Thomas D. Stalnaker v. George Allison ( 2014 )

United States Bankruptcy Appellate Panel
For the Eighth Circuit
___________________________
No. 14-6018
___________________________
In re: Tri-State Financial, LLC, doing business as North Country Ethanol
lllllllllllllllllllllDebtor
------------------------------
Thomas D. Stalnaker, Trustee
lllllllllllllllllllll Plaintiff - Appellee
v.
George Allison; Frank Cernik; Phyllis Cernik; Chris Daniel; Amy Daniel;
Distefano Family LTD Partnership
lllllllllllllllllllll Defendants - Appellants
Mark E. Ehrhart; Robert G. Griffin; John Hoich; Denise Hoich
lllllllllllllllllllll Defendants
Timothy Jackes; James G. Jandrain;
llllllllllllllllllllll Defendants - Appellants
American Interstate Bank
llllllllllllllllllllll Defendant
George Kramer; Bernie Marquardt
lllllllllllllllllllll Defendants - Appellants
Radio Engineering Industries, Inc.; Joseph Vacanti, Trustee of The Joseph and
Cynthia Vacanti Trust
lllllllllllllllllllll Defendants
Centris Federal Credit Union
lllllllllllllllllllll Defendant - Appellee
------------------------------
Centris Federal Credit Union
lllllllllllllllllllllCounterclaim and Cross-Claim Plaintiff - Appellee
v.
Thomas D. Stalnaker, Trustee
lllllllllllllllllllllCounterclaim Defendant - Appellee
George Allison; Frank Cernik; Phyllis Cernik; Chris Daniel; Amy Daniel;
Distefano Family LTD Partnership
lllllllllllllllllllllCross-Claim Defendants - Appellants
Mark E. Ehrhart; Robert G. Griffin; John Hoich; Denise Hoich
lllllllllllllllllllllCross-Claim Defendants
Timothy Jackes; James G. Jandrain; George Kramer; Bernie Marquardt
lllllllllllllllllllllCross-Claim Defendants - Appellants
Radio Engineering Industries, Inc.; Joseph Vacanti, Trustee of The Joseph and
Cynthia Vacanti Trust
lllllllllllllllllllllCross-Claim Defendants
___________________________
No. 14-6019
___________________________
In re: Tri-State Financial, LLC, doing business as North Country Ethanol
lllllllllllllllllllllDebtor
------------------------------
Thomas D. Stalnaker, Trustee
lllllllllllllllllllll 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
lllllllllllllllllllll Defendants
Radio Engineering Industries, Inc.
lllllllllllllllllllll Defendant - Appellant
Joseph Vacanti, Trustee of The Joseph and Cynthia Vacanti Trust
lllllllllllllllllllll Defendants
Centris Federal Credit Union
lllllllllllllllllllll Defendant - Appellee
------------------------------
Centris Federal Credit Union
lllllllllllllllllllllCounterclaim and Cross-Claim Plaintiff - Appellee
v.
Thomas D. Stalnaker, Trustee
lllllllllllllllllllllCounter-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
lllllllllllllllllllllCross-Claim Defendants
Radio Engineering Industries, Inc.
lllllllllllllllllllllCross-Claim Defendant - Appellant
Joseph Vacanti, Trustee of The Joseph and Cynthia Vacanti Trust
lllllllllllllllllllllCross-Claim Defendant
___________________________
No. 14-6020
___________________________
In re: Tri-State Financial, LLC, doing business as North Country Ethanol
lllllllllllllllllllllDebtor
------------------------------
Thomas D. Stalnaker, Trustee
lllllllllllllllllllll Plaintiff
v.
George Allison; Frank Cernik; Phyllis Cernik; Chris Daniel; Amy Daniel;
Distefano Family LTD Partnership; Mark E. Ehrhart; Robert G. Griffin
lllllllllllllllllllll Defendants
John Hoich; Denise Hoich
lllllllllllllllllllll 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
lllllllllllllllllllll Defendants
Centris Federal Credit Union
lllllllllllllllllllll Defendant - Appellee
-----------------------------
Centris Federal Credit Union
lllllllllllllllllllllCounterclaim and Cross-Claim Plaintiff - Appellee
vs.
