In re Just Brakes Corporate Systems, Inc., 01-2852.

• Decision Date: 12 June 2002
• Docket Number: No. 01-2852.,01-2852.
• Citation: 293 F.3d 1069
• Parties: In re JUST BRAKES CORPORATE SYSTEMS, INC., Debtor. David A. Sosne, Trustee, Plaintiff-Appellant, v. Reinert & Duree, P.C., et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

293 F.3d 1069

In re JUST BRAKES CORPORATE SYSTEMS, INC., Debtor David A. Sosne, Trustee, Plaintiff-Appellant, v. Reinert & Duree, P.C., et al., Defendants-Appellees.

No. 01-2852.

United States Court of Appeals, Eighth Circuit.

Submitted: January 14, 2002.

Filed: June 12, 2002.

Rehearing and Rehearing En Banc Denied July 15, 2002.

Appeal from the United States Bankruptcy Court for the Eastern District of Missouri, James J. Barta, J Steven M. Hamburg, argued, St. Louis, MO, for appellant.

David Maxwell Duree, argued, St. Louis, MO, for appellee.

BEFORE: LOKEN, RICHARD S. ARNOLD, and MURPHY, Circuit Judges.

LOKEN, Circuit Judge.

This is an action by a Chapter 7 bankruptcy Trustee to recover damages from certain judgment creditors for violating the automatic stay. In a prior appeal, we upheld a ruling that Defendants had violated the automatic stay but concluded that the Trustee's proper remedy was limited to compensatory damages and remanded for a determination of those damages. In re Just Brakes Corp. Sys., Inc., 108 F.3d 881 (8th Cir.), cert. denied, 522 U.S. 947, 118 S.Ct. 364, 139 L.Ed.2d 283 (1997). On remand, the bankruptcy court awarded the Trustee the proceeds at issue without determining whether the underlying asset was part of the bankruptcy estate. On appeal, the district court held that this ruling violated the law of the case established by our prior decision and entered judgment for the Defendants. The Trustee appeals. We agree with the district court that the bankruptcy court's ruling violated our prior remand directions. But we conclude the Trustee established that the asset in question was part of the bankruptcy estate. Accordingly, we reverse and order the bankruptcy court's judgment reinstated.

In January 1991, Just Brakes Corporate Systems, Inc. assigned a registered trademark, its only valuable asset, to FGR Management, Inc., a corporation whose president was a shareholder and director of Just Brakes. Defendants sued to have the conveyance set aside as fraudulent to Just Brakes creditors. The state court enjoined Just Brakes from making further transfers and ordered a foreclosure sale of the trademark to satisfy Defendants' prior judgment against Just Brakes. The foreclosure sale was scheduled for October 15, 1991. That morning, Just Brakes commenced this Chapter 7 proceeding, thereby triggering the automatic stay of actions by its creditors to enforce prior judgments or to collect prior claims against Just Brakes or its estate. See 11 U.S.C. § 362(a).

The state court allowed the foreclosure sale to proceed over the objection of FGR Management, with the proceeds to be held in escrow while the parties litigated the validity of the sale and rights to the sale proceeds. The trademark was sold for $105,000. Defendants then moved the state court to award them the net sale proceeds of $100,717, an action that violated the Chapter 7 automatic stay. The state court granted the motion, Defendants were paid the proceeds, and the Trustee commenced this action under § 362(a) to recover the proceeds for the bankruptcy estate. The Trustee also asserted avoidance claims against Defendants and FGR Management seeking to recover the trademark and its proceeds under 11 U.S.C. §§ 547-550. However, the Trustee later dismissed those claims.

The bankruptcy court ordered Defendants to pay the net proceeds of $100,717 into the bankruptcy estate as compensatory or punitive damages for violating the automatic stay. On appeal, we concluded the Trustee is limited to compensatory relief under 11 U.S.C. § 362(a). We ordered the sale proceeds paid into escrow and remanded for determination of compensatory damages. The value of the trademark was not necessarily an appropriate compensatory remedy, we observed, because the Trustee had "never established his right to avoid the debtor's pre-petition transfer and recover the trademark or its value for the estate." In re Just Brakes, 108 F.3d at 885. We further noted that Defendants' violation of the automatic stay may have caused the Trustee to incur additional litigation expenses. We encouraged the bankruptcy court to revisit that issue "after the avoidance issues are finally resolved." Id. at 886.

On remand, Defendants took the position that what we had referred to as "the avoidance issues" could only be determined in a separate avoidance proceeding, and that any such proceeding if commenced by the Trustee would be time-barred. The contention is patently wrong. In this timely proceeding under § 362(a), liability was established on the first appeal, and we remanded for a determination of the Trustee's damages. That determination was to be made in this proceeding, whether or not it involved issues that, absent Defendants' violation of the automatic stay, would have been litigated in a separate avoidance proceeding. We held that the Trustee had to prove the trademark was part of the bankruptcy estate before the full sale proceeds could be awarded as compensatory damages for Defendants' violation of the automatic stay. We did not hold that the Trustee had to bring new avoidance claims under 11 U.S.C. §§ 547-550, or otherwise replead those claims, in order to establish the estate's property interest for purposes of this § 362(a) proceeding. Unfortunately, the bankruptcy court, the district court, and to a large extent the Trustee accepted Defendants' position in this regard, which caused the proceedings on remand to become seriously misdirected.

Before the bankruptcy court on remand, the Trustee sought to avoid Defendants' mistaken contention by arguing that the bankruptcy court need not address the avoidance issues at all. It was "implicit in the Eighth Circuit Opinion" that the trademark was part of the bankruptcy estate, the Trustee asserted, because there could be no violation of the automatic stay unless the proceeds were derived from a sale of the estate's property. This contention, too, was patently wrong. In the first appeal, we squarely held that we did not need to decide whether the trademark or its proceeds were property of the bankruptcy estate because Defendants violated § 362(a)(6) by taking post-petition action to collect their pre-petition judgment from the trademark proceeds, and that violation "prejudiced the Trustee's ability to litigate a competing avoidance claim on behalf of all creditors." 108 F.3d at 884. Because the avoidance issues were therefore unresolved, we directed the Trustee to prove on remand that the trademark was in fact property of the bankruptcy estate if he wished to recover its proceeds as compensatory damages in this § 362(a) proceeding.

Faced with these competing erroneous contentions, the bankruptcy court concluded that the Trustee is entitled to recover the sale proceeds because the trademark and its proceeds were subject to an avoidance action by the Trustee that "...