Opinion
Case No. 8:16-bk-10036-MGW Adv. No. 8:21-ap-00150-MGW
2021-09-30
IN RE: JEFFREY L. MILLER INVESTMENTS, INC., Debtor. Jeffrey L. Miller Investments, Inc., Plaintiff, v. Premier Realty Advisors, LLC, et al., Defendants.
Alberta L. Adams, Esq., MILLS PASKET DIVERS, Counsel for Defendants. Buddy D. Ford, Esq., Jonathan A. Semach, Esq., Heather M. Reel, Esq., BUDDY D. FORD, P.A., Counsel for Plaintiff.
Alberta L. Adams, Esq., MILLS PASKET DIVERS, Counsel for Defendants.
Buddy D. Ford, Esq., Jonathan A. Semach, Esq., Heather M. Reel, Esq., BUDDY D. FORD, P.A., Counsel for Plaintiff.
ORDER (I) DENYING PLAINTIFF'S MOTION FOR PROCEEDINGS SUPPLEMENTARY TO EXECUTION AND (II) GRANTING DEFENDANTS’ MOTION TO DISMISS PLAINTIFF'S COMPLAINT WITH PREJUDICE
Michael G. Williamson, United States Bankruptcy Judge
THIS PROCEEDING came on for hearing on June 16, 2021, at 9:30 a.m., on the Plaintiff's Motion for Proceedings Supplementary to Execution and the Motion to Dismiss filed by the Defendants, Premier Realty Advisors, LLC, Matthew Nine, and Steven Stenmark. Premier, which is owned by Nine and Stenmark, filed a $3.4 million proof of claim in the main bankruptcy case based on fraudulent inducement and breach of contract. The Debtor objected. After nine days of trial, the Court sustained the Debtor's claim objection. The Court then awarded the Debtor $372,223.44 in prevailing party fees and costs under its contract with Premier. The fee award was later reduced to a final judgment. The Debtor filed these proceedings supplementary against Premier, Nine, and Stenmark to collect on its final judgment.
Adv. Doc. No. 2.
Adv. Doc. No. 21.
Claim No. 8-2.
Doc. No. 214.
Doc. No. 428.
Doc. No. 476.
Adv. Doc. Nos. 1 & 2.
In Counts I – III of its supplemental complaint, the Debtor alleges that Premier fraudulently transferred its interest in a limited partnership to Talich, LLC to hinder, delay, or defraud the Debtor from collecting on its final judgment. In Count IV, the Debtor alleges that Nine and Stenmark are liable for the final judgment as Premier's alter egos. The Defendants have moved to dismiss the complaint.
Adv. Doc. No. 1 at ¶¶ 50 – 82. The Debtor alleges Premier received $100,000 for its interest in Talich, LLC but failed to use those funds to pay down the final judgment. Id. at ¶¶ 56 – 65; Adv. Doc. No. 3 at ¶ 7. Now the $100,000 is gone. Adv. Doc. No. 1 at ¶¶ 62 – 64.
Adv. Doc. No. 1. at ¶¶ 83 – 106.
Adv. Doc. No. 21.
Relying, in part, on a Memorandum Opinion this Court issued in another adversary proceeding that the Debtor filed against the Defendants, the Defendants argue the Court has no jurisdiction over these proceedings supplementary. In the other proceeding, the Debtor had sued Premier, Nine, and Stenmark for fraudulent inducement and Nine and Stenmark for alter ego liability. The Defendants moved to dismiss. After noting that the proceeding had arisen post-confirmation, the Court explained that its "related to" jurisdiction post-confirmation is limited to matters that have a "close nexus to the bankruptcy plan or proceeding."
Id. at ¶¶ 3 – 11 (citing Jeffrey L. Miller Invs., Inc. v. Premier Realty Advisors, LLC (In re Jeffrey L. Miller Invs., Inc.) , 624 B.R. 913, 917 (Bankr. M.D. Fla. 2021) ).
Jeffrey L. Miller Invs., Inc. v. Premier Realty Advisors, LLC, et al. , Adv. No. 8:20-ap-00211-MGW, Adv. Doc. No. 29.
Jeffrey L. Miller Invs., Inc. v. Premier Realty Advisors, LLC (In re Jeffrey L. Miller Invs., Inc.) , 624 B.R. 913, 916–17 (Bankr. M.D. Fla. 2021) ).
