Opinion
Bankruptcy Case No. 20-05078-RBK Adversary Proceeding No. 20-05067-RBK CIVIL ACTION NO. SA-20-CV-1437-FB
2023-03-31
IN RE: SALUBRIO, LLC, Debtor. Douglas K. Smith, M.D., Appellant, v. Eric Terry, Chapter 7 Trustee, et al., Appellees.
Susan J. Clouthier, Clouthier Law, PLLC, The Woodlands, TX, for Appellant Douglas K. Smith. Martin Warren Seidler, Attorney at Law, San Antonio, TX, for Debtor. Eric M. Van Horn, Spencer Fane LLP, Dallas, TX, Misty Ann Segura, Spencer Fane, LLP, Houston, TX, for Appellees.
Susan J. Clouthier, Clouthier Law, PLLC, The Woodlands, TX, for Appellant Douglas K. Smith. Martin Warren Seidler, Attorney at Law, San Antonio, TX, for Debtor. Eric M. Van Horn, Spencer Fane LLP, Dallas, TX, Misty Ann Segura, Spencer Fane, LLP, Houston, TX, for Appellees. ORDER GRANTING MOTION TO REOPEN CASE AND AFFIRMING DECISION OF THE UNITED STATES BANKRUPTCY COURT FRED BIERY, UNITED STATES DISTRICT JUDGE
Before the Court are: (1) Appellant's Opposed Motion to Extend Briefing Deadline (docket #18); (2) the Unopposed Appellant's Motion to Reopen the Appeal (docket #20); (3) Appellant's Opening Brief (docket #8); (4) Appellee's Response Brief in Support of the Bankruptcy Court's December 1, 2020 Orders (docket #17); (5) Appellant's Reply Brief (docket #19); and (6) Notice of Entry of Order and Final Judgment by the District Court (docket #21). Appellant, in his Opposed Motion to Extend Briefing Deadline, sought an extension of his March 11, 2022, deadline to file his reply brief. Because Appellant filed his Reply Brief on March 11, 2022, Appellant's Opposed Motion to Extend Briefing Deadline (docket #18) is DISMISSED as moot. Appellant also seeks to reopen the appeal before this Court. The Court finds that motion has merit and should be granted. Accordingly, IT IS HEREBY ORDERED that the Unopposed Appellant's Motion to Reopen the Appeal (docket #20) is GRANTED, and this case is REINSTATED on this Court's docket. The Court will now considered the Appellant's Brief, the Appellee's Response, and the Appellant's Reply.
Standard of Review
In reviewing a bankruptcy court decision, this Court functions as an appellate court and "applies the standard of review generally applied in federal court appeals." Webb v. Reserve Life Ins. Co. (In the Matter of Webb), 954 F.2d 1102, 1103-04 (5th Cir. 1992). Legal conclusions of the United States Bankruptcy Court are reviewed de novo. Border v. McDaniel (In re McDaniel), 70 F.3d 841, 842-43 (5th Cir. 1995). Factual findings of a bankruptcy court are reviewed under the clearly erroneous standard of review providing that this Court must defer to the bankruptcy court's findings unless, after a review of all the evidence, the appellate court is left with a firm and definite conviction that the bankruptcy court erred. Id.; see In re Eagle Bus Mfg., Inc., 62 F.3d 730, 735 (5th Cir. 1995). The clearly erroneous standard applies without regard to whether the findings of fact are based on oral or documentary evidence. FED. R. BANK 8013. "[D]ue regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses." Id. De novo review is also applied to "mixed questions of fact and law." Randall & Blake, Inc. v. Evans (In re Canion), 196 F.3d 579, 584 (5th Cir. 1999). " 'Matters within a bankruptcy judge's discretion are reviewed for an abuse of discretion.' " Rozelle v. Branscomb, P.C., Civil Case No. 5:16-cv-01024 (RCL), 2017 WL3301511, at *2 (W.D. Tex. Jul. 31, 2017) (quoting In re Mud King Prods., Inc., Civil Action H-14-2316, 2015 WL 862319, at *2 (S.D. Tex. Feb. 27, 2015)).
Issues on Appeal
The issues raised by the Appellant in his brief are as follows:
1. Whether the bankruptcy court erred when it found Dr. Smith violated the automatic stay by initiating the adversary proceeding.
