In re: Nicole Gas Prod.

RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 18b0003p.06
BANKRUPTCY APPELLATE PANEL
OF THE SIXTH CIRCUIT
In re: NICOLE GAS PRODUCTION, LTD., ┐
Debtor. │
_________________________________________ │
│
JAMES A. LOWE (15-8053); CURTLAND H. CAFFEY, │
S. BREWSTER RANDALL II, and ROBERT C. SANDERS > Nos. 15-8053/8055
(15-8055), │
Appellants, │
│
│
v. │
│
FREDERICK L. RANSIER, Trustee, │
│
Appellee.
│
┘
On Appeal from the United States Bankruptcy Court
for the Southern District of Ohio at Columbus.
No. 09-52887—John E. Hoffman, Judge.
Argued: May 9, 2017
Decided and Filed: March 13, 2018
Before: DELK, HARRISON, and OPPERMAN, Bankruptcy Appellate Panel Judges.
_________________
COUNSEL
ARGUED: Rick L. Ashton, ALLEN KUEHNLE STOVALL & NEUMAN, LLP, Columbus,
Ohio, for Appellant James A. Lowe. Reginald W. Jackson, VORYS, SATER, SEYMOUR
& PEASE, LLP, Columbus, Ohio, for Appellee. Robert C. Sanders, Upper Marlboro, Maryland,
pro se. ON BRIEF: Rick L. Ashton, James A. Coutinho, ALLEN KUEHNLE STOVALL
& NEUMAN, LLP, Columbus, Ohio, for Appellant James A. Lowe. Reginald W. Jackson,
Brenda K. Bowers, VORYS, SATER, SEYMOUR & PEASE, LLP, Columbus, Ohio, for
Appellee. Robert C. Sanders, Upper Marlboro, Maryland, S. Brewster Randall II, Columbus,
Ohio, Curtland H. Caffey, Columbus, Ohio, pro se.
Nos. 15-8053/8055 In re Nicole Gas Production Page 2
_________________
OPINION
_________________
DANIEL S. OPPERMAN, Chief Bankruptcy Appellate Panel Judge. The Bankruptcy
Court in the underlying case held Appellants in contempt for conduct that it found constituted an
impermissible exercise of control over property of the bankruptcy estate. A Fee Order followed
the Contempt Order and awarded Appellee fees and expenses of $91,068.00 as a sanction for
Appellants’ conduct. Appellants appealed the Contempt Order and the opinion regarding same
and the Fee Order and opinion regarding same. For the reasons stated below, the Panel
AFFIRMS those orders and opinions.
ISSUES ON APPEAL
1. Whether the Bankruptcy Court erred in entering the Contempt Order based on its
determination that the claims Appellants pursued under the OCPA were property of Debtor’s
estate.
2. Whether the Court erred when it awarded Appellee fees and expenses totaling
$91,068.00 as a sanction for Appellants’ contempt.
JURISDICTION AND STANDARD OF REVIEW
Under 28 U.S.C. § 158(a)(1), this Panel has jurisdiction to hear appeals “from final
judgments, orders, and decrees” issued by the bankruptcy court. For purposes of appeal, an
order is final if it “ends the litigation on the merits and leaves nothing for the court to do but
execute the judgment.” Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S. Ct.
1494, 1497 (1989) (quotation marks and citation omitted). The orders at issue in this appeal are
final and none of the parties to this appeal challenge the Panel’s jurisdiction to hear it.
1. Standard and Method of Review Regarding the Contempt Order
Reviewing the Contempt Order and opinion accompanying it requires a three-step
analysis. The first step is to determine whether Freddie Fulson, the indirect equity owner of the
Debtor, had an individual claim under the OCPA. The Bankruptcy Court held that Fulson did
Nos. 15-8053/8055 In re Nicole Gas Production Page 3
not have his own claim, under the OCPA, for damage to the value of his interest in Debtor. That
decision involves interpretation of a statute and the Panel reviews it de novo. TranSouth Fin.
Corp. v. Sharon (In re Sharon), 234 B.R. 676, 679 (B.A.P. 6th Cir. 1999).
The second step is to determine whether the claims against the Columbia Gas Entities
belonged to Debtor’s estate. According to the Bankruptcy Court, Debtor had the exclusive right
to prosecute those claims and those claims became estate property when Debtor filed bankruptcy.
Thus, the Court held that Fulson violated the automatic stay by appropriating estate property
when he pursued the claims in state court. The determination of whether property belongs to the
estate is reviewed de novo. Kitchen v. Boyd (In re Newpower), 233 F.3d 922, 927 (6th Cir.