This Court concluded that there was no "close nexus" to the bankruptcy plan—and therefore no "related to" jurisdiction existed—because the Debtor's claims did not relate to matters affecting the interpretation, consummation, execution, or administration of the confirmed plan. In fact, before the Debtor even confirmed its plan, the Debtor's real property (the Debtor's primary asset) had been sold at an auction; all allowed claims had been paid in full from the sales proceeds; and the surplus sales proceeds had been distributed to the Debtor's principal.
Id.
Id. at 917.
For the same reason, the Debtor's claims here do not relate to matters affecting the interpretation, consummation, execution, or administration of the confirmed plan. Even so, the Debtor says this Court has jurisdiction because this proceeding, unlike the other one, involves proceedings supplementary.
Adv. Doc. No. 30 at 4 – 6.
According to the Debtor, proceedings supplementary are considered part of the original underlying litigation and are not a new or separate case." The corollary to that proposition is that if the proceedings supplementary are part of the original underlying litigation, then the proceedings supplementary can piggyback on the jurisdiction of the underlying litigation. In other words, the Debtor argues it need not establish independent jurisdiction over the proceedings supplementary here because they are part of the underlying litigation (i.e., the claim objection) that led to the final judgment. The Court disagrees.
Id. at 5 (citing British Am. Ins. Co. v. Baldini (In re British Am. Ins. Co.) , 2020 WL 4805485 (Bankr. S.D. Fla. 2020) ).
Sometimes proceedings supplementary are considered part of the same underlying litigation; sometimes they are not. Take, for instance, the Eleventh Circuit's decision eight years ago in Jackson-Platts v. General Electric Capital Corporation .
727 F.3d 1127 (11th Cir. 2013).
There, the Eleventh Circuit had to decide whether proceedings supplementary could be removed from state court to federal district court under 28 U.S.C. § 1441, which authorizes the removal of "any civil action." The plaintiff, a probate estate, had obtained a $110 million judgment against nursing home operators in state court and then initiated proceedings supplementary under section 56.29, Florida Statutes, against alleged recipients of a fraudulent transfer of the nursing home operators’ assets.
Id. at 1130.
Id. at 1131 – 32.
One of the alleged recipients (General Electric Capital Corporation) attempted to remove the proceedings supplementary to district court. As the Eleventh Circuit pointed out, the proceedings could be removed only if they were "separate from, and not ancillary to, a suit in state court." The probate estate argued that the proceedings supplementary were ancillary to the state court action.
Id. at 1134. Only "civil actions" are removable under 28 U.S.C. § 1441. "[F]ederal courts have generally construed the phrase to require a suit separate from, and not ancillary to, a suit in state court." Jackson-Platts , 727 F.3d at 1134.
Id.
The Eleventh Circuit disagreed. Under Eleventh Circuit precedent, an action is not ancillary if it involves new parties and new theories of liability. The proceedings supplementary initiated by the probate estate involved new parties (neither General Electric Capital Corporation nor the other alleged recipient of the fraudulent transfer were parties to the original state court action) and new theories of liability (the proceedings supplementary required proof of an intent to delay, hinder, or defraud the probate estate's collection efforts, which was not required in the underlying action). So the Eleventh Circuit concluded that the proceedings supplementary were not part of the original state court litigation.
Id . at 1134 – 35 ("The Estate maintains that the first supplementary proceeding is in fact ancillary to the underlying tort action. We disagree.").
Id. at 1134.
Id. at 1136 – 37.
Even though it arose in a different context, the Eleventh Circuit's decision in Jackson-Platts undercuts the Debtor's argument that proceedings supplementary are necessarily part of the underlying action. To the contrary, based on the Eleventh Circuit's reasoning in Jackson-Platts , the more logical conclusion is that the Debtor's proceedings supplementary are separate from the underlying action—and therefore cannot piggyback on the underlying action's jurisdiction—because the Debtor's proceedings supplementary involve new parties and new legal theories. But, putting aside the Eleventh Circuit's decision in Jackson-Platts , the Debtor has another problem: its primary authority for the proposition that proceedings supplementary piggyback on the underlying action's jurisdiction— In re British American Insurance Company —hurts the Debtor's argument more than it helps. In that case, British American Insurance Company, which had petitioned for chapter 15 bankruptcy, filed an adversary proceeding against Lawrence Duprey and obtained a $122 million judgment against him. To collect on its judgment, British American initiated proceedings supplementary against Duprey's spouse, Sylvia Baldini, under Federal Rule of Civil Procedure 69(a) and section 56.29, Florida Statutes, alleging that Duprey had fraudulently transferred assets to Baldini. Bankruptcy Judge Erik Kimball explained that the supplemental complaint against Baldini was part of the original adversary proceeding because "a supplemental complaint filed pursuant to § 56.29(9) is considered part of the original action that resulted in the judgment the plaintiff seeks to satisfy."
