Lowe v. Bowers (In Re Nicole Gas Prod., Ltd.)

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 19a0026p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
NICOLE GAS PRODUCTION, LTD., ┐
Debtor. │
___________________________________________ │
│
│ No. 18-3301
JAMES A. LOWE; CURTLAND H. CAFFEY; S. BREWSTER >
RANDALL, II; ROBERT C. SANDERS, │
│
Appellants, │
│
v. │
│
│
BRENDA K. BOWERS, Chapter 7 Trustee of the
│
Bankruptcy Estate of Nicole Gas Production, Ltd.,
│
Appellee. │
│
│
┘
On Appeal from the Bankruptcy Appellate Panel of the Sixth Circuit.
Nos. 15-8053/8055—Paulette J. Delk, Marian F. Harrison, and Daniel S. Opperman,
Bankruptcy Appellate Panel Judges.
United States Bankruptcy Court for the Southern District of Ohio at Columbus.
No. 2:09-bk-52887—John E. Hoffman, Judge.
Argued: October 18, 2018
Decided and Filed: February 22, 2019
Before: MERRITT, COOK, and LARSEN, Circuit Judges.
_________________
COUNSEL
ARGUED: Rick L. Ashton, ALLEN, KUEHNLE, STOVALL & NEUMAN, LLP, Columbus,
Ohio, for Appellant Lowe. Robert C. Sanders, Upper Marlboro, Maryland, pro se. Daniel E.
Shuey, VORYS, SATER, SEYMOUR AND PEASE LLP, Columbus, Ohio, for Appellee.
ON BRIEF: Rick L. Ashton, James A. Coutinho, ALLEN, KUEHNLE, STOVALL
No. 18-3301 In re Nicole Gas Production, Ltd. Page 2
& NEUMAN, LLP, Columbus, Ohio, for Appellant Lowe. Daniel E. Shuey, Brenda K. Bowers,
VORYS, SATER, SEYMOUR AND PEASE LLP, Columbus, Ohio, for Appellee. Robert C.
Sanders, Upper Marlboro, Maryland, S. Brewster Randall, II, Curtland H. Caffey, Columbus,
Ohio, pro se.
_________________
OPINION
_________________
MERRITT, Circuit Judge. This is a bankruptcy contempt dispute. Normally a party’s
conduct is contemptuous or it is not. But in this unusual case, whether the defendants are in
contempt depends on statutory construction. The question presented is whether the Ohio RICO
statute gives the sole shareholder of a bankrupt corporation standing to circumvent the automatic
stay and individually sue a competitor. The issue is a complex intersection of three areas of law:
the principle of the derivative suit in corporate law, the function of the automatic stay in
bankruptcy, and the extent and construction of a specific state’s RICO laws. In this appeal, we
must consider how these precepts work together where the RICO statute offers no explicit
guidance on how the claim should operate in the corporate and bankruptcy contexts. But for all
the legal overlays here, ultimately the Appellants are in contempt or they are not.
The basic facts. Appellant Freddie Fulson1 owned a company called Nicole Gas that
entered bankruptcy proceedings. During the bankruptcy, Fulson became dissatisfied with the
Trustee’s handling of claims that Nicole Gas held against its competitors. With the help of two
lawyers, Appellants Robert Sanders, Esq. and James A. Lowe, Esq., Fulson sought relief in state
court under the Ohio Corrupt Practices Act (Ohio civil RICO) against the competitors that
allegedly put his business into bankruptcy. Because Fulson alleged damages incurred only by
the debtor-business, the Trustee alleged that he had appropriated claims that the Trustee owned.
By filing this action during the bankruptcy, the Trustee alleged that Fulson, Sanders, and Lowe
violated the automatic stay. The Bankruptcy Court agreed and held the three in contempt and
entered a judgment for roughly $91,000. The contempt finding and fee order are the subjects of
the instant appeal.
1Fulson died during the pendency of the bankruptcy, and his estate was substituted in the proceedings
below and here.
No. 18-3301 In re Nicole Gas Production, Ltd. Page 3
Back to legal principles. Derivative liability is a cardinal tenet of corporate common law.
When an artificial entity (a corporation) is injured, shareholders cannot necessarily redress that
injury themselves. See 19 Am. Jur. 2d Corporations § 1935 (1998) (“[W]here the injury is to the
corporation, and only indirectly harms the shareholder, the claim must be pursued as a derivative
claim.”); see also James D. Cox & Thomas Lee Hazen, 3 Treatise on the Law of Corporations
§ 15:2 (3d ed. 2010) (“An almost necessary consequence of a wrong to a corporation is some
impairment of the value of each shareholder’s stock interest. As a general rule, however,
shareholders are considered to have no direct individual right of action for corporation wrongs
that impair the value of their investment.”).
As to the bankruptcy gloss on this dispute, the Bankruptcy Code imposes a powerful stay
on parties attempting to gain control over the property of the debtor’s estate. See 11 U.S.C.
