Lee v. McCardle (In re Peeples)
| Decision Date | 14 July 2016 |
| Docket Number | Adversary Proceeding No. 14–2159,Bankruptcy Number: 14–23970 |
| Citation | 553 B.R. 892 |
| Parties | In re: Adam L. Peeples and Jennifer K. Peeples, Debtors. Adrian J. Lee and Angela L.N. Lee, Plaintiffs, v. Scott J. McCardle, an individual, and Scott J. McCardle, trustee of the Jack and Ruth McCardle Trust, Defendants. |
| Court | U.S. Bankruptcy Court — District of Utah |
Adrian James Lee, Salt Lake City, UT, pro se.
Daniel K. Brough, Bennett Tueller Johnson & Deere, Salt Lake City, UT, for Defendants.
R. KIMBALL MOSIER
The central question in this declaratory judgment action is the scope of the automatic stay. This adversary proceeding does not affect Adam and Jennifer Peeples (Debtors), the chapter 7 trustee, or her administration of the bankruptcy estate. Other than the plaintiffs, Adrian J. Lee and Angela L.N. Lee, it does not affect any of the Debtors' creditors. This is a fight between the Lees, or more correctly Adrian Lee (Lee), and a third party, Scott J. McCardle (McCardle). There is no basis for this Court to exercise jurisdiction under 28 U.S.C. § 1334
, except that the Lees contend that they are entitled to protection under 11 U.S.C. § 362.1 The Lees assert that McCardle violated the § 362 stay by obtaining a judgment against Lee after the Peepleses had filed bankruptcy. The Lees argue that the automatic stay is so broad that it stays third-party actions against a creditor simply because the creditor was suing that third party with the subjective intent to recover a claim against the debtor.
The matters before the Court are the Lees' motion for summary judgment, McCardle's motion for summary judgment and McCardle's motion for attorney's fees. Having considered the arguments of counsel, the Joint Statement of Undisputed Facts,2 and the record in this case, the Court makes the following findings and conclusions. This memorandum decision constitutes this Court's statement pursuant to Fed.R.Civ.P. 52(a)
and 56(a) of its reasons for denying the Lees' motion for summary judgment, granting McCardle's motion for summary judgment, and denying McCardle's motion for fees.
The Lees commenced this adversary proceeding, seeking a declaratory judgment that the automatic stay is applicable to a state court proceeding and seeking damages under § 362(k)(l)
. This Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 157(a) and (b) and § 1334. This is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(G), and the Court may enter a final order. Venue is appropriate under 28 U.S.C. § 1409.
The Lees have two state court judgments against the Peepleses. In an effort to enforce these judgments, the Lees obtained writs of garnishment directed to McCardle as trustee of the Jack and Ruth McCardle Trust (Trust). In response to the garnishment interrogatories, the Trust denied holding any of Adam Peeples's property except for a few inconsequential household items. The Trust maintains that Adam Peeples's beneficial interest in the Trust was terminated prior to the garnishment proceedings.
The Trust was created on May 11, 1991 by Jack and Ruth McCardle. Jack and Ruth were the trustees and primary beneficiaries of the Trust. Upon the death of both Jack and Ruth, McCardle was to become the trustee. On June 3, 1993, Jack and Ruth signed a memorandum amending the Trust. Among other things, this memorandum provided that upon the death of both Jack and Ruth, the Trust would be distributed 1/3 to McCardle, 1/3 to Patti Ann Peeples, and 1/3 would be divided equally among Jack and Ruth's grandchildren: Adam L. Peeples, Sarah C. Peeples, and Aaron D. Peeples. Jack died on February 1, 2008. On September 17, 2008, Ruth signed a memorandum purporting to change the Trust to provide that after paying debts, the Trust would be divided equally between McCardle and Patti Ann, thus eliminating the grandchildren's beneficial interests.
Lee took exception to the Trust's answers to the garnishment interrogatories. But instead of continuing with the garnishment proceedings, Lee chose to initiate a lawsuit in the Third Judicial District Court for the State of Utah (State Court Lawsuit) naming McCardle, individually and as trustee of the Trust, as defendant. The State Court Lawsuit asserts three claims: (1) that McCardle exerted undue influence upon his mother, Ruth McCardle, to modify the Trust; (2) rescission of the modifications to the Trust based upon Ruth McCardle's mistaken understanding; and (3) McCardle's breach of fiduciary duty.
