In re Lowenbraun

• Decision Date: 06 July 2006
• Docket Number: No. 05-6032.,05-6032.
• Citation: 453 F.3d 314
• Parties: In re: Stanley LOWENBRAUN, Debtor. Ethel Lowenbraun, Appellant, v. Thomas L. Canary, Jr. and Mapother & Mapother, PSC, Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

453 F.3d 314

In re: Stanley LOWENBRAUN, Debtor Ethel Lowenbraun, Appellant, v. Thomas L. Canary, Jr. and Mapother & Mapother, PSC, Appellees.

No. 05-6032.

United States Court of Appeals, Sixth Circuit.

Argued: May 30, 2006.

Decided and Filed: July 6, 2006.

COPYRIGHT MATERIAL OMITTED

ARGUED:

Bryan N. Coomer, Louisville, Kentucky, for Appellant. Carl D Frederick, Seiller Waterman, Louisville, Kentucky, for Appellees.

ON BRIEF:

Bryan N. Coomer, Louisville, Kentucky, for Appellant. Carl D. Frederick, Paul J. Hershberg, Seiller Waterman, Louisville, Kentucky, for Appellees.

Before: GILMAN, SUTTON, and COOK, Circuit judges.

OPINION

RONALD LEE GILMAN, Circuit Judge.

Ethel Lowenbraun was married to Stanley Lowenbraun, once a successful oncologist who fell into financial ruin due to a gambling addiction. Ethel and Stanley legally separated in 1998, and Stanley filed a Chapter 7 bankruptcy petition shortly thereafter. Thomas Canary, along with his law firm Mapother and Mapother (collectively, Canary), was hired by the trustee of the bankruptcy estate to investigate whether some of the transfers made from Stanley to Ethel pursuant to their legal separation constituted an improper diversion of funds from the bankruptcy estate. In the course of his duties, Canary brought contempt proceedings against Ethel and Stanley.

Ethel subsequently filed suit in a state trial court in Kentucky, accusing Canary of libel, slander, abuse of process, wrongful use of civil proceedings, and outrageous conduct. Canary removed the action to the Bankruptcy Court for the Western District of Kentucky, which decided to retain jurisdiction over the matter despite Ethel's motions for mandatory abstention and for remand to the Kentucky state court. The bankruptcy court held as a matter of law that Canary was entitled to absolute immunity for his statements and, in the alternative, that Canary was entitled to summary judgment on the merits of the case. This decision was affirmed by the district court, and Ethel timely appealed. For the reasons set forth below, we AFFIRM the judgment of the district court.

I. BACKGROUND

In 1998, Stanley and Ethel legally separated and entered into a Property Settlement Agreement. Pursuant to the agreement, Stanley transferred to Ethel an Individual Retirement Account (IRA) worth $1 million and all of his stock in the S.L. Thoroughbreds Corporation, which was valued at approximately $2.5 million.

Stanley filed for Chapter 7 bankruptcy shortly after these transfers. William Lawrence was designated as the bankruptcy trustee. Lawrence's duties as trustee required him to (1) investigate the acts, conduct, assets, liabilities, and financial condition of Stanley, (2) collect and liquidate the property of the estate, and (3) make a final report and distribute the net assets to the estate's creditors. See 11 U.S.C. § 704. Pursuant to 11 U.S.C. § 327(a), Lawrence hired Canary to act as counsel in order to assist Lawrence in the administration of the estate.

Lawrence specifically requested that Canary investigate the IRA and stock transfers made from Stanley to Ethel to determine if the transfers were improper under either the Bankruptcy Code or Kentucky law. After concluding that the transfers were marked with "badges of fraud," Canary filed an adversary proceeding in the bankruptcy court against Stanley and Ethel, alleging that the Bankruptcy Code and Kentucky law prohibited the transfers. As a result of this adversary proceeding, the parties reached an Adversary Proceeding Settlement Agreement (APSA) in August of 2001 in which Ethel agreed to transfer $1.2 million from her IRA to the bankruptcy estate, and the estate agreed to release its claim to the disputed Thoroughbreds Corporation stock.

The APSA provided a particular method for accomplishing the $1.2 million transfer: (1) Ethel was to transfer funds from her IRA to an IRA established in Stanley's name alone, (2) those funds were to be immediately transferred from Stanley's IRA to the estate, and (3) all transfers were to be supervised by a representative of Merrill Lynch. Once the transfers were completed, the trustee agreed to release Ethel from the estate's claims and to dismiss the adversary proceeding. In a Supplemental Property Settlement Agreement (SPSA) entered into in August of 2001, Ethel agreed to accept $6,000 per month from Stanley's disability proceeds in order to compensate her for the $1.2 million transfer.