§ 362(a)(3) (“[A] petition . . . operates as a stay, applicable to all entities, of . . . any act to obtain
possession of property of the estate or of property from the estate or to exercise control over
property of the estate”). The policy imperative behind the automatic stay is to “give[] the debtor
a breathing spell from creditors and stop[] foreclosure actions, collection efforts, and creditor
harassment.” 2 Norton Bankr. L. & Prac. 3d § 43:4 (2019).
The precise language of the Ohio Corrupt Practices Act is the complicating factor here.
The Appellants claim that the wording of the statute converts a derivative shareholder action to
an individual claim because it provides a private right of action for “any person directly or
indirectly injured by conduct” violating the Act. Ohio Rev. Code § 2923.34. As the sole
shareholder of Nicole Gas, normally Fulson would have to seek relief from Nicole Gas’s
competitors via the traditional route of derivative liability. But, his successors argue, the Corrupt
Practices Act means both (a) that he did not have to pursue a derivative claim at all, and (b) that
thus, the bankruptcy Trustee did not have the right to exercise control over the claim. If Fulson’s
successors are right, and the claim against Nicole Gas’s competitors can be alleged outside of
corporate law and via the Corrupt Practices Act, then they did not violate the automatic stay.
Thus, the basis for the Contempt and Fee Orders would disappear. We shall see in due course
that they are wrong. In agreement with the persuasively reasoned decisions below, both in the
Bankruptcy Court and the Bankruptcy Appellate Panel, we AFFIRM.
No. 18-3301 In re Nicole Gas Production, Ltd. Page 4
I. FACTUAL AND PROCEDURAL BACKGROUND
In the late 1990s, Freddie Fulson formed several corporate entities to produce and market
natural gas in the Midwest. One of these entities is the debtor in the bankruptcy case, Nicole Gas
Production, Ltd. The bottom line is that Fulson was the indirect equity owner of Nicole Gas and
was calling the shots. To market and move the gas, Fulson’s entities contracted with a larger
company, Columbia Gas Transmission, and its affiliates. Eventually, relations between
Columbia Gas and Fulson’s entities soured and in the early 2000s a decade of litigation in state
and federal court began. For his part, Fulson believed that Columbia Gas had conspired with
other entities, including Nicole Gas’s creditors, to put him out of business. Columbia Gas did
this, he alleged, by mismeasuring the amount of natural gas produced by Fulson’s wells,
misappropriating gas that the entities delivered into Columbia Gas’s transmission system, and
improperly soliciting his creditors to force Nicole Gas into bankruptcy proceedings. This
bankruptcy proceeding began in 2009 and has continued since then, but it is only the tip of the
iceberg of the disputes between these entities.
In 2013, while Nicole Gas was in bankruptcy proceedings, the corporation’s bankruptcy
Trustee, Frederick Ransier, proposed settling all of Nicole Gas’s claims against Columbia Gas
for $250,000. Back in 2001, one of Nicole Gas’s affiliates, Nicole Energy Services, Inc., had
asserted claims against Columbia Gas for $36 million. Likely miffed that the Trustee was trying
to settle similar claims for less than a million dollars, Fulson objected to that settlement in
October of 2012. But objecting in the proper and usual course was not enough for him.
Sometime after objecting to the settlement, Fulson began working with Robert C. Sanders, Esq.,
a Maryland attorney who had represented one of Fulson’s other gas companies in state court.
Fulson filed a new complaint in Ohio state court against Columbia Gas seeking roughly $34
million in damages. Fulson, Sanders, and Lowe wanted to try the claims to a jury in state court
because, according to Sanders, jurors “don’t like utility companies.” 519 B.R. at 740 n.18.
The state court complaint recited the history between the companies and alleged that
Columbia Gas had violated the Ohio Corrupt Practices Act, Ohio Rev. Code § 2923.31 et seq.,
which provides that no person shall engage in a pattern of corrupt activity, defined as engaging
in racketeering, theft, telecommunications fraud, and the like. Id. § 2923.32. This is Ohio’s
No. 18-3301 In re Nicole Gas Production, Ltd. Page 5
Racketeer Influenced and Corrupt Organizations (“RICO”) statute. The Act includes a private
right of action in § 2923.34 which allows for treble damages for “any person directly or
indirectly injured by conduct” violating the Act (emphasis added). The Act presented an
attractive avenue for relief because it carries treble damages and confers broad standing on
litigants. Fulson and Sanders then hired James A. Lowe, Esq., of Cleveland as local counsel, and
the three of them together filed the complaint (with Fulson as the sole plaintiff) in the Court of
Common Pleas for Franklin County, Ohio, in January 2013. Because Nicole Gas was a domestic
limited liability company, it counted as a “person” in Ohio and could have asserted these claims
against Columbia Gas.
