Clear Sky Props. LLC v. Roussel (In re Roussel), Bankruptcy No. 4:11BK14470.
| Citation | 504 B.R. 510 |
| Decision Date | 30 December 2013 |
| Docket Number | Appeal/District Court No. 4:13CV00055 SWW.,Adversary No. 4:11AP01266.,Bankruptcy No. 4:11BK14470. |
| Parties | In re Blake ROUSSEL and Amanda Roussel, Debtors. Clear Sky Properties LLC and LuAnn Deere, Plaintiffs v. Blake Roussel, Defendant. |
| Court | U.S. District Court — Eastern District of Arkansas |
OPINION TEXT STARTS HERE
Daniel L. Herrington, H. Wayne Young, Friday, Eldredge & Clark, Little Rock, AR, for Plaintiffs.
Amanda R. Roussel, pro se.
Stephen W. Jones, Jack Nelson Jones & Bryant, P.A., Little Rock, AR, Kevin P. Keech, Keech Law Firm, PA, N. Little Rock, AR, for Defendant.
Appellants Clear Sky Properties LLC (“Clear Sky”) and LuAnn Deere (“Deere”) commenced this adversary proceeding, seeking a determination that a judgment debt of Appellee Blake Roussel (“Roussel”) is nondischargeable in bankruptcy under 11 U.S.C. §§ 523(a)(4) and 523(a)(6). Appellants appeal the final decision of the Bankruptcy Court,1 finding only a portion of Roussel's judgment debt nondischargeable.2 After careful consideration, and for the reasons that follow, the judgment of the Bankruptcy Court is reversed, and the case is remanded for further proceedings as provided in this order.
In bankruptcy proceedings, a district court ordinarily acts as an appellate court, reviewing the bankruptcy court's legal conclusions de novo, and its findings of fact under the clearly erroneous standard. See In re Muncrief, 900 F.2d 1220, 1224 (8th Cir.1990). This Court may not reverse the Bankruptcy Court's factual findings unless after reviewing the record it is left with the “ ‘definite and firm conviction that a mistake has been committed.’ ” In re Waugh, 95 F.3d 706, 711 (8th Cir.1996) (quoting Anderson v. City of Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 1511, 84 L.Ed.2d 518 (1985)).
The following facts are undisputed. In August 2006, Roussel and Deere formed Clear Sky, a member-managed limited liability company, for the purpose of opening an Exit Realty (“Exit”) franchise in Conway, Arkansas. Exit's business model includes a “residual income” feature by which Exit real estate agents who bring new agents to the company earn a residual or percentage of the sales commissions earned by their recruits. Exit divides geographical areas into franchise territories, and only the owners of a given territory may open an Exit office within that territory. Exit mapped Conway for two franchise territories, hereinafter “Territory A” and “Territory B.” On August 31, 2006, Deere and Roussel entered a franchise agreement covering Territory A.3
Roussel and Deere served as the sole members of Clear Sky, each owning fifty percent, and in September 2006 the company began doing business as Exit First Choice Realty (“Exit First Choice”) in Territory A. Clear Sky's operating agreement set forth procedures governing the sale of members' ownership interests, and it provided that existing members would have a right of first refusal to buy a departing member's share.
In early 2007, Roussel proposed that he would sell his interest in Clear Sky to Rhonda Bletsh (“Bletsh”) and Nathan Hutchins (“Hutchins”), licensed real estate agents who worked at the Exit First Choice office. Roussel's negotiations with Bletsh and Hutchins fell through, he offered to sell his interest to Deere, but she declined his offer.
In July 2008, Clear Sky moved the Exit First Choice office to a new building. Deere purchased the building with her own money, and she leased it back to Clear Sky. On July 31, 2008, Roussel presented Deere with a document titled “Consent to Sale of Membership Interests of Clear Sky Properties LLC,” which provided that Roussel would sell one-third of his fifty percent interest to Bletsh and another one-third to Hutchins. However, the consent agreement was never executed, and Deere exercised her right of first refusal on August 28, 2008. Deere purchased two-thirds of Roussel's interest for $52,000, making her the majority owner of Clear Sky and leaving Roussel a sixteen percent share.
Unbeknownst to Deere, Roussel, Bletsh and Hutchins had plans to open another real estate office in Conway. On September 12, 2008, Roussel, Bletsh, and Hutchins filed articles of organization for Select Group Investments LLC. On October 8, 2008, Select Group Investments LLC, entered an Exit franchise agreement covering Territory B, and Roussel notified Deere by text message that he was opening another Exit real estate office, named Exit Realty Select, with Bletsh and Hutchins. After Deere received Roussel's message, she went to the Exit First Choice office and discovered that all data had been erased from the office computers. Deere also found files, monitors, signs, and lock boxes missing. Twelve real estate agents who worked for Exit First Choice and the office administrator followed Roussel to Exit Realty Select.
On February 13, 2009, Deere and Clear Sky filed a civil complaint against Roussel in the Circuit Court of Faulkner County Arkansas, alleging breach of fiduciary duty/breach of loyalty, fraud, breach of contract, and violation of the Arkansas Franchise Practices Act. The state court dismissed the fraud count, and the case proceeded to a jury trial on the breach of fiduciary duty claims and Deere's separate claim for breach of contract.
