In re Murrin, s. 09–38182

• Decision Date: 04 January 2012
• Docket Number: Nos. 09–38182,09–38183.,s. 09–38182
• Citation: 461 B.R. 763
• Parties: In re John Owen MURRIN, III, Debtor.In re Devonna Kae Murrin, Debtor.
• Court: U.S. Bankruptcy Court — District of Minnesota

461 B.R. 763

In re John Owen MURRIN, III, Debtor.In re Devonna Kae Murrin, Debtor.

Nos. 09–38182

09–38183.

United States Bankruptcy Court, D. Minnesota.

Jan. 4, 2012.

Kenneth E. Keate, Tax and Bankruptcy Attorney, P.L.C., Saint Paul, MN, for Debtor.

MEMORANDUM DECISION ON CONTESTED INVOLUNTARY PETITIONS FOR RELIEF UNDER CHAPTER 7

GREGORY F. KISHEL, Chief Judge.

These cases under Chapter 7 were commenced by involuntary petitions. The Debtors filed answers and contested the petitions. Ultimately, a trial was convened on the petitions; it lasted for two days. Appearances for the petitioning creditors were Peter C. Brehm, for Terri Hanson; Robert M. Smith for Glen Smogoleski; Kevin S. Sandstrom for Toni Klatt; Shawn Shiff for Peder Davisson, Dennis DeSender, and Davisson & Associates, P.A.; Stanford P. Hill for Edina Realty, Inc.; and Patrick J. Neaton for Colleen Turgeon. The Debtors appeared personally and by their attorney, Kenneth E. Keate. The following memorandum sets forth the disposition of the issues presented, on the evidence received and the arguments of counsel.

INTRODUCTION

This is another instance where the parties have been at it a long time, at all levels of the Minnesota state courts and now in the federal forum of bankruptcy.

John O. Murrin, III is an attorney at law. At relevant times, he was licensed to practice in the states of Minnesota and California, and other jurisdictions. Early in his career he got considerable attention in the Minneapolis–St. Paul metropolitan area by founding and operating one of the first “legal clinic” operations in Minnesota, holding forth under the trademarked advertising designation of “DIAL L–A–W–Y–E–R–S.” More recently, he practiced litigation on the plaintiff's side, in personal injury and other sorts of cases.

In August, 2004, John Murrin and his wife Devonna invested some $600,000.00 in Avidigm Capital Group, Inc. (“Avidigm”). Avidigm was a vehicle for speculation in real estate, at least in part through “foreclosure prevention” activity and trafficking in distressed real estate. For their investment, the Murrins received a promissory note and the promise of security for it.

The Murrins received $187,000.00 in interest payments from Avidigm. However, the operations of Avidigm did not go well in the longer term, and eventually they ceased. In 2007, the Murrins commenced suit in the Hennepin County District Court against Avidigm and 45 other named defendants, individual and corporate. John Murrin represented himself and his wife in commencing the litigation. Later, one Christopher LaNave, a California-based attorney, undertook to represent Devonna Murrin on a pro hac vice basis.

The Murrins had mixed outcomes from the litigation. On the one hand, they extracted settlements from several of the defendants, to the tune of $707,000.00 in total.¹ On the other, they continued to prosecute their litigation against the remaining defendants. Among those remaining opponents were the petitioning creditors for these bankruptcy cases.

Many of the remaining defendants in the state-court litigation professed to have had no more than a lower clerical or administrative capacity in Avidigm or a tangential, contractual relationship with it during its period of operation. Some of them commenced their employment affiliation with Avidigm after the acts through which the Murrins were induced to make their investment. At least some of the ongoing defendants were of very modest employment and financial means.

The litigation proceeded through fits and starts, including three attempts by the Murrins to amend their complaint and multiple other proceedings.²

Ultimately, by order dated June 13, 2008, the Hennepin County District Court (D. Reilly, J.) terminated the Murrins' lawsuit adversely to the Murrins, as to all of the remaining defendants.³ Depending on the defendant and the particular claim, the termination was via dismissal under Minn. R. Civ. P. 12.02(e) (for failure to state a claim on which relief could be granted); via summary judgment under Minn. R. Civ. P. 56.02; or dismissal under Minn. R. Civ. P. 12.05 and 41.02 (for failure to comply with the pleading requirements of Minn. R. Civ. P. 8.01). The Murrins appealed from the resultant judgment, but they were unsuccessful. Murrin v. Mosher, No. A08–1418, 2009 WL 2366119 (Minn.Ct.App. Aug. 4, 2009) (unpubl.), review denied (Minn. Oct. 28, 2009). The Minnesota Court of Appeals later granted costs and disbursements to the appellees and against the Murrins.⁴

After the dispositive rulings from the trial court, several of the defendants made motions for imposition of sanctions on the Murrins. Judge Reilly granted those motions, by order dated December 2, 2008. She made individual awards of attorney fees and costs to each movant. In total, the awards came to $431,966.38 in attorney fees and $32,484.86 in costs and disbursements.

