United States Ex Rel. Yelverton v. Federal Insurance , 831 F.3d 585 ( 2016 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued March 8, 2016 Decided August 5, 2016
No. 15-7045
UNITED STATES OF AMERICA, EX REL. STEPHEN THOMAS
YELVERTON,
AND
STEPHEN THOMAS YELVERTON,
APPELLANTS
v.
FEDERAL INSURANCE COMPANY,
APPELLEE
Consolidated with 15-7046, 15-7047
Appeals from the United States District Court
for the District of Columbia
(No. 1:15-cv-00277)
(No. 1:15-cv-00208)
(No. 1:14-cv-02209)
Stephen Thomas Yelverton, pro se, argued the cause and
filed the briefs for appellant.
Jeffrey L. Tarkenton argued the cause and filed the brief
for appellees Deborah Marm and Phyllis Edmundson.
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Natalie S. Walker argued the cause and filed the brief for
appellees Federal Insurance Company, et al.
Before: SRINIVASAN, MILLETT and WILKINS, Circuit
Judges.
Opinion for the Court filed by Circuit Judge SRINIVASAN.
SRINIVASAN, Circuit Judge: These consolidated appeals
are the latest chapter in a long line of litigation over a
bankruptcy settlement agreed to by the trustee whom the
United States Trustee appointed to represent the bankruptcy
estate. The debtor’s numerous, frivolous challenges to the
settlement led the district court to enter a pre-filing injunction
barring him from filing any new civil actions in the district
court without court permission. These cases present a
question about the scope of that injunction: namely, does it
encompass appeals to the district court from bankruptcy
court? We conclude that, as written, the injunction does not
cover those appeals with sufficient clarity, and that the district
court thus erred in striking these three appeals for violating
the pre-filing injunction. We nonetheless affirm the dismissal
of two of the three appeals on the merits, and we remand for
the district court to resolve the third one.
I.
In 2009, Stephen Yelverton filed for bankruptcy. The
bankruptcy trustee entered into an agreement with
Yelverton’s sisters to resolve the disputed ownership of the
family business, Yelverton Farms, Ltd. The settlement
agreement negotiated by the trustee also settled Yelverton’s
various legal claims against his sisters, and the bankruptcy
estate transferred its interest in the company to Yelverton’s
sisters in exchange for $110,000. Over Yelverton’s
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objections, the bankruptcy court approved the agreement.
Yelverton exhausted all avenues to appeal the approval of that
agreement, and both the district court and this court affirmed
it. See Yelverton v. Webster (In re Yelverton), No. 14-7147,
2015 WL 1606965, at *1 (D.C. Cir. Mar. 9, 2015).
Over the course of the bankruptcy proceedings,
Yelverton filed “over 40 lawsuits, adversary bankruptcy
proceedings, or appeals of the bankruptcy court’s rulings,”
and within those lawsuits “over 150 motions, including over
50 motions to reconsider, vacate, amend, or obtain relief from
a judgment or order.” Yelverton v. Webster (In re Yelverton),
526 B.R. 429, 430, 433 (D.D.C. 2014). In response to
Yelverton’s many frivolous challenges, the district court
entered a pre-filing injunction against him on August 6, 2014.
The injunction barred him from filing “any new civil action in
[that] Court” without first receiving the court’s permission.
Id. at 435. This court upheld the pre-filing injunction.
Yelverton, 2015 WL 1606965, at *1.
Meanwhile, Yelverton continued to file new actions in
the bankruptcy court. First, on June 5, 2014, he filed a
complaint against the trustee and his surety bond company for
breach of fiduciary duty in agreeing to the settlement
(adversary proceeding number 14-10014). The bankruptcy
court dismissed that lawsuit. Second, on June 16, 2014,
Yelverton filed a complaint against his sisters alleging a
violation of the Racketeer Influenced and Corrupt
Organizations Act and of the bankruptcy stay (adversary
proceeding number 14-10024). The bankruptcy court
dismissed that lawsuit too. Finally, on November 26, 2014,
after entry of the pre-filing injunction, Yelverton filed an
action against the surety bond company alleging fraud and
breach of fiduciary duty based on the trustee’s failure to
provide information about the company (adversary
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proceeding number 14-10043). The bankruptcy court
dismissed that claim as a violation of the district court’s pre-
filing injunction and on the merits.
