Rajala v. Gardner
| Decision Date | 12 March 2013 |
| Docket Number | No. 12–3113.,12–3113. |
| Citation | 709 F.3d 1031 |
| Parties | Eric C. RAJALA, Trustee in Bankruptcy for the Estate of Generation Resources Holding Company, LLC, Plaintiff–Appellant, v. Robert H. GARDNER; Robbin M. Gardner; R. James Ansel; Virginia Z. Ansel; William W. Stevens; Akiko N. Stevens; Lookout Windpower Holding Company, LLC, a Missouri Limited Liability Company; Forward Windpower Holding Company, LLC, a Missouri Limited Liability Company; Lookout Windpower Holding Company, LLC (MO); Forward Windpower Holding Company, LLC (MO); Stevens Family Investment Company, LLC, a Missouri LLC, Defendants–Appellees, and FreeStream Capital, LLC; Gardner Family Investment Company, LLC, a Missouri LLC; Windforce Holdings, Inc., Consol Defendants–Appellees, and Edison Mission Energy, a California corporation; Mission Wind Pennsylvania, Inc., a Delaware corporation; Mission Wind PA Two, Inc., a Delaware Corporation; Mission Wind PA Three, Inc., a Delaware corporation; Lookout Wind Power, LLC, a Delaware Limited Liability Corporation; Forward Wind Power, LLC, a Delaware Limited Liability Company, Defendants. |
| Court | U.S. Court of Appeals — Tenth Circuit |
OPINION TEXT STARTS HERE
Michael P. Healy (and Michael J. Fleming of The Healy Law Firm, L.L.C., on the briefs), Lee's Summit, MO, for Plaintiff–Appellant.
Scott J. Goldstein (Douglas M. Weems and Barry L. Pickens of Spencer, Fane, Britt & Browne, L.L.P., with him on the brief), Kansas City, MO, for Defendants–Appellees.
Tyler W. Hudson and Adam S. Davis of Wagstaff & Cartmell, L.L.P., Kansas City, MO, for Consol Defendant–Appellee.
Before KELLY, MURPHY, and TYMKOVICH, Circuit Judges.
Plaintiff–Appellant Eric Rajala, Trustee of the bankruptcy estate of Generation Resources Holding Company, LLC (GRHC), appeals from the district court's order granting motions to distribute (by Defendants–Appellees FreeStream Capital, LLC (FreeStream) and Lookout Windpower Holding Co., LLC (LWHC)) approximately $9 million held in escrow. This amount represents part of the purchase price of a wind power project allegedly developed by GRHC. In a nutshell, the Trustee claims that the Debtor, GRHC, has been left with $5 million in debt while the individual Defendants–Appellees and their affiliated entities received some $13 million in proceeds from the sale of several wind power projects, unburdened by the debt.
At issue is what constitutes property of the bankruptcy estate and whether allegedly fraudulently transferred property is subject to the Bankruptcy Code's automatic stay before a trustee recovers the property through an avoidance action. See11 U.S.C. §§ 362, 541(a). The district court held that allegedly fraudulently transferred property is not part of the bankruptcy estate until recovered and therefore is beyond the reach of the automatic stay. Exercising our jurisdiction under 28 U.S.C. § 1291, we affirm.
GRHC was formed in 2002 for the purpose of developing wind-generated power projects. Aplt. App. 69–70. As part of its development strategy, GRHC employed FreeStream to provide advisory services. Id. at 79. In June 2005, GRHC entered into a Memorandum of Understanding (MOU) with Edison Capital (Edison). Id. at 75–77. The MOU detailed Edison's contemplated purchase of three GRHC wind power projects, including the “Lookout” project. Id. Based on the MOU, development agreements were also drafted. Id. at 79.
Later that year, several GRHC insiders formed LWHC.1Id. at 80. On February 3, 2006, LWHC closed a deal with Edison for the sale of the wind power projects. Id. at 83. According to the second amended complaint, the GRHC insiders caused a switch in the identity of the projects' developer from GRHC to LWHC. Id.
On March 28, 2007, LWHC entered into a contract, the Lookout Redemption Agreement (LRA), with an Edison subsidiary. Id. at 96–97, 319–24. The LRA provided that once Lookout achieved commercial operation (at which point it would be fully owned by Edison), it would pay “25% of the Final Installment to FreeStream [ ], as full satisfaction of all amounts that may be due to FreeStream [ ] from Lookout, Developer Member and/or Investor Member, and (ii) 75% of the Final Installment to Developer Member.” Id. at 320. The LRA identified LWHC as the “Developer Member.” Id. at 319.
