Opinion
2:23-bk-00962-FMD
08-08-2024
In re: Sticky Holsters, Inc., Debtor.
ORDER DENYING MOTION FOR REHEARING OF STAY ENFORCEMENT ORDER
THIS CASE came on for consideration without a hearing on the Motion for Rehearing of Order Granting Debtor's Motion to Enforce Automatic Stay and Clarifying Stay Relief Order (the "Reconsideration Motion") filed by Albert Wagner ("Wagner") and the responses filed by Michael Christoff and Debtor.
Doc. No. 176.
Doc. Nos. 179 & 191. The Reconsideration Motion was filed shortly before a July 24, 2024 status conference, at which the Court (a) set August 2, 2024, as the deadline for Debtor to file a response and August 4, 2024, for Wagner to file a reply, if any; (b) scheduled a hearing on the Reconsideration Motion for August 12, 2024; and (c) stated that the Court "would like to resolve [the Reconsideration Motion] quickly, either with a written order or I may announce a ruling at the August 12th hearing." July 24, 2024 Hrg. Tr., Doc. No. 182, p. 28, l. 22 - p. 29, l. 6.
On July 10, 2024, this Court entered its Order Granting Debtor's Motion to Enforce Automatic Stay and Clarifying Stay Relief Order (the "Stay Enforcement Order"). In the Stay Enforcement Order, the Court found that certain damages Wagner was pursuing in state court are derivative in nature and therefore belong to Debtor's bankruptcy estate and that Wagner's efforts to recover those damages violated the automatic stay.
Doc. No. 163.
In the Reconsideration Motion, Wagner alleges that reconsideration of this Court's Stay Enforcement Order is appropriate to correct clear error and prevent manifest injustice because (1) the Court determined that certain claims are property of the bankruptcy estate on an inadequate factual record and without providing Wagner notice and a reasonable time to respond; and (2) Debtor cannot bring many of the claims this Court determined were property of the estate because they are time-barred; therefore, Wagner contends that he may pursue those claims as his own damages.
For the reasons that follow, the Court will deny the Reconsideration Motion.
I. Background
Ten years ago, Wagner sued Debtor and Michael Christoff (Debtor's sole officer and director) ("Christoff") in Collier County, Florida Circuit Court (the "State Court") for (among other things) breach of fiduciary duties owed to Wagner. In December 2022, a State Court jury returned a verdict in favor of Wagner on liability. However, before the State Court could conduct a bench trial on damages, Debtor filed this Chapter 11 bankruptcy case.
Wagner filed a motion for relief from the automatic stay asking that he be allowed to liquidate his breach of fiduciary duty claim against Debtor (the "Stay Relief Motion"). The Bankruptcy Court held a hearing on Wagner's Stay Relief Motion on December 5, 2023 (the "December 5 Hearing").
Doc. No. 39.
At the December 5 Hearing, the Court expressed concern that damages suffered by Debtor that relate to certain alleged transfers by Debtor to Christoff or related entities (which the Court refers to herein as the "Alleged Disguised Distributions") are derivative in nature, and therefore property of Debtor's bankruptcy estate under Bankruptcy Code § 541 -i.e., not Wagner's direct claims. Ultimately, the Court granted Wagner's Stay Relief Motion to allow him to liquidate his direct damages. The Court's ruling was memorialized in a January 5, 2024 order (the "Stay Relief Order").
December 5, 2023 Hrg. Tr., Doc. No. 71, p. 25, l. 16 - p. 27, l. 7; Doc. No. 60, ¶ 19; Doc. No. 163 at p. 12.
Doc. No. 75.
After the Bankruptcy Court entered the Stay Relief Order, the State Court scheduled a two-day bench trial on damages for June 25 - 26, 2024. On June 19, 2024, four days before trial, Wagner filed a motion in limine to bar Debtor and Christoff from arguing that any of the damages Wagner sought to recover, e.g., the Alleged Disguised Distributions, were derivative in nature (the "Motion in Limine").
On June 24, 2024, the day before the State Court damages trial, Debtor filed its expedited Motion to Enforce Automatic Stay (the "Stay Enforcement Motion"). Debtor argued that the Motion in Limine evidenced Wagner's intent to seek derivative damages at the State Court trial; therefore, Debtor sought to hold Wagner and his State Court counsel, Anthony Lawhon, in contempt for willfully violating the automatic stay. The Bankruptcy Court set Debtor's Stay Enforcement Motion for hearing on June 28, 2024 (the "June 28 Hearing").
