Shell v. Danders
| Decision Date | 04 April 2023 |
| Docket Number | 2:22-cv-02363-JTF-tmp |
| Parties | DAN H. SHELL, III, M.D., PLLC, Appellant, v. CORNELIUS RAY DANDERS and VERONICA DENISE SANDERS, Appellees. |
| Court | U.S. District Court — Western District of Tennessee |
ORDER DENYING APPELLANT'S APPEAL FROM BANKRUPTCY COURT AND AFFIRMING IN PART THE BANKRUPTCY COURT'S ORDER
Before the Court is Appellant Dan Shell's Appeal from an Order of the United States Bankruptcy Court, filed on June 10 2022.[1](ECF No. 1.) The Bankruptcy Court entered the underlying Order Sustaining in Part and Overruling in Part Objections to Claims on April 30, 2022. (ECF No. 1-10.) In the Order, the Bankruptcy Court substantially reduced Shell's claims on the bankruptcy estates of Appellees Cornelius and Veronica Sanders, claims which are based on a Sanctions Order secured in Shelby County Chancery Court on March 17, 2020. (Id. at 8.) Shell filed his brief on October 11, 2022. (ECF No. 9.) The Sanderses filed a Response brief on November 28, 2022. (ECF No. 12.) Shell filed a Reply brief on December 12, 2022. (ECF No. 13.) For the following reasons, the Court AFFIRMS in part the Order of the Bankruptcy Court.
The facts underlying the present dispute are undisputed. Appellee Veronica Sanders worked as a nurse for Appellant Dr. Dan Shell, a plastic and reconstructive surgeon, from 2005 to 2010. (ECF No. 9, 3; ECF No. 12, 3.) Sanders left Dr Shell's employ to open Spa Therapies, LLC, which she co-owned with her husband Cornelius Sanders. (Id.) However, the two's professional relationship continued, with Dr. Shell serving as the Medical Director of Spa Therapies pursuant to a Medical Director Agreement. (Id.) This agreement provided that Spa Therapies would purchase “certain equipment and inventory from Shell and agree[] to lease office space from Shell located in the same building as Shell's medical practice.” (ECF No. 12, 3.) Dr. Shell was also to “receive a fee of twelve percent of Spa Therapies' gross income for 40 months increasing to 15 percent through 2019,” which was the end year of the contract. (ECF No. 9, 3.)
The relationship appears to have soured in 2015. In May 2015, Dr. Shell “asked for an accounting from Spa Therapies of its gross revenue,” and continued to do so for the next two years despite never receiving the information. (ECF No. 1-10, 5.) In January 2018, Dr. Shell sued Spa Therapies in Shelby County Chancery Court for fees due under the contract. (Id.; ECF No. 9, 3.) This lawsuit resulted in a stipulated judgment against Spa Therapies in May 2019 for $380,843.21. (ECF No. 1-10, 6.) Collection efforts began soon after. According to Sanders, “[b]eginning in July of 2019, Shell caused several writs of execution on the assets of Spa Therapies” to be executed, which resulted in “substantially all of the personal property of Spa Therapies to be removed from Spa Therapies.” (ECF No. 12, 3.) The third writ “effectively put Spa Therapies out of business,” and the business filed a notice of dissolution on October 22, 2019, which was administratively processed on October 6, 2020. (Id. at 4.) Spa Therapies ceased operations in October 2019, but the Sanderses and Veronica Sanders' sister formed Ivy Spa and Wellness, PLLC that same month. (Id.) The new business initially operated out of the same space but moved once the lease expired. (Id. at 5.)
On November 8, 2019, Shell filed a Motion for Rule 37 Sanctions against Spa Therapies in the Chancery Court case, asserting that the company had failed to comply with discovery. (ECF No. 1-10, 7.) “The motion also alleged that income paid to Spa Therapies had been distributed to Mr. and Mrs. Sanders, its owners, to the detriment of its creditors” and asked for $2,200 in sanctions. (Id.) The Chancery Court entered an order that directed the parties to mediation in response. (Id.) On February 26, 2020, Shell filed a second Motion for Rule 37 Sanctions, once again asserting that Spa Therapies had failed to participate in discovery but adding an allegation that they had failed to participate in the ordered mediation. (Id. at 8.) Shell requested $2,000 in attorneys' fees, that the Chancery Court “find that moneys in fact flowed from Spa Therapies to the individuals and that ‘a constructive trust should be placed on those monies in that they should have gone to the creditors of the LLC prior to being taken by the Sanders.'” (Id.)