McCardle filed a motion for summary judgment on March 23, 2014. The state court granted McCardle's motion for summary judgment, awarded him attorney's fees, and entered an order dismissing Lee's claims (Dismissal Order). The Dismissal Order stated that it did not constitute the state court's final judgment and instructed McCardle to submit a declaration of attorney's fees and costs. McCardle submitted a Declaration of Attorney Fees and Costs and Proposed Final Judgment on March 25, 2014, and a Supplemental Declaration of Fees and Costs on April 11, 2014. The Debtors filed their bankruptcy petition on April 17, 2014.
On April 22, 2014, Lee filed a notice of bankruptcy stay in the State Court Lawsuit and informed McCardle's counsel that the State Court Lawsuit was stayed by virtue of the Debtors' bankruptcy. Notwithstanding the notice of bankruptcy, on May 29, 2014 the state court entered a final judgment and award of attorney's fees and costs (State Court Judgment). The State Court Judgment dismissed Lee's claims with prejudice, confirmed the earlier Dismissal Order, and entered the amount of attorney's fees awarded to McCardle in the principal judgment amount of $41,889.00 and “all further attorney fees and costs incurred by [McCardle] in collecting the Principal Judgment Amount.”3
The Lees commenced this adversary proceeding (Adversary Proceeding) on May 22, 2014. In their First Amended Complaint, the Lees allege that once the notice of stay was filed in the State Court Lawsuit, McCardle's actions in the State Court Lawsuit violated the § 362(a)(1)
stay in the Peepleses' bankruptcy case. The Lees' complaint seeks a declaratory judgment that the State Court Judgment was void ab initio, and also seeks sanctions against McCardle and his attorneys.
The Lees filed a motion for summary judgment, which this Court denied. McCardle then filed a motion for summary judgment and request for an award of attorney's fees. The Court granted McCardle's motion for summary judgment and denied his request for attorney's fees. This memorandum decision supplements this Court's oral rulings with respect to the Lees' motion for summary judgment and McCardle's motion for summary judgment and request for attorney's fees to correctly reflect the Court's intention in determining this proceeding.
The Lees contend that when the Peepleses filed bankruptcy, the State Court Lawsuit was stayed under § 362(a)(1)
. Section 362(a)(1) provides:
Because the State Court Lawsuit was not an action or proceeding against the Peepleses, the § 362(a)(1)
stay would only apply if the State Court Lawsuit were an action or proceeding to recover a claim against the Peepleses.4
Although not stated in so many words, the Lees' position appears to be that the State Court Lawsuit was stayed under § 362(a)(1)
because Adrian Lee's subjective intent in bringing the State Court Lawsuit was “to recover a claim against the debtor.” The Lees contend that it is undisputed that Adrian Lee initiated the State Court Lawsuit with the intention of recovering the judgment claims against Adam Peeples. They also argue that “[i]n view of the Congressional intent, and the case law, it is difficult to imagine that the intent of the actor has no relevance at all, and that it is not determinative when all parties (and the debtor) know what the intent is.”5 This statement can only be read to suggest that the Lees believe Adrian Lee's intent in bringing the State Court Lawsuit is determinative of whether the State Court Lawsuit was an action to recover a claim against Adam Peeples and was therefore stayed under § 362(a)(1).
From the Lees' perspective, intent matters because of the statute's purpose. They contend that one of Congress's aims in drafting § 362(a)
was to create a guide for all entities to apply in evaluating whether their actions run afoul of the automatic stay.6 From this premise, the Lees make the claim that because many entities lack legal expertise, their intent must be the pole star by which they reckon whether they have drifted into proscribed waters.7 The implicit conclusion is that because “non-legal personnel” must use their intent to evaluate their actions, that intent must be relevant to determining ultimately whether the automatic stay applies to a given action.
The Lees' argument fails for two reasons. In the first place, if an entity's intent were important in § 362(a)
, why would Congress go through all the trouble of drafting a detailed and complex statute that omits any...
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