Adv. Doc. No. 30 at 5 (citing British Am. Ins. Co. v. Baldini (In re British Am. Ins. Co.) , 2020 WL 4805485 (Bankr. S.D. Fla. 2020) ).
British Am. Ins. Co. , 2020 WL 4805485, at *1.
Id. at *2.
Id.
Before explaining that the proceedings supplementary were part of the original adversary proceeding, however, Judge Kimball noted that he had already determined that the bankruptcy court had jurisdiction over the fraudulent transfer action. As Judge Kimball explained in an earlier decision in the same case, a bankruptcy court has "related to" jurisdiction in chapter 15 cases over "action[s] aimed at augmenting the assets under administration." Because the fraudulent transfer proceeding in British American Insurance Company was aimed at augmenting the assets under administration, Judge Kimball concluded the bankruptcy court had subject-matter jurisdiction over the proceedings supplementary.
Id. ("[I]n response to a request by BAICO [British American Insurance Company], the Court ruled that the Court has subject matter jurisdiction over BAICO's attempt to execute on the judgments against Mr. Duprey by pursuing recovery of alleged fraudulent transfers to Ms. Baldini.").
British Am. Ins. Co. v. Fullerton (In re British Am. Ins. Co.) , 600 B.R. 890, 897 (Bankr. S.D. Fla. 2019).
Id.
If proceedings supplementary piggyback on the jurisdiction of the original underlying litigation, as the Debtor contends, there would have been no need for Judge Kimball to consider whether he had subject-matter jurisdiction over the fraudulent transfer claim against Baldini. It would have gone without saying. Far from supporting the Debtor's argument, then, British American Insurance Company implicitly rejects the Debtor's argument.
What's more, British American Insurance Company is distinguishable from this case. Here, the Court is confronted with a post-confirmation proceeding that does not relate to matters affecting the interpretation, consummation, execution, or administration of the confirmed plan. Unlike this case, British American Insurance Company did not involve an exercise of a bankruptcy court's post-confirmation jurisdiction. Thus, even if British American Insurance Company did not implicitly reject the Debtor's argument that proceedings supplementary piggyback on the jurisdiction of the original underlying litigation, the case is no help answering the question whether this Court has subject-matter jurisdiction over the Debtor's proceedings supplementary.
The closest case the Court can find on point is Bankruptcy Judge Barbara Houser's decision ten years ago in In re The Heritage Organization . In that case, Dennis Faulkner, as trustee of The Heritage Organization's chapter 11 estate, filed a pre-confirmation adversary proceeding seeking to avoid and recover various fraudulent transfers. After confirmation, the bankruptcy court tried the fraudulent transfer claims and entered a $45 million judgment against the defendants. Faulkner then filed a second adversary proceeding under Federal Rule of Civil Procedure 69, which governs proceedings supplementary, to collect on his $45 million judgment.
Faulkner v. Eagle View Cap. Mgmt. (In re The Heritage Org., LLC) , 454 B.R. 353 (Bankr. N.D. Tex. 2011).
Id. at 356.
Id.
Id. at 357.
Faulkner's complaint alleged two theories for recovery: First, Faulkner alleged that the defendants in the second adversary proceeding were liable under Bankruptcy Code § 550 as the immediate or mediate transferees of the fraudulent transfers from the first adversary proceeding (the one that led to the $45 million judgment). Second, Faulkner alleged that the defendants in the second adversary proceeding were liable under Texas's Uniform Fraudulent Transfer Act (TUFTA) as the recipients of the fraudulent transfers that were the subject of (and avoided in) the first adversary proceeding. The defendants moved to dismiss the second adversary complaint, arguing that the bankruptcy court lacked subject-matter jurisdiction under the Fifth Circuit's narrow test for post-confirmation jurisdiction.
Id. at 358.
Id.
Faulkner, however, argued that the Fifth Circuit's narrow test for post-confirmation jurisdiction was irrelevant because the second adversary proceeding was not a new lawsuit. Instead, Faulkner argued, it was a supplementary proceeding in aid of enforcement of the bankruptcy court's judgment in the first adversary proceeding. And, according to Faulkner, the bankruptcy court's jurisdiction in the first proceeding was not exhausted until the judgment was satisfied.
Id. at 358 – 59.
Id.