2000). The determination of whether conduct violates the automatic stay also is reviewed de
novo. Slabicki v. Gleason (In re Slabicki), 466 B.R. 572, 577 (B.A.P. 1st Cir. 2012).
The third step is to determine whether the Bankruptcy Court’s holding of contempt was
appropriate. The Panel reviews that decision for abuse of discretion. Long Term Care Mgmt.
Inc. v. VI/XII Collateral Trust (In re Nat’l Century Fin. Enters., Inc.), No. 05-8048, 2006 WL
620643, *1 (B.A.P. 6th Cir. Mar. 14, 2006).
2. Standard and Method of Review Regarding the Fee Order
The Panel also must determine whether the Bankruptcy Court’s fee award was
appropriate. An appellate court reviews a fee award for abuse of discretion. Adell v. John
Richards Homes Bldg. Co., LLC (In re John Richards Homes Bldg. Co., LLC), 475 B.R. 585,
592 (E.D. Mich. 2012). A trial court abuses its discretion when it commits a clear error of
judgment; if reasonable people could differ on the issue, there is no abuse. Id.
FACTS
Nicole Gas Productions, Ltd. (“Debtor”) is the Chapter 7 debtor in the matter before the
Panel. Freddie L. Fulson, now deceased1, was the indirect equity owner of Debtor. Fulson’s
equity interest in Debtor resulted from his owning a company known as Nicole Gas Marketing,
1
S. Brewster Randall III and Curtland H. Caffey, the Co-Administrators of Fulson’s probate estate, are
Appellants in this matter, along with Fulson’s former counsel James A. Lowe.
Nos. 15-8053/8055 In re Nicole Gas Production Page 4
which company was the sole owner of Debtor. Before filing bankruptcy, Debtor had business
relationships with various branches of Columbia Gas. Those relationships soured, resulting in
litigation between Debtor and numerous Columbia Gas entities. Eventually, Debtor filed
bankruptcy and the bankruptcy estate obtained its causes of actions against the Columbia Gas
entities. Appellee Frederick L. Ransier is the Chapter 7 Trustee of Debtor.
While Debtor’s bankruptcy was pending Fulson, represented by Appellant James A.
Lowe, filed a state court complaint (and subsequently an amended complaint) against the
Columbia Gas entities. Both complaints sought relief under the Ohio Corrupt Practices Act
(“OCPA” or the “Act”). The relevant portion of that Act is Ohio Revised Code Section
2923.34(E), which states:
[A]ny 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
amount of actual damages the person sustained.
O.R.C. § 2923.34(E).
Fulson’s state court complaints alleged that the Columbia Gas entities caused him
indirect injury by harming Debtor, a company in which he owned an indirect equity interest.
However, the only damages Fulson pled were those Debtor suffered—he did not claim any
unique individual damages. Appellants conceded as much in their initial appellate brief,
recognizing that Fulson only sought damages necessary “to make [Debtor] whole.” Joint Brief
of Appellants, p. 20. Ransier, as Trustee, eventually settled the Columbia Gas claims on behalf
of Debtor’s estate. The Appellants believed the settlement did not return full value for the claims
and objected to it. The Bankruptcy Court denied their objections.
As a result of Fulson’s ongoing state court efforts, Ransier moved for contempt against
Appellants in the Bankruptcy Court. Ransier argued that Fulson had merely a derivative claim
based entirely on Debtor’s injury and for damages that duplicated Debtor’s damages. According
to Ransier, then, the claims Fulson brought in state court were causes of action that Debtor
owned originally and that became property of Debtor’s bankruptcy estate. Thus, Ransier argued,
the bankruptcy estate had the exclusive right to prosecute those causes of action. Ransier
Nos. 15-8053/8055 In re Nicole Gas Production Page 5
concluded that by filing a state court complaint, Appellants violated Debtor’s automatic stay by
appropriating estate property without the Bankruptcy Court’s permission.
Fulson, through Lowe, responded that his state court action pled his own individual
claims, not any causes of action that Debtor or Debtor’s bankruptcy estate owned. Fulson took
the position that his claim was one for “indirect” injury that fell within the OCPA, although he
recognized confusion regarding what the word “indirect” means for OCPA purposes. In an
effort to clear up that confusion, Fulson requested the Bankruptcy Court seek the Ohio Supreme
Court’s input regarding the meaning of the word “indirect” in the OCPA.
