Clear Sky Properties, LLC v. Roussell (In Re Roussel) , 769 F.3d 574 ( 2014 )

United States Court of Appeals
For the Eighth Circuit
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No. 14-1150
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In re: Blake Roussel; Amanda Roussel
lllllllllllllllllllllDebtors
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Clear Sky Properties, LLC; LuAnn Deere
lllllllllllllllllllllAppellees
v.
Blake Roussel
lllllllllllllllllllllAppellant
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Appeal from United States District Court
for the Eastern District of Arkansas - Little Rock
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Submitted: September 8, 2014
Filed: October 3, 2014
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Before BENTON, BEAM, and SHEPHERD, Circuit Judges.
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BENTON, Circuit Judge.
Blake Roussel filed for bankruptcy under Chapter 7 of the Bankruptcy Code.
In an adversary proceeding, the bankruptcy court refused to apply collateral estoppel
to a state judgment. It found nearly all the debt dischargeable. On appeal, the district
court1 reversed. It found nearly all the debt nondischargeable, but remanded the
attorney-fee debt (including costs and expenses). Roussel appeals, asserting the
district court erred in determining he was barred by collateral estoppel, committed
defalcation while acting as a fiduciary, and acted willfully and maliciously. He
argues the bankruptcy court correctly determined that the attorney-fee award was
dischargeable. This court dismisses for lack of jurisdiction under 28 U.S.C. § 158(d).
I.
A state jury found that Roussel breached fiduciary and contract duties to both
Clear Sky Properties, LLC and the other member LuAnn Deere. It awarded
compensatory and punitive damages and attorney fees. The state judge granted
attorney fees: “Based on the arguments in the Motion and Brief.” He did not
mention the claims, or apportion the fees between them. The Motion invoked the
parties’ operating agreement (providing that the loser of any dispute shall pay
attorney fees) and a state statute (authorizing attorney fees for breach of contract).
The Brief reiterated the agreement and statute, but noted that the “breach of contract
claim is inextricably intertwined with the breach of fiduciary duty” and that: “As
these claims were so closely connected, Deere would have incurred the same expense
in pursuing only the breach of contract claim as she did in pursuing all the claims.”
Roussel later filed for bankruptcy under Chapter 7. Clear Sky and Deere
alleged that his breach-of-fiduciary debt was nondischargeable because he committed
defalcation as a fiduciary under 11 U.S.C. § 523(a)(4) and engaged in willful and
malicious conduct under 11 U.S.C. § 523(a)(6). The parties stipulated that the
1
The Honorable Susan Webber Wright, United States District Judge for the
Eastern District of Arkansas.
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breach-of-contract debt was dischargeable, but disputed (among other things) whether
the attorney fees were linked solely to the breach of contract. Rejecting collateral
estoppel, the bankruptcy court considered evidence from the state trial and heard
testimony on Roussel’s state of mind. The bankruptcy court concluded that nearly
all the damages were dischargeable, as were the attorney fees. Clear Sky and Deere
appealed to the district court. It reversed, applying collateral estoppel to hold that
because the state jury awarded punitive damages, it necessarily found that Roussel
committed defalcation while acting as a fiduciary under § 523(a)(4) and that he acted
willfully and maliciously under § 523(a)(6). It found nondischargeable all the debt
from Roussel’s breach of fiduciary duty. The district court remanded the attorney
fees—$87,523.25 in fees and costs, about one-sixth of the total debt—to the
bankruptcy court for further consideration.
II.
Before addressing the merits, this court examines its jurisdiction of the appeal,
even if not raised by the parties. Isaacson v. Manty, 721 F.3d 533, 537 (8th Cir.
2013); In re M & S Grading, Inc., 526 F.3d 363, 367-68 (8th Cir. 2008); In re Melp,
Ltd., 79 F.3d 747, 747 (8th Cir. 1996) (per curiam).
“In bankruptcy cases, this court can hear appeals only from final decisions,
judgments, orders, and decrees entered by district courts or bankruptcy appellate
panels.” In re Farmland Indus., Inc., 567 F.3d 1010, 1015 (8th Cir. 2009), quoting
In re Popkin & Stern, 289 F.3d 554, 556 (8th Cir. 2002), applying 28 U.S.C. §
158(d). “Finality for bankruptcy purposes is a complex subject,” which “must take
into account the peculiar needs of the bankruptcy process.” Cochrane v. Vaquero
Invs., 76 F.3d 200, 203-04 (8th Cir. 1996) (an exemption decision was not final
because the appeal did not “conclusively resolve” the status of all property). See
Ritchie Special Credit Invs., Ltd. v. U.S. Tr., 620 F.3d 847, 852 (8th Cir. 2010)
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(applying a “more flexible” concept of finality in bankruptcy cases than in non-
bankruptcy cases). The finality of a bankruptcy court order depends on the extent to
which (1) “the order leaves the bankruptcy court nothing to do but execute the order;”
(2) “delay in obtaining review would prevent the aggrieved party from obtaining
effective relief;” and (3) “a later reversal on the [contested issue] would require
recommencement of the entire proceeding.” Id., quoting In re M & S Grading, 526
F.3d at 36 (alteration in original).
