Branham Corp. v. Boone Cnty. Utilities, LLC

Decision Date22 January 2018
Docket NumberAdversary Proceeding No. 12-50128,Bankruptcy Court Cause No. 03-16707-RLM-11,Case No. 1:15-cv-00604-RLY-TAB,Adversary Proceeding No. 14-50168
PartiesTHE BRANHAM CORPORATION, Appellant, v. BOONE COUNTY UTILITIES, LLC, Appellee. IN RE: BOONE COUNTY UTILITIES, Debtor. THE BRANHAM CORPORATION, Plaintiff, v. BOONE COUNTY UTILITIES, LLC, Defendant.
CourtU.S. District Court — Southern District of Indiana
ENTRY REVIEWING BANKRUPTCY COURT'S DECISIONS

The Branham Corporation ("Branham") appeals from several orders of the bankruptcy court. These appeals involve separate proceedings and issues spanning several years in both federal and state courts. However, the issues, though numerous, are not complex. The court therefore finds oral argument unnecessary and denies Branham's request for oral argument. For the reasons that follow, the bankruptcy court's decisions will be affirmed in part and remanded for further proceedings with respect to sanctions.

I. BACKGROUND1

A development firm, Newland Resources, LLC ("Newland"), hired Branham to assist in obtaining water and sewer utility service for a project in Boone County, Indiana. Newland formed Boone County Utilities, LLC ("BCU") to operate the project. Newland is the sole owner and member of BCU. In late 1995, Newland and Branham entered into a contract under which Branham was to be paid fees and expenses for securing the utility services, including a success fee. Newland has not paid Branham its success fee.

BCU was a private utility company regulated by the Indiana Utilities Regulatory Commission ("IURC"). In late 2001, the Board of Commissioners of Boone County petitioned the IURC to revoke BCU's certificates of territorial authority. The IURC issued an interim order, directing Newland to pay BCU a cash equity infusion. The IURC set a compliance hearing to be held within 90 days.

On September 8, 2003, BCU filed a petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court, Bankruptcy Court Case No. 03-16707-AJM-11. Branham filed several proofs of claims against the bankruptcy estate based on the contract between Branham and Newland. BCU is not a party to that contract. The first three claims were filed on May 11, 2004 and September 9 and 10, 2004; the fourth claim was filed on May 17, 2005.

BCU moved to sell its assets. A month later, the IURC made certain orders requiring BCU to do certain things. A jurisdictional skirmish ensued between the IURC and bankruptcy court. However, in its February 5, 2004 entry, the IURC noted that the Bankruptcy Court "will direct the sale of the utility [BCU] and the distribution of proceeds thereof[.]" [Filing No. 18-3, Branham App. 2594]. Then on February 25, 2004, the IURC, "recogniz[ing] that the United States Bankruptcy Court has the full power and exclusive jurisdiction to conduct the sale of [BCU's] assets," stayed all proceedings before the IURC involving BCU. [Filing No. 7-2 at ECF p. 65-66]. The court will refer to this order as the "stand down" order. The stand down order stated it "shall be effective on and after the date of its approval," which was on February 25, 2004. [Id.]

BCU obtained authority to sell its assets to the Town of Whitestown for $4,200,000. The bankruptcy court approved the sale, and the sale closed on July 20, 2004. BCU received $3,891,645 in net sale proceeds. After the closing on the sale, BCU ceased its operations as a regulated entity.

The bankruptcy court held a confirmation hearing on September 14, 2004, and entered an Order Confirming Debtor's Amended Liquidating Plan of Reorganization ("Confirmation Order"), over Branham's conditional objection. [Filing No. 9-1, Branham App. 17-20]. The bankruptcy court disallowed three of Branham's claims because they were based on a contract to which the debtor BCU was not a party; it disallowed the fourth claim, filed months after the claims bar dates and the day before the hearing on claims, as untimely. The Confirmed Amended Plan ("Plan") provided for the balance of the sale proceeds to be paid to Newland for its equity interest after payment ofall other allowed claims. Branham was not listed as a secured creditor because Branham was not a creditor of BCU. The Confirmation Order stated that "the Plan and its provisions shall bind the Reorganized Debtor, any entity acquiring estate property under the terms of the Plan, [and] all creditors of and claimants against Debtor ...." [Filing No. 9-1, Branham App. 20]. The order also said that the bankruptcy court "shall retain jurisdiction over the Chapter 11 case for the purposes set forth in the Plan." [Id.]

On the Confirmation Date, BCU made a distribution to Newland of approximately $2.5 million, leaving a balance of over $1 million in its account. A second distribution was made to Newland in May 2005; Newland received approximately $3 million in distributions under the Plan.