2. Whether the bankruptcy court erred when it dismissed Dr. Smith's complaint rather than affording him deference as a pro se litigant, because federal law requires the court to construe his pleading liberally and allow him to make his case.
3. Whether the bankruptcy court erred by ordering it necessary and appropriate to establish a "gatekeeping" procedure that requires Dr. Smith to first seek leave from the court before filing any motion or complaint in any forum that seeks relief from or against the Trustee, his professionals, or other creditors or parties in interest.
Background
As set forth in the appellee's brief, this appeal concerns three Orders entered by the United States Bankruptcy Court on December 1, 2020. The first two Orders are almost identical orders entered by the Bankruptcy Court which are titled "Order Granting, in Part, and Denying, in Part, Trustee's Motion to (I) Enforce the Automatic Stay; (II) Enforce the Barton Doctrine; (III) Hold Douglas K. Smith in Contempt; and (IV) Enter Channeling Injunction Against Douglas K. Smith" referred to herein as the "Gatekeeping Order," in Bankruptcy Case No. 20-50578-rbk and Adversary Proceeding No. 20-05067-rbk. The third is the Order Dismissing Complaint and Adversary Proceeding in Adversary No. 20-05067-rbk; Smith vs. Terry, et al., referred to herein as the "Dismissal Order." All three orders were entered on December 1, 2020, and are collectively referred to herein as the "December 1, 2020 Orders". (Docket #1-1). The December 1, 2020 Orders found that Dr. Smith violated the automatic stay by filing the Complaint initiating the Adversary Proceeding asserting claims that would be property of the Salubrio's estate and controlled by the Trustee; enjoined Dr. Smith from taking certain specified actions without first obtaining leave from the Bankruptcy Court; and dismissed the Complaint that Dr. Smith had filed to initiate the Adversary Proceeding.
On February 8, 2021, the portion of Civil Action No. 5:20-CV-01435 relating to the Order Granting, in Part, and Denying, in Part Trustee's Motion to (I) Enforce the Automatic Stay; (II) Enforce the Barton Doctrine; (III) Hold Douglas K. Smith in Contempt; and (IV) Enter Channeling Injunction Against Douglas K. Smith (Dkt.# 392 in Bankruptcy Case No. 20-50578-rbk) was transferred by Senior U.S. District Judge David Ezra to U.S. District Judge Fred Biery "in the interest of justice and judicial economy because an order addressing identical relief is on appeal before Judge Biery in Case No. 5:20-CV-01437-FB." See Civil Action No. 5:20-CV-01194-FB, Dkt. # 19; see also Civil Action 5:20-CV-01435-FB (Docket entry made on February 8, 2021).
As has been set forth in numerous appeals addressed by this Court, Salubrio, LLC, d/b/a Brio San Antonio MRI ("Salubrio"), is a single member Nevada LLC that is owned and previously operated by Appellant Douglas K. Smith, M.D. On March 11, 2020, the Debtor, Salubrio, filed its voluntary petition for relief under Chapter 11, Subchapter V, of the Bankruptcy Code. (Docket #3-2, at pp. 67-68). Prior to its removal as debtor-in-possession, Debtor's corporate representative was Appellant Dr. Smith. Id. Dr. Smith is also the principal of and controls various non-debtor entities, including Musculoskeletal Imaging Consultants, LLC and Complete Radiology Management Solutions, LLC. (Docket #3-2, at p. 68).
Pursuant to Bankruptcy Code §§ 1107(a) and 1108, Salubrio operated its business and managed its property as a debtor-in-possession. Trustee was appointed as the trustee in the Salubrio's Small Business Debtor Reorganization Subchapter V case. Based upon the Debtor Salubrio's schedules signed by Dr. Smith under penalty of perjury and filed in the bankruptcy case, Salubrio owns little physical personal property, and its primary assets consist of accounts receivable. Other than accounts receivable, Salubrio's schedules reflect assets consisting of cash on hand, certain computer equipment, and certain intangibles and intellectual property.
On June 10, 2020, Salubrio was removed as debtor-in-possession. Specifically, the Bankruptcy Court found that cause existed for removal due to "either fraud, dishonesty, incompetence or gross management," and "intentional and repeated" diversion of collateral. On September 23, 2020, Salubrio's bankruptcy case was converted to one administered under Chapter 7, and Trustee was appointed as the Chapter 7 Trustee. (Docket #3-2, at p. 68).
