TooBaRoo, LLC v. Burri Props. (In re W. Robidoux, Inc.)

• Decision Date: 13 December 2022
• Docket Number: 22-mc-9005-NKL,Lead Bankruptcy 19-50505-BTF
• Parties: IN RE: Western Robidoux, Inc., Debtor. v. Burri Properties, LLC., et al., Defendants. TooBaRoo, LLC, Plaintiff,
• Court: U.S. District Court — Western District of Missouri

IN RE: Western Robidoux, Inc., Debtor.

TooBaRoo, LLC, Plaintiff,
v.
Burri Properties, LLC., et al., Defendants.

No. 22-mc-9005-NKL

Lead Bankruptcy No. 19-50505-BTF

United States District Court, W.D. Missouri, Western Division

December 13, 2022

ORDER

Nanette K. Laughrey United States District Judge

Before the Court are Proposed Findings of Fact and Conclusions of Law, Doc. 1, issued by the United States Bankruptcy Court for the Western District of Missouri.^[1] The Proposed Findings address Plaintiff TooBaRoo, LLC's pending Motion to Remand and Abstain (the “Motion”).^[2] In that Motion, TooBaRoo asked the Bankruptcy Court to remand its state court lawsuit against the named Defendants (the “Burri Defendants”) for a lack of subject matter jurisdiction; TooBaRoo alternatively requested abstention by the federal courts.

In its state court lawsuit, TooBaRoo asserts two claims: a creditor's bill (Count I) and a piercing-the-corporate-veil claim (Count II). In both Counts, TooBaRoo seeks to collect from the Burri Defendants a judgment TooBaRoo obtained against Western Robidoux, Inc. (“WRI”) for

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breach of a joint venture agreement. WRI is not a defendant in TooBaRoo's state court lawsuit. Rather, TooBaRoo contends that it should be able to collect the WRI judgment from the Burri Defendants because they wrongfully stripped assets from WRI to prevent TooBaRoo's from collecting on the judgment.^[3] Months after the automatic bankruptcy stay began, TooBaRoo filed its pending lawsuit in state court, in March of 2021.

WRI filed for bankruptcy in October 2019, triggering an automatic stay. TooBaRoo did not seek to lift the automatic stay before filing its state court lawsuit. The Burri Defendants removed TooBaRoo's state court lawsuit to the United States Bankruptcy Court for the Western District of Missouri, claiming federal jurisdiction based on WRI's pending bankruptcy. TooBaRoo then filed the current Motion to Remand and Abstain. The Burri Defendants opposed TooBaRoo's Motion to Remand and Abstain, as did the chapter 7 trustee, Jill Olsen (the “Trustee”), who intervened.

Based on Stern v. Marshall, 564 U.S. 462 (2011), the Bankruptcy Court determined that it lacked jurisdiction to finally resolve the Motion to Remand and Abstain, and it therefore issued Proposed Findings of Fact and Conclusions of Law for de novo consideration by this Court. The

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Bankruptcy Court ultimately concluded that TooBaRoo's Motion should be denied and the state court lawsuit should be dismissed as void ab initio. As explained in detail below, the Court adopts the Bankruptcy Court's Proposed Findings in full. The Court concludes that while TooBaRoo's claims against the Burri Defendants are not the property of WRI's Bankruptcy Estate (the “Estate”), TooBaRoo's lawsuit was filed in violation of the automatic bankruptcy stay provided by 11 U.S.C. §§ 362(a)(1) and (a)(6) and is therefore void. TooBaRoo's claims are DISMISSED without prejudice and its Motion to Remand is DENIED as moot.^[4]

I. STANDARD

Because the Bankruptcy Court concluded that it did not have Constitutional authority to enter a final judgment-a conclusion to which no party objects and that this Court adopts-the Bankruptcy Court was required to issue proposed findings of facts and conclusions of law for de novo review by the district court. Wellness Int'l Network, Ltd. v. Sharif, 575 U.S. 665, 670-71 (2015). Accordingly, “any final order or judgment shall be entered by the district judge after considering the bankruptcy judge's proposed findings and conclusions and after reviewing . . . those matters to which any party has timely and specifically objected.” Cutcliff v. Reuter, 791 F.3d 875, 881 (8th Cir. 2015).

While the Court must review de novo any issue that implicates Article III concerns, see generally, Wellness Int'l Network, 575 U.S. at 670-71, those concerns generally do not stretch to issues unique or exclusive to the bankruptcy process. Stern, 564 U.S. at 499; see also In re Reed, 888 F.3d 930, 935 (8th Cir. 2018) (holding that bankruptcy court's show cause and sanctions orders did not violate Stern because the orders “stem[] from the bankruptcy itself and do not

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implicate a common-law claim,” and recognizing that Stern “affect[s] only . . . one small part of the bankruptcy judges' authority.”). Accordingly, the Court reviews those matters left to the bankruptcy court's discretion, such as stay relief-a special creature of bankruptcy law-for an abuse of discretion. Cox v. Specialty Vehicle Sols., LLC, 715 Fed.Appx. 443, 447 (6th Cir. 2017) (noting that the ability to grant stay relief is a “unique statutory power” afforded to the Bankruptcy Court); Ritchie Special Credit Investments, Ltd. v. U.S. Tr., 620 F.3d 847, 853 (8th Cir. 2010) (explaining that decisions left to the bankruptcy court's discretion will be reviewed for an abuse of discretion). An abuse of discretion occurs when the “bankruptcy court relies upon erroneous legal conclusions or clearly erroneous factual findings.” Hill v. Snyder, 919 F.3d 1081, 1084 (8th Cir. 2019).