At trial, Roussel testified that before he opened Exit Realty Select with Bletsh and Hutchins, he and Deere shared the goal of expanding Exit First Choice's territory and purchasing Territory B, and he acknowledged that purchasing Territory B would prevent another Exit office from locating in Conway. Deere testified that she would never have exercised her option to purchase two-thirds of Roussel's fifty percent share if she had known that he had plans to open a competing Exit office in Conway.
Clear Sky and Deere presented evidence that after Roussel formed another LLC and opened Exit Realty Select, Clear Sky's commission revenues dropped, and Deere contributed $58,800 to Clear Sky. See ECF No. 1–10, at 140–144. Deere testified that she closed the Exit First Choice office in December 2010 to “stop the losses.” ECF No. 1–21, at 470. The state court also admitted into evidence a list of personal property items totaling $1,480 that, according to Deere, were missing from the Exit First Choice office after Roussel announced that he was opening another office with Bletsh and Hutchins. See ECF No. 1–10, at 146–148.
The state court instructed the jury regarding Roussel's fiduciary duties as follows:
Plaintiff Clear Sky Properties LLC is a limited liability company. A limited liability company is a type of business entity that has owners called members. At all relevant times, Blake Roussel was a member/owner of Clear Sky Properties LLC. At all relevant times, Plaintiff, LuAnn Deere was the other member/owner of Clear Sky Properties LLC.
Fiduciary duty exists between a member/owner and the limited liability company and the other member/owners. Blake Roussel, as a member, owed the following fiduciary duties to Clear Sky ... and ... Deere.
An LLC member has a duty of loyalty to the company. This means that the member will act in the best interest of the company and its members, while subordinating his personal interests to that of the company and its members, while serving actively within the company, or even after he severs his day-to-day relationship with the company.
An LLC member has a duty not to do anything that might result in injury to the company or deprive it of profit or advantage, which his skill, knowledge and ability might personally bring to it.
An LLC member has a duty to retain and protect and develop the existing business opportunities of the LLC.
An LLC member has a duty not to compete with the LLC.
An LLC member has a duty to discharge his duties to the company in good faith.
An LLC member has a duty to deal fairly and honestly with the LLC, and other members, and imposes the responsibilities to fully and completely disclose any conflicts of interest between his interests and the LLC's interest that might make him act in his own best interest, at the expense or to the detriment of the LLC and its other members.
To be [effective], the disclosure must provide the whole truth without ambiguity or reservation, and disclose all significant facts. The existence or performance of an agreement between the parties does not prevent the existence of a fiduciary duty which arises from the relationship itself.
ECF No. 1–22, at 268–270. The state court further instructed that if the jury found in Clear Sky's favor, it should fix the amount of money that would compensate Clear Sky for the value of any lost income or property damage suffered as a result of Roussel's breach of fiduciary duty. With respect to Deere's damages, the court instructed jurors to consider the value of monetary harm or expense that Deere suffered as a result of the breach. See id., at 270.
The state court also instructed the jury regarding punitive damages, according to the standard set forth under Ark.Code Ann. § 16–55–206 and Arkansas Model Jury Instruction 2218, stating as follows:
In addition to compensatory damages for any actual loss that [Clear Sky and Deere] may have suffered as a result of his breach of fiduciary duty, they also ask for punitive damages from Blake Roussel. Punitive damages may be imposed to punish a wrong-doer and to deter others from similar conduct.
In order to recover punitive damages from Blake Roussel, Plaintiffs have the burden of proving either first, Blake Roussel knew or ought to have known in the light of the surrounding circumstances, his conduct would naturally and probably result in damages, and that he continued such conduct [in] 4 reckless disregard of the consequences from which malice may be inferred; or second, that Blake Roussel intentionally pursued a course of conduct for the purpose of causing damage or both.
In arriving at the amount of...
To continue reading
Request your trial
-
Eletech, Inc. v. Jones (In re Jones)
...of § 523(a)(4) that would except ordinary commercial debts from discharge in bankruptcy." Clear Sky Properties LLC v. Roussel (In re Roussel) , 504 B.R. 510, 519 (E.D. Ark. 2013) (footnote omitted). "The technical trust requirement does not, however, require [that the] debtor serve as a tru......
-
Dampier v. Credit Invs., Inc. (In re Dampier)
...at *4 (N.D.N.Y. Sept. 15, 2014); In re Aiello, 533 B.R. 489, 505 (Bankr. W.D. Pa. 2015). 52. See Clear Sky Properties LLC v. Roussel (In re Roussel), 504 B.R. 510, 523-24 (E.D. Ark. 2013). 53. Although § 523(a)(4) requires proof of the existence of an express or technical (statutory) trust ......
-
Clear Sky Props., LLC v. Roussell (In re Roussel)
...nondischargeable in bankruptcy, the creditor may be entitled to recover such fees as part of the nondischargeable debt.” In re Roussel, 504 B.R. 510, 527 (E.D.Ark.2013), citing In re Alport, 144 F.3d 1163, 1168 (8th Cir.1998). The district court ordered that “on remand, the Bankruptcy Court......
-
Roussel v. Clear Sky Props., LLC
...Deere appealed to the district court.1 The district court reversed, finding the entire Judgment Debt nondischargeable. In re Roussel , 504 B.R. 510 (E.D. Ark. 2013). It remanded the attorneys' fees issue to the bankruptcy court. On further appeal, this court held it lacked jurisdiction to r......