The Bankruptcy Court denied Fulson’s request. According to the Bankruptcy Court, the
“directly or indirectly injured” language of the OCPA did not abrogate the common law principle
that an injured shareholder has only a derivative claim deriving from the corporation and not an
individual claim separate from the corporation. The Bankruptcy Court agreed with Ransier that
the causes of action against the Columbia entities were the exclusive property of Debtor’s estate.
It followed, then, that Fulson violated the automatic stay by wrongfully appropriating estate
property when he pursued those claims in state court. As a result, the Bankruptcy Court held
Appellants in contempt for violating 11 U.S.C. § 362(a)(3).
As part of the Contempt Order, the Bankruptcy Court established a procedure for
determining the amount of damages Debtor’s estate sustained due to the contemptuous conduct.
In compliance, Ransier prepared and filed a detailed fee statement, to which Appellants objected.
The Bankruptcy Court held a hearing regarding the fee statement and objections, with Ransier
testifying. At the conclusion of that hearing, the Bankruptcy Court directed Ransier to
supplement his fee statement with additional fees and expenses incurred in complying with the
Contempt Order and addressing Appellants’ ongoing contemptuous conduct. Ransier sought
$95,386.25 and the Bankruptcy Court awarded him $91,068.00, which Appellants argue included
fees and expenses connected with the fee hearing itself. The Appellants appealed the Contempt
Order as well as the portion of the Bankruptcy Court’s Fee Order that Appellants claim awarded
Ransier fees incurred defending his fee request.
Nos. 15-8053/8055 In re Nicole Gas Production Page 6
After filing this appeal, Appellants requested the Panel certify to the Ohio Supreme Court
a question similar, though not identical, to the one they requested the Bankruptcy Court certify.
The Panel agreed and certified the following question to the Ohio Supreme Court:
Whether a shareholder of a corporation has standing to bring a claim individually
(as opposed to merely derivatively) under the Ohio Corrupt Practices Act, R.C.
2923 et seq., which provides standing to any person “directly or indirectly
injured,” based on an injury to the value of the shareholder’s interest in the
corporation?
Opinion Re: Motions to Certify Question of State Law at 4, Aug. 19, 2016, BAP Nos. 15-8053
& 15-8055 ECF No. 19.
The Ohio Supreme Court declined to answer the certified question, leaving the Panel to
do so. The answer to that question remains dispositive. If a corporate shareholder has standing
to bring an individual claim under the OCPA, that claim is his personal property and does not
belong to the corporation. Thus, if Fulson had an individual claim, that claim was not Debtor’s
property and did not become part of Debtor’s bankruptcy estate. However, if Fulson had merely
a derivative claim based solely on Debtor’s injury and damages, his state court efforts
appropriated estate property, subjecting him to contempt.
DISCUSSION OF THE CONTEMPT ORDER
1. The OCPA Does Not Allow an Equity Owner of a Corporation to Pursue an
Individual Claim Based on Damage to the Value of His Interest in That
Corporation.
The first issue before the Panel is whether the OCPA gave Fulson an individual claim
against the Columbia Gas entities that was separate and distinct from Debtor’s claims. The Panel
finds the Act did not create such an individual claim.
The plain language of the OCPA grants standing to anyone injured “directly or
indirectly” by conduct that violates that Act. O.R.C. § 2923.34(E). While the OCPA was
modeled after federal RICO statutes, it broadens the standing of those federal statutes by
allowing a party to recover when “indirectly” injured. CSAHA/UHHS-Canton, Inc. v. Aultman
Health Found., No. 2010CA00303, 2012 WL 750972, at *18 (Ohio App. 5th Dist. Mar. 5, 2012).
Nos. 15-8053/8055 In re Nicole Gas Production Page 7
Thus, Appellants correctly note that the Ohio Legislature intended the OCPA to offer standing to
a broader class of plaintiffs than federal RICO statutes. See Iron Workers Local Union No. 17
Ins. Fund v. Philip Morris, Inc., 23 F. Supp. 2d 771, 787 (N.D. Ohio 1998) (hereinafter Iron
Workers I).
What is not clear from the statute’s plain language, however, is whether the Ohio
Legislature intended the Act to create standing for individual shareholders when their company
suffers damage. Doing so would have abrogated a century of common law regarding the legal
relationship between shareholders and their corporations. Applying relevant canons of statutory
interpretation leads the Panel to conclude the Legislature did not intend the overhaul of corporate
jurisprudence that would result from Appellants’ reading of the OCPA.