Yelverton appealed the bankruptcy court’s dismissal of
each of his three cases to the district court. He did not seek
the court’s approval under the pre-filing injunction. The
district court dismissed those appeals as violations of the
injunction. Yelverton now appeals.
II.
We have already held that the district court acted within
its discretion in entering the pre-filing injunction against the
filing of new actions by Yelverton in that court without the
court’s permission. We now address whether the injunction
covers an appeal to the district court of an action initially filed
in the bankruptcy court. The district court concluded that its
injunction barred Yelverton’s appeals from the bankruptcy
court in the cases now before us, and it accordingly dismissed
his appeals for breach of the injunction without considering
them on the merits. We review the district court’s
interpretation of its injunction de novo. Int’l Ass’n of
Machinists & Aerospace Workers, AFL-CIO v. E. Airlines,
Inc., 849 F.2d 1481, 1485 (D.C. Cir. 1988).
The Federal Rules of Civil Procedure require that
“[e]very order granting an injunction . . . must: (A) state the
reasons why it issued; (B) state its terms specifically; and (C)
describe in reasonable detail—and not by referring to the
complaint or other document—the act or acts restrained or
required.” Fed. R. Civ. P. 65(d)(1). When the injunction
pertains to “such a vital constitutional right as access to the
courts,” due process also calls for “notice and an opportunity
to be heard.” In re Powell, 851 F.2d 427, 431 (D.C. Cir.
1988). An injunction must “give adequate notice that
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particular conduct was enjoined.” Abbott Labs. v. TorPharm,
Inc., 503 F.3d 1372, 1383 (Fed. Cir. 2007). To ensure that
“an ordinary person reading the court’s order [can] ascertain
from the document itself exactly what conduct is proscribed,”
we resolve “omissions or ambiguities in the order” in favor of
the enjoined party. Charles Alan Wright et al., 11A Federal
Practice and Procedure § 2955 (3d ed. 2013); see In re
Baldwin-United Corp., 770 F.2d 328, 339 (2d Cir. 1985).
The injunction in this case requires Yelverton to obtain
the district court’s permission “before filing any new civil
action in [that] Court.” Yelverton, 526 B.R. at 435. We
therefore must decide whether it is sufficiently clear that
bringing a bankruptcy appeal to the district court qualifies as
filing a “new civil action” in that court. Appellees suggest
two interpretations of that language that would encompass
Yelverton’s bankruptcy appeals. First, they argue that his
taking a bankruptcy appeal to the district court amounted to
the filing of a new civil case in that court. Second, they
contend that, because the bankruptcy court is itself a unit of
the district court, Yelverton filed a new civil action in the
district court when he initially filed each proceeding in the
bankruptcy court. We find that neither of those arguments
supports concluding that the pre-filing injunction covers
bankruptcy appeals with adequate specificity.
First, it is insufficiently clear that a bankruptcy appeal
amounts to a “new civil action” in the district court. To be
sure, bankruptcy appeals are treated as civil cases rather than
criminal cases. The local rules establish a dichotomy between
civil and criminal complaints. See Local Civ. R. 40.2; Local
Crim. R. 57.9. When a new civil case is opened, the
complaint is entered on the docket along with a civil cover
sheet. And those cover sheets list bankruptcy as a
subcategory of “[g]eneral [c]ivil” cases. Civil Cover Sheet,
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Yelverton v. Fed. Ins. Co. (In re Yelverton), No. 1:15-cv-
00277 (D.D.C. Feb. 19, 2015); Civil Cover Sheet, Yelverton v.