There was one big problem with the complaint: Fulson couched his damages as directly
resulting from his status as the sole shareholder of Nicole Gas’ parent corporation. He alleged
no damages that related to him personally; he only pled that he had been harmed because of his
indirect ownership of Nicole Gas. In multiple paragraphs of the complaint, Fulson’s attorneys
recited the damages to Fulson as sustained by the corporation he owned.2 Usually, when a
corporation is damaged, shareholders seek relief through a derivative suit. Fulson, Sanders, and
Lowe, however, believed that the language of the Corrupt Practices Act would allow them to
circumvent both the automatic stay and the principle that the bankruptcy trustee has the sole right
to assert a debtor’s causes of actions. See Stevenson v. J.C. Bradford & Co. (In re Cannon),
277 F.3d 838, 853 (6th Cir. 2002); Bauer v. Commerce Union Bank, 859 F.2d 438, 441 (6th Cir.
1988).
Because Nicole Gas was in bankruptcy proceedings, filing a derivative suit (based on the
Corrupt Practices Act or some other statute) would have meant seeking relief from the automatic
stay, see 11 U.S.C. § 362(d); Fed. R. Bankr. P. 4001(a), or convincing the bankruptcy trustee to
either bring the claims himself or abandon them, see Maloof v. Level Propane, Inc., 429 F.
2For instance, Paragraph 120 of the state court complaint reads, “The Plaintiff has standing to bring a civil
action against the Defendants under Section 2923.34(E) of the Act because, as the owner of NES, he is a person who
was ‘directly or indirectly injured’ by the Defendants’ violations…” (emphasis added). Paragraph 126 continues
this grammatical pattern: “The amount of the damages caused to the Plaintiff by the Defendant’s violations of the
Act are (1) the net damages of $36,654,305.94 sustained by NES…and (2) the damages sustained by NGP…”
(emphasis added). By its very terms, then, the state court complaint pled damages that were incurred by the
corporation.
No. 18-3301 In re Nicole Gas Production, Ltd. Page 6
App’x 462, 468 (6th Cir. 2011). Keep in mind that in a Chapter 7 bankruptcy, the role of the
Trustee is to close the estate as expeditiously as possible. See 11 U.S.C. § 704(a); see also In re
Modern Plastics Corp., 732 F. App’x. 379, 384 (6th Cir. 2018) (discussing trustee duties).
Fulson and his lawyers did not consult Ransier, who discovered the complaint when an employee
conducted a routine state court docket check. At that time, Ransier was in the process of
negotiating and finalizing a settlement agreement with Columbia Gas that would take care of
“any and all” claims Nicole Gas might hold against Columbia. Ransier believed that the Corrupt
Practices Act claim fell under this settlement umbrella, and he filed a Motion for Contempt
before the Bankruptcy Court. The Corrupt Practices action in state court was stayed.
The Bankruptcy Court held a hearing and heard testimony from Fulson’s two attorneys
and Ransier. In a 56-page order (the “Contempt Order”), reported as In re Nicole Gas Prod.,
Ltd., 519 B.R. 723 (Bankr. S.D. Ohio 2014), the Court found that Fulson, Lowe, and Sanders
(collectively, “the Fulson Parties”) had willfully violated the automatic stay, 11 U.S.C.
§ 362(a)(3), by filing the Corrupt Practices Act complaint. In this order, the Bankruptcy Court
analyzed the Ohio Corrupt Practices Act in detail and concluded that Fulson had no independent
standing to raise claims that belonged to Nicole Gas. After soliciting additional briefing and
holding a separate hearing, the Court issued a second 51-page order (the “Fee Order”), reported
as In re Nicole Gas Prod., Ltd., 542 B.R. 204 (Bankr. S.D. Ohio 2015), detailing the amount of
damage that the Fulson Parties had done to Nicole Gas’s estate and directing them to pay
$91,068.00 to Ransier. The Fulson Parties – Fulson’s attorneys in the Corrupt Practices Act case
(James A. Lowe, Esq. and Robert C. Sanders, Esq.), and the administrators of Fulson’s estate –
appealed the Contempt and Fee Orders to the Bankruptcy Appellate Panel for the Sixth Circuit.
The Bankruptcy Appellate Panel proceeded in two stages. In August 2016, the Panel
certified a question of law to the Ohio Supreme Court. The Panel asked the Ohio Supreme Court
whether an injured shareholder was entitled to individual standing under the Ohio Corrupt
Practices Act. In October 2016, the Ohio Supreme Court declined to answer the certified
question and dismissed the cause. In March of 2018, the Bankruptcy Appellate Panel issued a
decision addressing the merits of the Fulson Parties’ claims. The Panel affirmed the Bankruptcy
Court in all respects (the “Bankruptcy Appellate Panel Opinion”), reported as In re Nicole Gas
No. 18-3301 In re Nicole Gas Production, Ltd. Page 7
Prod., Ltd., 581 B.R. 843 (B.A.P. 6th Cir. 2018), and concluded that an individual shareholder
could not use the Ohio Corrupt Practices Act to convert a corporate law claim into an individual
one. Thus, the claim was the property of the bankruptcy estate, and the Fulson Parties had
violated the automatic stay by misappropriating that claim. The Fulson Parties appealed again to
the Sixth Circuit. Ransier was eventually replaced by Brenda K. Bowers, the Successor Trustee
of the bankruptcy estate of Nicole Gas Production, Ltd.