Principles of statutory interpretation require a court construe a statute such that no clause,
sentence, or word is rendered superfluous. Duncan v. Walker, 533 U.S. 167, 174, 121 S. Ct.
2120 (2001) (citing Williams v. Taylor, 529 U.S. 362, 404, 120 S. Ct. 1495 (2000)).
Additionally, a court must presume that a “legislature says what it means and means what it
says.” Norfolk S. Ry. Co. v. Perez, 778 F.3d 507, 512 (6th Cir. 2015). Appellants note these
principles while arguing that to preclude a shareholder or equity owner from bringing an
individual claim under the OCPA would render the statute’s “indirectly injured” language
superfluous. While the Panel recognized that theoretical risk in its Certification Opinion, after
full review of this matter and oral argument of the parties, the Panel concludes that this
theoretical risk was not realized in this case.
Disallowing individual shareholder claims under the OCPA does not render the Act’s
language superfluous. Likewise, 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. There remain plenty of other circumstances where the OCPA’s
broadened standing provision opens the courthouse doors to new plaintiffs without overturning
Ohio’s well-settled law governing shareholder litigation.
Nos. 15-8053/8055 In re Nicole Gas Production Page 8
Application of other relevant guidelines for statutory interpretation supports this
conclusion. A court construing a statute should not presume that a legislature intended to repeal
settled rules of common law unless the statutory language clearly expresses or imports such
intention. Mann v. Northgate Investors, L.L.C., 5 N.E.3d 594, 598-99 (Ohio 2014) (citing State
ex rel. Morris v. Sullivan, 90 N.E. 146 (Ohio 1909)). Instead, “statutes are presumed to embrace
the common law extant at their enactment.” Mann, 5 N.E.3d at 599. Under the longstanding
Ohio law extant when the OCPA was enacted, a shareholder has no right to bring an individual
claim based on injury to a corporation in which he owns an interest. Warren Tel. Co. v. Staton,
189 N.E. 660, 663 (Ohio Ct. App. 1933); Bloom & Co. v. Ray, 1923 WL 1781, at *1 (Ohio Ct.
App. Mar. 16, 1923). Instead, a shareholder may bring such a claim, if at all, only on behalf of
the corporation through a shareholder derivative suit. Polikoff v. Adam, 616 N.E.2d 213, 218
(Ohio 1993).
The seminal Ohio case on this issue is Adair v. Wozniak, 492 N.E.2d 426 (Ohio 1986). In
Adair, the Ohio Supreme Court reiterated the common law principle that a corporation, not its
shareholders, has a claim for injury sustained by or wrong done to the corporation. Id. at 428.
The Ohio Supreme Court further noted that “wrongful action by third parties impairing the
capital position of the corporation gives no right of action to the shareholders as individuals for
damages[.]” Id. at 429.
On that issue, the Bankruptcy Court wrote in its opinion regarding the Contempt Order:
One of those principles is the previously discussed “well-settled [rule] that only a
corporation and not its shareholders can complain of injury sustained by, or
wrong done to, the corporation.” Adair, 492 N.E.2d at 428. This principle is
grounded not only on the fact that injuries shareholders incur as a result of harm
to the company are indirect, but also on the fact that the claims on account of
those injuries are “duplicative [of] the corporation’s right of action.” Id. at 429.
There is no reason to believe that a plaintiff may bring an indirect claim under the
OCPA if there is a bar to bringing the claim—such as its duplicative nature—
other than the claim’s indirectness. To the extent indirectness is a bar to recovery,
the OCPA may remove it, but it does nothing to remove the bar erected by the
principle that shareholders have no right of recovery on claims that are derivative
and duplicative of claims held by the corporation.
In re Nicole Gas Production, Ltd., 519 B.R. 723, 746 (Bankr. S.D. Ohio 2014).
Nos. 15-8053/8055 In re Nicole Gas Production Page 9
Adair did not involve a claim under OCPA and, therefore, did not directly address the
instant situation. But it does reflect the applicable common law that was in place when Ohio
enacted the OCPA, and the Bankruptcy Court was correct to rely on it. Despite being free to do
so, the Ohio Legislature did not express in the OCPA a clear intent to repeal that well-settled
common law. Instead, the Bankruptcy Court and the Panel must presume that contrary to
abrogating that common law, the OCPA actually embraces it. See Mann, supra. Embracing the
relevant law requires the Panel to conclude the Bankruptcy Court was correct in its Contempt
Order—the OCPA may have removed indirectness as a bar to recovery, but it did not remove the
bar that exists due to Ohio common law applicable to this matter. Thus, the OCPA did not
provide Fulson an individual claim against the Columbia Gas entities.
