In re John Richards Homes Bldg. Co., L.L.C.

• Court: U.S. District Court — Eastern District of Michigan
• Writing for the Court: Stephen J. Murphy, Iii
• Citation: In re John Richards Homes Bldg. Co., L.L.C., 405 B.R. 192 (E.D. Mich. 2009)
• Decision Date: 30 March 2009
• Docket Number: Bankr.Case No. 02-54689.,Civil Case No. 06-14355.
• Parties: In re JOHN RICHARDS HOMES BUILDING COMPANY, L.L.C. Honigman, Miller, Schwartz and Cohn, L.L.P. and John Richards Homes Building Company, L.L.C, Appellants, v. Kevin Adell, Appellee.

405 B.R. 192

In re JOHN RICHARDS HOMES BUILDING COMPANY, L.L.C Honigman, Miller, Schwartz and Cohn, L.L.P. and John Richards Homes Building Company, L.L.C, Appellants, v. Kevin Adell, Appellee.

Civil Case No. 06-14355.

Bankr.Case No. 02-54689.

United States District Court, E.D. Michigan, Southern Division.

March 30, 2009.

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ORDER ACCEPTING THE REPORT AND RECOMMENDATION AND REVERSING THE BANKRUPTCY COURT

STEPHEN J. MURPHY, III, District Judge.

INTRODUCTION

The appellants Honigman, Miller, Schwartz and Cohn ("HMSC") and John Richards Homes Building Co., L.L.C ("JRH") have appealed a September 21, 2006 order of the United States Bankruptcy Court for the Eastern District of Michigan. The bankruptcy appeal was referred for a Report and Recommendation ("R & R") to the Honorable Virginia M. Morgan, United States Magistrate Judge. On November 19, 2008, the magistrate judge issued her R & R, recommending that the decision of the bankruptcy court be reversed and the case be remanded to the bankruptcy court for a decision on the merits of the request for certain attorney fees. At that time, the magistrate judge notified the parties that any objections must be filed within ten days of service. The appellee Kevin Adell filed timely objections.

Shortly before the magistrate judge issued her R & R, Adell filed a motion for partial dismissal of the appeal. Since the motion for partial dismissal was related to the underlying issues in the bankruptcy appeal, the motion was referred to the magistrate judge. On March 12, 2009, the magistrate judge issued a second R & R recommending that the motion for partial dismissal be denied. Adell again filed timely objections.

For the reasons stated below, the Court overrules both sets of objections presented by Adell, adopts both of the magistrate judge's R & Rs in a manner not inconsistent with this Order, and reverses the decision of the bankruptcy court, remanding this case for a decision on the merits of the request for attorney fees.

STANDARD OF REVIEW

The Court's standard of review for a magistrate judge's Report and Recommendation depends upon whether a party files objections. If a party objects to portions of the Report and Recommendation, the Court reviews those portions de novo. 28 U.S.C. § 636(b)(1) (C); Fed. R.Civ.P. 72(b)(3). De novo review in these circumstances requires at least a review of the evidence before the magistrate judge; the Court may not act solely on the basis of a magistrate judge's Report and Recommendation. See 12 Wright, Miller & Marcus, Federal Practice and Procedure: Civil 2d § 3070.2 (1997); see also Hill v. Duriron Co., 656 F.2d 1208, 1215 (6th Cir.1981). After reviewing the evidence, the Court "may accept, reject, or modify, in whole or in part, the findings or recommendations" of the magistrate judge. 28 U.S.C. § 636(b)(1) (c). Here, the appellee Adell has filed objections; accordingly, a de novo review is required.

When a bankruptcy court decision is appealed to the district court, the bankruptcy court's findings of fact are reviewed under a "clearly erroneous" standard, while the bankruptcy court's legal conclusions are reviewed de novo. Investors Credit Corp. v. Howard P. Batie (In re Batie), 995 F.2d 85, 88 (6th Cir.1993).

ANALYSIS

This case involves a lengthy and complicated legal battle between JRH and Kevin Adell which has spanned many years and many jurisdictions. The dispute now before the Court arises out of a June 2002 involuntary bankruptcy petition filed by Adell against JRH in the United States Bankruptcy Court for the Eastern District of Michigan. In that case, based on a series of egregious actions on the part of Adell, the bankruptcy court ruled that Adell had filed the involuntary petition in bad faith, and consequently, the involuntary petition was dismissed. Pursuant to 11 U.S.C. § 303(i), upon the dismissal of the involuntary petition, the bankruptcy court awarded judgment in JRH's favor and against Adell in the following manner: $4,100,000 in compensatory damages, $2,000,000 in punitive damages, and $313,230.68 in attorney fees and costs. This judgment was later affirmed by the United States District Court for the Eastern District of Michigan and the United States Court of Appeals for the Sixth Circuit.