A district court remand ordinarily is not final, unless it “leaves only ministerial
duties for the bankruptcy court.” In re Farmland, 567 F.3d at 1015. An order is
ministerial and final if it effectively resolves the merits, and the task on remand is
“unlikely to generate a new appeal or to affect the issue that the disappointed party
wants to raise on appeal.” In re Popkin & Stern, 289 F.3d at 556 (a remand for
determination of ownership is more than ministerial and not final), quoting In re
Vekco, Inc., 792 F.2d 744, 745 (8th Cir. 1986). See In re Dorholt, Inc., 224 F.3d
871, 874 n.1 (8th Cir. 2000) (finding jurisdiction of an order because it “did not
remand for further fact-based inquiry”).
The state judge did not specify whether the attorney-fee award is for a breach
of fiduciary duty or a breach of contract (or some apportionment). The bankruptcy
court determined that the attorney fees were dischargeable because they were based
on a contract (the operating agreement), or breach of contract. The district court,
remanding, noted that “when parties have included a provision authorizing recovery
of attorney’s fees in a contractual agreement, and those fees are incurred in
connection with a debt determined to be nondischargeable in bankruptcy, the creditor
may be entitled to recover such fees as part of the nondischargeable debt.” In re
Roussel, 504 B.R. 510, 527 (E.D. Ark. 2013), citing In re Alport, 144 F.3d 1163,
1168 (8th Cir. 1998). The district court ordered that “on remand, the Bankruptcy
Court should consider whether the fee provision set forth in Clear Sky’s operating
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agreement renders all or any part of Appellants’ fee award part of the
nondischargeable debt in this case.” In re Roussel, 504 B.R. at 527.
This court first considers the extent to which an order leaves the bankruptcy
court nothing to do but execute the order. The remand here requires the bankruptcy
court to determine whether the operating agreement connects the attorney fees to the
nondischargeable fiduciary debt. Here, the district court’s remand does not direct the
bankruptcy court to dismiss or take a ministerial act. See In re Farmland, 567 F.3d
at 1015 (remanding with instructions to dismiss is purely ministerial). Instead, the
remand leaves the dischargeability of attorney fees to the bankruptcy court, requiring
factual and legal analysis. This is more than ministerial.
[W]e have little trouble concluding the district court decision does not
constitute a final decision for purposes of appeal. In remanding, the
district court did not resolve the merits of the controversy, leaving only
ministerial tasks to be performed by the bankruptcy court. Rather, the
district court specifically anticipated that the bankruptcy court would
further develop the record and would exercise considerable discretion
in resolving the issue remanded to it. Then, following remand, the
district court would be in a position to resolve finally and fully all issues
raised by the Federal Land Bank in its appeal.
In re Vekco, Inc., 792 F.2d at 745.
The other two factors—whether delay harms the aggrieved party, and whether
a later reversal requires an entirely new proceeding—favor dismissing this appeal.
The parties have not suggested that any delay in review will itself prevent effective
relief. See In re M & S Grading, 526 F.3d at 369. Nor have they indicated that a
later reversal will require a new proceeding. “[N]either judicial economy nor our
statutory authority under § 158(d) permits the piecemeal litigation that will result if
we prematurely consider the issues raised in this appeal.” Cochrane, 76 F.3d at 204.
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Two recent Supreme Court decisions support the lack of jurisdiction here. The
Court established “a uniform rule that an unresolved issue of attorney’s fees for the
litigation in question does not prevent judgment on the merits from being final” and
that both “[c]ourts and litigants are best served by the bright-line rule, which accords
with traditional understanding, that a decision on the merits is a ‘final decision’. . .
whether or not there remains for adjudication a request for attorney’s fees attributable
to the case.” Budinich v. Becton Dickinson & Co., 486 U.S. 196, 202-03 (1988)
(emphasis added). The Court defined “for the litigation in question” and “attributable
to the case” to include “standard preliminary steps toward litigation.” Ray Haluch
Gravel Co. v. Cent. Pension Fund of Int’l Union of Operating Eng’rs &
Participating Empl’rs, 134 S. Ct. 773, 783 (2014). “To be sure, the situation would
differ if a party brought a freestanding contract action asserting an entitlement to fees
incurred in an effort to collect payments that were not themselves the subject of the
litigation.” Id.Unlike the attorney fees in Budinich and Ray Halluch Gravel Co., the fees here
are not “for the litigation in question” or “attributable to the case,” but for a prior
state-court case. Roussel was liable for the fees before his bankruptcy; the dispute
is whether they are dischargeable. The district court’s order is not final.
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This court does not have jurisdiction of the appeal, which is dismissed without
prejudice to a later appeal.
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