Thomas D. Stalnaker, Trustee
lllllllllllllllllllllCounterclaim Defendant
George Allison; Frank Cernik; Phyllis Cernik; Chris Daniel; Amy Daniel;
Distefano Family LTD Partnership; Mark E. Ehrhart; Robert G. Griffin
lllllllllllllllllllllCross-Claim Defendants
John Hoich; Denise Hoich
lllllllllllllllllllllCross-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
lllllllllllllllllllllCross-Claim Defendants
___________________________
No. 14-6025
___________________________
In re: Tri-State Financial, LLC, doing business as North Country Ethanol
lllllllllllllllllllllDebtor
------------------------------
Thomas D. Stalnaker, Trustee
lllllllllllllllllllll 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
lllllllllllllllllllll Defendants
American Interstate Bank
lllllllllllllllllllll Defendant - Appellant
George Kramer; Bernie Marquardt; Radio Engineering Industries, Inc.; Joseph
Vacanti, Trustee of The Joseph and Cynthia Vacanti Trust
lllllllllllllllllllll Defendants
Centris Federal Credit Union
lllllllllllllllllllll Defendant - Appellee
------------------------------
Centris Federal Credit Union
lllllllllllllllllllllCounterclaim and Cross-Claim Plaintiff
v.
Thomas D. Stalnaker, Trustee
lllllllllllllllllllllCounterclaim 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
lllllllllllllllllllllCross-Claim Defendants
____________
Appeal from United States Bankruptcy Court
for the District of Nebraska - Omaha
____________
Submitted: August 27, 2014
Filed: October 23, 2014
____________
Before KRESSEL, SCHERMER, and NAIL, Bankruptcy Judges.
____________
NAIL, Bankruptcy Judge.
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.
BACKGROUND
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
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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.
1
According to the judgment, the amounts awarded were $35,944.45 and
$61,286.90.
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After reviewing the record and considering the parties' arguments, we determined any
consideration of either issue would have been premature.
In their post-trial brief, Stalnaker and Centris argued, inter
alia, "[Tri-State Financial] is judicially estopped from
having any intent or position imputed upon it other than the
[$1,190,000.00] belong[s] to [Tri-State Financial]."
Stalnaker and Centris also argued a "sweeping release"
executed in August 2006 by all but two members of the
Omaha Group–Jandrain and Radio Engineering Industries,
Inc.–"includes any claimed obligation of [Tri-State
Financial] to turn over the [$1,190,000.00] to [those
parties.]" Finally, Stalnaker and Centris argued the Omaha
Group "should be estopped from asserting ownership to the
[$1,190,000.00]." Both the bankruptcy court's February
13, 2013 order and its May 21, 2013 order are silent with
respect to these arguments.
We could, perhaps, interpret the bankruptcy court's silence
as an implicit rejection of Stalnaker and Centris's
arguments and render an opinion on that basis. However,
we believe the better course is to afford the bankruptcy
court an opportunity to consider those arguments, if it did
not in fact do so, and explain its reasoning for accepting or
rejecting them.
Stalnaker v. Allison (In re Tri-State Financial, LLC), 512 B.R. 209, 211-12 (B.A.P.
8th Cir. 2014) ("Stalnaker I"). We therefore reversed and remanded the matter for
further proceedings. Id. at 212.
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On remand, the bankruptcy court2 reconsidered its earlier ruling, and on May
22, 2014, it entered an order determining the $1,190,000.00 was in fact property of
the bankruptcy estate and was subject to Centris's blanket security interest. The
bankruptcy court's order specifically left unaffected its May 21, 2013 order awarding
Stalnaker $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 it incurred in the adversary proceeding 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 May 22, 2014 and May 21, 2013 orders.3 Jandrain, et al., REI, the
Hoiches, and American Interstate each timely filed a notice of appeal.