II. ANALYSIS
We have jurisdiction to review orders of the Bankruptcy Appellate Panel under 28 U.S.C.
§ 158(d)(1). Review of the Bankruptcy Court’s decision is independent of the Bankruptcy
Appellate Panel’s review. In re Curry, 509 F.3d 735 (6th Cir. 2007). The Sixth Circuit uses the
“clear error” standard for factual findings and reviews conclusions of law de novo. In re Century
Boat Co., 986 F.2d 154, 156 (6th Cir. 1993). Generally, bankruptcy court determinations of
contempt are examined under an abuse of discretion standard. In re Wingerter, 594 F.3d 931,
936 (6th Cir. 2010).
Filing a bankruptcy petition creates a bankruptcy estate, which 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), including causes of action, In re Parker, 499 F.3d 616, 624 (6th Cir. 2007). “The
nature and extent of property rights in bankruptcy are determined by the ‘underlying substantive
law’”—Ohio law, in this case. Tyler v. DH Capital Mgmt., Inc., 736 F.3d 455, 461 (6th Cir.
2013); In re Underhill, 579 F. App’x 480. 482 (6th Cir. 2014) (“State substantive law determines
the ‘nature and extent’ of causes of action . . .”). “[O]nce that determination is made, federal
bankruptcy law dictates to what extent that interest is property of the estate for the purposes of
§ 541.” DH Capital Mgmt., 736 F.3d at 461 (quoting Bavely v. United States (In re Terwilliger’s
Catering Plus, Inc.), 911 F.2d 1168, 1172 (6th Cir. 1990)).
If a shareholder has sole right to assert a cause of action, the cause of action is not part of
the bankruptcy estate. Whether a shareholder “has sole right to a cause of action is determined in
accordance with state law.” Honigman v. Comerica Bank (In re Van Dresser Corp.), 128 F.3d
945, 947 (6th Cir. 1997) (citing Oakland Gin Co. v. Marlow (In re The Julien Co.), 44 F.3d 426,
No. 18-3301 In re Nicole Gas Production, Ltd. Page 8
429 (6th Cir. 1995). Under Van Dresser, whether “shared” causes of action belong to the
bankruptcy estate comes down to two questions: (1) whether both the shareholder and the
corporation-debtor could state claims for the damages; and, if so, (2) whether the shareholder
and corporation-debtor could both recover full damages. Van Dresser, 128 F.3d at 947–48. If
either’s recovery can “preclude[] the other from a subsequent recovery, then the claims are not
truly independent.” Id. Absent being “truly independent,” the claims belong to the bankruptcy
estate in toto.
A. The Ohio Corrupt Practices Act
The most important question raised by the Fulson Parties is substantively a question of
Ohio state law. There is no case or statute explicitly suggesting that the Ohio Corrupt Practices
Act does or does not confer standing upon an individual shareholder to seek redress for damages
visited upon a corporation. But applying principles of construction announced by the Ohio
Supreme Court, we can triangulate a clear answer. The relevant section of the Corrupt Practices
Act reads:
(E) In a civil proceeding under division (A) of this section, any person directly or
indirectly injured by conduct in violation of section 2923.32 of the Revised Code
or a conspiracy to violate that section, other than a violator of that section or a
conspirator to violate that section, in addition to relief under division (B) of this
section, shall have a cause of action for triple the actual damages the person
sustained. To recover triple damages, the plaintiff shall prove the violation or
conspiracy to violate that section and actual damages by clear and convincing
evidence. Damages under this division may include, but are not limited to,
competitive injury and injury distinct from the injury inflicted by corrupt activity.
Ohio Rev. Code § 2923.34(E) (emphasis added).3 On its face, this is a broadly written statute
allowing for a wide set of claims. It employs the words “any” and “indirectly” to expand the
scope of civil RICO claims contemplated in the federal case law. See Iron Workers Local Union
3The rest of the Ohio Corrupt Practices Act contains few explicit references to corporate law. First, Ohio
Rev. Code § 2923.34(B)(5) allows a court to dissolve a corporation on a finding that the corporation violated the
Act. Second, the Act’s Definitions section, § 2923.31(A)(3), excludes stockholders from the definition of
“beneficial interest.” But as the Act currently stands, “beneficial interests” are only referenced in § 2923.36, which
discusses the filing of corrupt activity liens. In other words, one may not file a corrupt activity lien against the
interest of a stockholder. Aside from these passing references, corporate law and rights thereunder go unmentioned
in the Act. The statute is simply not written as specifically addressing claims relating to the corporate form.
