Flanders v. Evelyn Jane Lawrence, Daniel A. W., Attorney, Moye White LLP (In re Flanders)

• Decision Date: 05 August 2015
• Docket Number: Adv. No. 13-01456,BAP No. CO-14-055,Bankr. No. 98-24779
• Parties: IN RE GARY WOODROW FLANDERS, ind. and as officer, director, shareholder Canyon Quarry Co., Farmer & Merchants Bank, Great Northern Land Co., MetroBank, N.A., Debtor. GARY WOODROW FLANDERS, Plaintiff - Appellant, v. EVELYN JANE LAWRENCE, DANIEL A. WEST, Attorney, MOYE WHITE LLP, and JAMES T. BURGHARDT, Defendants - Appellees.
• Court: U.S. Bankruptcy Appellate Panel, Tenth Circuit

IN RE GARY WOODROW FLANDERS, ind. and as officer,director, shareholder Canyon Quarry Co., Farmer & Merchants Bank,Great Northern Land Co., MetroBank, N.A., Debtor.GARY WOODROW FLANDERS, Plaintiff - Appellant, v. EVELYN JANE LAWRENCE, DANIEL A. WEST, Attorney, MOYE WHITE LLP,and JAMES T. BURGHARDT, Defendants - Appellees.

BAP No. CO-14-055

Bankr. No. 98-24779

Adv. No. 13-01456

UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE TENTH CIRCUIT

August 5, 2015

NOT FOR PUBLICATION

Chapter 7

OPINION^*

Appeal from the United States Bankruptcy Court for the District of Colorado

Submitted on the briefs:¹

Before MICHAEL, KARLIN, and HALL, Bankruptcy Judges.

MICHAEL, Bankruptcy Judge.

"If at first you don't succeed, try, try, try again."²

There are many great American success stories built upon unflinching stubborn determination in the face of incredible odds. Very few of them, however, can be found in the annals of litigation history. This case will not alter the landscape. The debtor in this now 17-year-old Chapter 7 case appeals the bankruptcy court's order granting summary judgment in favor of the defendants on his adversary claims against them for violation of the discharge injunction. The debtor's claims relate to marital property and marital debt division orders entered by a Colorado state court in his divorce proceedings. The bankruptcy court concluded the debtor's action was barred for a number of reasons, including the Rooker-Feldman doctrine, the principle of collateral estoppel or issue preclusion, and lack of standing. Having reviewed the record and the applicable law, we affirm the bankruptcy court's order.

I. INTRODUCTION

In its order granting summary judgment, the bankruptcy court noted that "[t]his adversary proceeding results from the complicated confluence of bankruptcy and divorce proceedings."³ The Colorado court that entered the orders giving rise to the debtor's claims described the divorce proceedings as "the most complex this Court has seen in over 25 years,"⁴ and also commented that the debtor contested almost every issue in the case.⁵ Additionally, the debtor and his former wife controlled numerous corporate entities involved in the bankruptcyproceedings that were marital assets with associated marital debt subject to division by the divorce court. Therefore, before setting forth the specific facts of the bankruptcy proceedings leading to this appeal, we lay some groundwork by identifying the parties and their controlled entities, and by briefly previewing facts that are critical to understanding the debtor's claims against the defendants for violation of the discharge injunction.

The plaintiff/appellant in this adversary matter is debtor Gary Woodrow Flanders ("Flanders"). When Flanders filed his bankruptcy petition, he was married to defendant/appellee Evelyn Jane Lawrence ("Lawrence"). Lawrence did not join the petition. Two years after Flanders filed for bankruptcy protection, Lawrence filed for divorce. The divorce proceedings continued in Colorado state court for more than eight years. Flanders' claims in this adversary proceeding arise out of the divorce proceedings and their interaction with his bankruptcy case.

The other defendants/appellees are: Daniel A. West ("West"), Lawrence's divorce attorney; James T. Burghardt ("Burghardt"), Lawrence's bankruptcy counsel; and Moye White LLP ("Moye White"), Burghardt's law firm (collectively the "Defendants"). Also involved in the underlying bankruptcy and divorce litigation are various corporate entities controlled by Flanders and Lawrence. The two companies wholly owned by Flanders are Great Northern Land Company and Canyon Quarry Company (the "Flanders Entities"). The entities wholly owned by Lawrence are Great Northern Transportation Company (together with its seven wholly owned subsidiaries), and American Rock Products Corporation (collectively the "Lawrence Entities," or individually a "Lawrence Entity"). As of the bankruptcy petition date, there was an outstanding promissory note made by Flanders and Lawrence to a Lawrence Entity in the amount of approximately $2 million.