In September 2009, the Trustee filed suit in Kansas federal district court against six individual defendants and numerous companies. Id. at 20, 58–67. The Trustee refers to several of the Defendants as “insiders,” based on their ownership and control of GRHC. Id. at 59. The second amended complaint contains numerous claims, including fraudulent transfer claims. Id. at 56–156. The Trustee alleges the insiders fraudulently transferred GRHC's development and redemption opportunities to insider-owned companies. Id. at 108–37.
In April 2009, LWHC and FreeStream sued Edison in federal district court in the Western District of Pennsylvania, seeking the final installment due under the LRA Id. at 166. In an effort to suspend LWHC and FreeStream's suit, the Trustee requested that the Kansas federal district court stay the Pennsylvania case or hold that any judgment obtained could not result in collateral estoppel in the Kansas case. Id. at 157–58, 200–01. The Trustee contended that any proceeds would be property of GRHC's bankruptcy estate—thus related to the action in Kansas federal district court. Id. The Kansas federal district court denied the Trustee's motion, and the Pennsylvania case proceeded. Id.
Shortly before the Pennsylvania case went to trial, the Trustee filed a notice of bankruptcy with the Pennsylvania court, followed by a motion to stay the case or, alternatively, transfer it to Kansas. Id. at 188, 193–94, 199–214. The Trustee argued that Lookout's sale price was property of GRHC's bankruptcy estate and, therefore, subject to the automatic stay. Id. at 202–03.
On May 31, 2011, the Pennsylvania federal district court declined the Trustee's motion to stay or transfer, and proceeded to enter judgment in favor LWHC and FreeStream for approximately $9 million (75% to LWHC; 25% to FreeStream). Id. at 187, 197–98. However, the court transferred the issue of whether the judgment was part of GRHC's bankruptcy estate to the Kansas bankruptcy court. Id. at 195–96, 198. The Pennsylvania court also ordered that the judgment funds be depositedwith the Kansas bankruptcy court. Id. 160–61, 198.
Once in Kansas bankruptcy court, LWHC and FreeStream successfully moved to withdraw the case to Kansas federal district court. Id. at 363. The court also consolidated the Pennsylvania case with the Trustee's pending claims. Id. at 227, 352–54.
Both LWHC and FreeStream filed motions to distribute the Pennsylvania judgment, arguing that the funds were not property of GRHC's bankruptcy estate. Id. at 181–86, 335–43. On April 9, 2012, the Kansas federal district court granted their motions. See Rajala v. Gardner, No. 09–2482–EFM, 2012 WL 1189773 (D.Kan. Apr. 9, 2012). The court held that the bankruptcy estate does not include fraudulently transferred property until recovered through a fraudulent transfer suit. Id. at *7. The court also held that because the LRA provided for FreeStream to be paid directly by Lookout, FreeStream's contingency fee could never be considered part of the bankruptcy estate. Id. at *5–6.
On April 12, the district court issued a clarifying nunc pro tunc order directing the bankruptcy court to distribute the Pennsylvania judgment. Aplt. App. 398–99. The Trustee followed with a motion to certify that order for appellate review, Fed.R.Civ.P. 54(b), which the district court denied. Id. at 402–13. The court held that the Trustee's motion to certify the April 12 order was procedurally improper. Id. at 409. The court also indicated it would decline to grant any Rule 54(b) motion to certify its April 9 substantive order, reasoning that the order was non-final as to the fraudulent transfer claims. Id. at 409–13.
Contrary to the arguments of the various Defendants, the Kansas federal district court did rule on the applicability of the automatic stay in granting the motions to distribute. Specifically, the court found that the Pennsylvania judgment was not property of GRHC's estate and, therefore, not subject to the automatic stay. Thus, the district court's order, which deemed § 362 inapplicable to the judgment proceeds, was essentially an order granting relief from the automatic stay. See Quigley Co., Inc. v. Law Offices of Peter G. Angelos (In re Quigley Co.), 676 F.3d 45, 51 (2d Cir.2012) (); see also Eddleman v. U.S. Dep't of Labor, 923 F.2d 782, 785 (10th Cir.1991), overruled in part on other grounds by Temex Energy, Inc. v. Underwood, Wilson, Berry, Stein & Johnson, 968 F.2d 1003, 1005 n. 3 (10th Cir.1992).
