Black v. Bonnie Springs Family Ltd. (In re Black)

• Decision Date: 11 February 2013
• Docket Number: Bankruptcy Nos. 11–16998–BAM, 11–16999–BAM.,Adversary Nos. 11–01241–BAM, 11–01242–BAM.,BAP Nos. NV–12–1122–DJuKi, NV–12–1124–DJuKi.
• Citation: 487 B.R. 202
• Parties: In re Robert R. BLACK and Kelly J. Black; Michael Allen Chernine, Debtors. Robert J. Black, Jr.; Michael Allen Chernine, Appellants, v. Bonnie Springs Family Ltd. Partnership; Bonnie Springs Management Company; Alan Levinson; Bonnie Levinson; April Boone, Appellees.
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

487 B.R. 202

In re Robert R. BLACK and Kelly J. Black; Michael Allen Chernine, Debtors.Robert J. Black, Jr.; Michael Allen Chernine, Appellants,

v.Bonnie Springs Family Ltd. Partnership; Bonnie Springs Management Company; Alan Levinson; Bonnie Levinson; April Boone, Appellees.

BAP Nos. NV–12–1122–DJuKi, NV–12–1124–DJuKi.

Bankruptcy Nos. 11–16998–BAM, 11–16999–BAM.

Adversary Nos. 11–01241–BAM, 11–01242–BAM.

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted Jan. 25, 2013.

Decided Feb. 11, 2013.

Randy M. Creighton, Esq. of Black & Lobello, Las Vegas, NV, argued for appellants.

Tyler Ryan Andrews, Esq. of Greenberg Traurig, LLP, Las Vegas, NV, argued for appellees.

Before: DUNN, JURY and KIRSCHER, Bankruptcy Judges.

OPINION

DUNN, Bankruptcy Judge.

Appellees Bonnie Springs Family Limited Partnership and Bonnie Springs Management Company (collectively, “Bonnie Springs”), Alan Levinson, Bonnie Levinson and April Boone (collectively with Bonnie Springs, “appellees”) moved for summary judgment on their complaint against the debtors, Michael Chernine and Robert Black (collectively, “debtors”),¹ to except debts from discharge under § 523(a)(6) (“exception to discharge complaint”).² The debts arose from a state court judgment against both debtors for abuse of process and against Black for nuisance. The bankruptcy court granted summary judgment in the appellees' favor (“summary judgment order”) giving issue preclusive effect to the state court judgment. The debtors appeal the bankruptcy court's summary judgment order. We AFFIRM.

FACTS

A. State Court Proceedings

The debtors were the principals of Land Baron Investments, Inc. (“LBI”), a real estate development company. Alan Levinson, Bonnie Levinson and April Boone were general partners of Bonnie Springs, which owned a tract of undeveloped land located in Clark County, Nevada (“property”). The property was located near the Red Rock Canyon National Conservation Area, which was controlled by the Bureau of Land Management (“BLM”).

In December 2004, the debtors and LBI entered into an agreement with Bonnie Springs to purchase the property (“agreement”). LBI planned to develop the property into a subdivision with a residence on each lot.

Under the agreement, the sale of the property was subject to the following conditions: 1) LBI approving the preliminary title report and exceptions to title; 2) LBI and Bonnie Springs both approving a preliminary site plan; 3) Bonnie Springs providing LBI all reports, surveys, engineering and other documents in its possession; and 4) Bonnie Springs arranging for LBI to have the right to use some of Bonnie Springs' treated wastewater for landscaping purposes. The agreement also provided the debtors and LBI several extensions to close escrow in exchange for payments of $50,000 for each extension (“extension payment”).

The debtors and LBI failed to make an extension payment to Bonnie Springs (“extension payment default”) on September 18, 2007. They informed Bonnie Springs by letter that they would not make the extension payment. The debtors and LBI instead proposed a lower purchase price for the property. They also listed the property for sale as a single parcel.

Meanwhile, on behalf of the debtors and LBI, Black filed a complaint with the county commissioner (“county commissioner complaint”) requesting an investigation and inspection of a nearby property. The county commissioner complaint involved alleged environmental issues and health code violations occurring at the Bonnie Springs Ranch (“ranch”), which was owned by the appellees and located west of the property.³ It was not a part of the property being sold to LBI and the debtors under the agreement.

In June 2008, LBI initiated a state court action against the appellees alleging breach of contract, breach of the implied covenant of good faith and fair dealing and intentional misrepresentation/non-disclosure, among other claims. The claims were based, in part, on issues concerning water rights (“water rights issues”) and access to the property (“property access issues”). Specifically, the debtors contended that they could not complete recordation of the property map until the water rights issues were resolved. They also contended that the only way to access the property was by trespassing on BLM-controlled land.