STANDARD OF REVIEW
We review the bankruptcy court's findings of fact for clear error and its legal
conclusions de novo. Islamov v. Ungar (In re Ungar), 633 F.3d 675, 678-79 (8th Cir.
2011).
DISCUSSION
The parties again identify a plethora of issues they believe are presented by the
several appeals. Those issues may be condensed and restated as follows: (1) whether
the bankruptcy court exceeded its mandate on remand; (2) whether the bankruptcy
court disregarded the law of the case; (3) whether the bankruptcy court failed to
2
In January 2014, while Stalnaker I was still pending, the bankruptcy judge
originally assigned to this case retired. In February 2014, the case was assigned to
a different judge.
3
According to the judgment, the amounts awarded were $35,944.45 and
$61,286.90.
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comply with Fed.R.Civ.P. 63 and Fed.R.Bankr.P. 9028; (4) whether the bankruptcy
court erred in concluding the $1,190,000.00 was property of the bankruptcy estate;
and (5) whether the bankruptcy court erred in surcharging Stalnaker's attorney fees,
costs, and expenses against the $1,190,000.00.
With respect to the first issue, Jandrain, et al. argue in reconsidering its earlier
ruling that the $1,190,000.00 was not property of the estate, the bankruptcy court
failed to follow our mandate on remand. We disagree.
The question of whether the bankruptcy court exceeded our mandate is a
question of law and is thus subject to de novo review. Gourley v. Usery (In re Usery),
242 B.R. 450, 456 (B.A.P. 8th Cir. 1999) (citation therein), aff'd 242 F.3d 378 (8th
Cir. 2000).
When a case has been decided . . . on appeal and remanded,
every question decided by the appellate court, whether
expressly or by necessary implication, is finally settled and
determined, thus creating a mandate for the lower court.
The mandate of the appellate court is completely
controlling as to all matters within its compass, but on
remand the trial court is free to pass upon any issue that
was not expressly or impliedly disposed of on appeal.
Id. at 457 (citations omitted) (first emphasis in original; remaining emphasis added).
In Stalnaker I, we did not address–much less expressly or impliedly dispose
of–either of the issues framed by the parties to that appeal. To the contrary, we stated
unambiguously "any consideration of either issue is premature." Stalnaker, 512 B.R.
at 211. Consequently, on remand, the bankruptcy court was free to pass upon those
issues.
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With respect to the second issue, Jandrain, et al. and REI argue in
reconsidering its earlier ruling that the $1,190,000.00 was not property of the estate,
the bankruptcy court disregarded the law of the case. Again, we disagree.
Under the law-of-the-case doctrine, "when a court decides upon a rule of law,
that decision should continue to govern the same issues in subsequent stages in the
same case." Alexander v. Jensen-Carter, 711 F.3d 905, 909 (8th Cir. 2013) (citations
therein). The doctrine "applies to both appellate decisions and [trial] court decisions
that have not been appealed." Id. (citation therein).
It is this latter point that precludes application of the law-of-the-case doctrine
in this case. The bankruptcy court's earlier decision was appealed. On remand, "[a]
lower court is not bound by its own earlier rulings unless explicitly or implicitly
adopted by the appellate court." Usery, 242 B.R. at 457 (citations therein). In
remanding the matter, we did not explicitly or implicitly adopt any of the bankruptcy
court's rulings. Consequently, the bankruptcy court was not bound by its earlier
rulings. And this is so, even though the case was transferred to a different judge
around the time of our remand. Id. at n.7 (citation therein).
With respect to the third issue, American Interstate argues following the
retirement of the bankruptcy judge originally assigned to this case, the bankruptcy
court did not comply with Fed.R.Civ.P. 63 and Fed.R.Bankr.P. 9028. We agree.
Pursuant to Rule 63,
If a judge conducting a hearing or trial is unable to
proceed, any other judge may proceed upon certifying
familiarity with the record and determining that the case
may be completed without prejudice to the parties. In a
hearing or a nonjury trial, the successor judge must, at a
party's request, recall any witness whose testimony is
material and disputed and who is available to testify again
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without undue burden. The successor judge may also
recall any other witness.