No. 18-3301 In re Nicole Gas Production, Ltd. Page 9
No. 17 Ins. Fund v. Philip Morris Inc., 23 F. Supp. 2d 771, 788 (N.D. Ohio 1998) (hereinafter
Iron Workers I) (“In choosing to broaden standing to bring RICO actions under state law, the
Ohio General Assembly decided to widen the right to bring an action.”). But it is not clear in
this context that by using “indirectly injured” the statute allows shareholders to seek recovery
under the Corrupt Practice Act for an entity’s injury. Indeed, the conclusion that “indirect”
injuries under the Corrupt Practices Act do include a shareholder’s derivative injuries is as
plausible as the conclusion that they do not. The statutory language is thus ambiguous. See
Jacobson v. Kaforey, 75 N.E.3d 203 (Ohio 2016) (“Ambiguity, in the sense used in our opinions
on statutory interpretation, means that a statutory opinion is capable of bearing more than one
meaning.” (quotation marks omitted)); Hughes v. White, 388 F.Supp.2d 805, 818 (S.D. Ohio
2005) (“A statute is ambiguous ‘if the language is susceptible [to] more than one reasonable
interpretation.” (quoting State v. Jordan, 733 N.E.2d 601, 605 (Ohio 2000))).
Because the language is ambiguous, we therefore look to additional principles of
statutory interpretation. State v. Thomas, 70 N.E.3d 496, 498 (Ohio 2016). We must, for
example, presume that the Ohio General Assembly passed the Corrupt Practices Act with
knowledge of the existing common law of derivative suits. In Ohio, shareholders may not
pursue claims based on injuries to a corporation in which the shareholder holds an interest; the
proper path for remedy is the derivative suit. See generally 12 Ohio Jur. 3d Business
Relationships § 899 (2018) (“A plaintiff-shareholder does not have an independent cause of
action where there is no showing of individual injury in any capacity other than in common with
all other shareholders as a consequence of the wrongful actions of a third party directed toward
the corporation.”). The seminal Ohio case is Adair v. Wozniak, 492 N.E.2d 426 (Ohio 1986). In
Adair, the Ohio Supreme Court wrote:
Where the defendant’s wrongdoing has caused direct damage to corporate worth,
the cause of action accrues to the corporation, not to the shareholders, even
though in an economic sense real harm may well be sustained by the shareholders
as a result of reduced earnings, diminution in the value of ownership, or
accumulation of personal debt and liabilities from the company’s financial
decline. The personal loss and liability sustained by the shareholder is both
duplicative and indirect to the corporation’s right of action…. Although this is a
case of first impression, we accept and follow the widely recognized rule that a
plaintiff-shareholder does not have an independent cause of action where there is
No. 18-3301 In re Nicole Gas Production, Ltd. Page 10
no showing that he has been injured in any capacity other than in common with
all other shareholders as a consequence of the wrongful actions of a third party
directed towards the corporation.
Id. at 429 (internal citations omitted) (emphasis added). In short: a shareholder cannot “enter the
fray” for injuries sustained by a corporation that have lowered the value of his or her interest in
that corporation. Interpreting Adair, the Bankruptcy Court below wrote that the Corrupt
Practices Act may have removed “indirectness” as a bar to recovery but could not remove the bar
erected by corporate law. 519 B.R. at 746. We agree.
The Fulson Parties, however, seize upon the language in Adair, and argue that the Ohio
Supreme Court’s use of the word “indirect” in the above-quoted passage means that the claim for
indirect damages under the Act is viable. Because Adair says that a shareholder is “indirectly”
injured when the corporation is injured, they contend, the Corrupt Practices Act’s use of the
word “indirect” affords an injured shareholder standing for civil RICO. The argument is that the
Corrupt Practices Act gives the Fulson Parties an “out” with regard to complying with the rules
of derivative shareholder suits.
This reading is strained to say the least. Why? Because the two documents are not
talking about the same thing. Adair employed the word “indirect” to characterize shareholder
claims against a corporate antagonist as secondary and duplicative in a pejorative sense. If
shareholders of Apple could pursue claims against Samsung and bypass the derivative suit, it
would render the corporate form superfluous. The very holding of Adair is that shareholders
cannot strike out on their own to right wrongs visited on the corporation. Allowing indirectly
injured parties to sue does not mean that the Act allows anyone to sue in all situations. The use
of the word “indirect” in both Adair and the Act is a coincidence, not a confluence. The Fulson
Parties’ attempts to cast the occurrence of the word “indirect” in two places as somehow
deliberate or instructive cannot overcome the presumption that the Act did not intend to
restructure corporate law absent a clear statement of the intent to do so. See, e.g., Mann v.
Northgate Invs., L.L.C., 5 N.E.3d 594, 598–99 (Ohio 2014). The Bankruptcy Court correctly
deemed the Fulson Parties’ argument “the sophist’s game.” 519 B.R. at 746.
No. 18-3301 In re Nicole Gas Production, Ltd. Page 11
Ohio corporate law supplies further support for our conclusion. The analogous right to
sue for injuries to Nicole Gas never belonged to Fulson in the first place. See Boedeker v.