On November 16, 2020, Dr. Smith filed a Complaint initiating Adversary Proceeding No. 20-05067-rbk against Trustee, one of the Trustee's attorneys and the attorney's law firm, and three creditors/parties in interest (the "Adversary Proceeding"). (Docket #3-2, at pp. 4-65). In the Complaint, Dr. Smith asserts claims to recover money or property under Section 548 of the Bankruptcy Code and a state law fraudulent transfer statute on behalf of the Salubrio bankruptcy estate. In addition, the Complaint alleges that one of the Bankruptcy Court's prior orders authorizing the Trustee to collect, negotiate reductions, and settle accounts receivable owed to the Debtor represent "gifts" of the bankruptcy estate "with no equitable value return to the estate" that "would render the estate insolvent" thereby meeting the definition of "FRAUDULENT TRANSFERS ACCORDING TO BOTH 11 U.S.C. § 548 AND TEX. BUS. & COMM. CODE § 24.001 ET. SEQ." (Docket #3-2, at pp. 34-36, emphasis in original).
The Debtor Salubrio is also listed as one of the parties. (Docket #3-2, at p. 42).
In response to the filing of the Adversary Proceeding by Dr. Smith, the Trustee filed his Motion to (I) Enforce the Automatic Stay; (II) Enforce the Barton Doctrine; (III) Hold Douglas K. Smith in Contempt; and (IV) Enter Channeling Injunction Against Douglas K. Smith Compel (the "Motion to Enforce"), on November 17, 2020. In the Motion, Trustee maintained the filing by Dr. Smith of the Complaint initiating the Adversary Proceeding constituted a violation of the automatic stay. The Trustee sought various forms of relief against Dr. Smith, including entry of an order requiring Dr. Smith to seek and obtain leave of the Bankruptcy Court before initiating any litigation related to the Debtor, Salubrio.
The Bankruptcy Court held a hearing on the Motion to Enforce on November 25, 2020. (Docket #3-3, at pp. 3-47). Dr. Smith attended the hearing in his individual, pro se capacity and presented his arguments to the Bankruptcy Court. The Bankruptcy Court found that Dr. Smith had violated the automatic stay "by seeking to appropriate or enforce rights which are owned by the Trustee as the representative of the bankruptcy estate." (Docket #3-3, at p. 38, lines 21-24). In addition, the Bankruptcy Court granted relief in the form of a "gatekeeper order" which would require Dr. Smith to file a motion for leave and have an order for leave granted before he could file any motion seeking relief against the Trustee, Trustee's attorneys, Trustee's professionals, the estate, and others involved in the bankruptcy case such as creditors. (Docket #3-3, at p. 40, lines 7-17; p. 41, lines 6-8). Thereafter, the Bankruptcy Court entered the December 1, 2020 Orders setting forth its rulings on the Motion to Enforce. This appeal followed.
On April 30, 2021, Dr. Smith filed his voluntary petition under Chapter 11, Subchapter V of the Bankruptcy Code, thereby initiating his personal bankruptcy case. (Docket #11). This appeal was thereafter stayed and administratively closed as a result of Dr. Smith's bankruptcy case. (Docket #13). Dr. Smith's bankruptcy case was subsequently converted to one under Chapter 7 on August 18, 2021. Dr. Smith's bankruptcy case was closed on February 11, 2022, and his discharge has been denied. Therefore because Dr. Smith's bankruptcy case is closed, this appeal may now be decided.
Issues on Appeal
A. Did the Bankruptcy Court err when it found Dr. Smith violated the automatic stay by initiating the adversary proceeding and also by failing to give deference to his pro se status by liberally construing his pleading?
In his brief, Dr. Smith argues that he brought an adversary proceeding in order to establish he owned the medical record accounts, and that the accounts were not property of the debtor, Salubrio. Therefore, he claims he initiated the adversary proceeding, not to enforce judgment against nor obtain property of the estate, but rather to prevent his personal property from being swallowed by the bankruptcy estate, or at the very least, preserve the status quo, such that his personal property would not be reduced. He claims further that neither of the rare situations in which the Fifth Circuit has determined the stay applies to non-debtors apply here, and therefore, the automatic stay does not apply to his adversary proceeding.