The appellees filed an answer and counter-complaint alleging abuse of process against the debtors (“abuse of process claim”) and nuisance against Black (“nuisance claim”), among other claims. The abuse of process and nuisance claims arose from the county commissioner complaint.

With respect to the abuse of process claim, the appellees contended that, through Black, the debtors filed the county commissioner complaint for the purpose of harassing, intimidating and forcing Bonnie Springs into reducing the property's purchase price. As for the nuisance claim, the appellees contended that the county commissioner's investigations and inspections of the ranch, instigated by Black, intentionally interfered with their use and enjoyment of the ranch.

The appellees moved for partial summary judgment on the property access issues (“property access motion”). The state court granted the property access motion, determining that the property was accessible by a public road. It further determined that the debtors, not Bonnie Springs, bore the “contractual burden” for any additional access required for the property.

The appellees also moved for partial summary judgment on the water rights issues (“water rights motion”). The state court granted the water rights motion. It determined that the agreement did not provide for any additional water rights for the debtors' proposed subdivision. The state court further determined that the agreement did not require Bonnie Springs to provide “notice” of water rights or any additional water for subsequent development of the property. It also determined that the debtors bore the burden to secure the water rights necessary for development of the property. The state court's determinations consequently disposed of the debtors' claims on the property access issues and water rights issues.

The state court concluded, however, that issues of genuine material fact remained as to the appellees' abuse of process and nuisance claims, warranting a jury trial. The jury trial took place in March 2011.

At the time of the jury trial, the state court instructed the jury on the elements of abuse of process and nuisance. In the jury instructions, the state court stated that “[t]he elements required to establish the tort of abuse of process [were]: 1) an ulterior purpose by [the debtors] other than resolving a legal dispute, and 2) a willful act in the use of the legal process not proper in the regular conduct of the proceeding.”

The state court explained that “an ulterior purpose” was “any improper motive underlying the issuance of legal process.” It also explained that “a showing of malice and want of probable cause [was] not necessary to recover for abuse of process.”

The state court stated that “[t]he elements required to establish the tort of nuisance [were]: 1) an intentional interference by [the debtors] with [the appellees'] use and comfortable enjoyment of life or property, and 2) the interference was both substantial and unreasonable.”

The state court instructed the jury that if it found that the appellees “suffered damages as a proximate result of [the debtors' and LBI's] conduct, and upon which conduct [it] base[d] a finding of liability, [the jury] could consider whether [it] should award punitive or exemplary damages against [the debtors] for the sake of example and by way of punishment.” The state court told the jury that it could award such damages in its discretion but only if it found “by clear and convincing evidence that [the debtors] acted with oppression or malice in the conduct upon which [the jury] based [its] finding of liability.”

The state court defined “oppression” as “subjecting a person to cruel and unjust hardship in conscious disregard of that person's rights.” It defined “malice” as “conduct carried on by [the debtors] with a conscious disregard for the rights or safety of others.” It further explained that “a person acts with conscious disregard of the rights or safety of others when he is aware of the probable dangerous consequences of his conduct and willfully and deliberately fails to avoid those consequences.”

One month after the trial, the jury returned a verdict against the debtors for a total of $1.6 million in compensatory damages. It awarded $1.25 million against the debtors and LBI on the abuse of process claim and $350,000 against Black and LBI on the nuisance claim.

The jury also found that the debtors and LBI acted with oppression so as to justify a punitive damages award. It did not find that they acted with malice, however. The jury awarded a total of $2.275 million in punitive damages against LBI only. It did not award punitive damages against either debtor. However, as conceded by the debtors' counsel at oral argument, the jury's oppression findings applied to both the abuse of process and nuisance claims.

On May 5, 2011, the appellees submitted a proposed judgment, which the state court rejected because it contained a typographical error.⁴

B. Relief from Stay Motions

Later that same day, the debtors filed their respective chapter 7 bankruptcy petitions.⁵ Seven days later, the appellees submitted to the state court an amended state court judgment; the state court entered it on May 25, 2011.

The debtors filed a motion for sanctions for violation of the automatic stay (“stay violation motion”). After a hearing, the bankruptcy court granted the stay violation motion, finding the amended state court judgment void as to the debtors. It denied the debtors' request for punitive damages, though it granted them attorney's fees until the time the appellees “[took] some action in state court to...