Doc. No. 150.
The State Court damages trial commenced as scheduled on June 25. The parties spent a significant portion of that day arguing whether any of the damages Wagner was seeking were derivative in nature. Wagner's attorney, Mr. Lawhon, argued that because the statutes of limitations have long since run on any derivative claims, those claims for damages somehow reverted to Wagner because "nobody could ever bring [them] anyways." After the following colloquy, the State Court Judge, the Hon. Joseph Foster, understandably announced a recess:
Damages Trial Tr., Vol. I, June 25, 2024, p. 14, l. 14 - p. 15, l. 8; p. 17, l. 12 - p. 77, l. 7; p. 136, l. 2 - p. 147, l. 25 (Doc. No. 153, pp. 17, 18, 20 - 80 & 139 - 150).
Damages Trial Tr., Vol. II, June 26, 2024, p. 67, l. 12 - p. 69, l. 14 (Doc. No. 153, pp. 70 - 72).
Mr. Lawhon: I'm saying to you the damages we seek, if they are prior to [2019], from 2017, 2018, for example, nobody could ever bring any ways. They would never be a derivative claim right now, so we should be able to pursue those damages is what I'm saying, regardless of what you call them. There is no valid cause of action for them now. The Court: I'm going to take a break. You're going to think about -- you guys talk because basically what you just told me, there's a statute of limitations that wouldn't allow us to bring those claims, but we want to bring them here any ways. That's what I heard.
I am going to take a break because I need a moment.
Damages Trial Tr., Vol. I, June 25, 2024, p. 69, ll. 9 - 16 (Doc. No. 153, p. 72).
On the second day of trial (June 26), Mr. Lawhon asked Judge Foster to continue the State Court damages trial so Wagner could seek clarification from the Bankruptcy Court at the June 28 Hearing on Debtor's Stay Enforcement Motion regarding whether Wagner's claims were "derivative in some way, shape, or form," and whether his efforts to pursue derivative claims violated the automatic stay. Mr. Lawhon represented the following to the State Court:
[T]they move[d] to enforce the automatic stay, in the bankruptcy court, essentially making the same argument that we are violating the bankruptcy stay by seeking, quote/unquote, derivative damages. Again, we don't believe we are, but there's a disagreement about that. Judge, that motion is set for hearing on Friday, two days from now, as luck would have it. We literally got a notice of hearing last night when I got home.
So my thinking is that we should have the bankruptcy judge give more clarity to us on what the scope of your jurisdiction or ability is on these issues. Some judge is going to have to rule what's derivative and what's not, and since we're not sure what the bankruptcy court's position is on this, it makes sense to me, and the bankruptcy attorney has agreed, that we would have Judge Delano tell us on Friday whether or not what we are asking you to do somehow encroaches on bankruptcy jurisdiction or is derivative in some way, shape, or form. [ ]
*** *** ***
So my first request to Your Honor is this, that we adjourn and that we ask Judge Delano for more direction, that we have the people that understand the derivative stuff better argue it to Judge Delano, and we get some direction from her. . . . And if I may approach, just so you can see it, I have a copy of the notice of hearing for Friday's bankruptcy hearing. [ ]
*** *** ***
I know there's no motion for clarification because the issue literally just came up two days ago, Judge, and the intention is for our attorney in bankruptcy to go address this very clarification issue with Judge Delano on the hearing that's been set on Friday. [ ]
*** *** ***
Your Honor has pointed out certain categories of damages that Your Honor has concerns over that may be derivative in nature. But just because they're derivative in nature doesn't mean that they're a part of the bankruptcy estate. And the point here is that we've made this a lot more clear, even for Judge Delano to say, Judge, we came down, we tried to do what you told us to do, to liquidate these claims, these damages because that's where we are, right. It's raised by defense on the eve of going into the damages trial that we're violating it in these categories of damages, very simply are these a part of the bankruptcy estate? Are these categories damages a part of the bankruptcy estate because that's the question.
Damages Trial Tr., Vol. II, June 26, 2024, p. 5, l. 18 - p. 6, l. 12 (Doc. No. 153, pp. 180 - 81) (emphasis added).
Damages Trial Tr., Vol. II, June 26, 2024, p. 7, l. 23 - p. 8, l. 7 (Doc. No. 153, pp. 182 - 83) (emphasis added).
Damages Trial Tr., Vol. II, June 26, 2024, p. 13, l. 21 - p. 14, l. 1 (Doc. No. 153, pp. 188 - 89) (emphasis added).
