Stalnaker v. Allison (In re Tri-State Fin., LLC), BAP Nos. 14–6018
| Decision Date | 23 October 2014 |
| Docket Number | 14–6020,14–6019,14–6025.,BAP Nos. 14–6018 |
| Citation | 519 B.R. 759 |
| Parties | In re TRI–STATE FINANCIAL, LLC, doing business as North Country Ethanol, Debtor. Thomas D. Stalnaker, Trustee, Plaintiff–Appellee v. George Allison ; Frank Cernik; Phyllis Cernik; Chris Daniel; Amy Daniel ; Distefano Family LTD Partnership, Defendants–Appellants Mark E. Ehrhart; Robert G. Griffin ; John Hoich; Denise Hoich, Defendants Timothy Jackes; James G. Jandrain, Defendants–Appellants American Interstate Bank, Defendant George Kramer; Bernie Marquardt, Defendants–Appellants Radio Engineering Industries, Inc.; Joseph Vacanti, Trustee of The Joseph and Cynthia Vacanti Trust, Defendants Centris Federal Credit Union, Defendant–Appellee. Centris Federal Credit Union, Counterclaim and Cross–Claim Plaintiff–Appellee v. Thomas D. Stalnaker, Trustee, Counterclaim Defendant–Appellee George Allison ; Frank Cernik; Phyllis Cernik; Chris Daniel; Amy Daniel ; Distefano Family Ltd. Partnership, Cross–Claim Defendants–Appellants Mark E. Ehrhart; Robert G. Griffin ; John Hoich; Denise Hoich, Cross–Claim Defendants Timothy Jackes; James G. Jandrain; George Kramer; Bernie Marquardt, Cross–Claim Defendants–Appellants Radio Engineering Industries, Inc.; Joseph Vacanti, Trustee of The Joseph and Cynthia Vacanti Trust, Cross–Claim Defendants. In re Tri–State Financial, LLC, doing business as North Country Ethanol, Debtor. Thomas D. Stalnaker, Trustee, Plaintiff v. George Allison, Jr.; Frank Cernik; Phyllis Cernik; Chris Daniel; Amy Daniel ; Distefano Family LTD Partnership; Mark E. Ehrhart; Robert G. Griffin ; John Hoich; Denise Hoich; Timothy Jackes; James G. Jandrain; American Interstate Bank; George Kramer; Bernie Marquardt, Defendants Radio Engineering Industries, Inc., Defendant–Appellant Joseph Vacanti, Trustee of The Joseph and Cynthia Vacanti Trust, Defendants Centris Federal Credit Union, Defendant–Appellee. Centris Federal Credit Union, Counterclaim and Cross–Claim Plaintiff–Appellee v. Thomas D. Stalnaker, Trustee, Counter–Claim Defendant George Allison ; Frank Cernik; Phyllis Cernik; Chris Daniel; Amy Daniel ; Distefano Family LTD Partnership; Mark E. Ehrhart; Robert G. Griffin ; John Hoich; Denise Hoich; Timothy Jackes; James G. Jandrain; George Kramer; Bernie Marquardt, Cross–Claim Defendants Radio Engineering Industries, Inc., Cross–Claim Defendant–Appellant Joseph Vacanti, Trustee of The Joseph and Cynthia Vacanti Trust, Cross–Claim Defendant. In re Tri–State Financial, LLC, doing business as North Country Ethanol, Debtor. Thomas D. Stalnaker, Trustee, Plaintiff v. George Allison ; Frank Cernik; Phyllis Cernik; Chris Daniel; Amy Daniel ; Distefano Family Ltd. Partnership; Mark E. Ehrhart; Robert G. Griffin, Defendants John Hoich; Denise Hoich, Defendants–Appellants Timothy Jackes; James G. Jandrain; American Interstate Bank; George Kramer; Bernie Marquardt; Radio Engineering Industries, Inc.; Joseph Vacanti, Trustee of The Joseph and Cynthia Vacanti Trust, Defendants Centris Federal Credit Union, Defendant–Appellee. Centris Federal Credit Union, Counterclaim and Cross–Claim Plaintiff–Appellee v. Thomas D. Stalnaker, Trustee, Counterclaim Defendant George Allison ; Frank Cernik; Phyllis Cernik; Chris Daniel; Amy Daniel ; Distefano Family Ltd. Partnership; Mark E. Ehrhart; Robert G. Griffin, Cross–Claim Defendants John Hoich; Denise Hoich, Cross–Claim Defendants–Appellants Timothy Jackes; James G. Jandrain; George Kramer; Bernie Marquardt; Radio Engineering Industries, Inc.; Joseph Vacanti, Trustee of The Joseph and Cynthia Vacanti Trust, Cross–Claim Defendants. In re Tri–State Financial, LLC, doing business as North Country Ethanol, Debtor. Thomas D. Stalnaker, Trustee, Plaintiff–Appellee v. George Allison ; Frank Cernik; Phyllis Cernik; Chris Daniel; Amy Daniel ; Distefano Family LTD Partnership; Mark E. Ehrhart; Robert G. Griffin ; John Hoich; Denise Hoich; Timothy Jackes; James G. Jandrain, Defendants American Interstate Bank, Defendant–Appellant George Kramer; Bernie Marquardt; Radio Engineering Industries, Inc.; Joseph Vacanti, Trustee of The Joseph and Cynthia Vacanti Trust, Defendants Centris Federal Credit Union, Defendant–Appellee. Centris Federal Credit Union, Counterclaim and Cross–Claim Plaintiff v. Thomas D. Stalnaker, Trustee, Counterclaim Defendant George Allison ; Frank Cernik; Phyllis Cernik; Chris Daniel; Amy Daniel ; Distefano Family Ltd. Partnership; Mark E. Ehrhart; Robert G. Griffin ; John Hoich; Denise Hoich; Timothy Jackes; James G. Jandrain; George Kramer; Bernie Marquardt; Radio Engineering Industries, Inc.; Joseph Vacanti, Trustee of The Joseph and Cynthia Vacanti Trust, Cross–Claim Defendants. |
| Court | U.S. Bankruptcy Appellate Panel, Eighth Circuit |
Charles Jan Headley, Omaha, NE, for Appellants George Allison, Frank Cernik, Phyllis Cernik, Amy Daniel, Chris Daniel, Distefano Family Ltd. Partnership, Timothy Jackes, James Jandrain, George Kramer and Bernie Marquardt.
