Clear Sky Props., LLC v. Roussel (In re Roussel)

• Decision Date: 27 March 2015
• Docket Number: AP No. 4:11–ap–01266,Case No. 4:11–bk–14470J
• Parties: In re: Blake Roussel and Amanda R. Roussel, Debtors. Clear Sky Properties, LLC and Luann Deere, Plaintiffs v. Blake Roussel, Defendant
• Court: U.S. Bankruptcy Court — Eastern District of Arkansas

536 B.R. 254

In re: Blake Roussel and Amanda R. Roussel, Debtors.Clear Sky Properties, LLC and Luann Deere, Plaintiffs

v.Blake Roussel, Defendant

Case No. 4:11–bk–14470J

AP No. 4:11–ap–01266

United States Bankruptcy Court, E.D. Arkansas, Little Rock Division.

Signed March 27, 2015

Daniel L. Herrington, H. Wayne Young, Friday, Eldredge & Clark, Little Rock, AR, for Plaintiffs.

Stephen W. Jones, Jack Nelson Jones & Bryant, P.A., Kevin P. Keech, Keech Law Firm, PA, Little Rock, AR, for Defendant.

ORDER ON REMAND FROM THE UNITED STATES DISTRICT COURT EASTERN DISTRICT OF ARKANSAS

Phyllis M. Jones, United States Bank Bankruptcy Judge.

This matter is before the Court on remand from the United States District Court for the Eastern District of Arkansas. Clear Sky Properties, LLC, an Arkansas limited liability company (“Clear Sky”), and LuAnn Deere (“Deere”) (collectively, “Plaintiffs”) filed this adversary proceeding against Debtor Blake Roussel (“Roussel”) to have this Court determine the dischargeability of Roussel's debt to Clear Sky and Deere evidenced by a state court judgment entered by the Circuit Court of Faulkner County, Arkansas. On appeal, the District Court held that the portion of Roussel's judgment debt awarding damages to Plaintiffs for breach of fiduciary duty is nondischargeable under 11 U.S.C. § 523(a)(4) and as to Clear Sky, is also nondischargeable under 11 U.S.C. § 523(a)(6). The District Court remanded the case for this Court to determine whether the fee provision set forth in Clear Sky's operating agreement renders all or any part of the Plaintiffs' fee award part of the nondischargeable debt in this case.¹ For the reasons that follow, constituting the Court's findings of fact and conclusions of law, the entire award of attorneys' fees and costs awarded in favor of Clear Sky is determined to be part of the nondischargeable debt owed to Clear Sky and a portion of the award of attorneys' fees and costs awarded in favor of Deere is determined to be part of the nondischargeable debt owed to Deere.

I. JURISDICTION

The matter on remand is a core proceeding and the Court has jurisdiction pursuant to 28 U.S.C. §§ 1334 and 157(b)(2)(I). The Court may enter a final judgment in this case.²

II. FACTUAL BACKGROUND

The background facts in this case have been recited in detail in the prior order of this Court and the order entered by the United States District Court.³ The following is a summary of the facts only as they are relevant to this remand.

Clear Sky was created in August 2006 by Deere and Roussel. Deere and Roussel were the sole members of Clear Sky, each owning fifty percent. On August 31, 2006, Deere and Roussel, as individuals, entered into a franchise agreement with Real Estate Opportunities, Inc. d/b/a Exit Realty Arkansas (“Exit Realty Arkansas”), an Arkansas corporation, for the purpose of opening an Exit Realty franchise in Conway, Arkansas. Clear Sky, doing business as Exit First Choice Realty, was opened in Conway in early September 2006.

On June 8, 2007, Deere and Roussel entered into an operating agreement for Clear Sky (the “Operating Agreement”), which they both signed as managing members. The Operating Agreement contained provisions governing the sale of a member's ownership interest and provided that existing members would have a right of first refusal to buy a departing member's share.

In July 2008, Clear Sky moved the Exit First Choice Realty office to a new building. The new building was purchased by Deere, individually, and leased 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 Rhonda Bletsh (“Bletch”) and one-third of his fifty percent interest to Nathan Hutchins (“Hutchins”). The consent agreement was not executed and Deere exercised her right of first refusal and purchased two-thirds of Roussel's interest making her the majority owner of Clear Sky. Unbeknownst to Deere, Roussel was making plans to open a second Exit Realty franchise in Conway with Bletsh and Hutchins.

On September 12, 2008, Roussel, Bletsh, and Hutchins created a new limited liability company, Select Group Investments, LLC (“Select Group”). On October 8, 2008, Select Group entered an Exit Realty franchise agreement to open a second Exit Realty franchise in Conway, Arkansas. Deere was notified of Select Group's opening of the second Exit Realty by a text message from Roussel. Additional facts regarding Roussel's departure from Exit First Choice Realty are detailed in both the prior order of this Court and the order entered by the District Court.