Damages Trial Tr., Vol. II, June 26, 2024, p. 21, l. 12 - p. 22, l. 1 (Doc. No. 153, pp. 196 - 97) (emphasis added).
Judge Foster reluctantly granted Mr. Lawhon's request for a continuance of the damages trial to seek clarification from this Court about that exact question:
There's not a motion for clarification currently set. Under the circumstances . . . I'm going to grant your request, Mr. Lawhon, even though it kills me. I'm going to give you the opportunity to go talk to Judge Delano one more time to clarify for me if you can, and if you can't I will go off of the transcript that I have been provided to date on what I can and cannot decide.
*** *** ***
We'll continue the trial, you guys go talk to Judge Delano. At the end of that, you are going to let me know the outcome as soon as you have it from Friday, at which point in time I'm going to be looking for time already, but that will determine how much time I have need to give you.
Damages Trial Tr., Vol. II, June 26, 2024, p. 29, ll. 10 - 17 (Doc. No. 153, p. 204) (emphasis added).
Damages Trial Tr., Vol. II, June 26, 2024, p. 32, ll. 12 - 17 (Doc. No. 153, p. 207) (emphasis added).
The next day, June 27, 2024, although Wagner did not file a motion for clarification in the Bankruptcy Court, he filed an eight-page response to Debtor's Stay Enforcement Motion. In his response, Wagner took the exact opposite position from that which his State Court attorney, Mr. Lawhon, had taken in the State Court just the day before: Wagner contended that "this [Bankruptcy] Court necessarily entrusted to the State Court the authority to adjudicate whether the damages suffered by Mr. Wagner at the hands of Mr. Christoff are particularized to him or derived from injuries to the debtor."
Doc. No. 155.
Doc. No. 155, ¶ 1.
Although the Stay Enforcement Motion requested an order to show cause why Mr. Lawhon and Wagner should not be held in contempt for willfully violating the automatic stay, Mr. Lawhon did not appear at the June 28 Hearing. But Wagner's bankruptcy counsel did appear and echoed the argument Mr. Lawhon had made to Judge Foster: that Debtor's derivative claims cannot be property of the estate because they are time-barred. However, Wagner's bankruptcy counsel failed to explain how allegedly time-barred derivative claims were somehow transmogrified into being Wagner's direct claims for damages. And consistent with his response to the Stay Enforcement Motion, Wagner argued that the State Court should decide whether Wagner's damages are direct or derivative in nature.
June 28 Hrg. Tr., Doc. No. 181, p. 28, l. 25 - p. 33, l. 7.
At no point during the Bankruptcy Court's June 28 Hearing did Wagner's attorney argue that Wagner lacked notice that the Bankruptcy Court would make a determination that the Alleged Disguised Distributions were property of the estate (exactly what Mr. Lawhon had told Judge Foster would happen at the June 28 Hearing), that Wagner had been denied an opportunity to present evidence and argument on that issue, or that he had received insufficient notice of the June 28 Hearing.
On July 10, 2024, this Court entered its Order Granting Debtor's Motion to Enforce Automatic Stay and Clarifying Stay Relief Order (the "Stay Enforcement Order"). In the Stay Enforcement Order, the Court found that (a) this Court has exclusive jurisdiction to decide whether the Alleged Disguised Distributions are property of the estate; (b) the Alleged Disguised Distributions are derivative in nature and therefore belong to the bankruptcy estate; and (c) Wagner's and Mr. Lawhon's efforts to recover the Alleged Disguised Distributions violated the automatic stay. Accordingly, the Court granted the Stay Enforcement Motion and held that the automatic stay under Bankruptcy Code § 362 bars Wagner from pursuing the Alleged Disguised Distributions. The Court entered a separate order directing Wagner and Mr. Lawhon to appear in Bankruptcy Court to show cause why they should not be held in contempt or sanctioned for willfully violating the automatic stay.
Doc. No. 163.
Doc. No. 165. The hearing on the Order to Show Cause, originally scheduled for July 24, 2024, has been continued to August 12, 2024, to accommodate Mr. Lawhon's vacation schedule. Doc. No. 174.
In the Reconsideration Motion, Wagner requests that the Court vacate the Stay Enforcement Order and schedule a trial on these issues based on two grounds. First, Wagner contends the Court's expedited procedure for ruling on Debtor's Stay Enforcement Motion failed to create an appropriate record or provide him with notice and a reasonable time to respond. Second, Wagner doubles down on his novel theory that because Debtor's ability to recover the Alleged Additional Distributions may be time-barred, those claims are no longer derivative and may be pursued by Wagner.
