Adell v. John Richards Homes Bldg. Co. (In re John Richards Homes Bldg. Co.), No. 12-2012

CourtUnited States Courts of Appeals. United States Court of Appeals (6th Circuit)
Writing for the CourtBERNICE B. DONALD
PartiesIn re: JOHN RICHARDS HOMES BUILDING COMPANY, L.L.C., -Debtor. KEVIN ADELL, -Appellee/Cross-Appellant, v. JOHN RICHARDS HOMES BUILDING COMPANY, L.L.C., -Appellant/Cross-Appellee, and HONIGMAN, MILLER, SCHWARTZ & COHN LLP, -Appellee.
Decision Date20 November 2013
Docket NumberNo. 12-2013,No. 12-2014,No. 12-2015,No. 12-2012

In re: JOHN RICHARDS HOMES BUILDING COMPANY, L.L.C., -Debtor.
KEVIN ADELL, -Appellee/Cross-Appellant,
v.
JOHN RICHARDS HOMES BUILDING COMPANY, L.L.C., -Appellant/Cross-Appellee,
and
HONIGMAN, MILLER, SCHWARTZ & COHN LLP, -Appellee.

No. 12-2012
No. 12-2013
No. 12-2014
No. 12-2015

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

Filed: November 20, 2013


NOT RECOMMENDED FOR PUBLICATION
File Name: 13a0993n.06

ON APPEAL FROM THE UNITED
STATES DISTRICT COURT FOR
THE EASTERN DISTRICT OF
MICHIGAN

OPINION

Before: ROGERS, STRANCH, and DONALD, Circuit Judges.

BERNICE B. DONALD, Circuit Judge. The parties, Kevin Adell and John Richards Homes Building Co., cross-appeal the district court's decision affirming in part and reversing in part an order of the bankruptcy court. The bankruptcy court's order granted counsel for the alleged debtor, John Richards Homes Building Co., $1,854,192.73 in attorney's fees for costs incurred

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enforcing a 2003 judgment of the bankruptcy court pursuant to 11 U.S.C. § 303(i) and, pursuant to both 11 U.S.C. § 105 and the court's inherent power, assessed $2.8 million in punitive damages against Adell, the creditor who filed the initial involuntary bankruptcy petition, for his post-judgment conduct. The district court affirmed the attorney's fee award but reversed the punitive damages award. For the reasons that follow, we AFFIRM the judgment of the district court.

I.

This appeal marks the second time these parties, John Richards Homes Building Co., L.L.C. ("JRH") and Kevin Adell ("Adell"), have come before this Court over the course of an acrimonious eleven-year dispute that has been litigated, at various times, in seven different federal courts and two different state court systems.1 Accordingly, this section begins with the facts as described by this Court in the prior appeal, supplemented by a description of the parties' conduct in the Florida litigation that followed the 2003 judgment of the bankruptcy court and the litigation that led to the instant appeal.

In Adell v. John Richards Homes Bldg. Co., L.L.C. (In re John Richards Homes Bldg. Co., L.L.C.) ("In re JRH I"), 439 F.3d 248 (6th Cir. 2006), this Court summarized the initial factual background of the litigation in the bankruptcy court as follows:

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As the bankruptcy court found, in December 2001, Adell and JRH entered into a Residential Building and Purchase Agreement whereby JRH, in exchange for $3,030,000, agreed to sell Adell a 1.8 acre parcel of property in Bloomfield Hills, Michigan, and to construct a home for Adell on the property, with construction to begin "within a reasonable time after the completion of building plans and issuance of permits." On February 28, 2002, the deal closed. The closing documents allocated $1,750,000 out of the $3,030,000 for the land purchase.
Over the next few months, Adell's relationship with JRH and its principal, John Shekerjian, soured. . . . He told Shekerjian that he wanted another builder to build his house and, apparently, barred JRH from the property. He also became upset about the amount he had paid for the land, contending that it was only worth $1 million instead of $1.75 million.
On June 6, 2002, after a number of conversations, meetings, letters and other interactions between Adell or his representatives and JRH or its representatives, Adell filed a civil suit against JRH and Shekerjian in the Oakland County Circuit Court. The complaint included a number of claims, all of which essentially rested on two allegations: (1) that Shekerjian and JRH had orally told Adell that the land was worth $1,000,000, and that the home they would construct for him would have a value of $2,000,000, despite the fact that the executed sale documents allocated $1,750,000 to the value of the land, leaving at most $1,280,000 for the home construction; and (2) that Shekerjian for JRH had told Adell that construction would begin immediately after the sale closed, even though they knew that was impossible because there were "water problems" with the property, and that the resulting delay in commencing construction was not "reasonable." On June 18, 2002, JRH and Shekerjian jointly filed an answer, denying the substance of all of Adell's claims, stating affirmative defenses, and including a verified counter-complaint.
. . .
On June 24, 2002, less than a week after JRH and Shekerjian filed their responses in the state court case and without any further discussion or communication, Adell, as the sole petitioning creditor, filed an involuntary bankruptcy petition against JRH pursuant to 11 U.S.C. § 303(b)(2). According to the petition, Adell's own claim against JRH for fraud and breach of contract was in the amount of $800,000. Adell sought to maximize the publicity attending his filing by hiring a public relations firm, Marx Layne, to publicize alleged defects in JRH's performance of its construction and financial obligations.
On July 1, 2002, JRH filed a motion to dismiss the petition. Noting that Adell's claim against JRH cited in the petition was also the basis for Adell's state court civil complaint against JRH and Shekerjian, and that JRH and Shekerjian had recently