Ethel transferred the $1.2 million on October 8, 2001. But the parties dispute whether the transaction complied with their agreement and whether Canary knew of the transfer when it was made. Ethel contends that her transfer of the $1.2 million to a "newly-established Merrill Lynch IRA account solely in Stanley's name" fully satisfied "all of her obligations under the said Agreement." She claims that, upon the transfer, the funds immediately were under the control of the bankruptcy estate and that Canary did nothing to protect the funds even though he had actual knowledge of the transaction.

To prove that Canary had actual knowledge of the October transfer, Ethel relies on a letter sent by Jan Morris, Stanley's attorney, to Canary. Morris instructed Canary in the letter to safeguard the funds at Merrill Lynch while they remained in Stanley's account. Specifically, Ethel emphasizes that Morris and Canary entered into a side agreement in which they agreed to delay the transfer of the funds from Stanley's IRA to the bankruptcy estate until February of 2002 in order to avoid the 10% early withdrawal penalty—suggesting that Canary had actual knowledge that Ethel had transferred the funds. Canary also sent a letter to Morris in which he praised "Dr. [Stanley] Lowenbraun's willingness to hold on to the funds for this additional time." Ethel asserts that these documents, taken together, indicate that Canary knew of the transfer.

Canary contends, however, that the documents referred to by Ethel do not conclusively establish his knowledge of the transfer. He offers as proof a letter that he sent to Morris on October 11, 2001—three days after the transfer—in which he stated that to his knowledge the transfer had not yet occurred. Canary also highlights language from a draft motion to delay the funding of the settlement that was attached to his letter sent to Morris. In this letter, Canary writes that "the source of the funding of the Trustee's settlement is an IRA account to be transferred from Ethel Lowenbraun to Stanley Lowenbraun." (Emphasis in original.) The draft motion also provided that Ethel and Stanley should prepare "all papers necessary to transfer these funds to the estate effective February 17, 2002." Canary argues that the use of the future tense in the draft motion circulated on November 21, 2001 indicates that he was not aware of the October transfer.

In January of 2002, without the knowledge or consent of the other interested parties and before Canary claims that he knew of the transfer, Stanley withdrew the $1.2 million from the IRA and presumably squandered the funds. Canary, on behalf of the trustee, then brought a contempt proceeding against Stanley and Ethel, alleging that they took the funds in contravention of the APSA. In conjunction with the proceeding, Canary filed an Emergency Motion for Stanley and Ethel Lowenbraun to Pay Over Settlement Funds or to Show Cause Why They Should Not Be Held in Contempt (the Contempt Motion). The Contempt Motion requested that Stanley and Ethel account for the funds or, in the alternative, be held in contempt of court. Canary also faxed a letter to the trustee and to the estate's creditors informing them that the $1.2 million was not accounted for.

Andrew Wolfson, a reporter for the Louisville Courier-Journal, who was following these proceedings, interviewed Canary in conjunction with two articles that were published in the newspaper. Wolfson's articles suggested that Ethel and Stanley had committed bankruptcy fraud, and that Canary was going to refer them to the federal authorities for prosecution.

The parties eventually negotiated a settlement, which was memorialized in the Order Amending Agreed Judgment Resolving Motion to Hold Stanley Lowenbraun and Ethel Lowenbraun in Contempt of Court (Amended Order). In the Amended Order, Ethel agreed to accept a reduced amount of $5,000 per month from Stanley's disability insurance proceeds to compensate her for Stanley's defalcation. Ethel had previously been entitled to $6,000 per month. The estate agreed to accept, among other things, $1 million of the $2 million in life insurance proceeds that will be due upon Stanley's death.

In 2003, Ethel brought suit in a Kentucky state court, alleging that Canary's actions constituted libel, slander, abuse of process, wrongful use of civil proceedings, and the tort of outrage. Ethel relied on allegations made by Canary in both the Contempt Motion and in the Courier-Journal articles as the basis for her state-law tort claims. Canary removed the case to the bankruptcy court. Ethel responded by requesting the bankruptcy court to abstain from hearing the case and to send the matter back to the Kentucky state court. The bankruptcy court denied Ethel's motion.

It held that Canary was entitled to litigation-related immunity from Ethel's state-law claims and, in the alternative, granted summary judgment to Canary on the merits of the case. The district court affirmed. On appeal, Ethel argues that the bankruptcy court erred in denying her motion for mandatory abstention, in failing to remand the case to the Kentucky state court, in granting immunity to Canary for his judicial and extrajudicial statements, and in granting summary judgment to Canary on Ethel's state-law claims.

II. ANALYSIS

A. Standard of review

In an appeal from the bankruptcy court, we directly review the decision of that court rather than the intermediate decision of the district court. In re M.J. Waterman & Associates, Inc., 227 F.3d...