Doc. No. 176, ¶¶ 6 - 14.
Doc. No. 176, ¶¶ 15 - 22.
II. Legal Analysis
Reconsideration of an order is an extraordinary remedy that should only be granted sparingly. Indeed, reconsideration is warranted only when (a) there has been an intervening change in controlling law; (b) newly discovered evidence would merit a different result; or (c) reconsideration is necessary to correct a clear error of law or fact or to prevent a "manifest injustice."
In re Friends of Citrus & The Nature Coast, 2023 WL 5374399, at *1 (Bankr. M.D. Fla. Aug. 22, 2023).
Id. (citing Herendeen v. Regions Bank (In re Able Body Temp. Servs., Inc.), 2018 WL 11206122, at *4 (Bankr. M.D. Fla. Sept. 4, 2018)).
The Court will deny reconsideration of the Stay Enforcement Order for the following reasons.
A. Wagner's Reconsideration Motion is improper.
"A motion for reconsideration is not a vehicle for disappointed parties to relitigate previously-decided issues by raising new theories. Nor can a motion for reconsideration be used to make additional arguments not previously raised by counsel." Yet, that is precisely what Wagner attempts to do in his Reconsideration Motion: Wagner wants the opportunity to relitigate previously decided issues or make additional arguments not previously raised by counsel. For that reason alone, Wagner's Reconsideration Motion should be denied.
Belmont Wine Exchange, LLC v. Nascarella (In re Nascarella), 492 B.R. 327, 335 (Bankr. M.D. Fla. 2013).
B. Wagner's claims that he was denied reasonable notice and an opportunity to respond are frivolous.
To hear Wagner tell it, he was surprised to find out that the Bankruptcy Court would determine whether the Alleged Disguised Distributions were property of the bankruptcy estate at the June 28 Hearing. The Court finds this argument to be frivolous for at least four reasons.
First, the issue of whether the Alleged Disguised Distributions are potentially derivative claims belonging to the estate was first raised (at the latest) at the December 5 Hearing - nearly seven months before the June 28 Hearing.
Second, Mr. Lawhon, Wagner's counsel, asked Judge Foster to continue the State Court damages trial for the sole purpose of allowing the Bankruptcy Court to decide -at the June 28 Hearing-whether the Alleged Disguised Distributions are derivative claims. Mr. Lawhon said the following to Judge Foster:
Some judge is going to have to rule what's derivative and what's not, and since we're not sure what the bankruptcy court's position is on this, it makes sense to me, and the bankruptcy attorney has agreed, that we would have Judge Delano tell us on Friday [June 28, 2024] whether or not what we are asking you to do somehow encroaches on bankruptcy jurisdiction or is derivative in some way, shape, or form. [ ]
Damages Trial Tr., Vol. II, June 26, 2024, p. 6, ll. 5 - 12 (Doc. No. 153, p. 181) (emphasis added).
Third, to induce Judge Foster to continue the State Court trial, Mr. Lawhon - in addition to specifically referring to the June 28 Hearing and Bankruptcy Judge Delano at least four times - represented to Judge Foster that Wagner would be asking the Bankruptcy Court to determine whether the Alleged Disguised Distributions were property of the estate. Mr. Lawhon stated:
And the point here is that we've made this a lot more clear, even for Judge Delano to say, Judge, we came down, we tried to do what you told us to do, to liquidate these claims, these damages because that's where we are, right. It's raised by defense on the eve of going into the damages trial
that we're violating it in these categories of damages, very simply are these a part of the bankruptcy estate? Are these categories damages a part of the bankruptcy estate because that's the question. [ ]
Damages Trial Tr., Vol. II, June 26, 2024, p. 21, l. 16 - p. 22, l. 1 (Doc. No. 153, pp. 196 - 97) (emphasis added).
And, fourth, Judge Foster made it clear that he was continuing the trial-albeit reluctantly - on the condition that Wagner seek clarification from this Court at the June 28 Hearing and "let [Judge Foster] know the outcome as soon as you have it from Friday."
Damages Trial Tr., Vol. II, June 26, 2024, p. 32, ll. 12 - 17 (Doc. No. 153, p. 207).
To recap, Wagner and Mr. Lawhon knew the following:
• The issue of which damages were Wagner's direct damages and which were Debtor's derivative claims arose at the December 5 Hearing on Wagner's Stay Relief Motion.