2. The Claims Against the Columbia Gas Entities Were Estate Property.
Fulson did not have an individual claim against the Columbia entities. He was positioned
as any other shareholder or equity owner of an injured corporation, possessing only a right to
pursue relief on the corporation’s behalf. A shareholder’s only injury is the loss in value of his
share, which is nothing more than the corporation’s lost value reduced in proportion to the
shareholder’s interest. Thus, when a shareholder’s injury consists merely of lost value to his
corporate interest, that injury derives from and is the same as the corporation’s injury. Crosby v.
Beam, 548 N.E.2d 217, 219 (Ohio 1989). Accordingly, it is the corporation that has suffered a
distinct injury and the corporation’s recovery provides redress for the shareholder’s injury.
The Panel recognizes that there may be situations in which a shareholder suffers injury
that is separate and distinct from the corporation’s injury. In Crosby, for example, the court
allowed minority shareholders to bring claims for breach of fiduciary duty against the majority
shareholders, as those claims were not derivative of any claims held by the corporation. But that
is not what happened here. 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 Debtor whole. At all stages leading up to this appeal, Appellants
were unable to identify any damages Fulson suffered separate and independent from Debtor’s
damages. That is because Fulson’s only alleged damages are the result of harm the Debtor
Nos. 15-8053/8055 In re Nicole Gas Production Page 10
suffered, and he had no unique, individual right to recover those damages. Instead, Fulson was
merely asserting the recovery rights of a third party.
As the Panel previously noted, the OCPA may remove indirectness as a bar to recovery,
but that does not remove the bar erected by the principle that shareholders have no right to
recover on “claims that are derivative and duplicative of claims held by the corporation.” Nicole
Gas, 519 B.R. at 746; See also Cleveland v. JP Morgan Chase Bank, N.A., No. 98656, 2013 WL
1183332 (Ohio Ct. App. Mar. 21, 2013) in which an Ohio Appellate Court affirmed a trial
court’s decision dismissing an OCPA claim because the complaining party’s cause of action was
based on derivative injury. The language of the OCPA reinforces this conclusion. In the OCPA
the word “indirectly” modifies “injury” and should be read in the context of proximate cause, not
individual damages. The Panel does not read that language as abrogating the requirement that
someone suffer individual damages before having a right to relief. For these reasons, the Panel
finds that the Bankruptcy Court correctly determined that Debtor, not Fulson, had the right to
seek recovery from the Columbia Gas entities.
If a debtor has the right to raise a state claim at the beginning of a bankruptcy case, that
claim becomes the exclusive property of the bankruptcy estate. Honigman v. Comerica Bank (In
re Van Dresser Corp.), 128 F.3d 945, 947 (6th Cir. 1997). Because Debtor owned the causes of
action against the Columbia Gas entities, Debtor had the right to bring state court claims against
those entities at the time its bankruptcy began. Accordingly, when Debtor’s bankruptcy began,
those claims became exclusive property of Debtor’s bankruptcy estate.
Appellants argue that the duplicative nature of the claims did not preclude Fulson from
pursuing his own individual claims against the Columbia entities. According to Appellants,
duplication of the claims is not an issue because Fulson’s damages would be offset by the
settlement Debtor’s estate received from the Columbia Gas entities. That argument misses the
point. A duplicative claim, by definition, is identical to and derives from another claim. The
duplicative nature of Fulson’s alleged injury stops the analysis before it becomes necessary to
discuss offsetting damages. To the extent Fulson had any claims, they were derivative of the
corporation’s claim, relied entirely on the corporation’s harm, and were redressed by the
corporation’s recovery.
Nos. 15-8053/8055 In re Nicole Gas Production Page 11
Put more plainly, there is no need to ever discuss offsetting in a situation like this because
it is impossible for someone in Fulson’s position to demonstrate separate and distinct damages in
the first place. Once the corporation is made whole, there is no longer a need for a shareholder
or other equity owner to advocate on its behalf. Thus, when a corporation recovers for its injury
(as Debtor did via the settlement Ransier obtained) the equity owner’s derivative claim is
extinguished. The consequence of the corporation settling its claims underscores the harsh
reality that a shareholder simply has no individual claim through which he can recover damages
that would need to be offset.
