In re Nicole Gas Prod., Ltd.

Decision Date26 September 2014
Docket NumberNo. 09–52887.,09–52887.
Citation519 B.R. 723
CourtU.S. Bankruptcy Court — Southern District of Ohio

Clifford O. Arnebeck, Jr., Columbus, OH, Anne Owings Ford, McDonald Hopkins LLC, James Allison Lowe, Cleveland, OH, for Interested Party.

Rick L. Ashton, J. Matthew Fisher, Allen Kuehnle Stovall & Neuman LLP, Christy Prince, Kegler, Brown, Hill & Ritter, LPA, Timothy S. Rankin, Onda, LaBuhn, Rankin & Boggs Co., LPA, Derek L. Graham, Larry J. McClatchey, Arnold S White, Columbus, OH, Lee M. Brewer, Alber Crafton, PSC, Westerville, OH, Sara J. Daneman, Blacklick, OH, for Creditor.

Brenda K. Bowers, Frederick L. Ransier, Columbus, OH, for Trustee.


JOHN E. HOFFMAN, JR., Bankruptcy Judge.

I. Introduction

About a year before his death, Freddie Fulson sued Columbia Gas Transmission, LLC and three of its affiliates in state court for alleged violations of the Ohio Corrupt Practices Act. His attorneys, Robert Sanders and James Lowe, filed the complaint commencing the lawsuit, seeking damages based on injuries the purportedly corrupt activities allegedly caused two companies Fulson had founded, including Nicole Gas Production, Ltd., or NGP, which is the debtor in this Chapter 7 case. Sanders and Lowe filed the lawsuit even though Frederick Ransier, the trustee of NGP's bankruptcy estate, was seeking authority from this Court to settle all of NGP's claims against the Columbia Gas entities.

Ransier contends that the lawsuit asserts claims that are property of NGP's bankruptcy estate and that, by commencing and pursuing the suit, Fulson, Sanders and Lowe violated the automatic stay. In their defense, Sanders and Lowe argue—as did Fulson before his death—that the claims belonged to Fulson personally, not to NGP's bankruptcy estate.

For the reasons explained below, the Court concludes that the claims belong to NGP's estate and that Fulson, Sanders and Lowe violated the automatic stay and were in contempt of Court when they commenced and continued the state court action. Having determined that Fulson, Sanders and Lowe engaged in contemptuous conduct, the Court also establishes procedures for determining the amount of damages Ransier may recover on behalf of NGP's estate.

II. Jurisdiction and Constitutional Authority

The Court has jurisdiction to hear and determine this contested matter pursuant to 28 U.S.C. §§ 157 and 1334 and the general order of reference entered in this district. This is a core proceeding. See 28 U.S.C. § 157(b)(2)(A) and (O).

The Court also must evaluate whether it has the constitutional authority to enter a final order in this contested matter after Stern v. Marshall, –––U.S. ––––, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). By this opinion and order, the Court finds that Fulson, Sanders and Lowe (“Fulson Parties) violated the automatic stay. “There is no question that bankruptcy court[s] continue[ ] to have the authority to enter judgment on [trustees'] claims for violation of the automatic stay[,] post-Stern, because “the automatic stay is fundamental to the bankruptcy system enacted by Congress.” Loveridge v. Hall (In re Renewable Energy Dev. Corp. ), 500 B.R. 77, 93 (D.Utah 2013) ; see also Tow v. Henley (In re Henley ), 480 B.R. 708, 765 (Bankr.S.D.Tex.2012) ([T]he requested relief—that the ... Carooms be found in violation of the automatic stay—is unique to the Code. Such relief is not possible to obtain under state law. As a result, this Court concludes that Stern is inapposite, and this Court is constitutionally authorized to enter a final judgment regarding the disputes at bar.”). In order to determine whether the Fulson Parties violated the automatic stay, the Court must determine whether the claims Fulson asserted in the state court case are property of NGP's bankruptcy estate. The Court has the authority to determine whether the claims are property of the estate even if, as here, “making that determination require[s] the bankruptcy court to apply state law” because [t]his is an essential part of administration of the bankruptcy estate and stems from the bankruptcy itself.” Velo Holdings Inc. v. Paymentech, LLC (In re Velo Holdings Inc. ), 475 B.R. 367, 387 (Bankr.S.D.N.Y.2012).

The Court also has the constitutional authority to enter a final order holding the Fulson Parties in contempt and awarding sanctions to Ransier to compensate NGP's estate for damages caused by that contempt.1 See In re Brown, 511 B.R. 843, 848 (Bankr.S.D.Tex.2014) (holding that bankruptcy courts have the constitutional authority to impose sanctions for contempt after Stern ); In re Green, No. 12–13410, 2014 WL 1089843, at *1 (Bankr.N.D.Ohio Mar. 19, 2014) (same); Schermerhorn v. CenturyTel, Inc. (In re Skyport Global Commc'ns ), No. 08–36737–H4–11, 2013 WL 4046397, at *41 (Bankr.S.D.Tex. Aug. 7, 2013) (same).