Rogers, 746 N.E.2d 625, 632–33 (Ohio Ct. App. 2000) (citing Adair for the proposition that
“[w]here the basis of the action is a wrong to the corporation, redress must be sought in a
derivative action”). As the Bankruptcy Appellate Panel noted, the state court complaint did not
allege any injuries specific to Fulson outside of his role as owner. 581 B.R. at 851 (“Appellants
have conceded at least three times – in the state court complaint, before the Bankruptcy Court,
and in their initial appellate brief – that Fulson sought recovery which would make the Debtor
whole.”) (emphasis in original). If, for instance, a shareholder of Corporation A slipped and fell
on the floor of the premises of Corporation B (Corporation A’s rival), then that shareholder
would have an independent basis to pursue a claim against Corporation B. 519 B.R. at 739
(citing Honigman v. Comerica Bank (In re Van Dresser Corp.), 128 F.3d 945, 947 (6th Cir.
1997)). That is not the case here; there is no independent basis for liability.
Corporate law cabins the claims that a shareholder may raise when the entity in which she
owns stock is injured, and the value of her shares had decreased accordingly. “Stated another
way, a shareholder brings a derivative action on behalf of the corporation for injuries sustained
by or wrongs done to the corporation, and a shareholder brings a direct action where the
shareholder is injured in a way that is separate and distinct from the injury to the corporation.”
HER, Inc. v. Parenteau, 770 N.E.2d 105, 109 (Ohio Ct. App. 2002); see also Crosby v. Beam,
548 N.E.2d 217, 219 (Ohio 1989) (“[I]f the complaining shareholder is injured in a way that is
separate and distinct from an injury to the corporation, then the complaining shareholder has a
direct action.”). A derivative suit is a shareholder’s single path through which she may recover
losses the corporation sustained in the rough and tumble of the marketplace.
The Corrupt Practices Act says nothing about this process; allowing indirectly injured
plaintiffs to sue is not the same as constructing an explicit statutory mechanism to bypass
corporate law. Although the text of the Ohio RICO statute indicates that it grants broader
standing than federal RICO, we see no clear indication that, by using the term “indirect,” the
Ohio General Assembly supplanted an entire area of the common law. Instructively,
shareholders cannot pursue claims individually against competitors under the federal RICO
No. 18-3301 In re Nicole Gas Production, Ltd. Page 12
statutes. See Warren v. Mfrs. Nat’l Bank of Detroit, 759 F.2d 542 (6th Cir. 1985) (holding that a
sole shareholder could not individually allege federal RICO claims that a bank put his steel
company out of business); State v. Franklin, Nos. 24011 & 24012, 2011 WL 6920727, at *16
(Ohio Ct. App. Dec. 30, 2011) (noting that Ohio courts still look to federal RICO case law for
guidance in applying Ohio RICO). There is no basis for expanding Ohio RICO to the extent the
Fulson Parties assert.
The legislature is perfectly capable of adding a tool (broad civil RICO) to potential
plaintiffs’ toolboxes without simultaneously throwing a different toolbox (corporate derivative
suits) out the window. The Fulson Parties argue otherwise, and point to Clark v. Scarpelli, 744
N.E.2d 719, 726 (Ohio 2001), which held that “[i]t is presumed that the General Assembly is
fully aware of any prior judicial interpretation of an existing statute when enacting an
amendment.” In other words, the Fulson Parties say, the Ohio legislature is presumed to have
known about derivative liability and the key words of that corpus; so its choice of words in
expanding civil RICO is the final say. But the legislature’s presumed omniscience does not
mean that the enactors of the Corrupt Practices Act intended to destroy a whole area of corporate
law without so much as mentioning it. As the Bankruptcy Appellate Panel correctly noted, “the
Legislature can ‘mean what it said’ when it granted standing to those who suffer indirect injury
without intending to turn on its head a century of law governing shareholder litigation.
Shareholder derivative suits involve one discreet corner of corporate jurisprudence.” 581 B.R. at
850.
What little Ohio case law addresses these issues supports our conclusions.4 And although
Ohio has not seen a case directly considering derivative civil RICO in the bankruptcy context,
another state in our Circuit, Michigan, has. See Kelley v. Thompson-McCully Co., LLC, No.
236229, 2004 WL 1676760 (Mich. Ct. App. July 27, 2004). And – no surprises – the Michigan
Court of Appeals concluded that a shareholder’s derivative claim belonged to the bankruptcy
4Ohio’s civil RICO jurisprudence contains several examples of “derivative” or “indirect” claims, although
none in the corporate context. See Iron Workers I, 23 F. Supp. 2d at 791; Cleveland v. JP Morgan Chase Bank,
N.A., No. 98656, 2013 WL 1183332 (Ohio Ct. App. Mar. 21, 2013). These cases are not wholly dispositive, but we
may simply look to them for the proposition that the Corrupt Practices Act does not allow plaintiffs to merge distinct
claims belonging to different parties.