• On June 19, 2024, Wagner filed a motion in limine to bar Debtor and Christoff from arguing that any of the damages Wagner sought to recover, e.g., the Alleged Disguised Distributions, were derivative in nature.
• Debtor filed the Stay Enforcement Motion on June 24, 2024, which was set for hearing on June 28.
• The Stay Enforcement Motion expressly raised the issue that the damages Wagner was seeking are property of the estate; therefore his attempt to recover them violated the automatic stay.
• Mr. Lawhon induced Judge Foster to continue the State Court damages trial by representing that he would seek clarification from the Bankruptcy Court as to whether any of the damages Wagner was seeking (including the Alleged Disguised Distributions) were property of Debtor's bankruptcy estate, mentioning the June 28 Hearing and Judge Delano at least seven times.
• Judge Foster granted the continuance based on Mr. Lawhon's repeated representations that Judge Delano would hear the issue at the June 28 hearing.
The Court concludes that Wagner's argument that he lacked reasonable notice and an opportunity to respond to the issues addressed at the June 28 Hearing-after Mr. Lawhon specifically represented to Judge Foster that the Bankruptcy Court would address those very issues at the June 28 Hearing -is not only frivolous, it is disingenuous and dishonest.
C. Wagner's argument that the Alleged Disguised Distributions are not property of the estate because they may be time-barred is legally unsupported.
In its Stay Enforcement Order, the Court determined that the Alleged Disguised Distributions are property of the estate because they are derivative in nature. But Wagner contends that the proper inquiry is not whether the Alleged Disguised Distributions are derivative but, rather, whether Debtor, as of the date it filed its bankruptcy petition, could have brought a claim for the Alleged Disguised Distributions. Wagner argues that because -he contends -the statute of limitations has run on all Debtor's derivative claims (including the Alleged Disguised Distributions), those claims are not property of the estate, and thus there is no prohibition against Wagner's pursuing the otherwise time-barred claims as part of his direct damages in the State Court.
Wagner's argument that Debtor's derivative claims are not property of the estate because they are allegedly time-barred appears to be yet another example of Wagner's saying one thing when it suits his interest and another when it does not. For example, in the Reconsideration Motion, Wagner implicitly argues that it was clear error for the Court to conclude that Debtor's derivative claims are property of the estate. Yet, just three months ago, Wagner filed a Motion for Derivative Standing in which he alleged Debtor had a roughly $7 million "colorable" derivative breach of fiduciary duty claim-the largest asset of this estate, according to Wagner (Doc. No. 139).
Not surprisingly, Wagner fails to cite any caselaw to support this contention. The closest he comes is citing two cases for the proposition that "to determine whether a cause of action is property of the estate, a bankruptcy court must consider whether the cause of action could have [been] brought under state law as of the commencement of the case." But neither case addresses the issue of whether a time-barred claim is property of the estate under Bankruptcy Code § 541. For example, in In re Student Finance Corp., the court considered whether the Chapter 7 trustee had standing to bring a breach of fiduciary duty claim and, if so, whether it was barred by the in pari delicto doctrine; and in In re Brown, the bankruptcy court considered whether a cause of action had accrued prepetition or postpetition.
Doc. No. 176, ¶ 18 (citing Stanziale v. Pepper Hamilton LLP (In re Student Fin. Corp.), 335 B.R. 539, 546-47 (D. Del. 2005); In re Brown, 363 B.R. 591, 605 (Bankr. D. Mont. 2007)).
335 B.R. at 546 - 47.
363 B.R. at 604 - 11.
Even if the Court were to conclude that the derivative claims would be time-barred if brought by the Debtor - which it has not - there is no basis for the Court to find that the derivative claims are not property of the estate or that Wagner could prosecute them as his direct claims.
III. Conclusion
No grounds for reconsideration exist. Wagner agreed to have the Bankruptcy Court determine whether the Alleged Disguised Distributions are property of the estate at the June 28 Hearing. And Wagner has offered no legal support for his "novel" theory that derivative claims that once belonged to the bankruptcy estate are somehow transmuted into his direct damages if the statute of limitations has expired.
Accordingly, it is
ORDERED that the Motion for Rehearing of Order Granting Debtor's Motion to Enforce Automatic Stay and Clarifying Stay Relief Order filed by Albert Wagner (Doc. No. 176) is DENIED.
Attorney Stephen Leslie is directed to serve a copy of this Order on interested parties who do not receive service by CM/ECF and file a proof of service within three days of entry of this Order.