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filed pleadings denying all of Adell's claims, JRH argued that Adell's claim was the subject of a "bona fide dispute," precluding its use as the basis for the petition. JRH also argued that Adell was required to have at least three petitioning creditors because JRH was an entity with 12 or more creditors. Should the petition be dismissed, JRH asked the bankruptcy court to award it fees, costs and damages pursuant to 11 U.S.C. § 303(i). On July 12, 2002, Adell's bankruptcy attorneys filed a notice that three additional creditors had joined in the filing of the petition.
On July 15, 2002, the bankruptcy court held a hearing on JRH's motion to dismiss. Ruling from the bench, the court granted the motion, concluding that Adell was not qualified to serve as a creditor in an involuntary bankruptcy because his claim against JRH was not undisputed. The court explained:
The record that is before the Court overwhelmingly establishes that there is a bona fide dispute concerning this petitioning creditor's claim against the Alleged Debtor . . . [and] . . . that there are significant genuine issues of material fact concerning any disposition of the issues raised in the [state court case], . . . such fundamental issues as which of the parties breached the contract, which of the parties was the first to breach the contract. There are clear issues of fact concerning particularly the fraud claim and the statutory claim.
Having rejected the sole petitioning creditor, Adell, the bankruptcy court ruled that it could not permit the joinder of other putative creditors. Adell did not appeal the bankruptcy court's dismissal of the petition.
After a period of discovery, followed by a two-day evidentiary hearing, the bankruptcy court granted JRH's [§ 303(i)] motion on April 25, 2003. In a thorough opinion, the court found that Adell filed the involuntary bankruptcy petition against JRH in bad faith and awarded JRH compensatory damages in the amount of $4,100,000, punitive damages in the amount of $2,000,000, and attorneys' fees and costs in the amount of $313,230.68.
Adell appealed to the district court. On August 5, 2004, in another thorough opinion, the district court ratified the bankruptcy court decision.

Id. at 252-54 (citations omitted).

While Adell's direct appeals were pending in the District Court for the Eastern District of Michigan and this Court, he liquidated his assets in Michigan and used the proceeds to purchase a

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$2.8 million home in Florida in order to take advantage of that State's unlimited homestead exemption. In re John Richards Homes Bldg. Co, L.L.C. ("In re JRH II"), 405 B.R. 192, 203 (E.D. Mich. 2009). Adell admitted under oath that he took this action in order to protect his assets. In re John Richards Homes Builders Co., L.L.C. ("In re JRH III"), 461 B.R. 1, 19 (Bankr. E.D. Mich. 2011). JRH continued its efforts to collect on the bankruptcy court's $6.4 million judgment, but in November of 2003 Adell filed for bankruptcy in Florida, invoking the automatic stay. In re JRH II, 405 B.R. at 204. The parties then litigated various aspects of that bankruptcy filing in the Florida federal courts for the next four years. See id. at 204-07.

After this Court affirmed the initial Michigan bankruptcy court judgment on the involuntary petition on March 1, 2006, Adell paid the $6.4 million judgment in full on April 3, 2006. In re JRH II, 405 B.R. at 206. Subsequently, on April 21, 2006, Honigman, Miller, Schwartz, & Cohn ("HMSC"), counsel for JRH, filed two motions in the Eastern District of Michigan Bankruptcy Court: one for additional punitive damages and a "Second Application for Compensation of Attorney Fees and Expenses" seeking an additional $2 million in fees and costs—mostly incurred during the Florida litigation—under 11 U.S.C. § 303(i). Id. at 207. The bankruptcy court initially denied this fee application, holding that it could not make such an award in light of a split of authority on the issue of "whether § 303(i) authorizes the bankruptcy court to award fees and costs beyond those directly incurred in defending the involuntary petition." Id. at 208. JRH appealed to the district court, and the district court reversed and remanded. Id. at 201.

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On remand, the bankruptcy court entered the order at issue in this appeal,...

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