federal court decision. However, this does not change the reasoning in the Opinion. Because the Utah Default Ruling did not modify the Texas Modified Judgment, the Rooker-Feldman doctrine does not void the Utah Default Ruling. Applying federal, rather than state, collateral estoppel principles does not change the result that the Utah Default Ruling precludes the Appellant from disputing that he is liable to Steppes as provided in the complaint filed in Utah district court. The Appellant was a party to the Utah Default Ruling. The Appellant argues that the Utah Default Ruling was an oral ruling, but as discussed in the Opinion, the fact that the Appellant's bankruptcy filing prevented the Utah district court from entering a written order memorializing the Utah Default Ruling does not prevent it from being considered a final judgment.

The Court will revise the opinion to clarify that the Utah Default Ruling was a federal court decision. In all other respects, the Motion will be denied. No significant issue has been overlooked or misconstrued by the Court.

Accordingly, it is HEREBY ORDERED that:

1. The Opinion entered May 9, 2003, is WITHDRAWN, and the following Opinion is substituted in its place.

2. The Motion is DENIED.

3. The Court's mandate will issue immediately.

OPINION

Donald E. Armstrong ("Armstrong") appeals an Order of the United States Bankruptcy Court for the District of Utah that temporarily allowed a claim by Appellee Steppes Apartments Ltd., for voting purposes in Armstrong's Chapter 11 Plan. Armstrong argues that the Temporary Allowance Order erred in calculating the disputed claim, violated his constitutional rights, and was invalid because of bias. We affirm.

I. Background

Donald E. Armstrong created two trusts in which he was the beneficiary and trustee: the Donald E. Armstrong Family Trust ("Family Trust"), created in 1983, and the Donald E. Armstrong Charitable Remainder Unitrust ("Unitrust"), created in 1994 (hereinafter, when referred to jointly, "the Trusts"). In the mid-1990s, a real estate transaction took place between Steppes Apartments, Ltd. ("Steppes") and the Trusts in which Steppes partially financed the purchase of an apartment building from the Trusts with two promissory Notes ("Notes"), one payable to the Family Trust and one to the Unitrust. After the Trusts accelerated payment on the Notes and imposed a high default interest rate, a series of lawsuits occurred in Texas state courts. In 1997, Steppes obtained a judgment solely against the Trusts. The judgment included certain penalties under Texas usury statutes and a forfeiture of the underlying Notes issued by Steppes to the Trusts ("Texas Modified Judgment"). The Trusts appealed the Texas Modified Judgment through the Texas appeal courts and lost at every appellate level, concluding in June 23, 2002, with a denial of certiorari by the United States Supreme Court.²

After the entry of the Texas Modified Judgment, Armstrong caused the Family Trust to transfer its assets to him personally.³ This transfer precipitated a series of lawsuits in the Utah courts. In the Utah federal courts, Steppes proceeded against the Family Trust and against Armstrong individually, initially alleging only fraudulent transfer of property. During the course of the litigation, Steppes amended its original complaint to assert additional claims against Armstrong based on theories of alter ego, civil conspiracy, constructive trust, and unjust enrichment. After Steppes filed the Amended Complaint, Mountain Pacific Ventures ("MPV") was added as a defendant. Armstrong was the president, director, treasurer, and registered agent of MPV. The Family Trust was the sole shareholder of MPV. MPV filed a notice of a Chapter 11 bankruptcy petition on March 10, 1999, and soon after was dismissed from the litigation with prejudice. Ultimately, by minute entry dated March 1, 2000, the Utah federal court ruled that it would enter a default judgment against Armstrong as a result of Armstrong's failure to comply with court orders related to discovery ("Utah Default Ruling"). The Utah Default Ruling determined Armstrong's liability to Steppes, but reserved the issue of Steppes's remedy for a later hearing.

Before the Utah Default Ruling against Armstrong was memorialized as a written order, Armstrong filed a voluntary petition for relief under Chapter 11 in the United States Bankruptcy Court for the Southern District of California on March 10, 2000. Because that court found that venue was not proper in California, Armstrong's case was transferred to the Utah bankruptcy court. Creditors moved to remove Armstrong as debtor-in-possession, for, among other things, impropriety in the administration of the estate. In September 2000, Appellee Kenneth A. Rushton ("Rushton"), was appointed Chapter 11 trustee for Armstrong's estate.

On September 8, 2000, Steppes filed Claim 27 ("Claim 27") for an undetermined amount in the Chapter 11 case. Claim 27 set forth the following three grounds in support of Steppes's claim against the estate: (1) claims based on the Utah Default Ruling for fraudulent transfer, conspiracy, alter ego, constructive trust, unjust enrichment; (2) claims based on Steppes's Nondischargeability Complaint filed in Armstrong's Chapter 11 case for malicious prosecution, abuse of process, or wrongful use of civil proceedings; and (3) a claim to the extent that the bankruptcy estate is the successor in interest to the Trusts under the Modified Agreement. Armstrong filed an objection to Claim 27. Initially, Rushton joined in the objection.

In June 2001, Rushton entered into a settlement with Steppes ("Steppes Settlement") and Roger G. Segal, Trustee in bankruptcy of MPV. The Steppes Settlement provided that in exchange for Steppes's claims against Armstrong, Steppes would be allowed a secured claim of $120,795 and a contingent unsecured claim of $1,398,979 in Armstrong's Chapter 11 case.⁴ After entering into the Steppes Settlement, Rushton moved to stay his objection to Claim 27. Armstrong objected to the Steppes Settlement. The objections to Claim 27 were converted to an adversary proceeding.

Steppes filed a Motion for Temporary Allowance of Claim and Supporting Memorandum ("Motion"). The Motion sought to have Steppes's claims temporarily allowed for voting purposes on the Trustee's Plan. In its Motion, Steppes asserted claims based on the following: fraudulent transfer, alter ego, default judgment, abusive litigation, judgment liens.⁵ Armstrong objected to the Motion.

The bankruptcy court held an evidentiary hearing on the Motion. The hearing took five days. During the hearing, at which Armstrong was present, several witnesses testified and numerous documents were introduced as evidence. Subsequently, the bankruptcy court entered an Order temporarily allowing for voting purposes Steppes's claims only as delineated in the Steppes Settlement ("Temporary Allowance Order"). The bankruptcy court found that with respect to Steppes's claims of abuse of process and wrongful use of civil proceedings, although Steppes had presented the court with compelling evidence to substantiate those claims, Steppes had not presented the court with sufficient information to enable the bankruptcy court to estimate them; therefore, these claims were allowed at zero.

Rushton filed a Trustee's Second Revised Plan of Reorganization Dated November 19, 2001 ("Trustee's Plan"). The Trustee's Plan was circulated to creditors for voting along with a disclosure statement approved by the court pursuant to § 1125(a). Steppes's estimated unsecured claim of $1,398,979 was classified...