No. 18-3301 In re Nicole Gas Production, Ltd. Page 13
trustee.5 The Michigan case also teaches that the Fulson Parties should have petitioned the
Bankruptcy Court for guidance about their planned suit. Id. at *3 (“[T]he shareholder must make
a demand on the trustee.”). Courts outside of our Circuit have held similarly when these
problems have arisen.6
In sum: Fulson and his lawyers may have believed that the claims against Columbia Gas
were worth more than the Trustee was settling them for. If they thought that Fulson had a shot at
suing Columbia Gas via the Corrupt Practices Act, the proper course would have been to seek
the Trustee’s cooperation or abandonment, or to seek relief from the automatic stay. But, as the
Bankruptcy Court noted, “filing the Complaint without providing Ransier notice and without
requesting the Court grant relief from the automatic stay appears to have been a calculated risk
by one who believed it more expedient to ask for forgiveness rather than for permission.”
519 B.R. at 736. It is clear that the Fulson Parties, by filing and continuing the state court
lawsuit, “act[ed] to obtain possession of the property of the estate . . . or to exercise control over
property of the estate.” 11 U.S.C. § 362(a)(3).
B. The Automatic Stay and The Fee Award
Because Nicole Gas was in bankruptcy, the Trustee was in charge of any claims the
debtor-business might hold. Cf. Griffin v. Bonapfel (In re All Am. of Ashburn, Inc.), 805 F.2d
1515 (11th Cir. 1986) (similar dispute with shareholder suit). If Fulson was considering
pursuing claims belonging to the corporation he owned, then upon the moment of the bankruptcy
filing, those claims belonged to the corporation’s bankruptcy estate. In re Van Dresser Corp.,
5In Kelley, the plaintiff was a shareholder and corporate officer in a company called West Shore
Construction that entered bankruptcy proceedings. The suit concerned a failed corporate buyout, and the plaintiff
alleged that the defendants had conspired to ruin West Shore. Kelley, 2004 WL 1676760, at *1. One of the claims
was styled under the Michigan Antitrust Reform Act, Mich. Comp. Laws § 445.778(2), which allows “any other
person…injured directly or indirectly…” to sue under the statute for antitrust claims. The Michigan Court of
Appeals held that because the injured party was the corporation, West Shore, the derivative nature of the suit meant
that the claim belonged to the bankruptcy trustee. Kelley, 2004 WL 1676760, at *3.
6The Oregon Court of Appeals has concluded that shareholders may not assert derivative claims under the
Oregon RICO statutes. See Loewen v. Galligan, 882 P.2d 104, 113 (Or. Ct. App. 1994) (“[T]he only injury that
plaintiffs’ [Oregon RICO] claims allege is a diminution in share value that affected all shareholders. Because
that injury is derivative, we conclude that plaintiffs do not have standing to bring their [Oregon RICO] claims.”)
(internal citations omitted). See also Harris v. Orange S.A., 636 F. App’x 476, 483 (11th Cir. 2015) (analyzing
Georgia RICO).
No. 18-3301 In re Nicole Gas Production, Ltd. Page 14
128 F.3d at 947 (“[I]f the debtor could have raised a state claim at the commencement of the
bankruptcy case, then that claim is the exclusive property of the bankruptcy estate…”). The
Fulson Parties argue that Fulson’s individual Corrupt Practices Act claims were not the property
of the bankruptcy estate because the claims had not accrued at the time of the petition. They
further assert that it was only when the claims were valued at $250,000 by the Trustee that those
claims accrued. This is nonsense. Fulson never had any independent claims to assert. The
Bankruptcy Court fully and correctly addressed these arguments in the Contempt Order. To this,
Appellants retort, if Fulson had no standing under the Corrupt Practices Act, then he could not
have violated the stay by asserting “claims that do not exist.” This is, to borrow the Bankruptcy
Court’s term, sophistry. To the contrary, because the Corrupt Practices Act claims were property
of the estate, filing the state court complaint was an impermissible “act to obtain possession of
the property of the estate . . . or to exercise control over property of the estate.” 11 U.S.C.
§ 362(a)(3). Here is the bottom line: whatever corporate wrongs had been visited upon Nicole
Gas, the right to redress those claims belonged to Nicole Gas itself. Upon the filing of the
bankruptcy petition, those claims passed into the hands of Ransier, who was trying to settle “any
and all” claims with Columbia Gas. Any Corrupt Practices Act claim that Nicole Gas could have
asserted fell into that box. Before bankruptcy and after, Fulson did not have the power to sue
individually on those claims. But he did, and thus violated the automatic stay.
The automatic stay is one of the most important and powerful features of the bankruptcy
system. Cf. Easley v. Pettibone Mich. Corp., 990 F.2d 905, 911 (6th Cir. 1993) (“[A]ctions
taken in violation of the stay are invalid and voidable and shall be voided absent limited
equitable circumstances.”). Violating the automatic stay constitutes civil contempt. See In re
Crabtree, 767 F.2d 919, 1985 WL 13441 (6th Cir. 1985) (table). The Bankruptcy Court below
did not simply conclude that the Fulson Parties had fumbled their way into violating the
automatic stay – it deemed their actions willful and called their credibility into question.