In support of his position, Dr. Smith explains that the general rule in Texas is that the health care provider is the owner of the patient records and because it is undisputed that he is the physician in this case, he should be named the legal owner of all the medical records. As a result, the Trustee "did not have legal authority to liquidate Dr. Smith's personal property to pay Salubrio's creditors," and the Bankruptcy Court erred by finding he violated the automatic stay and by dismissing his petition. Appellant's Brief, docket #8 at page 21. Dr. Smith argues in the alternative, that even if it is not clear which party owns the property, the adversary proceeding was brought for the purpose of making that determination and preserving the status quo.
Dr. Smith explains he argued in his pleading that he is the owner of the medical records, including accounts receivable, under Texas law. He states he argued the improper transfer of such property and inaccurately identified the medical record accounts as property of the estate. He notes in his requested relief, he asked for a temporary injunction, recovery of the funds improperly transferred, and a jury trial for adjudication of the dispute. Moreover, at the hearing, he explained that the medical record accounts were his. (Appellant's Appendix, Docket #8-1 at p. 102, lines 14-18.) ("Mr. Smith: . . . The property owner who has contended that the property doesn't belong to the estate, backed by the presentation of the Trustee, that the payment chattel, the medical records, are the responsibility and property of the physician."). Dr. Smith claims the injunction he sought was to prevent any improper distribution of that property before proper ownership could be established. Despite the determination by the Bankruptcy Court to the contrary, Dr. Smith maintains his adversary complaint is not an act of possession, and he is not seeking to "seize" property outside of the bankruptcy proceedings. Instead, Dr. Smith states he was asking the Bankruptcy Court to maintain the status quo until the proper owner of the property can be determined. Such claims by a non-debtor are properly brought as an adversary proceeding. Given the nature of the relief requested and Dr. Smith's pro se status at the time of his petition, this Court should construe Dr. Smith's adversary complaint as either a conversion action or, at the very least, a proceeding to determine ownership. By doing so, Dr. Smith asks this Court to find that he did not violate the automatic stay.
In response, the Trustee agrees that as a pro se litigant, Dr. Smith's pleadings are to be liberally construed. However, "courts 'still require pro se parties to fundamentally "abide by the rules that govern the federal courts.' " E.E.O.C. v. Simbaki, Ltd., 767 F.3d 475, 484 (5th Cir. 2014) (citing Frazier v. Wells Fargo Bank, N.A., 541 Fed. Appx. 419, 421 (5th Cir. 2013)). Thus, courts have held, for example, that '[p]ro se litigants must properly plead sufficient facts that, when liberally construed, state a plausible claim to relief, . . . and brief arguments on appeal.' Id. (citations omitted)." Appellee's Brief, docket #17 at pp. 17-18. While acknowledging that this Court must construe pro se litigants' pleadings liberally and applies less stringent standards to pro se parties, Trustee contends that "only an illogical or fantastical reading of the Complaint could lead to the conclusion that Appellant was seeking to prevent transfers or conversion of his personal property or that he was seeking a determination of whether property belonged to him personally or the bankruptcy estate of Salubrio." Id. at page 18.
