In re Robben

Decision Date04 January 2017
Docket NumberCASE NO. 13–20814
Citation562 B.R. 469
Parties IN RE: Paul J. ROBBEN, Debtor.
CourtU.S. Bankruptcy Court — District of Kansas

Jeffrey A. Deines, Shane J. McCall, Lentz Clark Deines PA, Overland Park, KS, for Debtor.

MEMORANDUM OPINION AND JUDGMENT GRANTING THE MOTION OF THE BARTLETT PARTIES FOR RELIEF FROM THE DISCHARGE INJUNCTION TO LITIGATE THEIR CLAIMS AGAINST DEBTOR IN FEDERAL DISTRICT COURT

Dale L. Somers, United States Bankruptcy Judge

The Bartlett Parties1 move to modify the discharge injunction to permit them, notwithstanding Debtor Paul Robben's discharge, to pursue their action in the United States District Court for the District of Kansas against Debtor and RDC Holdings, LLC, to a conclusion and to thereafter litigate before this Court their pending adversary proceeding objecting to Debtor's discharge of most of the claims they are asserting against him in the federal court case. The Bartlett Parties appear by Frank Wendt, John M. Duggan, Deron A. Anliker, and Thomas J. Hamilton. Debtor opposes the motion. He appears by Jeffrey A. Deines, Shane J. McCall, and Robert M. Pitkin. The Court has jurisdiction.2

BACKGROUND FACTS.3

1. Prebankruptcy events.

In 2000, Debtor began developing a 160–acre tract of raw land located in Olathe, Kansas. The development was initially undertaken by Foxfield Associates, LLC, owned indirectly by Debtor and two others. Financing was provided by Bank of Blue Valley. By 2007, the loan to Foxfield Associates was in default.

In March 2008, after being approached by the bank and Debtor, two of the Bartlett Parties, Ernest Straub and Richard Bartlett, invested in Foxfield Villa Associates, LLC (Foxfield Villa), which had acquired the project. Foxfield Villa was owned by the Bartlett Family Real Estate Fund and PRES, LLC, a company co-owned by Straub and RDC Holdings LLC (RDC), a company Debtor owned.4 Financing was provided by Bank of Blue Valley and Bank Midwest. The development project failed.

On September 1, 2011, Foxfield Villa sued Bank of Blue Valley in a state court.

Debtor was not a party. On August 10, 2012, the Bartlett Parties filed a suit in the federal district court for the District of Kansas against various board members of Bank of Blue Valley.5 The federal suit was stayed because of the state court action. On March 8, 2013, the Bartlett Parties filed a second federal court lawsuit (the "District Court Case") against many of the same defendants they had sued in the first federal suit, plus RDC and Debtor.6 The thrust of their claims in the District Court Case is that Debtor and RDC committed various torts, including misrepresentation, fraud, and breach of fiduciary duty, when they induced the Bartlett Parties to invest in the development project.

2. The bankruptcy filing and subsequent events.

On April 3, 2013, Debtor filed for bankruptcy relief under Chapter 7. On June 28, 2013, the Bartlett Parties filed a dischargeability complaint against Debtor, alleging that any judgment they might obtain against him in the District Court Case would be excepted from discharge by 11 U.S.C. § 523(a)(2)(A), (a)(4), (a)(6), and (a)(19).

On August 9, 2013, the two federal cases were consolidated under the first district court case number and then stayed pending the outcome of the state court action. In September 2013, the Bartlett Parties' motions for relief from stay to pursue the District Court Case and to stay the dischargeability proceeding were granted. Debtor did not object to either motion. The stay relief order states that it permits the "continuation of and conclusion to the entry of final judgment in the District Court Actions of [the Bartlett Parties'] claims against the Debtor."7

On February 6, 2014, Debtor was granted a discharge under § 727.

On June 2, 2015, a judgment was entered in the state court action in favor of Bank of Blue Valley on the plaintiffs' claims and against Foxfield Villa, Straub, and the Bartlett Parties, who evidently were counterclaim defendants. The state court case and the claims against the state court parties in the District Court Case were settled in October 2015, before an appeal from the state court judgment was determined. After the settlement, the only remaining claims in the District Court Case were the Bartlett Parties' claims against Debtor and RDC.