Appellants argued during this appeal that Fulson’s unique damages were the difference
between the settlement value and what Appellants believed was full value for the Columbia Gas
claims. However, neither Fulson nor the other Appellants made such a claim before this appeal.
Appellants previously sought to recover the full value of Debtor’s damages, not Fulson’s
damages, and only offered the “difference in value” argument after failing in the lower court.
Barring extraordinary circumstances, a reviewing court does not consider new arguments first
raised on appeal. Khan v. Bankowski (In re Khan), 375 B.R. 5, 13-14 (B.A.P. 1st Cir. 2007);
Drewes v. Vote (In re Vote), 261 B.R. 439, 441 (B.A.P. 8th Cir. 2001). The Panel finds that no
extraordinary circumstances exist here to justify considering Appellants’ new argument.
Finally, Fulson’s response to the proposed settlement, in the Bankruptcy Court,
contradicts the position Appellants now take before the Panel. Appellants claim the settlement
was the last “predicate act” giving rise to Fulson’s claim and that the settlement fixed the value
of Fulson’s damages. But Fulson objected to the settlement in the Bankruptcy Court. Accepting
Appellants’ current arguments would require the Panel to conclude that objecting to the
settlement was, at best, counter-productive. Rather than objecting, they should have done
everything possible to facilitate the settlement, without which Fulson could not seek the
individual relief he claims he deserves. Their conduct regarding the settlement, combined with
the reasoning above, lead the Panel to conclude that Appellants’ arguments are not persuasive.
Fulson had no individual claim, either before or after the settlement. The claims against the
Columbia Gas entities belonged to the Debtor. Once Debtor filed bankruptcy, those claims
became the exclusive property of Debtor’s bankruptcy estate.
Nos. 15-8053/8055 In re Nicole Gas Production Page 12
3. Fulson Violated the Automatic Stay and Contempt was Appropriate.
According to 11 U.S.C. §362(a)(3), a party violates the automatic stay by obtaining
possession of or exercising control over property of a bankruptcy estate. This broad prohibition
extends to “virtually all formal and informal actions” against estate property. Smith v. First
America Bank, N.A. (In re Smith), 876 F.2d 524, 525-26 (6th Cir. 1989). In this case, the claims
against the Columbia Gas entities were the property of Debtor and, after Debtor filed bankruptcy,
Debtor’s estate. Thus, Fulson’s efforts to recover for the damages Debtor suffered constituted an
act to exercise control over estate property.
Additionally, the greater the impact a party’s actions will have on the estate, the greater
likelihood that those actions constitute an impermissible exercise of control over estate property.
Harchar v. United States (In re Harchar), 393 B.R. 160, 177 (Bankr. N.D. Ohio 2008).
Appellants cannot avoid the detrimental impact Fulson recovering for his alleged individual
claim would have worked on the bankruptcy estate. If Fulson had been successful in his state
court litigation, his recovery would have substantially and negatively impacted the estate. Every
dollar Fulson would have recovered would represent a dollar the estate could not recover. Any
payment to Fulson would have reduced the resources available to the estate to pay Debtor’s
creditors, resulting in an exercise of control over estate property.
Furthermore, allowing Fulson to pursue individual claims probably would have scuttled
Ransier’s settlement efforts on the estate’s behalf. It is unlikely the Columbia Gas entities would
have agreed to settle if they had to fear ongoing litigation from anyone with a tangential
connection to the damages alleged. These practical implications of Fulson pursuing claims
against or recovering from the Columbia Gas entities support the conclusion he was exercising
control over estate property when he filed his state court claims. Exercising control over estate
property without court permission violates Section 362(a). Therefore, the Bankruptcy Court did
not abuse its discretion when it held Appellants in contempt for pursuing the state court actions
at issue.
Nos. 15-8053/8055 In re Nicole Gas Production Page 13
4. The Case Law Appellants Cite Does Not Support Their Position.
Appellants rely extensively on a series of cases that are factually distinct from the instant
situation. They cite a line of cases known as Iron Workers. This line includes Iron Workers I;
Iron Workers Local Union No. 17 Ins. Fund v. Phillip Morris, Inc., 29 F. Supp. 2d 801 (N.D.
Ohio 1998) (hereinafter Iron Workers II); and Iron Workers Local Union No. 17 Ins. Fund v.
Phillip Morris, Inc., 29 F. Supp. 2d 825 (N.D. Ohio 1998) (hereinafter Iron Workers III). In
those cases, union health insurance trusts brought OCPA claims for smoking-related medical
expenses that the trust paid on behalf of insured members. The defendants moved to dismiss,
arguing that the insurance trusts suffered no direct injury and could not bring a direct action.