The Chancery Court granted the motion in an Order (“the Sanctions Order”) filed on March 17, 2020. Given the brevity of the Sanctions Order and its centrality to the present appeal, it is reproduced in full here:
(ECF No. 1-10, 8.) The Order was signed by Judge JoeDae L. Jenkins but noted that it had been prepared by Shell's attorney. (Id. at 9.) The Sanderses did not appeal the Sanctions Order. However, Veronica Sanders has stated under oath that she “was not present when the motion for sanctions was heard and had not previously been provided with information about the motions for sanctions by Mr. William G. Hardwick, II, the attorney for Spa Therapies and Mr. and Mrs. Sanders at that time.” (Id. at 9.) Sanders has also stated that Hardwick was not authorized to stipulate to the $380,843.21 judgment against Spa Therapies and has since sued him, with Cornelius Sanders and Spa Therapies as co-plaintiffs, for legal malpractice. (Id.)
Cornelius Sanders filed for Chapter 13 bankruptcy on January 7, 2021. (ECF No. 1-10, 2.) Veronica Sanders filed a separate Chapter 13 case on July 13, 2021. (Id.) The cases are administered jointly. Shell filed a Proof of Claim (No. 16-1) in Cornelius Sanders' case on March 10, 2021, for $409,475.45. (Id.) This amount was based on the Sanctions Order's alleged imposition of a $380,843.21 judgment against Cornelius Sanders and the post-judgment interest thereon. (Id.) Shell later amended this claim downward to a total of $405,971.19 in Claim No. 16-2. (Id. at 3.) Shell also filed a Proof of Claim (No. 12-1) in Veronica Sanders's case on September 20, 2021, for $420,683.48, again based on the Sanctions Order alleged judgment and its post-judgment interest. (Id.)
Both the Sanderses filed objections to the Proofs of Claim in October 2021. (ECF No. 110, 3.) The thrust of the objections was that the Sanderses were not indebted to Dan Shell individually, and that even after the Sanctions Order the stipulated judgment was the sole responsibility of Spa Therapies. The Bankruptcy Court held a trial on these objections on April 27, 2022. (Id. at 1.) The main questions at trial were the effect of the Sanctions Order and whether the Sanderses possessed any assets that were wrongly transferred to them from Spa Therapies. The Bankruptcy Court noted that “Dr. Shell was not able to identify any assets that he alleges were transferred from Spa Therapies to Mr. or Mrs. Sanders between October 22, 2019 (the date the voluntary dissolution of Spa Therapies was initiated) and March 1, 2020 (the month in which the Sanctions Order was entered).” (Id. at 9.) Shell identified the malpractice suit against Hardwick and Ivy Spa and Wellness's client list assets of Spa Therapies. (Id.) The Bankruptcy Court then entered an Order which held that “the Sanctions Order must be read to create a constructive trust but not a money judgment against the individual Debtors,” ultimately finding them responsible for only $2,000 in attorneys' fees due to the lack of proof regarding Spa Therapies' assets and reducing Shell's claim accordingly. (ECF No. 1-10, 11.) It is this order that Shell now appeals.
A District Court reviews an appealed Bankruptcy Court's order under two standards. First, a Bankruptcy Court's findings of fact are reviewed for clear error. In re Rembert, 141 F.3d 277, 280 (6th Cir. 1998). “Factual findings are clearly erroneous only when the reviewing court ‘is left with the definite and firm conviction that a mistake has been committed,'” even if there is some evidence to support it. In re Perkins, 581 B.R. 822, 827 (6th Cir. BAP 2018) (quoting United States v. Ray, 803 F.3d 244, 265 (6th Cir. 2015)). “When there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous.” Id. (quoting Anderson v. City of Bessemer City, 470 U.S. 564, 574 (1985)). Second, a Bankruptcy Court's conclusions of law are reviewed de novo. In re Global Technovations Inc. 694 F.3d 705, 714 (6th Cir. 2012) (citing In re Isaacman, 26 F.3d 629, 631 (6th Cir. 1994)). In the present...
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