In re Glannon, 91-40230
| Decision Date | 09 February 2000 |
| Docket Number | No. 91-40230,98-2516-JWL.,91-40230 |
| Citation | 245 BR 882 |
| Parties | In re Bernard D. GLANNON, Former Alleged Debtor. Bernard D. Glannon, Appellant, v. Edwin P. Carpenter and Michael B. Meyers, Appellees. |
| Court | U.S. District Court — District of Kansas |
COPYRIGHT MATERIAL OMITTED
Kenneth C. Jones, Norton, Hubbard, Ruzicka & Kreamer, L.C., Olathe, KS, Randolph G. Willis, Steven B. Moore, Rasmussen, Barton & Willis, Kansas City, MO, for Debtor/Appellant.
Jan M. Hamilton, Topeka, KS, Chapter 13 Trustee.
R. Pete Smith, McDowell, Rice, Smith & Gaar, Kansas City, MO, for Appellees.
Mark G. Flaherty, J. Bradley Leitch, Sonnenschein, Nath & Rosenthal, Kansas City, MO, for James W. Garrett, Sr., Movant.
This action arises out of the involuntary bankruptcy filing against appellant Bernard D. Glannon in 1991. On May 4, 1992, the bankruptcy judge made a journal entry finding that the involuntary petition was filed in bad faith by Garrett & Associates, Inc. (GAI) and later joined in bad faith by Oakview Treatment Centers of Kansas (Oakview). The bankruptcy judge dismissed the involuntary bankruptcy petition, but retained jurisdiction to consider whether to award damages pursuant to 11 U.S.C. § 303(i) and whether to impose sanctions pursuant to Fed.R.Civ.P. 11 and Fed.R.Bankr.P. 9011. Over the next six years, various motions were filed and ruled upon, and an eleven day bench trial was held on the issue of damages and sanctions resulting from the bad faith filing. Ultimately, on September 17, 1998, the bankruptcy judge issued a Memorandum Opinion and Judgment awarding appellant damages against GAI and its owner, James Garrett (Garrett), and imposing sanctions against attorneys Michael B. Myers and Edwin P. Carpenter.
Appellant now appeals portions of that order, as well as decisions made by the bankruptcy court in the six years preceding it (Doc. 1). For the reasons set forth below, the bankruptcy court is affirmed in part and reversed in part.
On February 5, 1991, GAI filed a petition in involuntary bankruptcy against appellant pursuant to 11 U.S.C. § 303(b)(2). The action was later joined by Oakview and Baby Grand Corp. as additional petitioning creditors. On April 27, 1992, the bankruptcy court held a trial on the petition, from which resulted a Journal Entry of Judgment dated May 4, 1992. The bankruptcy judge found that the petitioners had not proven, as required by 11 U.S.C. § 303(h)(1), that appellant had not generally been paying his debts, and therefore the judge dismissed the involuntary petition. See May 4, 1992 Journal Entry at 2. In addition, the bankruptcy judge found that appellant had met the burdens set forth in 11 U.S.C. § 707(a), proving that the petition was filed in bad faith by GAI and joined in bad faith by Oakview. See id. Specifically, the bankruptcy judge found that "the petition herein was filed by Garrett and Associates, Inc. as a litigation tactic, in an attempt to gain advantage in certain litigation in Kansas state court." Id. at 5. While dismissing the bankruptcy petition, the bankruptcy court retained jurisdiction "to consider entry of judgment against Garrett and Associates, Inc., James W. Garrett, Sr., and Oakview Treatment Center of Kansas, Inc., d/b/a Cedar Ridge Hospital pursuant to 11 U.S.C. § 303(i), and imposition of sanctions against Cheryl D. Myers, Michael B. Myers, Edwin P. Carpenter, and Carpenter, Weir & Myers, Chartered, pursuant to F.R.C.P. Rule 11 and F.R.B.P. Rule 9011." Id. at 4. Up until the dismissal of the petition, Cheryl Myers represented GAI, Michael Myers represented Oakview, and Edwin Carpenter represented James Garrett. Michael Myers and Edwin Carpenter were members of the law firm Carpenter, Weir & Myers, Chartered.
