Cutcliff v. Reuter

• Decision Date: 30 June 2015
• Docket Number: 14–1730.,Nos. 14–1429,s. 14–1429
• Parties: Tana S. CUTCLIFF; James A. Fields ; Joshua P. Haeflinger; LaDonna S. Henderson, (as Trustee for LaDonna S. Henderson Living Trust); Patricia A. Reitz, (as Trustee for Frances L. Reitz Trust); Terry J. Schippers; James D. Teegarden, II; Michael S. Trom; James D. Fields, Plaintiffs–Appellees v. Nathan Paul REUTER; Vertical Group, LLC, Defendants. Kathleen Reuter, Intervenor–Appellant. Tana S. Cutcliff; James A. Fields ; Joshua P. Haeflinger; LaDonna S. Henderson, (as Trustee for LaDonna S. Henderson Living Trust); Patricia A. Reitz, (as Trustee for Frances L. Reitz Trust); Terry J. Schippers; James D. Teegarden, II; Michael S. Trom; James D. Fields, Plaintiffs–Appellees v. Nathan Paul Reuter, Defendant–Appellant. Vertical Group, LLC, Defendant. Kathleen Reuter, Intervenor.
• Court: U.S. Court of Appeals — Eighth Circuit

791 F.3d 875

Tana S. CUTCLIFF;

James A. Fields ;

Joshua P. Haeflinger;

LaDonna S. Henderson, (as Trustee for LaDonna S. Henderson Living Trust);

Patricia A. Reitz, (as Trustee for Frances L. Reitz Trust);

Terry J. Schippers;

James D. Teegarden, II;

Michael S. Trom;

James D. Fields, Plaintiffs–Appelleesv.Nathan Paul REUTER;

Vertical Group, LLC, Defendants.

Kathleen Reuter, Intervenor–Appellant.

Tana S. Cutcliff;

James A. Fields ;

Joshua P. Haeflinger;

LaDonna S. Henderson, (as Trustee for LaDonna S. Henderson Living Trust);

Patricia A. Reitz, (as Trustee for Frances L. Reitz Trust);

Terry J. Schippers;

James D. Teegarden, II;

Michael S. Trom;

James D. Fields, Plaintiffs–Appellees

v.Nathan Paul Reuter, Defendant–Appellant.

Vertical Group, LLC, Defendant.

Kathleen Reuter, Intervenor.

Nos. 14–1429

14–1730.

United States Court of Appeals, Eighth Circuit.

Submitted: Jan. 15, 2015.

Filed: June 30, 2015.

Rehearing and Rehearing En Banc Denied Aug. 7, 2015.

Bryan C. Bacon, Evans & Dixon, LLC, Columbia, MO, argued, for appellants Kathleen and Nathan Reuter.

James F. B. Daniels, McDowell, Rice, Smith & Buchanan, P.C., Kansas City, MO, for appellant Nathan Reuter.

David J. Brown, Brown Law Office LC, Columbia, MO, argued, for appellees.

Before LOKEN, MELLOY, and GRUENDER, Circuit Judges.

Opinion

GRUENDER, Circuit Judge.

Nathan and Kathleen Reuter each appeal from the district court's¹ entry of a default judgment that awards damages against Vertical Group, LLC. We dismiss Nathan's appeal for lack of standing and affirm the district court's judgment as to Kathleen's appeal.

I. Background

This is the second time we have considered a matter involving Nathan Reuter and a scheme where victims were “lure[d]” into making a “high-yield, zero-risk investment” from which their money was “appropriated.” Reuter v. Cutcliff (In re Reuter ), 686 F.3d 511, 513–14 (8th Cir.2012). Nine of these victims (“the plaintiffs”) brought this lawsuit against Nathan and Vertical Group, LLC (“Vertical Group”) based on their alleged roles in perpetrating this scheme. Our initial appeal dealt with claims that the plaintiffs also asserted as creditors in Nathan's ensuing bankruptcy. Id. This appeal concerns the plaintiffs' original lawsuit against Vertical Group.

Vertical Group failed to defend against this action. The district court thus granted, and the clerk entered, an order of default. The court did not award damages at that time. Shortly thereafter, Nathan filed for Chapter 11 bankruptcy, and the district court statistically closed this matter until Nathan's bankruptcy was resolved.

Nathan proposed a Chapter 11 plan that would settle the plaintiffs' claims against him. The plaintiffs objected to this plan and brought an adversary proceeding against Nathan, incorporating their allegations from the complaint in this case and asserting that their claims against Nathan were non-dischargeable. After holding a trial on these issues, the bankruptcy court found that the plaintiffs' claims against Nathan were non-dischargeable and rejected Nathan's Chapter 11 plan. Cutcliff v. Reuter (In re Reuter ), 427 B.R. 727, 737–38, 779–80 (Bankr.W.D.Mo.2010), aff'd, 443 B.R. 427, 438 (B.A.P. 8th Cir.2011), aff'd, 686 F.3d 511, 520 (8th Cir.2012). The bankruptcy court awarded actual and punitive damages to the plaintiffs for their claims against Nathan. Id. at 766–68, 779. The court also determined that Nathan's bankruptcy estate acquired his interest in the Kathleen S. Reuter Revocable Trust (the “Kathleen Trust”), a trust into which Nathan and his wife, Kathleen Reuter, had transferred assets before his bankruptcy was filed. Id. at 768–69, 774–75. At that juncture, the court declined to opine on the “specific value of [Nathan's] interest in the [property in the trust] or how that value will be realized.” Id. at 779. The court later converted Nathan's bankruptcy to a Chapter 7 bankruptcy.