III. Procedural Background

In January 2013, Fulson commenced a lawsuit (2013 State Court Case) against Columbia Gas Transmission, LLC (“TCO”); Columbia Gas of Ohio, Inc.; Columbia Gas of Pennsylvania, Inc. and Columbia Gas of Kentucky, Inc. (collectively, “Columbia Gas Entities”). The complaint commencing the lawsuit (“Complaint”) was filed in the Court of Common Pleas of Franklin County, Ohio (“State Court) and identified Sanders and Lowe as Fulson's counsel.

This matter is before the Court on Ransier's motion (“Motion”) (Doc. 119) requesting that the Court enter an order directing the Fulson Parties to “appear and show cause as to why each should not be held in civil contempt and sanctioned for violating the automatic stay” by filing the Complaint and an amended complaint (“Amended Complaint”). Mot. at 10.2 The Fulson Parties filed a response to the Motion (“Fulson Parties Response”) (Doc. 122, with Exhibit 1 filed as Doc. 124). The Fulson Parties Response acknowledged that “Mr. Lowe, with Mr. Sanders of counsel, filed” the Complaint on behalf of Fulson. Fulson Parties Resp. at 1. They also stated that they had “carefully considered whether the filing of the [Complaint] would violate the automatic stay in this case and concluded, in good faith, that it would not[,] id., but did not cite any statutory or case law authority supporting this conclusion.

Ransier filed a reply (“Ransier Reply”) (Doc. 125) and, in accordance with an order the Court entered granting their motion to file a further reply, the Fulson Parties filed a surreply in which they continued to assert that filing the Complaint did not violate the automatic stay (“Surreply”) (Doc. 132). The only authority they cited was portions of sections 2923.31 – 2923.36 of the Ohio Revised Code, the Ohio Corrupt Practices Act (“OCPA”).

After those documents were filed, the Court entered an order directing the Fulson Parties to appear and show cause why they should not be held in civil contempt and sanctioned for violating the automatic stay (“Show Cause Order”) (Doc. 137).3 The Fulson Parties then filed a document containing a single case as supplemental authority (Doc. 146), Iron Workers Local Union No. 17 Ins. Fund v. Philip Morris Inc., 23 F.Supp.2d 771 (N.D.Ohio 1998), which is discussed below. The only authority Iron Workers was supplemental to was the OCPA, as Iron Workers was the sole case the Fulson Parties had cited at that point.

Sanders filed a motion for reconsideration of the Show Cause Order (“Sanders Motion”) (Doc. 161). Lowe also filed a motion for reconsideration or, alternatively, certification of an issue to the Supreme Court of Ohio (“Lowe Motion”) (Doc. 164). The Court entered an order (Doc. 166) denying the Sanders Motion and the Lowe Motion.

During the hearing on the Motion and the Show Cause Order, the Court, without objection by any party, admitted into evidence the Complaint and the Amended Complaint, a suggestion of stay filed by Ransier in the State Court, the response to the suggestion of stay filed by Fulson and the State Court's order designating the 2013 State Court Case as inactive. The Court also heard the testimony of Ransier, Sanders and Lowe. Fulson attended the hearing but did not testify.

At the conclusion of the hearing, the Court requested post-hearing briefs. In accordance with an order establishing a post-hearing briefing schedule, Ransier filed a brief in support of the Motion (Doc. 178), and Sanders filed a brief in opposition (“Sanders Brief”) (Doc. 182), as did Lowe (“Lowe Brief”) (Doc. 183) and Fulson (“Fulson Brief”) (Doc. 185). Ransier filed a reply brief (Doc. 187). A document was later filed advising the Court and parties in interest that Fulson had died (Doc. 188). On August 6, 2014, Lowe filed a notice (Doc. 190) stating that Fulson's estate had been substituted as the plaintiff in the 2013 State Court Case, effectively substituting it as the party in interest in this contested matter.

IV. Findings of Fact

Based on the evidence adduced at the hearing, including the documentary evidence and the testimony presented, and having considered the demeanor and credibility of the witnesses, the Court makes the findings of fact set forth below.

A. Events Leading to the Filing of the Complaint

The Complaint provides much of the factual background necessary to understand the disputes that led to its filing. TCO owns and operates an interstate natural gas pipeline system in multiple states, and the other Columbia Gas Entities own and operate local distribution systems in certain of those states. Compl. ¶¶ 2–5. In the mid–1990s, the federal government and various states took steps that provided independent gas companies access to the interstate gas pipeline system and local gas distribution systems of companies such as the Columbia Gas Entities. Compl. ¶¶ 12–22. In order to take advantage of the opportunities afforded by this access, Fulson formed NGP and Nicole Energy Services, Inc. (“N...

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