In conjunction with the action for § 303(i) damages, appellant filed a demand for a jury trial and contemporaneously moved the bankruptcy court to transfer the proceedings to the United States District Court for the District of Kansas. (R. 26, 27) On October 2, 1992, the bankruptcy court denied appellant's requests. (R. 35)
On October 23, 1992, in consideration of a joint request by the parties, the bankruptcy judge certified his conclusion on the merits of the bankruptcy petition pursuant to Fed.R.Civ.P. 54(b). (R. 36) The bankruptcy judge determined that his "order dismissing the involuntary petition and denying relief against Mr. Glannon should become final and appealable, that there is no just reason for delay." (R. 36 at 2) The bankruptcy judge stated, however, that "notwithstanding the above determination and direction, this Court retains jurisdiction over petitioning creditors Garrett & Associates and Oakview and their former counsel to consider imposition of judgement under 11 U.S.C. § 303(i) and to consider imposition of sanctions under F.R.CIV.P. 11 and F.R.B.P. 9011." (R. 36 at 3)
On March 26, 1993, appellant filed with this court an application for interlocutory appeal of the bankruptcy court's refusal to transfer the proceeding to the district court and to grant appellant a jury trial on the § 303(i) issues. In an order dated April 15, 1993, Judge Saffels determined that a ruling on the right to a jury trial would not materially advance the termination of this litigation. In re Glannon, 153 B.R. 571, 572 (D.Kan.1993). He further found that Id. Accordingly, Judge Saffels denied appellant's application for interlocutory appeal. See id. Appellant then filed a Petition for Writ of Mandamus with the Tenth Circuit challenging Judge Saffel's ruling, which writ was also denied. See September 17, 1998 Memorandum and Order (hereinafter "Bankr.M & O") at 23.
On July 10, 1995, a bench trial on the issues of damages and sanctions was begun in the bankruptcy court. See id. at 11. The trial consumed eleven days between July 10, 1995 and February 28, 1996. See id. At the trial, appellant offered the expert testimony of Gerald W. Olson, Ph.D. as to appellant's allegedly lost earning capacity caused by the filing of the involuntary bankruptcy petition. See id. at 32. The bankruptcy court was not persuaded by Dr. Olson's testimony and awarded appellant no damages for lost-earnings. See id. The bankruptcy judge did, however, award appellant other damages pursuant to 11 U.S.C. § 303(i). See id. at 36. On September 17, 1998, the bankruptcy judge rendered a judgment for appellant against GAI and Garrett, jointly and severally, in the amount of $91,269.67 for attorney's fees incurred prior to the dismissal of the involuntary petition, $100,000 actual damages, and $50,000 punitive damages. See id. In addition, the bankruptcy judge imposed sanctions, pursuant to Bankr.R.Civ.P. 9011, against Edwin Carpenter and Michael Myers in the amount of $30,000 each. See id.
On September 28, 1998, appellant filed his Notice of Appeal. (R. 65) The court has jurisdiction to hear appeals from the bankruptcy courts pursuant to 28 U.S.C. § 158. In deciding such appeals, the court may not set aside the bankruptcy court's findings of fact unless they are clearly erroneous. See Virginia Beach Federal Sav. and Loan Ass'n v. Wood, 901 F.2d 849, 851 (10th Cir.1990). The bankruptcy court's conclusions of law are reviewed de novo. See id.
Appellant presents the following five issues for review:
The court will address each of these issues in turn.
Appellant's first argument on appeal is that once the bankruptcy court certified its dismissal of the involuntary bankruptcy petition as a final order pursuant to Fed.R.Civ.P. 54(b) it lost subject matter jurisdiction to determine appellant's 11 U.S.C. § 303(i) claim for damages.1 Appellant asserts that bankruptcy courts are courts of limited jurisdiction which do not have subject matter jurisdiction over civil proceedings that do not have some effect on the administration of a bankruptcy "case." Appellant Brief at 8. While appellant acknowledges that a bankruptcy court may retain jurisdiction to impose damages before the dismissal of an involuntary petition becomes final, he claims that "when no one appealed the dismissal of the involuntary bankruptcy petition after it had been certified as a final order, there was no longer any involuntary bankruptcy `case' pending against Mr. Glannon." Appellant Brief at 8. Therefore, appellant contends, the bankruptcy court lost jurisdiction because appellant's § 303(i) claim "could have no effect on the bankruptcy estate." Appellant Brief at 8. The court disagrees.
The court finds that the bankruptcy court retained jurisdiction over the § 303(i) aspects of the case, even after it certified the dismissal of the involuntary bankruptcy petition as final. The court starts from the basic premise that bankruptcy courts clearly retain jurisdiction to consider whether or not to award a debtor § 303(i) damages after the court has dismissed the petition for involuntary bankruptcy.2See R. Eric Peterson Constr. Co., Inc. v....
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