James P. Waldron, Michael J. Whaley, Omaha, NE, for Appellant Radio Engineering Industries, Inc.
Frederick D. Stehlik, Omaha, NE, for Appellants John Hoich and Denise Hoich.
Mark J. LaPuzza, Omaha, NE, for Appellant American Interstate Bank.
Robert J. Becker, John D. Stalnaker, Martin P. Pelster, David J. Skalka, Omaha, NE, for Appellees.
Before KRESSEL, SCHERMER, and NAIL, Bankruptcy Judges.
James G. Jandrain, Distefano Family Ltd. Partnership, George Allison, Jr., Frank and Phyllis Cernik, Chris and Amy Daniel, Timothy Jackes, George Kramer, and Bernie Marquardt (collectively, “Jandrain, et al. ”) appeal the May 22, 2014 judgment of the bankruptcy court determining certain funds were property of the bankruptcy estate, awarding Trustee Thomas D. Stalnaker certain fees and expenses, and surcharging those fees and expenses against the funds the bankruptcy court determined were property of the bankruptcy estate. Radio Engineering Industries, Inc. (“REI”), John Hoich and Denise Hoich, and American Interstate Bancorporation (“American Interstate”) each separately appeal the same judgment. We reverse and remand for further proceedings consistent with this opinion.
In June and July 2003, a group of investors referred to as “the Omaha Group” transferred $2,000,000.00 to Tri–State Financial, LLC. Over the following year, Tri–State Financial transferred $793,654.42 of those funds to Tri–State Ethanol Company, LLC, which was in chapter 11 bankruptcy in the District of South Dakota, and $1,190,000.00 of those funds to one of Tri–State Ethanol's vendors.
In July 2004, Tri–State Ethanol's case was converted to chapter 7, and John S. Lovald was appointed chapter 7 trustee. Tri–State Financial filed a request for payment of an administrative expense and a proof of claim seeking recovery of both the $793,654.42 and the $1,190,000.00. In July 2006, Lovald paid Tri–State Financial the $793,654.42. Tri–State Financial distributed the entire sum to the Omaha Group.
In November 2008, Tri–State Financial filed a petition for relief under chapter 11 of the bankruptcy code. In January 2009, Stalnaker was appointed chapter 11 trustee. Sometime thereafter, Lovald paid Stalnaker the $1,190,000.00.
In September 2010, Stalnaker filed an adversary proceeding to determine ownership of the $1,190,000.00. Stalnaker claimed the funds were property of the bankruptcy estate. Centris Federal Credit Union (“Centris”) agreed the funds were property of the bankruptcy estate, but it claimed the funds were subject to its blanket security interest in Tri–State Financial's assets. Jandrain, et al. claimed the funds were held in trust by Tri–State Financial and were thus not property of the estate. The matter was tried, and on February 13, 2013, the bankruptcy court entered an order: (1) determining the funds were not property of the bankruptcy estate; (2) determining the bankruptcy estate was entitled to be reimbursed both for the legal fees and expenses it incurred in litigating and eventually settling with Lovald and for the attorney fees, costs, and expenses it incurred in the adversary proceeding; and (3) outlining the procedure for Stalnaker to request reimbursement for those fees, costs, and expenses.
Stalnaker requested $35,944.45 for the legal fees and expenses the bankruptcy estate incurred in litigating and eventually settling with Lovald and $61,886.90 for the attorney fees, costs, and expenses the bankruptcy estate incurred in the adversary proceeding. No party in interest objected to the amounts requested or to the $35,944.45 being surcharged against the $1,190,000.00. However, several parties in interest, including Jandrain, et al., objected to the $61,886.90 being surcharged against the $1,190,000.00. The matter was heard, and on May 21, 2013, the bankruptcy court entered an order allowing the amounts requested and surcharging both amounts against the $1,190,000.00.
On that same date, the bankruptcy court entered a judgment incorporating the terms of its February 13, 2013 and May 21, 2013 orders.1 Stalnaker and Centris timely filed a notice of appeal. Jandrain, et al. timely filed a notice of cross-appeal.
On appeal, the parties identified a plethora of issues they believed were presented by the appeal and the cross-appeal. We boiled those issues down to two: (1) whether the bankruptcy court erred in concluding the $1,190,000.00 was not property of the bankruptcy estate; and (2) whether the bankruptcy court erred in surcharging Stalnaker's attorney fees, costs, and expenses against the $1,190,000.00. After reviewing the record and considering the parties' arguments, we determined any consideration of either issue would have been premature.
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