In re Johnson, Case No. 16-10798
| Citation | 599 B.R. 587 |
| Decision Date | 12 April 2019 |
| Docket Number | Case No. 16-10798 |
| Parties | IN RE Terry Roscoe JOHNSON, Debtor |
| Court | United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Southern District of Ohio |
Kyle David Murray, Rebold Larkin Murray LLC, Cincinnati, OH, for Plaintiff.
Robert A Goering, Cincinnati, OH, for Defendant.
This matter is back before the bankruptcy court after nearly two years of protracted litigation in state court. The present case falls between the interstices of state and federal court jurisdiction. This occasionally happens when, as here, an order by a bankruptcy court is entered which modifies, annuls, and outright terminates the automatic stay under 11 U.S.C. § 362(d). As in this case, stay relief orders are very often entered so that a state court can liquidate causes of action by converting them into liability, or in bankruptcy parlance, debt, that later can be resolved in federal court through either an adversary proceeding or contested matter on an objection to a proof of claim.1 11 U.S.C. §§ 501 - 502 ; see Rules 3001-3007; 7001-87 and 9014.
Rather than return to the bankruptcy court for clarification of the order lifting the stay as they should, the parties instead have used the automatic stay as a cudgel to defend or pursue causes of action and counterclaims in the state court litigation – all the while contending that the other side has run afoul of the stay relief order for which contempt sanctions ought to be leveled.2 As noted, after nearly two years of back and forth and constant bickering during discovery and in court proceedings between the attorneys, the parties were finally ordered by the state court to return to the bankruptcy court for a determination on whether the automatic stay bars continuation of certain causes of action. (Doc. 96, Ex. 62).
Before the Court is the Motion to Enforce the Automatic Stay and for Sanctions and Attorneys Fees (the "Motion") (Doc. 86) filed by the Debtor Terry R. Johnson (the "Debtor") against Jeannette Crain and Joyce Chiles (the "Creditors"), who are plaintiffs in the state court litigation and also creditors of the bankruptcy estate. See 11 U.S.C. § 362 (k)(1). In 2016, the Creditors brought suit in state court seeking to dissociate the Debtor under Ohio's version of the Revised Uniform Partnership Act, and to recover monetary damages against him and his brother in a civil action. In the original complaint the Creditors asserted that the Debtor had engaged in fraud and other misconduct governed by state law while serving in dual capacities as managing partner of the E.T. Building Partnership ("the Partnership") and president for Enterprise Travel, Inc. ("Enterprise Travel"). The Partnership and Enterprise Travel were separate but related entities which at one point had been co-owned by the parties embroiled in this dispute.
In essence, this Court is being asked to determine the scope of its previous order terminating the automatic stay (Doc. 59)(the "Order for Relief"). The Debtor accuses the Creditors and their attorneys of committing some 59 violations of the automatic stay in state court. Much of the confusion stems from the failure by the attorneys for both sides to develop an appropriate record at the initial hearing prior to the Court entering the Order for Relief.3 Because the original state court complaint was not presented, this Court did not have the opportunity to review it or any of the other relevant evidence at the first hearing. The Court has now had the opportunity to review the original state court complaint that was filed on January 26, 2016 and the other evidence surrounding it.
For the reasons that follow, the Court concludes that the Motion currently before it seeking enforcement of the automatic stay, recovery of attorneys fees and other monetary relief is not well taken, and is hereby DENIED . Moreover, the Court determines that relief from the automatic stay is granted as to all causes of action contained in the original and amended state court complaints without regard for whether the alleged debt is owed to the Partnership or to Enterprise Travel.4
To be clear, the automatic stay in this proceeding has already been modified, annulled, and terminated. (Doc. 59). Because the record had been inadequately developed at the initial hearing on this matter two years ago, the bankruptcy court's previous Order for Relief may not have been a paragon of clarity or offered much guidance to the state court. Nevertheless, the Court concluded in the Order for Relief that the state court is permitted to fully adjudicate and reduce to judgment all claims related to "how the partnership proceeds from the sale of the real estate should be distributed pursuant to the mortgage , the E.T. Building Partnership Agreement and Ohio Partnership Act ," as the Creditors had requested. (Emphasis added). (Doc. 59). In other words, under the Order for Relief, the parties were free to obtain discovery regarding any non privileged matter relevant to either of the parties' claims or defenses: Similarly, the parties were permitted to continue prosecution of the state court litigation, with reference to the comprehensive remedies available under the Ohio Revised Partnership Act, should that court find the Debtor liable under that statute.
The attorneys for the Debtor make much of the fact that the bankruptcy court's prior order terminating the stay directed the following: "The Motion for Relief from Stay, seeking to have the state court wind up the ET Building Partnership and rule on the proper distribution of the proceeds from the sale of the Partnership's real estate, among other items which may be adjudicated under Ohio Rev. Code § 1776 is GRANTED ." (Doc. 59).
The Debtor's counsel argues strenuously that the Creditors violated the automatic stay by pursuing collection on a claim that arose before the commencement of the bankruptcy case in contravention of 11 U.S.C. § 362(a)(1). As the argument goes, the quoted language from the order somehow limits the Creditors' ability to obtain discovery regarding the Debtor's alleged misconduct while serving as president of Enterprise Travel. The Debtor's counsel contends that Enterprise Travel is a separate entity from the Partnership, and thus cannot be part of the Partnership wind up proceedings, and any underlying causes of action or claims for relief that the Creditors may be attempting to pursue against the Debtor for those activities are barred.
In sum, counsel would have the bankruptcy and state courts believe that all claims tied to the Debtor's alleged wrongful conduct associated with Enterprise Travel remain subject to the automatic stay. According to the Debtor's counsel, the Creditors violated the stay by continuing the portion of the litigation in state court which seeks recovery against the Debtor for his alleged misconduct while head of Enterprise Travel and that these multiple stay violations warrant a contempt citation and an order requiring payment of the Debtor's attorneys fees and punitive damages. See 11 U.S.C. § 362(k).
The Debtor's attorneys' reliance on the quoted portion of the bankruptcy court's prior Order for Relief for the proposition that the automatic stay limits the Creditors' ability to inquire into and to seek a judgment against the Debtor based on his alleged misconduct at Enterprise Travel is misplaced. As will be explained in Part B below, relief from the automatic stay is granted as to the state-law, fraud-based claims of Enterprise Travel, and therefore all information and allegations related to such matters are directly relevant to their causes of action against the Debtor.
Even under the Debtor's counsel's strained interpretation of the previous Order for Relief, this Court fails to find any violation of the automatic stay. To understand why the automatic stay was not violated and why the bankruptcy court will not, in this case, enforce the stay in the manner sought by the Debtor's counsel, the Court must delve once more into Ohio's version of the Revised Uniform Partnership Act. During oral argument, Counsel for the Debtor argued assiduously that Ohio's version of the Revised Uniform Partnership Act does not prevail over the written terms in the parties' Partnership Agreement (Doc. 96, Ex. 1). That contention, however, is only partly accurate.
Paragraph 1.1 of the parties' Partnership Agreement states that "the partners constitute a General Partnership formed pursuant to the Uniform Partnership Act of the State of Ohio ." (Emphasis added)(Doc. 96, Ex. 1). Moreover, the Ohio law on this subject, Ohio Rev. Code § 1776.03, in relevant part, further provides:
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