519 B.R. at 736. Further, as highlighted by the Bankruptcy Appellate Panel, if Fulson had
secured a judgment on his Corrupt Practices Act claims in state court, the bankruptcy estate
would have been prejudiced. 581 B.R. at 853. The Bankruptcy Court made detailed findings in
this regard, and it acted diligently and thoughtfully to protect its own procedures and the
Bankruptcy Code.
No. 18-3301 In re Nicole Gas Production, Ltd. Page 15
With regard to the Fee Order, the Fulson Parties argue that Baker Botts, L.L.P. v.
ASARCO, L.L.C., 135 S. Ct. 2158 (2015), precludes the Bankruptcy Court from awarding fees to
the trustee. The Baker Botts case simply held that, “Because § 330(a)(1) does not explicitly
override the American Rule with respect to fee-defense litigation, it does not permit bankruptcy
courts to award compensation for such litigation.” Id. at 2169. But, as recited by the Bankruptcy
Appellate Panel, Section 330, which governs compensation for certain professionals, is irrelevant
here. 581 B.R. at 854–55. The Bankruptcy Court here relied on 11 U.S.C. § 105(a) to hold
Sanders, Lowe, and Fulson in contempt. 519 B.R. at 736–37. Section 105(a) states that “The
court may issue any order, process, or judgment that is necessary or appropriate to carry out the
provisions of this title.” The sole authority the Fulson Parties cite as to their Baker Botts
argument, City of Philadelphia v. Walker, No. CV-15-01685, 2015 WL 7428501 (E.D. Pa. Nov.
23, 2015), contains no references to contempt or 11 U.S.C. § 105.
Whatever limits apply to the Bankruptcy Court’s contempt powers, see generally In re
John Richards Homes Bldg. Co., 552 F. App’x 401, 414 (6th Cir. 2013) (“Those powers are
circumscribed and have most often been limited to compensatory punitive awards of attorney’s
fees after findings of bad faith or contempt.”), they do not apply on these facts. See Liberis v.
Craig, 845 F.2d 326, 1988 WL 37450 at *8 (6th Cir. 1988) (table) (“In the instant case, there is
no question that the bankruptcy court had the authority to award attorneys’ fees against the
plaintiffs to compensate the trustee for bringing plaintiffs’ contempt to the court’s attention.”).
In an opinion written with “painstaking detail,” 581 B.R. at 855, the Bankruptcy Court found that
Fulson, Sanders, and Lowe were aware of the automatic stay, and had intentionally taken actions
that violated it, regardless of their good faith or lack thereof. 519 B.R. at 729–30, 754–55. A
contempt finding and accompanying sanctions were appropriate.
III. CONCLUSION
Assuming best intentions, Fulson may have believed he personally had a viable claim to
assert against Columbia Gas. But by the time he filed the Corrupt Practices Act complaint, it
was far too late to make such claims without seeking relief from the stay or the trustee’s
cooperation. Fulson, Sanders, and Lowe were all aware of the automatic stay, and took action
that, we agree, violated it. One of the unfortunate results in this case is that it is unclear precisely
No. 18-3301 In re Nicole Gas Production, Ltd. Page 16
how much Fulson’s claims against Columbia Gas were worth. The Trustee tried to settle them
for $250,000, but Fulson obviously believed them to be worth millions more. If Fulson or his
attorneys had communicated their theory to the Trustee, perhaps the Ohio courts could have
confronted head-on the question of indirect pursuit of civil RICO claims under Ohio law. And as
a policy matter, there may be situations in which shareholders possess viable civil RICO claims
against a company that destroyed the shareholder’s business. But instead, we are left to assess
the question collaterally in the contempt context, with sanctions against the Fulson Parties riding
on our interpretation. These legal ambiguities could have been addressed with a simple
collaborative phone call. Instead, the Bankruptcy Court was forced to expend valuable judicial
resources assessing whether the conduct was in fact contemptuous.
This is a case where the Bankruptcy Court did its job and did it well. These issues have
been extensively briefed thrice, once at the Bankruptcy Court, once at the Bankruptcy Appellate
Panel, and again here in the Circuit. The one complex issue in this case – whether the Ohio
Corrupt Practices Act allows shareholders to pursue claims individually – was convincingly
handled by the Bankruptcy Court; the Bankruptcy Appellate Panel agreed and so do we. We
conclude that the Corrupt Practices Act did not grant Fulson any independent cause of action to
pursue his derivative damages without violating the automatic stay. And Baker Botts does not
apply to the Bankruptcy Court’s fee award here, which was a contempt sanction. Fulson and his
attorneys should have sought either the trustee’s cooperation or relief from the automatic stay in
order to file the complaint. For all of the foregoing reasons, and for the reasons articulated by
the Bankruptcy Court and the Bankruptcy Appellate Panel below, we AFFIRM.