Fed.R.Civ.P. 63.4
In this case, the bankruptcy court did not certify familiarity with the record and
determine the case could be completed without prejudice to the parties before
entering its judgment. The bankruptcy court's familiarity with the record is
abundantly demonstrated by its detailed recitation of the facts in its decision.
However, without the requisite certification, there is no suggestion that the parties
had any reason to believe a decision was imminent and the time within which they
might exercise their right under Rule 63 and Rule 9028 to ask the bankruptcy court
to recall witnesses whose testimony was material and disputed was passing.5 Under
the circumstances, we will remand the matter to allow the bankruptcy court to comply
with Rule 63 and Rule 9028.
In reaching this conclusion, we are mindful of the opinion of the Eighth Circuit
Court of Appeals in Higginbotham v. The Corner Stone Bank (In re Higginbotham),
917 F.2d 1130 (8th Cir. 1990), in which the court of appeals recognized the
possibility that a party could waive its rights under Rule 9028. However, in that case,
the court of appeals was considering an earlier version of Rule 9028 that did not
require the bankruptcy court to certify familiarity with the record or afford the parties
an opportunity to ask the bankruptcy court to recall any witnesses. That earlier
version, as quoted by the court of appeals, provided:
4
Rule 63 applies in bankruptcy cases. Fed.R.Bankr.P. 9028.
5
No other party to this appeal responded to American Interstate's argument
regarding Rule 63 and Rule 9028. In any event, the record in this case is voluminous,
and the parties could reasonably have expected it would take some time for the
bankruptcy court to familiarize itself with the record.
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If by reason of death, sickness or other disability, a judge
before whom an involuntary petition or an adversary
proceeding has been tried or a hearing conducted is unable
to perform the duties to be performed by the court under
these rules after a verdict is returned, or findings of fact
and conclusions of law or a memorandum is filed, then any
other judge regularly sitting in or assigned to the court in
which the trial or hearing was conducted may perform
those duties; but if the other judge is satisfied that he
cannot perform those duties because he did not preside or
for any other reason, he may in his discretion grant a new
trial.
Id. at 1131-32 (without emphasis in original).
Moreover, in that case, the party complaining about the bankruptcy court's
failure to comply with Rule 9028 had sought affirmative relief from the successor
judge, thereby demonstrating, at least implicitly, "a willingness to accept that judge's
authority to decide the case." Id. at 1133. In this case, Centris filed a motion asking
the bankruptcy court to accept briefs summarizing the parties' respective positions
regarding the issues of estoppel and release discussed in Stalnaker I. Thus, Centris
might be said to have implicitly demonstrated a willingness to accept the bankruptcy
court's authority to decide the case on the record it inherited. However, the same
cannot be said about American Interstate or any of the other parties.
We are also mindful of the opinion of the Eighth Circuit Court of Appeals in
Littleton v. Pilot Travel Centers, LLC, 568 F.3d 641 (8th Cir. 2009), in which the
court of appeals stated a party who does not make a Rule 63 request to recall
witnesses "has no right to sit back and await decision of the case before objecting to
the procedure." Id. at 648 (quoting Higginbotham, 917 F.2d at 1133). However, we
cannot tell from that opinion whether the successor judge in that case made the
requisite certification.
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In any event, in this case, American Interstate cannot be said to have sat back
and awaited a decision before objecting to the procedure, because, as noted above,
there is no suggestion the parties had any reason to believe a decision was imminent.
There is likewise no suggestion there was any "procedure" to which American
Interstate might have objected. The bankruptcy court simply entered its judgment,
at which point it was too late for American Interstate–or any other party–to object.
In light of our decision to remand this matter, we do not reach the remaining
issues. We are not expressly or impliedly disposing of those remaining issues, and
on remand the bankruptcy court is again free to pass upon them. Likewise, we are not
explicitly or implicitly adopting any of the bankruptcy court's rulings regarding those
remaining issues, and on remand the bankruptcy court is still not bound by its earlier
rulings regarding them.
CONCLUSION
For the foregoing reasons, we again reverse and remand for further proceedings
consistent with this opinion.
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