Marm (In re Yelverton), No. 1:15-cv-00208 (D.D.C. Feb. 11,
2015); Civil Cover Sheet, Yelverton v. Webster (In re
Yelverton), No. 1:14-cv-02209 (D.D.C. Dec. 24, 2014).
Although the district court’s categorization of bankruptcy
appeals as civil (rather than criminal) cases implies that
bankruptcy appeals may be considered “civil actions” in some
sense, there are important distinctions between the treatment
of bankruptcy appeals and that of civil actions filed originally
in district court. According to the Federal Rules of Civil
Procedure, “[a] civil action is commenced by filing a
complaint with the court.” Fed. R. Civ. P. 3. Bankruptcy
appeals, however, are commenced by “filing a notice of
appeal with the bankruptcy clerk.” Fed. R. Bankr. P.
8003(a)(1). The bankruptcy clerk transfers the filing to the
district court clerk, who dockets the appeal without any
further filings by the debtor in the district court. Fed. R.
Bankr. P. 8003(d). Thus, when Yelverton appealed each of
these cases from the bankruptcy court to the district court, he
filed nothing in the district court. In that light, we find it
insufficiently clear that bringing a bankruptcy appeal to the
district court constitutes “filing a new civil action” in the
district court within the meaning of the pre-filing injunction.
We next consider whether, even if taking an appeal from
bankruptcy court did not amount to filing a new civil action in
the district court, the initial filings in the bankruptcy court
themselves were the filing of a new civil action in the district
court. It is true, as appellees observe, that the bankruptcy
court is an arm of the district court. See 28 U.S.C. § 151. But
that understanding necessarily cannot carry the day for
appellees with regard to two of the three consolidated cases
before us (case numbers 14-10014 and 14-10024): each of
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those proceedings was filed in the bankruptcy court before
entry of the pre-filing injunction. In the third case (number
14-10043), however, Yelverton initially filed the adversary
proceeding in the bankruptcy court after the injunction. As to
that case, consequently, we must consider whether the filing
of that action in the bankruptcy court amounted to filing a
new civil action in the district court for purposes of the
injunction.
We find it insufficiently clear that, by prohibiting the
filing of new civil actions “in this Court,” the district court
also barred the filing of new actions in the bankruptcy court.
Although bankruptcy courts are units of the district courts, see
id., the district court’s opinion and order unsurprisingly speak
of the two courts as distinct entities, not as one and the same.
For instance, the district court noted that the proceedings
below “involve[d] appeals of three orders of the bankruptcy
court.” Yelverton, 526 B.R. at 430. And in describing
Yelverton’s filings before “various courts,” the district court
separately discussed his submissions in the “bankruptcy
court” and in “this Court.” Id. at 433. In setting out the terms
of the pre-filing injunction, the district court specified that the
injunction applied to new civil actions “in this Court.” Id. at
435. If the court wanted to prohibit filings in bankruptcy
court, it could have (and presumably would have) said so
explicitly.
We are sympathetic to the district court’s efforts to deal
with what it described as “Yelverton’s long history of
vexatious and harassing filings” and resulting “abuse[] [of]
the judicial process.” Id. We are unable to find, though, that
the court’s pre-filing injunction encompassed with sufficient
clarity Yelverton’s bankruptcy appeals (or his initial filings in
the bankruptcy court) before us in these consolidated appeals.
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III.
While the pre-filing injunction did not apply with
adequate specificity to these bankruptcy appeals, we exercise
our discretion to consider whether the district court’s
dismissal of these appeals can be affirmed on the merits.
“[W]e may affirm a judgment on any ground the record
supports.” Jones v. Bernanke, 557 F.3d 670, 676 (D.C. Cir.
