Stinson Morrison Hecker, LLP v. Blackwell (In re Gault), Case No. 4:14CV1171 RLW
| Decision Date | 02 December 2014 |
| Docket Number | Case No. 4:14CV1171 RLW |
| Court | U.S. District Court — Eastern District of Missouri |
| Parties | In re: DAVID ALLEN GAULT, et al., Debtors STINSON MORRISON HECKER, LLP, Appellant, v. ROBERT J. BLACKWELL, Trustee. |
This matter is before the Court on the Notice of Appeal by Creditor Stinson Leonard Street f/k/a Stinson Morrison Hecker LLP (hereinafter "Stinson") (ECF No. 1), under 28 U.S.C. §158(a) or (b) from the Order of the United States Bankruptcy Judge granting Trustee's Objection to Claim #3-1 on June 16, 2014.
Mr. and Mrs. Gault (the "Gaults" or "Debtors") filed the underlying bankruptcy proceedings under Chapter 7. Mr. Brian Trost and Mrs. Susan Trost (the "Trosts") filed a proof of claim (Claim #2-1) based upon a state court judgment rendered in case captioned Brian Trost, et al. v. David Gault, et al., St. Charles County Circuit Court, State of Missouri, Cause No. 0811-CV07063 (), for claims relating to the Trosts' purchase of the Gaults' former residence at 59 Burgundy Place Drive, Dardenne Prairie, MO63368 (the "Property"). On the Trosts' behalf, Stinson tried the Gault Litigation and obtained a $472,110 judgment in favor of the Trosts, which included an award of attorneys' fees to the Trosts (the "Judgment") and is the basis for the Trosts' proof of claim in the bankruptcy litigation.
Stinson filed a statutory attorney's lien pursuant to the Judgment. Stinson also filed a proof of claim in the underlying bankruptcy proceeding (Claim #3-1) based on its statutory attorney's lien against any funds that may be due from the Debtor's Estate to Stinson's former clients, the Trosts, as a result of the Judgment. In response, the Trustee filed an objection to insure proper credit was given to the extent Stinson's claim was secured in part and unsecured in part. Trustee specifically objected for the following reasons:
X No credit given for value of security. Security for said claim, either 59 Burgundy Place Dr., Dardenne Prairie, MO 63368, or the Judgment rendered 11/01/2011 have not been liquidated.
X Trustee is prepared to consent to the allowance of said claim in the full amount as a fully secured claim not entitled to participate in any distribution from this Estate.
Stinson filed a response with the Bankruptcy Court, stating that Stinson was entitled to a distribution from the Estate to the extent that any funds that were paid to the Trosts on the Judgment up to the amount of Stinson's attorney's lien.
Prior to addressing Stinson's claim, the Bankruptcy Court avoided the majority of the judgment lien encumbering the Property, such that the secured portion of the lien was reduced to an amount of $52,773.34, which amount is being held in escrow by Debtors' counsel subject to Stinson's attorney's lien claim against any distribution to the Trosts.1 Ultimately, the BankruptcyCourt sustained the Trustee's Objection to Stinson's claim prohibiting Stinson from participating in any distribution from the Estate on the grounds that, "the debt is not a debt of the Debtor [sic]." Thereafter, Stinson filed this appeal.
On appeal, "the district court reviews the bankruptcy court's legal conclusions de novo and its findings of fact for clear error." In re Tasic, No. 4:13CV00479 ERW, 2013 WL 2425133, at *3 (E.D. Mo. June 4, 2013)(citing In re O'Brien, 351 F.3d 832, 836 (8th Cir. 2003)).
Stinson raises one point on appeal, contending:
The Bankruptcy Court erred when it sustained Trustee's Objections to Appellant's Proof of Claim based on Appellant's attorney's lien because, even after crediting any secured portion of the lien, there remains an unsecured balance due and owing, Appellant was entitled to a claim against Mr. and Mrs. Trosts' distribution from the Estate in that the lien was established in accordance with the applicable Missouri Statute and such liens are enforceable in bankruptcy proceedings.
Missouri Revised Statutes provide that an attorney can have a lien to secure compensation for services rendered:
The compensation of an attorney or counselor for his services is governed by agreement, express or implied, which is not restrained by law. From the commencement of an action or the service of an answer containing a counterclaim, the attorney who appears for a party has a lien upon his client's cause of action or counterclaim, which attaches to a verdict, report, decision or judgment in his client's favor, and the proceeds thereof in whosesoever hands they may come; and cannot be affected by any settlement between the parties before or after judgment.