II. BACKGROUND

The Parties in this case have both a business and familial relationship. The Plaintiff, TooBaRoo, LLC, is a single-member LLC owned by Breht Burri. The Burri Defendants appear to be Breht's family members and their trusts. Both Breht and the individual Burri Defendants formerly acted as officers and shareholders of WRI, a commercial printing and fulfillment company headquartered in Missouri.

In 2009, TooBaRoo and WRI began a joint venture. The joint venture was successful and generated substantial profits while it operated. After several years, a dispute arose concerning TooBaRoo's compensation from the joint venture. That dispute gave rise to litigation in federal and state court. In September 2019, TooBaRoo obtained a judgment against WRI for breach of the joint venture agreement, totaling over a million dollars. See Doc. 1-2, at ECF 59-62. TooBaRoo later sought to enforce its state court judgment by garnishing WRI's bank accounts.

In October 2019, only days after TooBaRoo began its attempts to satisfy the judgment, WRI filed a chapter 11 petition. WRI later ceased operations, and the Bankruptcy Court converted

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WRI's case to a chapter 7 bankruptcy. The United States Trustee appointed Jill Olsen as the chapter 7 trustee.

TooBaRoo filed a nonpriority, unsecured proof of claim against WRI's bankruptcy estate. That proof of claim is based entirely on TooBaRoo's 2019 state court judgment and associated costs. See Doc. 1, at 4. Counsel for TooBaRoo conceded to the Bankruptcy Court that any amount TooBaRoo collects from the Burri defendants in this proceeding could reduce the amount of TooBaRoo's claim against WRI in the bankruptcy case. Doc. 1, at 4-5.

In March 2021, long after an automatic stay was triggered by WRI's October 2019 bankruptcy, and without seeking stay relief from the Bankruptcy Court, TooBaRoo's filed its pending two-count lawsuit against the Burri Defendants in Missouri state court. Both state law claims are meant to satisfy TooBaRoo's judgment against WRI by recovering money from the Burri Defendants, who allegedly “stripped [WRI] of its property and assets.” Doc 1-2, at ECF 44 ¶ 2. TooBaRoo alleges, in relevant part, that the Burri Defendants are liable under a creditor's bill and a veil piercing cause of action because the Burri Defendants shifted “the profits of [WRI]” to themselves, causing them to receive “huge unjust profits;” caused WRI to enter into a pre-bankruptcy “sweetheart lease” that unduly benefitted defendant Burri Properties, LLC; paid themselves excessive salaries, bonuses, and rents; “used [WRI]'s profits to buy assets for their personal use;” and “caused [WRI] to pay millions of dollars in legal fees for the defense of the [Burri Defendants] and [WRI's two largest clients].” Id. at ECF 44-57.

Joined by the Trustee, the Burri Defendants argue that the Bankruptcy Court should hear the removed causes of action because (1) both the causes of action and the property TooBaRoo seeks through them are property of WRI's Bankruptcy Estate (the “Estate”), therefore stripping TooBaRoo of its authority to assert them and (2) TooBaRoo's pursuit of this proceeding violates

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the automatic stay. TooBaRoo argues the Bankruptcy Court lacks subject matter jurisdiction over the removed lawsuit because TooBaRoo does not seek property of the Estate, but rather is seeking the return of its own property.

III. DISCUSSION

A. Whether TooBaRoo's Claims Are Property of the Estate

The first question this Court must address is whether TooBaRoo's creditor's bill and veil piercing claims are property of the Estate, meaning that the Trustee had the exclusive authority to bring them. The Trustee and the Burri Defendants object to the Bankruptcy Court's Proposed Findings on this point.

The property of a bankruptcy estate includes “all legal or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C. § 541(a)(1). Because causes of action are interests in property, it follows that the trustee has authority under 11 U.S.C. § 704(1) to assert causes of action that belong to the debtor. Mixon v. Anderson (In re Ozark Rest. Equip. Co.), 816 F.2d 1222, 1225 (8th Cir. 1987) (“Ozark”); see also Ritchie Special Credit Investments, Ltd. v. JPMorgan Chase & Co., 48 F.4th 896, 899 (8th Cir. 2022). That authority is exclusive-if a cause of action belongs to the estate and the trustee has not abandoned it, a creditor may not assert the cause of action while the bankruptcy case is pending. See Artesanias Hacienda Real S.A. DE C.V. v. North Mill Cap., LLC (In re Wilton Armetale, Inc.), 968 F.3d 273, 279-81, 284-85 (3d Cir. 2020). Conversely, if a cause of action does not belong to a debtor at the time a petition for bankruptcy is filed, then the bankruptcy case does nothing to affect a creditor's right to proceed, unless...