On November 25, 2015, the Bartlett Parties filed a 32–count second amended complaint against Debtor and RDC in the District Court Case.8 The counts against Debtor are: Count 1—Negligent Misrepresentation; Count 3—Negligence as a Real Estate Broker and/or Salesperson; Count 5—Negligent Misrepresentation as a Certified Public Accountant; Count 7—Negligence as a Certified Public Accountant; Count 9—Violation of sections 10(b) and (10)(b)(5) of the Securities Exchange Act of 1934; Count 10—Violation of the Kansas Uniform Securities Act; Count 12—Breach of Contract; Count 13—Breach of the Duty of Good Faith and Fair Dealing; Count 14—Breach of Fiduciary Duty as an Officer of Foxfield Villa; Count 17—Aiding and Abetting RDC's Breach of Fiduciary Duty; Count 18—Fraudulent Nondisclosure; Count 20—Aiding and Abetting RDC's Fraudulent Nondisclosure; Count 21—Fraud; Count 23—Aiding and Abetting the Bank of Blue Valley's and Regnier's Fraud; Count 24—Tortious Interference with Contracts and Business Expectancy; Count 26—Aiding and Abetting the Bank's and Regnier's Tortious Interference with Contracts and Business Expectancies; Count 27—Conversion; Count 29—Fraudulent Concealment; Count 31—Civil Conspiracy Between Debtor and RDC; and Count 32—Joint Venture Between Debtor and RDC. The remaining counts are against RDC, all but two of which are for aiding and abetting Debtor in performing the alleged actions on which the claims against him are based. A jury trial has been demanded. A ten-day trial in the District Court Case is currently scheduled to start on October 2, 2017.

On June 30, 2016, Debtor filed a motion to dismiss the following counts of the District Court Case against him based upon his bankruptcy discharge: Count 1—Negligent Misrepresentation; Count 3—Negligence as a Real Estate Broker and/or Salesperson; Count 5—Negligent Misrepresentation as a Certified Public Accountant; Count 7—Negligence as a Certified Public Accountant; Count 12—Breach of Contract; Count 13—Breach of the Duty of Good Faith and Fair Dealing; Count 24—Tortious Interference with Contracts and Business Expectancy; Count 27—Conversion; and Count 31—Civil Conspiracy.

3. Proceedings in this Court addressing the issue whether the Bartlett Parties' claims against Debtor should be tried in the District Court Case before this Court addresses the dischargeability complaint.

The question whether Debtor's liability should be determined in the District Court Case before this Court hears the dischargeability complaint has been presented by three motions. The first was a motion the Bartlett Parties filed on June 29, 2016, for a determination that all issues related to dischargeability should be determined by the Bankruptcy Court and to confirm that the Bartlett Parties may pursue all their claims against Debtor in the District Court Case.9 Debtor opposed that motion.10 The second was Debtor's motion filed on August 10, 2016, seeking an order staying the District Court Case under § 105 and an injunction against the continuation of the District Court Case until after the completion of the dischargeability proceeding.11 The Bartlett Parties opposed that motion.12 The third motion is the one that is being decided by this order.

The Court heard arguments on the first and second motions. The status of the District Court Case, the nature of the claims asserted, and their relationship to the adversary proceeding were addressed. During that hearing, the Court noted the interplay between the stay of § 362, which under § 362(c)(2) expires at the time a discharge is granted to an individual who is a Chapter 7 debtor, and § 524(a)(2), which states that a discharge acts as an injunction against actions to collect any discharged debts. The Court and the parties discussed the Tenth Circuit BAP's decision in In re Eastburg ,13 which interpreted the § 524(a)(2) discharge injunction to apply not only to discharged claims, but also to claims that are the subject of unresolved dischargeability complaints, which are " ‘presumptively discharged’ until a court makes a finding regarding dischargeability." 14

Thereafter, on September 19, 2016, the Bartlett Parties filed the third motion, seeking modification of the discharge injunction. They called this motion a supplement to their motion for a determination that all issues of dischargeability should be determined by this Court and for confirmation that the Bartlett Parties may pursue all the claims they have asserted against Debtor in the District Court Case. Debtor opposes this third motion.

The Court has ruled separately on the first two motions. The Court found the relief sought in Debtor's motion for an injunction to be unnecessary because under Eastburg , the District Court Case against Debtor is presently enjoined by the § 524(a)(2) discharge injunction for all the Bartlett Parties' claims, including those which are the subject of the dischargeability complaint.15 With respect to the Bartlett Parties' motion regarding the district court's authority to determine dischargeability issues, the Court held that although jurisdiction to determine which debts are excepted from discharge generally resides in the bankruptcy court, other courts, such as the district court, have jurisdiction to consider the effect of the discharge.16 But the Court also held that when Debtor was granted a discharge on February 6, 2014, the § 362 stay terminated, and the September 18, 2013 order granting the Bartlett Parties relief from the stay became a nullity.17 The rulings on both motions are based upon the finding that the proceedings in the District Court Case against Debtor are enjoined by the discharge injunction of § 524(a)(2).

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