2009). Because we review the bankruptcy court’s decisions
on questions of law de novo, ALCOM Am. Corp. v. Arab
Banking Corp., 48 F.3d 539, 539 (D.C. Cir. 1995) (per
curiam), our standard of review would not vary if there were
an intervening district court decision on the merits. The
parties have presented arguments on the merits, and we have
sufficient information to resolve the merits of two of the three
consolidated appeals before us. We do so in an effort to avoid
unnecessary delay and waste of judicial resources on remand.
See In re W.R. Grace & Co., 115 F. App’x 565, 568 (3d Cir.
2004). We lack sufficient information to resolve the third
case (case number 15-7047, the appeal of bankruptcy
proceeding 14-10014), however, so we remand that case for
the district court to decide it.
A.
In case number 15-7046 (the appeal of bankruptcy
proceeding 14-10024), we affirm the bankruptcy court’s
finding that Yelverton failed to state a claim against his sisters
under the Racketeer Influenced and Corrupt Organizations
Act (RICO) and for actions taken in violation of a stay. See
Fed. R. Civ. P. 12(b)(6). We need not reach the bankruptcy
court’s other grounds for dismissal.
Under RICO, it is “unlawful for any person employed by
or associated with any enterprise engaged in, or the activities
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of which affect, interstate or foreign commerce, to conduct or
participate, directly or indirectly, in the conduct of such
enterprise’s affairs through a pattern of racketeering activity.”
18 U.S.C. § 1962(c). A RICO violation involves four
elements: “(1) conduct (2) of an enterprise (3) through a
pattern (4) of racketeering activity.” W. Assocs. Ltd. P’ship v.
Mkt. Square Assocs., 235 F.3d 629, 633 (D.C. Cir. 2001)
(quotation omitted). A “pattern” for RICO purposes requires
at least two related predicate acts committed within a ten-year
period. Id. The statute lists a number of crimes as possible
predicate acts, including mail fraud, wire fraud, and extortion.
18 U.S.C. § 1961(1)(B).
The bankruptcy court assessed each of Yelverton’s eight
alleged predicate acts in detail and found that none stated a
claim under RICO, especially under the heightened pleading
requirements for allegations of fraud. Yelverton v. Marm (In
re Yelverton), No. 14-10024, 2014 WL 7141938, at *10-*12
(Bankr. D.D.C. Dec. 12, 2014); see Fed. R. Civ. P. 9(b). Five
of the alleged predicate acts involve his sisters’ supposedly
false allegation that his shares in the farm might be owned by
a third party to whom he had pledged his shares as collateral
for a loan. Yelverton, 2014 WL 7141938, at *7, *11. As the
bankruptcy court concluded, Yelverton’s sisters would not
have committed fraud by questioning the ownership of his
shares. Id. at *11.
The remaining three alleged predicate acts fare no better.
Yelverton claims that one of his sisters “marr[ed]” the value
of the family business, Yelverton Farms, by agreeing not to
renew a lease of her land to the company. Id. at *12. But
those facts do not demonstrate fraud: as the owner of the
land, she had the right not to lease it. Yelverton next claims
that his sisters made false representations about the value of
Yelverton Farms during settlement negotiations, but he does
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not plead these claims with the particularity required by Rule
9(b). Id. Finally, Yelverton claims that the trustee assigned
to his bankruptcy case extorted his ex-wife to waive her
marital claim to the estate, but that allegation does not involve
Yelverton’s sisters at all. Id. We therefore affirm the
bankruptcy court’s holding that Yelverton did not sufficiently
plead the two predicate acts necessary to make out a claim
under RICO.
We also affirm the bankruptcy court’s dismissal of
Yelverton’s other claim in bankruptcy proceeding 14-10024,
involving his sisters’ alleged violation of an automatic stay
imposed during the pendency of related litigation in North
Carolina. As the bankruptcy court explained in detail, none of
his sisters’ actions violated the stay. Id. at *6-10. They were
free to engage in settlement negotiations initiated by
Yelverton’s trustee and to defend themselves against actions
filed by Yelverton. He therefore failed to state a claim for a
violation of the stay. For these reasons, the bankruptcy court
properly dismissed adversary proceeding 14-10024.