The grant or denial of relief from an automatic stay is generally an appealable final order. Franklin Sav. Ass'n v. Office of Thrift Supervision, 31 F.3d 1020, 1022 n. 3 (10th Cir.1994); see 3 Collier on Bankruptcy ¶ 362.13 (collecting cases). We have explained that an immediate appeal “is necessary to effectuate Congress' intent to settle these matters quickly.” Eddleman, 923 F.2d at 785.
Defendants do not contest the general rule. Rather, they argue that 28 U.S.C. § 158(d) circumscribes our jurisdiction. Accordingly, we may only review a decision granting relief from a stay where the order is entered by a bankruptcy court and affirmed by a district court. But this view of our jurisdiction is too limited. When a district court exercises its jurisdictionand grants relief from an automatic stay, that decision is considered an “appealable final order” under 28 U.S.C. § 1291. See Franklin Sav. Ass'n, 31 F.3d at 1022 n. 3;see also Safety–Kleen, Inc. v. Wyche, 274...
To continue reading
Request your trial
-
Petters Grp. Worldwide, LLC v. Opportunity Fin., LLC (In re Petters Co.)
...or not until actual post-judgment recovery of the transferred asset or its value. E.g., In re Allen (entry of judgment); Rajala v. Gardner, 709 F.3d 1031 (10th Cir.2013) (recovery); In re Mortg age America Corp., 714 F.2d 1266 (5th Cir.1983) (entry of judgment); In re Colonial Realty Co., 9......
-
Municipality Of San Juan v. Puerto Rico
...-- for purposes of 28 U.S.C. § 1291 -- from an order as to whether to grant or deny relief from such a stay. See Rajala v. Gardner, 709 F.3d 1031, 1034 (10th Cir. 2013) ("[T]he district court's order, which deemed § 362 inapplicable to the judgment proceeds, was essentially an order grantin......
-
Fish v. Kobach
...Merriam Webster's Collegiate Dictionary 741 (10th ed. 1996).98 52 U.S.C. § 20508(b).99 Id. § 20504(c)(2)(B).100 Rajala v. Gardner , 709 F.3d 1031, 1038 (10th Cir.2013) (quoting TRW Inc. v. Andrews , 534 U.S. 19, 31, 122 S.Ct. 441, 151 L.Ed.2d 339 (2001) ).101 Id. (quoting United States v. R......
-
Phila. Entm't & Dev. Partners, L.P. v. Commonwealth (In re Phila. Entm't & Dev. Partners, L.P.)
...arguments regarding the Debtor's entitlement to a refund of the License Fee are just that, arguments. See, e.g., Rajala v. Gardner, 709 F.3d 1031, 1038 (10th Cir.2013) ("It follows that a mere allegation, without any showing of merit, cannot create ‘equitable title.’ "). No matter how stren......
-
The Year In Bankruptcy 2013
...nondebtor release as part of a global settlement is entitled to comity in a chapter 15 case. Estate Property In Rajala v. Gardner, 709 F.3d 1031 (10th Cir. 2013), the Tenth Circuit joined the Second Circuit and departed from the Fifth Circuit by holding that an allegedly fraudulently transf......
-
Notable Business Bankruptcy Decisions Of 2013
...nondebtor release as part of a global settlement is entitled to comity in a chapter 15 case. ESTATE PROPERTY In Rajala v. Gardner, 709 F.3d 1031 (10th Cir. 2013), the Tenth Circuit joined the Second Circuit and departed from the Fifth Circuit by holding that an allegedly fraudulently transf......
-
Southern District Of New York Bankruptcy Court Rules That Avoidance Powers Apply Extraterritorially
...recovered by the trustee. See, e.g., FDIC v. Hirsch (In re Colonial Realty Co.), 980 F.2d 125 (2d Cir. 1992); accord Rajala v. Gardner, 709 F.3d 1031 (10th Cir. 2013). But see Am. Nat'l Bank of Austin v. MortgageAmerica Corp. (In re MortgageAmerica Corp.), 714 F.2d 1266, 1277 (5th Cir. 1983......
-
Tenth Circuit: Fraudulently Transferred Assets Not Estate Property Until Recovered
...U.S. Court of Appeals for the Tenth Circuit―in Rajala v. Gardner, 709 F.3d 1031 (10th Cir. 2013)―has joined the Second Circuit and departed from the Fifth Circuit by holding that an allegedly fraudulently transferred asset is not property of the estate until recovered pursuant to section 55......