Branham appealed to the district court, which affirmed. See In re Boone Cty. Utils, LLC, Case No. 1:05-cv-01173-LJM-WTL. Branham appealed to the Seventh Circuit Court of Appeals, which also affirmed. See In re Boone Cty. Utils., LLC, 506 F.3d 541 (7th Cir. 2007) (holding claims based on contract to which debtor was not a party were properly disallowed and bankruptcy court did not abuse its discretion in disallowing untimely unjust enrichment claim). Branham sought rehearing and rehearing en banc, which requests were denied. Branham did not move the bankruptcy or district court to stay payment of the distributions due to Newland under the Plan.

On July 1, 2011, BCU's bankruptcy case was closed.

Meanwhile, in October 2005, Branham sued Newland in Boone Circuit Court to collect its success fee. In November 2007, Branham obtained a judgment against Newland in the amount of $397,853.92. Newland appealed, but did not seek a stay of thejudgment. Thus, the judgment was enforceable, notwithstanding the appeal. The Indiana Court of Appeals affirmed. Newland Resources, LLC v. Branham Corp., 918 N.E.2d 763 (Ind. Ct. App. 2009). Before Branham obtained the judgment against Newland, it knew that Newland had insufficient assets to satisfy the judgment.2

On December 29, 2011, Branham filed a Verified Motion for Proceedings Supplemental to Execution and Garnishment in Boone Circuit Court in Cause No. 06C01-0409-PL-517 (the "517 Case"), naming BCU and Newland, as party garnishee-defendants, among others. [Filing No. 9-6, Branham App. 842-912].3 Branham alleged that the distributions made by BCU to Newland were unauthorized under the plan and that the transfer of property was void ab initio and in violation of IURC orders and state business law. Branham sought to recover all monies paid out under the Plan to allowed claimants and professionals.

The next day, December 30, 2011, Branham filed a complaint for damages against Newland and numerous others in Boone Circuit Court, Cause No. 06C01-1201-CT-0001 (the "001 Case"). The complaint alleged that Newland's distributions of the BCU saleproceeds were unauthorized under the Plan and were void ab initio in violation of IURC orders, operating agreements, and Indiana law. Branham asserted that Newland purposely depleted its assets, rendering it unable to satisfy Branham's judgment. Branham claimed fraud, deception, conversion, theft, and receiving stolen property and asserted claims under the Indiana Crime Victim Relief Act and Indiana Corrupt Business Influence Act. BCU was not named a party defendant, but BCU's principals, employees, and attorneys were named as defendants.

On April 12, 2012, in response to Branham's state court complaint and proceedings supplemental, BCU filed a Motion to Reopen its Bankruptcy Case. [Filing No. 9-7, Branham App. 1061-70]. The bankruptcy court granted the motion on April 23, 2012, and BCU filed a complaint under Adversary Proceeding No. 12-50128 ("AP-128"), naming Branham and its attorneys in the state court cases, Stewart & Irwin, P.C., as defendants. [Filing No. 9-1, Branham App. 22-33].

BCU amended its complaint in 2013. Count I sought a declaratory judgment, asking the court to affirm and give preclusive effect to various orders entered in the Chapter 11 case, including a declaration that all distributions under the Plan were authorized and lawful. BCU also sought a declaration of whether BCU has undistributed assets in which Newland has an interest. Count II sought sanctions against Branham, its principals, and its counsel for their willful, intentional, and malicious actions in prosecuting matters filed in the Boone Circuit Court against BCU.

Branham answered and filed a counterclaim. Its answer admitted that the bankruptcy court "has jurisdiction to render a declaratory judgment in this adversaryproceeding relating to the interpretation and enforcement of its orders, rulings, judgment and decrees made with respect to the petition filed by BCU [.]" [Filing No. 18-1, Branham App. 1838]. Similarly, the counterclaim asserted that the bankruptcy court has "concurrent and ancillary jurisdiction to decide whether distributions from BCU to Newland are in breach of the Amended Plan and Confirmation Order, were made prior to allowance by the Court[,] and were made without the express authorization of this Court." [Filing No. 18-1, Branham App. 1895 (citations omitted); see also id. at 1896 (asserting that "this [Bankruptcy] Court has jurisdiction over the assets of BCU's estate")]. The counterclaim sought a determination of whether the distributions by BCU to Newland were lawful and requested an order allowing discovery of BCU as to its assets and garnishment of Newland's property in BCU's possession.

At an August 22, 2012 hearing on the motion to dismiss for lack of subject matter jurisdiction and failure to state a claim filed by Stewart & Irwin, the parties (including Branham) stipulated that the U.S. Bankruptcy Court has concurrent and ancillary jurisdiction to construe and enforce its orders. [See Filin...

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