Following the entry of the judgment, Adell allegedly attempted to avoid payment of the judgment by, among other things, using his Michigan assets to purchase a $2.8 million Florida house, unsuccessfully claiming Florida's homestead exemption, filing for Chapter 11 bankruptcy in a Florida bankruptcy court, and then later converting his Florida Chapter 11 bankruptcy case to a Chapter 7 case. After all of the actions in Florida were dismissed, Adell paid the judgment in full on April 3, 2006.

On April 21, 2006, HMSC, the law firm representing JRH, filed a "Second Application for Compensation of Attorney Fees and Expenses" in the Michigan bankruptcy court for the amount of $1,712,974.04. In the application, HMSC sought those attorney fees and costs which were incurred after the entry of the original judgment dismissing the involuntary petition, and which were incurred in the attempt to recover the judgment through the many subsequent cases and appeals occurring in Michigan and in Florida. The bankruptcy court denied the application, stating:

[HMSC] not only seeks attorney fees and costs for the appeals, but for all fees and costs incurred trying to collect the judgment. HMS & C has offered no legal support for this request. In light of the caselaw to the contrary, the Court must deny its application for a second award of attorney fees and costs.

In re John Richards Homes, Co., L.L.C., No. 02-54689-R, 2006 WL 3228523, at *2 (Bankr.E.D.Mich. Sept.21, 2006). The appellants HMSC and JRH appealed that decision, arguing that the bankruptcy court erred in finding that it could not award attorney fees and costs incurred while trying to collect the judgment. In her R & R, the magistrate judge found that under § 303(i), a party could seek an award of post-judgment attorney fees. Accordingly, the magistrate judge recommended that the bankruptcy court ruling be reversed and remanded for a decision on the merits. The appellee Adell objected, arguing, among other things, that there is no jurisdiction to consider attorney fees and that § 303(i) does not provide for the granting of post-judgment attorney fees.

The Court has conducted a de novo review of the record, including the extensive briefings submitted by the parties. Upon this review of the record and of the relevant case law, the Court finds that Adell's objections are without merit and that the reasoning of the magistrate judge is sound and correct.

As a preliminary matter, the Court finds that the magistrate judge was correct in concluding that the bankruptcy court retains jurisdiction to consider attorney fees after the dismissal of the involuntary petition. The consideration of attorney fees is a core proceeding arising in a case under title 11, as described by 28 U.S.C. § 157, as it is inextricably intertwined with the bankruptcy case itself, which is undoubtedly a core proceeding. Bankruptcy courts retain jurisdiction of core proceedings following the dismissal of the underlying case and following the payment of the judgment. As the magistrate judge correctly demonstrated in her R & R, case law supports this conclusion. See, e.g., In re Cooper School of Art, Inc., 709 F.2d 1104, 1105-06 (6th Cir.1983) ("When a bankruptcy court dismisses a petition for involuntary proceedings under Chapter XI for failure to join three or more creditors it does not lose jurisdiction for the purpose of awarding costs and attorney fees."). Adell's arguments that there is no jurisdiction or standing because this is not a core proceeding and because the application was filed not by JRH but by HMSC after the payment of the judgment are entirely unpersuasive.

Satisfied that the bankruptcy court has jurisdiction to consider an application for attorney fees after the dismissal and satisfaction of the judgment of an involuntary petition, the Court now considers the primary question at issue: whether § 303(i) permits the award of post-judgment attorney fees.

The relevant statute states:

If the court dismisses a petition under this section other than on consent of all petitioners and the debtor, and if the debtor does not waive the right to judgment under this subsection, the court may grant judgment—

(1) against the petitioners and in favor of the debtor for—

(A) costs;

(B) a reasonable attorney's fee; or

(2) against any petitioner that filed the petition in bad faith, for—

(A) any damages proximately caused by such filing; or

(B) punitive damages.

11 U.S.C. § 303(i). Although this statute clearly permits the award of attorney fees when a court dismisses an involuntary petition and issues judgment, the language is not definitive in addressing whether an award of attorney fees can be made for proceedings subsequent to the dismissal and judgment. Since the Sixth Circuit Court of Appeals has not spoken on this issue, the magistrate judge conducted an extensive survey of the case law applying § 303(i). Although there was competing case law, the magistrate judge found that the majority of cases interpreted § 303(i) to permit the award of attorney fees and costs that were incurred after the dismissal of the petition. See In re Advance Press & Litho, Inc., 46 B.R. 700, 703 (Bankr.D.Colo.1984); In re Petrosciences Intern., Inc., 96 B.R. 661, 665 (Bankr. N.D.Tex.1988); In re Atlas Mach. and Iron Works, Inc., 190 B.R. 796, 803-04 (Bankr.E.D.Va.1995); In re Glannon, 245 B.R. 882, 894 (D.Kan.2000). The magistrate judge also found that this interpretation comported with the apparent legislative intent of the statute and with the public policies that the statute was meant to advance. After its...