The vehicle for this disposition was the HCDC order of 12/8/08, which was 73 pages long. In opening her substantive treatment of the motions, Judge Reilly held and found:

Plaintiffs ... brought suit against Avidigm and a number of other parties, most of whom have no apparent connection to Plaintiffs' lost investment, including Edina Realty, Ms. Hanson, the Smogoleski Defendants, Ms. Turgeon, Ms. Klatt, and the Davisson and DeSender Defendants. Despite Plaintiffs' voluminous submissions to the Court, nearly a year of litigation, and considerable effort on the part of the Court to divine the facts of the case, Plaintiffs have presented no evidence that these moving Defendants are legally responsible for Plaintiffs' claimed loss.

Additionally, Plaintiffs have now been fully compensated for their claims. This lawsuit stems from Plaintiffs' loan of $600,000 to Avidigm on September 1, 2004. By their own admission, Plaintiffs have received, or will soon receive, settlement payments from other Defendants in the aggregate amount of $707,000. [John] Murrin admitted in his deposition that he had recovered settlement payments in the following amounts: $40,000 from Chuck Senn, $57,000 from U.S. Federal Credit Union, $190,000 from Abdo Eick and Meyers, $35,000 from Jason Fischer, and $70,000 from Matthew Mosher. Additionally, Plaintiffs testified in their depositions that they have received seventeen monthly interest payments of $11,000 each, for a total of $187,000. Plaintiffs had been fully compensated for any loss associated with their investment with Avidigm and suffered no damages as of the date of the Court's Order dismissing the case.

HCDC order of 12/8/08, at 7. On December 23, 2008, judgments were entered on the awards of attorney fees.⁵ After that, on motion of Edina Realty, Inc. and the Davisson/DeSender parties, the Hennepin County District Court adjudicated the Murrins in contempt in connection with post-judgment collection procedures begun by those movants. The Murrins appealed from the judgments and the contempt adjudications. All of these appellate proceedings were consolidated by the Minnesota Court of Appeals.⁶

While that appeal was pending, four of the recipients of the awards of attorney fees joined and filed involuntary petitions under 11 U.S.C. § 303 against the Murrins, for relief under Chapter 7. The petitions were styled separately and two cases were opened by the clerk. After that, several other state-court defendants joined the involuntary petitions in both cases.⁷

The resort to involuntary bankruptcy in the mid-stages of an appellate process in the state courts was questioned from the bench early in these cases. The response from the petitioning creditors was that an investigation had revealed that John Murrin had transferred several hundred thousand dollars to his aged mother in late 2008 and that the availability of a key bankruptcy remedy—avoidance of a transfer to an insider—might otherwise have been lost, had the involuntary petition been deferred even a few months.

The Murrins' response to the involuntary petitions was a motion to dismiss, e-filed by their bankruptcy attorney a few hours before relief would have been ordered by default. The Murrins raised two issues via the motion: lack of standing in the petitioning creditors, i.e., a bona fide dispute over the Murrins' liability to the petitioning creditors, 11 U.S.C. § 303(b)(1); and improper venue of these cases, 28 U.S.C. § 1408(1). The Murrins requested an award of punitive damages and attorney fees on the ground of bad faith on the part of the petitioning creditors.

At the first hearing on that motion, the parties stipulated to a grant of relief from stay to allow the proceedings in the Minnesota Court of Appeals to go forward. The Court determined that multiple fact issues were implicated by the theories of the Murrins' motion, and ordered an evidentiary hearing after opportunity for discovery. Ultimately, proceedings on the Murrins' motion were rolled into the proceedings on the petitions themselves. The Murrins' answers to the involuntary petitions queued up a third issue, the propriety of ordering relief, i.e., whether the Murrins were “generally not paying [their] debts as they became due,” 11 U.S.C. § 303(h)(1).

The evidentiary hearing was continued once on stipulation and once on the parties' acquiescence, to permit the Murrins to place new issues before the Court.⁸ The Court acquiesced to that without enthusiasm. It was also the thought of the parties that certain issues might be narrowed or resolved when the Minnesota Court of Appeals issued its decision. All parties recognized that awaiting the outcome of a petition to review the decision of the Court of Appeals could further delay this matter, but they professed to be okay with that. Expressly recognizing the tension with Fed. R. Bankr.P. 1013, the Court again acquiesced to carry over this matter if that happened—out of the hope that a firm result in the state appellate process would directly bear on the issue under § 303(b)(1), if nothing else.

The ...