As stated, the Bankruptcy Court significantly reduced the amount of the judgment lien encumbering the Property. Stinson claims an interest in the secured amount that encumbered the Property superior to that of the Trosts, but even if Stinson is credited for escrowed funds earmarked to pay the secured portion of the claim, there remains a balance due and owing on the attorney's lien claim. (ECF No. 5 at 7). Stinson further claims that to the extent that the Trosts would otherwise be entitled to a distribution from the Trustee out of Debtor's Estate as a result of the unsecured portion of the Trosts' claim based on the Judgment, Stinson states it is entitled to receive that distribution up to $128,915.66, plus interest accrued since the attorney's lien has priority over amounts due to the Trosts from the Estate. (ECF No. 5 at 7-8). Stinson argues that its attorney's lien "attaches not only to the client's judgment but also to the fruits of that successfully enforced judgment, including proceeds found in the bankruptcy estate." (ECF No. 5 at 8 (citing In re Campbell, 26 B.R. 145, 146 (Bankr. D. Colo. 1983)). Stinson emphasizes that the Bankruptcy Court in In re Campbell stated:
This Court is aware of no cases which hold that a state attorney's lien cannot be enforced against a creditor's claim in a bankruptcy proceeding. In In re Shirley Duke Associates, 611 F.2d 15 (2nd Cir.1979) the Second Circuit upheld an attorney's lien under circumstances similar to those herein involved.
In re Campbell, 26 B.R. 145, 147 (Bankr. D. Colo. 1983).
In response, the Trustee argues that the Bankruptcy Court properly found that Stinson's debt was not a debt of the debtors. (ECF No. 6 at 4-6). The Trustee maintains that Stinson cannot file a proof of claim under the statute. The Trustee points out that under the Bankruptcy Code "[t]he term 'debtor' means person or municipality concerning which a case under this title has been commenced." 11 U.S.C. §101(13). The Trustee notes that "[t]he term 'creditor' means (A) entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor; (B) entity that has a claim against the estate of a kind specified in section348 (d), 502 (f), 502 (g), 502 (h) or 502 (i) of this title; or (C) entity that has a community claim." 11 U.S.C. §101(10). Finally, "[t]he term 'debt' means liability on a claim." 11 U.S.C. §101(12). The Trustee states that, under the Bankruptcy Code, the Gaults are debtors, the Trosts are creditors, and the Judgment is a debt. (ECF No. 6 at 5). The Trustee, however, contends that Stinson was not a creditor of the Debtors (the Gaults). (Id.)
The Trustee further argues that Stinson could not have filed a claim for its attorney's fees. (ECF No. 6 at 5-6). Under the Bankruptcy Code, "[t]he term 'claim' means (A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or (B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured." 11 U.S.C. §101(5). The Trustee claims that he filed his objection to Stinson's claim #3-1 because the claim did not give credit for the value of the security. (ECF No. 6 at 6). The Trustee asserts that the security for Stinson's claim was either 59 Burgundy Place Drive, Dardenne Prairie, MO 63368, or the Judgment, and neither of these items had been sold and/or liquidated. (Id.) The Trustee states that he "was prepared to consent to the allowance of said claim in the full amount as a fully secured claim not entitled to participate in any distribution from the Estate." (Id.) The Bankruptcy Court, however, found that Stinson's claim was not enforceable against the Debtors nor property of the Debtors under the agreement or applicable law because Stinson was owed money from the Trosts, not the Gaults. (Id.) The Trustee maintains that "[i]n no way, did Stinson have a claim against the Debtors.'' (Id.).
The Trustee also contends that the Bankruptcy Court properly found that Stinson failed to follow the proper procedure to be paid. (ECF No. 6 at 6). The Trustee first contends that Stinsoncould have requested that the Trosts' claim be transferred to it pursuant to Fed.R.Bank.P. 3001(e)(2).2 The Trustee argues that Stinson could have transferred the Trosts' claim out of the Trosts' name and into Stinson's name and been paid everything that the Trustee could have disbursed to the Trosts (after a notice and a hearing). (ECF No. 6 at 6-7). Second, the Trustee states that Stinson could have obtained a judgment against the Trosts and garnished.the funds that would have been payable to the Trosts from the Estate, but that Stinson failed to try this option. (ECF No. 6 at 7-8 ().
Finally...
To continue reading
Request your trial