B.
We also affirm the dismissal of the claims in case number
15-7045 (the appeal of bankruptcy proceeding 14-10043).
Yelverton claims that the United States Trustee’s surety, the
Federal Insurance Company, committed several species of
fraud: fraudulent concealment, fraudulent misrepresentation,
and constructive fraud. He also alleges that the surety
breached a fiduciary duty by failing to disclose information.
We affirm the dismissal of those claims because Yelverton’s
complaint does not allege the requisite elements of any of
them. See Fed. R. Civ. P. 12(b)(6). Again, we need not reach
the bankruptcy court’s other grounds for dismissal.
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First, the bankruptcy court correctly dismissed the claim
for breach of fiduciary duty. Yelverton brought his claim
only against the surety bond company, the Federal Insurance
Company, not the United States Trustee. But the facts
underlying his fiduciary-duty claim relate only to the United
States Trustee. In particular, he contends that the Office of
the United States Trustee gave him the incorrect name and
address for the surety. Yelverton never alleges that the surety
owed him a fiduciary duty or that the surety took any action
that could violate such a duty. As the bankruptcy court noted
in its opinion, Yelverton does not “establish[] a ground for
liability on the part of the Trustee’s surety based on alleged
misconduct of the United States Trustee.” United States ex
rel. Yelverton v. Fed. Ins. Co. (In re Yelverton), No. 14-
10043, 2014 WL 7212967, at *3 (Dec. 17, 2014).
Second, we affirm the dismissal of the fraudulent-
concealment claim. Fraudulent concealment requires proof of
three elements: “(1) that defendants engaged in a course of
conduct designed to conceal evidence of their alleged wrong-
doing and that (2) the plaintiffs were not on actual or
constructive notice of that evidence, despite (3) their exercise
of diligence.” Larson v. Northrop Corp., 21 F.3d 1164, 1172
(D.C. Cir. 1994) (quotation and alteration omitted).
Yelverton makes no allegations sufficient to satisfy the first
element, conduct designed to conceal wrongdoing. At most,
Yelverton’s complaint alleges that the United States Trustee
provided erroneous information and failed to correct it. The
complaint does not allege that the surety did anything at all, or
even that the Trustee tried to conceal evidence of its own
wrongdoing.
Third, we affirm the dismissal of the fraudulent-
misrepresentation claim. Fraudulent misrepresentation
requires: “(1) a false representation, (2) in reference to a
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material fact, (3) made with knowledge of its falsity, (4) and
with intent to deceive, (5) with action taken in reliance upon
the representation.” Nader v. Allegheny Airlines, Inc., 626
F.2d 1031, 1036 (D.C. Cir. 1980). Yelverton’s allegations do
not satisfy those elements. He does not claim the surety itself
gave him any false information. And even with respect to the
Trustee, he does not claim the Trustee intended to deceive
him or knew the information it gave him was false.
Finally, we affirm the dismissal of the constructive-fraud
claim. Constructive fraud, like fraudulent concealment,
requires that the defendant make a false representation in
reference to a material fact with knowledge of its falsity. See
Himmelstein v. Comcast of the Dist., LLC, 908 F. Supp. 2d
49, 59 (D.D.C. 2012). Because these requirements overlap
with the requirements for fraudulent misrepresentation,
Yelverton’s constructive-fraud allegations fall short for the
same reasons as his fraudulent-misrepresentation claim.
Because he failed to allege facts sufficient to make out any of
his claims, the bankruptcy court properly dismissed adversary
proceeding 14-10043.
* * * * *
In sum, the district court erred in applying the pre-filing
injunction to Yelverton’s appeals from the bankruptcy court.
We nonetheless affirm the dismissal of the appeals in
adversary proceeding numbers 14-10024 and 14-10043 for
failure to state a claim. With regard to adversary proceeding
number 14-10014, we reverse and remand to the district court
for further proceedings consistent with this opinion.
So ordered.