Iron Workers I, 23 F. Supp. 2d at 786. The district court denied the motion because
compensating smokers for their personal injuries did not compensate the trusts for the medical
bills they paid on the smokers’ behalf. Id. at 791. Because the trusts’ claims were not
duplicative of the smokers’ claims, each set of plaintiffs could pursue their own relief. In this
case, Fulson suffered no injury distinct from Debtor’s injury. His claim is entirely duplicative of
Debtor’s claim.
Appellants also rely heavily on Bankers Trust Co. v. Rhoades, 859 F.2d 1096 (2d Cir.
1988), which is another distinguishable case. Rhoades involved litigation between a bankrupt
corporation and one of its general creditors; it did not involve an equity holder of the debtor
company. Id. at 1097. And like Iron Workers, the plaintiff in Rhoades sought to recover for its
own direct damages, not those the corporation suffered. Id. at 1101. In fact, Rhoades reiterated
the common law principle that is fatal to Fulson’s claims, stating:
This conclusion is not contrary to our decision in Rand v. Anaconda-Ericsson,
Inc., 794 F.2d 843 (2d Cir.), cert. denied, 479 U.S. 987, 107 S. Ct. 579, 93 L. Ed. 2d
582 (1986), where we held that the shareholder of an injured corporation did not
have individual standing to bring a claim under civil RICO. In so holding, we
merely recognized a standing requirement applicable throughout corporate law:
“An ‘action to redress injuries to a corporation cannot be maintained by a
shareholder in his own name but must be brought in the name of the corporation’”
through a derivative action. Id. at 849 (quoting Warren v. Manufacturers
National Bank, 759 F.2d 542, 544 (6th Cir.1985)).
Rhoades, 859 F.2d at 1101.
Nos. 15-8053/8055 In re Nicole Gas Production Page 14
Thus, in addition to being factually distinct from this case, Bankers actually reinforces the legal
reality that a shareholder in Fulson’s position has no individual claim for injury suffered by the
corporation in which he owns an interest. For the reasons stated, the Panel finds Appellants’
arguments lack merit.
DISCUSSION OF THE FEE ORDER
In addition to attacking the Contempt Order, Appellants also argue the Bankruptcy Court
erred by awarding Ransier certain fees he incurred in defending his fee application. They
support their argument, initially, by citing Baker Botts, L.L.P. v. ASARCO, L.L.C, 135 S. Ct.
2158 (2015), which involved a fee application under 11 U.S.C. §330, which governs
compensation for certain professionals in a bankruptcy case. However, the Bankruptcy Court in
this case did not base its award on Section 330. In its opinion supporting the Fee Order, the
Bankruptcy Court noted the basis for the award:
A “[trial] court ha[s] broad discretion to fashion an appropriate remedy for
. . . contempt,” and “[i]n a civil contempt proceeding, judicial sanctions can be
used not only to coerce compliance, but also to compensate the complainant.”
Williamson v. Recovery Ltd. P’ship, 467 F. App’x 382, 396 (6thCir. 2012)
(internal quotation marks omitted). In order to recover fees and expenses as
compensation for contemptuous conduct, a party must demonstrate that the fees
and expenses were incurred as a result of the contempt. See Ross v. Meyers,
883 F.2d 486, 491 (6th Cir. 1989) . . .; Liberis v. Craig, No. 87-5321, 1988 WL
37450, at *8 (6th Cir. Apr. 25, 1988) . . . As the Court found above, fees in the
amount of $89,011.25 and expenses in the amount of $2,056.75 were incurred by
Ransier as a result of the Fulson Parties’ contempt.
In re Nicole Gas Production, Ltd., 542 B.R. 204, 218 (Bankr. S.D. Ohio 2015).
Thus, the Bankruptcy Court did not rely on Section 330 when awarding Ransier fees. Instead,
the Court’s fee award fell squarely within both its authority under the Bankruptcy Code and its
inherent authority as an Article III court. Under Section 105(a), a bankruptcy court may issue
“any order, process, or judgment that is necessary or appropriate to carry out the provisions” of
the Bankruptcy Code. The power granted in Section 105(a) carries with it the authority to
“award attorney fees as a sanction for misconduct.” In re Mehlhose, 469 B.R. 694 711 (Bankr.