The interaction of the bankruptcy and divorce proceedings leading to this appeal results primarily from the following three events. First, the bankruptcy trustee brought an adversary proceeding against Flanders, Lawrence, and the Lawrence Entities, alleging various fraudulent conveyances had been made. To conclude the adversary proceeding against her, Lawrence entered into a settlement agreement with the trustee and executed a mutual release. Second, after administration of the bankruptcy estate and payment of all debts in full, a surplus remained. The Colorado divorce court was then tasked with determining whether the bankruptcy surplus was marital property subject to division with Lawrence. The divorce court concluded the surplus was marital property despite Flanders' attempt to bar any claim Lawrence might have by arguing she waived it under the settlement agreement and mutual release in the bankruptcy trustee's adversary proceeding. Third, the divorce court entered a monetary judgment against Flanders that he claims violated the discharge injunction in his bankruptcy case. According to Flanders, the judgment is the result of the divorce court's treatment of a discharged debt. Flanders seriously mischaracterizes the nature and character of the judgment.

II. BANKRUPTCY PROCEEDINGS⁶

Flanders individually filed for Chapter 11 protection in 1998. After Flanders failed to submit a confirmable Chapter 11 plan, his case was converted to one under Chapter 7. Jeffrey L. Hill was appointed trustee ("Trustee"). Trustee subsequently put the Flanders Entities into Chapter 7 bankruptcy and served as trustee of those estates.

Lawrence filed for divorce from Flanders in October 2000. Shortly thereafter, Trustee, on behalf of the Flanders and Flanders Entities estates,commenced an adversary proceeding against Flanders, Lawrence, and the Lawrence Entities, alleging fraudulent conveyances had been made ("Trustee's Adversary"). Trustee quickly reached settlement with Lawrence and the Lawrence Entities. The bankruptcy court entered an order approving the settlement agreement in April 2001 ("Settlement Agreement"). Thereafter, Lawrence and the Lawrence Entities entered into a mutual release with Trustee ("Mutual Release"), releasing the bankruptcy estates "from any and all claims and causes of action that have been made or could have been made in the Adversary Proceeding."⁷ Flanders was not a party to the Settlement Agreement or Mutual Release, but resolution of the claims against Lawrence and the Lawrence Entities essentially resolved Trustee's claims against Flanders.

The Colorado state court entered a divorce decree in December 2001, but litigation over the division of marital property and marital debt continued. Meanwhile, the bankruptcy court granted Flanders a discharge in September 2002. After administering the estate for several years, Trustee filed his final report in July 2006. Following liquidation of Flanders' bankruptcy estate and payment of his unsecured creditors in full, a surplus of approximately $230,000 remained ("Surplus"). Trustee's final report indicated the Surplus was to be paid to Flanders.

The divorce court was informed of the Surplus, but by that time it had been garnished by the United States Attorney to pay a 2005 Oklahoma federal court judgment against Flanders in connection with his conviction for bank fraud. The federal district court instructed the Colorado divorce court to determine whether the Surplus was marital property. In February 2007, the divorce court entered an order concluding the Surplus constituted marital property on the basis that Colorado law presumes property held during marriage is marital property andFlanders had not proven any portion of the Surplus was his separate property. The divorce court rejected Flanders' argument that, pursuant to the Settlement Agreement and Mutual Release executed in Trustee's Adversary, Lawrence had waived any claim she might have to the Surplus. Upon request, the Surplus was transferred to the divorce court's registry fund.

Flanders' bankruptcy case was closed in May 2008. Nine months later, the divorce court issued final orders dividing marital property and marital debt. It also entered a judgment in excess of $563,000 against Flanders in favor of Lawrence (the "Judgment"). Flanders contends the Judgment results from the debt on the $2 million promissory note executed by Flanders and Lawrence in favor of a Lawrence Entity ("Promissory Note Debt") that was discharged in his Chapter 7 case. In truth, the Judgment was comprised primarily of attorneys fees the divorce court found Flanders should pay as a result of his bad faith litigation and contribution to delay in the proceedings, all of which were generated post-petition.⁸

Flanders appealed the divorce court's final orders to the Colorado Court of Civil Appeals, which affirmed in May 2011, except for a limited remand not relevant to this appeal.⁹ Flanders requested rehearing, which was denied in September 2011. Flanders then petitioned the Colorado Supreme Court for certiorari, which it denied in January 2013.

Undaunted, Flanders initiated this adversary proceeding in August 2013 asserting the divorce court, at the invitation of the Defendants, madedeterminations and rulings regarding division of marital property and marital debt that violated the discharge injunction provisions of 11 U.S.C. § 524.¹⁰ After being granted leave by the bankruptcy court, Flanders filed his second amended complaint ("Complaint") specifically contending, among other things, that: 1) the divorce court erroneously concluded the Surplus was marital property because Lawrence waived any claim to the Surplus via execution of the Settlement Agreement and Mutual Release in Trustee's Adversary; 2) the divorce court improperly treated the Promissory Note Debt as a marital debt; and 3) the divorce court...