Clear Sky and Deere filed a complaint against Roussel in the Circuit Court of Faulkner County, Arkansas, on February 13, 2009. Clear Sky and Deere both brought actions for breach of fiduciary duty. Deere also brought an action for breach of contract. The jury found that Roussel breached his fiduciary duty to Clear Sky and awarded Clear Sky $300,000.00 in damages on this claim. The damages included $111,280.60 for past lost revenue, $73,403.00 for future lost revenue, $1,480.00 for damage to property, and $113,836.40 in punitive damages. The jury also found that Roussel breached his fiduciary duty to Deere and awarded Deere $58,800.00 in compensatory damages in connection with her fiduciary duty claim. The jury also found for Deere on her separate claim for breach of contract and awarded Deere $40,000.00 in damages in connection with the breach of contract claim.⁴ The state court entered judgment in favor of Clear Sky and Deere consistent with the jury's verdict. Pls.' Ex. 24.

After the judgment was entered, Clear Sky and Deere filed a motion for attorneys' fees and costs that asserted in relevant part:

4. The Clear Sky Properties, LLC Operating Agreement provides:

Attorneys' Fees and Costs. In any dispute arising between or among the members, the losing party shall pay to the prevailing party reasonable costs and expenses incurred in connection with any mediation, arbitration, or suit as determined by the mediator, court or arbitrator, including attorneys' fees, court costs and the value of time lost by the prevailing party or any agent or employee of the prevailing party in participating in any arbitration or litigation in connection therewith.

(Clear Sky Properties, LLC Operating Agreement, attached to Complaint as Exhibit A).

4. [sic] Ark.Code Ann. § 16–22–308 states in pertinent part that in a civil action to recover on a “contract relating to the purchase or sale of goods, wares, or merchandise, or for labor or services, or breach of contract ... the prevailing party may be allowed a reasonable attorney's fee to be assessed by the court and collected as costs.”

6. Deere and Clear Sky are the prevailing parties in this dispute arising between the members of Clear Sky, and Deere is the prevailing party on the claim for breach of contract.

7. Deere and Clear Sky incurred a total of $82,611.25 in attorneys' fees and requests that the Court enter an order in its [sic] favor assessing that amount against Blake Roussel, to be collected as costs.

8. UHS [sic] incurred $4,912.00 in expenses and costs in addition to attorney's fees.

9. This Motion is accompanied by a Brief in Support and the following exhibit: Exhibit A: Affidavit of H. Wayne Young, Jr.

Pls.' Ex. 25.

Clear Sky and Deere also filed a brief in support of the motion for attorneys' fees and costs making, in part, the following arguments:

Both the Clear Sky Operating Agreement and applicable Arkansas law allows the Court to award Plaintiffs their attorney's fees and costs incurred in prosecuting this case.See Operating Agreement of Clear Sky Properties, attached to Complaint as Exhibit A; Ark.Code Ann. § 16–22–308. The facts of this case overwhelmingly support such an award. For example, the violations were so obvious the jury's verdict was unanimous, the jury was able to reach this decision in less than three hours, and it included a significant punitive damages award. The applicable law clearly prohibits a member with a fiduciary obligation to an entity from competing with that entity. Yet Blake Roussel pursued this course of conduct unapologetically for over two years. With respect to the breach of contract claim, the jury likewise determined Blake Roussel had breached the procedures of the Operating Agreement in selling his shares back to Deere without disclosing all the circumstances, terms and conditions of that transaction. The breaches were obvious and did not take the jury long at all to identify and assign to the breaches a significant financial value, including punitive damages. Pursuant to the Operating Agreement and Arkansas law, Blake Roussel, not Plaintiffs, should bear the attorneys' fees and costs of pursuing this matter to its logical conclusion.

Plaintiffs are not seeking fees related to portions of the case that do not directly relate to the claims against Blake Roussel. See Affidavit of H. Wayne Young, Jr., attached to Motion as Exhibit A. For instance, Plaintiffs' [sic] obviously omitted the extensive fees and costs related to the failed mediation, as well as the claim against Separate Defendant Real Estate Opportunities, Inc., that concluded in arbitration. Plaintiffs engaged in some written discovery with Separate Defendants Rhonda Bletsh and Nathan Hutchins and the expenses associated with that discovery are also omitted from this petition. All totaled, Plaintiffs omitted approximately $109,105 in incurred expenses and fees associated with this case.

Plaintiffs have incurred a total of $82,611.25 in attorneys' fees associated with the claims against Blake Roussel, as well as $4,912 in expenses and costs. (Exhibit A) This is a reasonable amount due to the nature of the case, the number of witnesses (while there were only 3 witnesses at trial, several depositions were taken of witnesses Blake Roussel identified in discovery), and volume

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