E.D. Mich. 2012). Additionally, even apart from the Bankruptcy Code, bankruptcy courts enjoy
the same inherent authority invested in all Article III courts to sanction parties for improper
Nos. 15-8053/8055 In re Nicole Gas Production Page 15
conduct. Mapother & Mapother, P.S.C. v. Cooper (In re Downs), 103 F.3d 472, 477 (6th Cir.
1996). In this case, the sanctions the Bankruptcy Court imposed find their basis in both Section
105 and the Court’s inherent authority. Accordingly, neither Section 330 nor Baker Botts apply.
Appellants also reference the “American Rule” and argue that fees should not have been
allowed because fee-shifting statutes generally provide that only a “prevailing party” or
“successful litigant” can receive an award of fees. This is misguided as well. Initially, the
American Rule does not apply to this situation. An exception to the American Rule exists when
a court imposes sanctions by virtue of its inherent power. Liberis v. Craig, No. 87-5321, 1988
WL 37450, at *5 (6th Cir. Apr. 25, 1988). That is what happened here. The Bankruptcy Court
did not award Ransier fees and expenses because it deemed him a prevailing party. It made that
award to sanction Appellants for their conduct.
Moreover, Appellants’ claim that Ransier was not a “prevailing party” with regard to his
fee request is not persuasive. Even assuming, arguendo, some form of the American Rule
applied requiring Ransier to “prevail” in this matter, the facts would compel the Panel to find
that he did so. Ransier sought a total of $95,386.25 in fees. The Bankruptcy Court awarded him
$91,068.00, which is more than 95% of what he requested. That does not reflect an unsuccessful
effort by Ransier. Thus, the Panel is left to consider whether the Bankruptcy Court abused its
discretion by awarding Ransier fees totaling $91,068.00. The Panel finds no such abuse.
Regarding the fees, the Bankruptcy Court conducted an initial hearing at which Ransier
presented a detailed fee statement, an affidavit, and his own testimony. The Bankruptcy Court
then directed Ransier to supplement his affidavit with additional detail regarding his firm’s
billing policies and to provide an updated statement with the fees and expenses incurred since the
first statement. Additionally, another attorney at Ransier’s firm submitted an affidavit in support
of his efforts.
The Bankruptcy Court then entered the Fee Order, which is more than 50 pages long, to
explain its decision. In that Order the Court discussed in painstaking detail the support for its
award. The Court noted its duty to review the fee statements and reduce them if any fees sought
did not result from the Appellants’ contemptible conduct. As a result, it denied Ransier’s request
Nos. 15-8053/8055 In re Nicole Gas Production Page 16
for fees associated with objecting to proofs of claim and dealing with hearings unrelated to the
contempt issue. It also denied fees for research Ransier did to determine if he could charge the
Appellants for conducting other research.
After making these reductions, the Bankruptcy Court stated:
[I]n sum, as a result of its independent review, the Court is reducing Ransier’s
fees by $2,039.25. As explained in Section V.B below, the Court is reducing the
fees by an additional $398 as a result of the objections. . . . Based on Ransier’s
testimony and a line-by-line review of the Fee Statements, the Court concludes
that the remainder of the fees sought by Ransier were reasonably and necessarily
incurred as a result of the Fulson Parties’ persistent attempts to exercise control
over property of NGP’s bankruptcy estate.
In re Nicole Gas Production, Ltd., 542 B.R. 204, 213-14 (Bankr. S.D. Ohio 2015).
The Court referred to Appellants’ “persistent attempts to exercise control,” connecting the fees it
awarded to the behavior for which it held Appellants in contempt in the first place. The court
then proceeded to spend more than 30 pages justifying its award, explaining in detail how the
fees included were related to Appellants’ contempt. The fee award in this case finds solid
footing both in law and the facts before the Panel, and the Bankruptcy Court did not abuse its
discretion by ordering it.
CONCLUSION
The Panel affirms the Bankruptcy Court’s Contempt Order and affirms the Bankruptcy
Court’s Fee Order. Regarding the Contempt Order, Fulson did not have an individual claim
under the OCPA. Instead, he and his counsel exercised control over estate property by pursuing
claims that were the exclusive property of Debtor’s estate. Those actions violated the automatic
stay and the Bankruptcy Court acted properly by holding Appellants in contempt as a result.
As to the Fee Order, the Bankruptcy Court properly exercised its inherent authority to
impose sanctions for contempt. The Fee Order explains clearly and in detail how the fees
awarded derived from Appellants’ contempt. The Order does not reflect an abuse of the
Bankruptcy Court’s discretion.