The bankruptcy trustee then tried to reach the assets in the Kathleen Trust. The court concluded that Nathan and Kathleen were co-trustees of the trust and that Nathan's powers as a co-trustee were the property of his bankruptcy estate. Olsen v. Reuter (In re Reuter ), 499 B.R. 655, 670–71 (Bankr.W.D.Mo.2013). However, Nathan lacked “the authority to carry out an action as a trustee under the [Kathleen Trust] without Kathleen's consent,” meaning that the rights to which the bankruptcy estate succeeded were “limited to the extent they are subject to Kathleen's consent.” Id. at 671. The court further concluded that only Kathleen had the power to revoke the trust. Id. at 672, 682.

Before this ruling, the plaintiffs also sought to reach the assets in the Kathleen Trust. They reopened this action to determine their damages and “to collect the Vertical Group judgment from the assets of a revocable trust [i.e., the Kathleen Trust] that has been determined to be the property of [Nathan's] bankruptcy estate.”² The plaintiffs asked the district court to refer this matter to the bankruptcy court. Nathan, who was still a party to this action, opposed this course of action. Kathleen joined the litigation at this point due to her interests with respect to the Kathleen Trust and likewise argued against having the bankruptcy court consider this matter. The district court sided with the plaintiffs and referred this matter to the bankruptcy court.

After receiving affidavits and documentary proof concerning how much money the plaintiffs lost in the investment scheme, but without conducting an evidentiary hearing, the bankruptcy court prepared proposed findings of fact and conclusions of law in which it recommended awarding actual damages, punitive damages, and attorneys' fees to the plaintiffs. The amount of actual and punitive damages that the court recommended was the same amount that the court had awarded to the plaintiffs in the bankruptcy adversary proceeding against Nathan. Nathan and Kathleen objected to the bankruptcy court's recommendations, and after a de novo review, the district court adopted the bankruptcy court's proposed findings of fact and conclusions of law and entered a default judgment against Vertical Group. Nathan and Kathleen each appeal. Vertical Group did not file a notice of appeal.

II. Discussion

A. Standing to Appeal

We begin with the threshold issue of Nathan's and Kathleen's standing to appeal. “Ordinarily, only a party aggrieved by a judgment or order of a district court may exercise the statutory right to appeal therefrom.” Deposit Guar. Nat'l Bank v. Roper, 445 U.S. 326, 333, 100 S.Ct. 1166, 63 L.Ed.2d 427 (1980). Consequently, “a litigant that is a party to the overall case may lack standing to appeal from a judgment [concerning] a claim to which it was not a party [where] the appellants were not personally aggrieved by the judgment under appeal.” United States v. Northshore Mining Co., 576 F.3d 840, 846 (8th Cir.2009) (alterations in original) (ellipsis omitted) (quoting City of Cleveland v. Ohio, 508 F.3d 827, 836 (6th Cir.2007) ). “A party may be aggrieved by a district court decision that adversely affects its legal rights or position vis-a-vis other parties in the case or other potential litigants, but a ‘desire for better precedent does not by itself confer standing to appeal.’ ” Custer v. Sweeney, 89 F.3d 1156, 1164 (4th Cir.1996) (quoting HCA Health Servs. v. Metro. Life Ins. Co., 957 F.2d 120, 124 (4th Cir.1992) ).

In the unique circumstances presented here, Kathleen has standing to appeal due to her interests with respect to the Kathleen Trust. As the bankruptcy court found, Kathleen is a co-trustee of the trust with the sole power to revoke it. See Mo.Rev.Stat. § 456.8–816.24 (“[A] trustee may ... prosecute or defend an action, claim, or judicial proceeding in any jurisdiction to protect trust property and the trustee in the performance of the trustee's duties.”). In the plaintiffs' filings before the district court and this court, they have emphasized that they intend to use this action to reach the assets of the Kathleen Trust. Because of the focused purpose of this action, we are hard pressed to say that Kathleen somehow lacks standing to appeal. See City of Cleveland, 508 F.3d at 837 (“We have little trouble concluding that the [appellant] had ‘a sufficient stake in the outcome of the controversy’.... If it were not for the [appellant], there would be no controversy in this case.” (quoting Bryant v. Yellen, 447 U.S. 352, 368, 100 S.Ct. 2232, 65 L.Ed.2d 184 (1980) )). And the parties seem to agree that the default judgment presents a virtual certainty, rather than a remote possibility, that the plaintiffs will pursue the assets in the Kathleen Trust. Compare Custer, 89 F.3d at 1164 (finding standing to appeal where the order “presents a certainty, rather than a mere hypothetical possibility, that [the appealing party] will be forced to incur considerable expense relitigating [a claim in another case]”), with Rohm & Hass Tex., Inc. v. Ortiz Bros. Insulation, Inc.,

32 F.3d 205, 208 (5th Cir.1994) (explaining that a speculative concern about the eventual result of the district court's judgment does not provide standing to appeal). For these reasons, we conclude that Kathleen has standing to appeal the district court's judgment.

The trust documents also designated Nathan as a co-trustee of the Kathleen Trust. But Nathan does not argue that this fact means that he is aggrieved by the default judgment against Vertical Group. The bankruptcy court has determined that Nathan's powers as a co-trustee became the property of his bankruptcy estate. Because “[t]he [bankruptcy] trustee is the ‘legal representative’ of the bankrupt estate, with the capacity to sue and be sued,” Vreugdenhil v. Hoekstra, 773 F.2d 213, 215 (8th Cir.1985), Nathan does not have standing to appeal on the same basis as Kathleen, see Longaker v. Boston Scientific Corp., 715 F.3d 658, 662 (8th Cir.2013) (“Because the guaranteed payments, if due at all, are property of the bankruptcy estate, [the debtor] lacked...