More to the point, Faulkner argued that the bankruptcy court's jurisdiction over the first proceeding extended to the second proceeding even if the bankruptcy court would not have otherwise had jurisdiction over the second proceeding. Judge Houser soundly rejected Faulkner's arguments.
Id. at 367.
At the outset, Judge Houser distinguished Faulkner's claim under Bankruptcy Code § 550 from his TUFTA claim. Because a claim under § 550 invokes a right created by title 11, a § 550 claim "arises under" title 11. According to Judge Houser, the Fifth Circuit's narrow test for post-confirmation jurisdiction did not apply to matters arising under title 11.
Id. at 360.
Id. at 363 – 65.
By contrast, Faulkner's TUFTA claim did not arise under title 11 because Faulkner asserted that claim as a judgment creditor—not as a bankruptcy trustee under Bankruptcy Code § 544. So the only possible grounds for jurisdiction was "related to" jurisdiction, which Judge Houser concluded was subject to the Fifth Circuit's narrow test for post-confirmation jurisdiction.
Id. at 360.
Id. at 360 – 61.
Ultimately, Judge Houser concluded that Faulkner's TUFTA claim did not fall within the bankruptcy court's narrow post-confirmation jurisdiction. Among other reasons, the TUFTA claim involved "new and different proof" beyond that involved in the first adversary proceeding. Thus, the bankruptcy court did not have subject-matter jurisdiction over the TUFTA claim under 28 U.S.C. § 1334(b).
Id. at 366 – 67.
Judge Houser then went on to reject Faulkner's argument that the bankruptcy court had ancillary jurisdiction over his TUFTA claim, which was a vehicle for collecting on the $45 million judgment, based on its jurisdiction over the original adversary that led to the $45 million judgment. It is true, as Faulkner argued, that the United States Supreme Court recognized, twenty-five years ago in Peacock v. Thomas , that it has "approved the exercise of ancillary jurisdiction over a broad range of supplementary proceedings involving third parties to assist in the protection and enforcement of federal judgments—including attachment, mandamus, garnishment, and the prejudgment avoidance of fraudulent conveyances."
Id. at 367 – 73.
516 U.S. 349, 356, 116 S.Ct. 862, 133 L.Ed.2d 817 (1996).
But, as Judge Houser pointed out, the Supreme Court, in Peacock , clarified that its recognition of ancillary jurisdiction over proceedings supplementary has never extended to subsequent suits to impose liability on a person not already liable for the judgment:
[O]ur recognition of these supplementary proceedings has not, however, extended beyond attempts to execute, or to guarantee eventual executability of, a federal judgment. We have never authorized the exercise of ancillary jurisdiction in a subsequent lawsuit to impose an obligation to pay an existing federal judgment on a person not already liable for that judgment.
The Heritage Org. , 454 B.R. at 371 (quoting Peacock , 516 U.S. at 356, 116 S.Ct. 862 ).
Indeed, the Peacock Court specifically "cautioned against the exercise of [ancillary] jurisdiction over proceedings that are entirely new and original or where the relief sought is of a different kind or on a different principle than that of the prior decree." Following Peacock , and other Fifth Circuit precedent, Judge Houser declined to exercise ancillary jurisdiction over Faulkner's TUFTA claim.
Peacock , 516 U.S. at 358, 116 S.Ct. 862 (cleaned up); The Heritage Organization , 454 B.R. at 371. Judge Houser also pointed out that Peacock involved a district court's exercise of ancillary jurisdiction. After Peacock , the Fifth Circuit has held that "bankruptcy courts do not enjoy the same inherent, enforcement ancillary jurisdiction as do the district courts." The Heritage Organization , 454 B.R. at 372.
Id. at 367 – 73.
This Court will follow Judge Houser's well-reasoned analysis in The Heritage Organization . Like in The Heritage Organization , this Court must determine whether it has "related to" jurisdiction over the Debtor's claims, even though they have been asserted in proceedings supplementary. As was the case in The Heritage Organization , the Debtor's proceedings supplementary here do not fall within the Court's narrow post-confirmation "related to" jurisdiction. And because the proceedings supplementary here seek to impose liability against new parties—Nine and Stenmark—for the judgment entered against Premier based on new theories of liability, the Court concludes it would be inappropriate to exercise ancillary jurisdiction.
Accordingly, it is
ORDERED :
1. The Plaintiff's Motion for Proceedings Supplementary to Execution is DENIED.
2. The Defendants’ Motion to Dismiss is GRANTED. The Plaintiffs’ complaint is DISMISSED with prejudice.
3. The Clerk of Court is directed to close this proceeding.