In support of his contention, the Trustee explains that a review of the Complaint shows that Dr. Smith referenced 11 U.S.C. § 548, the Texas Uniform Fraudulent Transfer Act, and the phrase "fraudulent transfer" countless times. (Docket #3-2 at pp. 34-63). Although the Trustee asserts the Complaint is difficult to decipher at times and was filed in a disorganized fashion with pages out of order, he contends "even the most liberal reading of the Complaint clearly shows that Dr. Smith was asserting claims for transfer of bankruptcy estate property and reduction of the bankruptcy estate's value, not to prevent any transfer or determine ownership of accounts receivable that he claims are his personal property." Id. (Emphasis in original). In support, the Appellee references the following assertions and claims by the Appellant which support his this position:
1. A section titled "JURISDICTION" stating that the Bankruptcy Court has jurisdiction of this proceeding "pursuant to 11 U.S. Codes § 548, § 548, and § 550 and Texas Uniform Fraudulent Transfer Act (TUFTA)";
2. A section titled "TRUSTEE PROPOSED REDUCTIONS OF ESTATE VALUE ADVERSE TO BEST INTERESTS OF CREDITORS AND BANKRUPTCY ESTATE";
3. "As discussed infra, the Chapter 7 Trustee controls the assets of the bankruptcy estate and is considered an INSIDER under Texas Uniform Transfer Act (TUFTA) and transfers of funds from bankruptcy estate by an insider to a third party without the estate receiving equivalent market value in return may be considered a prohibited fraudulent transfer and is subject to claw-back provisions of the bankruptcy Code and any sanctions that the court may deem appropriate.";
4. "Voluntarily transference of estate property to patients that have already received payment for the medical services rendered to the patient and being unlawfully held in IOLTA account of plaintiff attorneys would not only hinder payment of secured Creditors but would also likely deprive unsecured Creditors and stakeholders of payments to which they are entitled.";
5. A section titled "AVOIDANCE OF FRAUDLENT TRANSFERS (11 U.S.C. § 548 AND TEX. BUS. & COMM. CODE § 24.001 ET SEQ.) PLAINTIFF ARGUMENTS";
6. "Transfer of bankruptcy estate funds as a 'gift' or unentitled windfall to a third-party Debtor without estate receiving any equitable value constitutes a fraudulent transfer by Trustee and the Defendants that serve as approval entities for these fraudulent transfers.";
7. A section titled "SUMMARY of 11 U.S. Code § 548" and paragraphs 82-89;
8. A section titled "TEX. BUS. COMM. CODE § 24.001 ET. SEQ. TEXAS UNIFORM FRAUDULENT TRANSFER ACT" and paragraphs 90-106, where Dr. Smith also claims that "Subchapter V Trustee and later Chapter 7 Trustee Eric Terry and Spencer Fane have asserted control of debtor and have obtained authority from Court to grant transfers of estate value to patients without receiving reasonably equivalent value.";
9. A section entitled "REQUESTED RELIEF FROM THE COURT" and paragraphs 107-114 where the requested relief is for the benefit of the bankruptcy estate or the Debtor Salubrio, and the only relief requested in Dr. Smith's favor is "Court approval for estate payment of legal fees and costs as priority administrative expense costs as Plaintiff is pursuing protection of estate value for benefit of all creditors .";
10. Regarding the basis for Dr. Smith's request for a temporary injunction to preserve the status quo, he stated "[i]ssuing a temporary injunction would not prevent Trustee from collecting bankruptcy estate funds held in IOLTA accounts for cases that are already adjudicated . . ." and "Salubrio estate is under no obligation to reduce its fees and has expended hundreds of thousands of dollars attempting to obtain payment for which it is lawfully entitled and that neither patient nor attorney are entitled to an undeserved Windfall.";
11. The Adversary Proceeding Cover Sheet completed and signed by Dr. Smith where he typed in that the Cause of Action is "Alleged fraudulent transfers of estate value from an insolvent entity to third party
individuals (patients) without estate receiving equivalent value (gift of estate value). 11 U.S. Code § 548" and "11 U.S.C. § 544 "the trustee (or DIP) shall have . . . the rights and powers of, or may avoid any transfer of property of the debtor or any obligation incurred by the debtor that is voidable."; andAppellee's Brief, docket #17 at pp. 19-21 (emphasis in original; footnotes omitted). Appellee asserts the Appellant's very own statements make it clear he is seeking to assert fraudulent transfer claims in connection with property of the Salubrio bankruptcy estate, which are also owned by the bankruptcy estate and can only be brought by Trustee. Therefore, the Bankruptcy Court did not err by finding that Appellant's filing of the Complaint asserting such claims violated the automatic stay.
12. The Adversary Proceeding Cover Sheet completed and signed by Dr. Smith where he typed in that the Other Relief Sought is "Court Ordered appointment of Cotton Schmidt law firm as special counsel to advocate for financial interests of all Creditors and payment of their legal fees as priority administrative costs for protecting estate value for all Creditors. Amy [sic] sanctions that court believes just as a deterrent."
In addition, the Trustee explains that 11 U.S.C. § 548 expressly applies to an interest of the debtor in property and does not apply to an interest of a non-debtor in property. The fact that Dr. Smith's Complaint asserts a cause of action pursuant to § 548 is an acknowledgment that the accounts receivable are property of Salubrio's bankruptcy estate. Moreover, Dr. Smith is the person who represented to the Bankruptcy Court, the United States Trustee, and all of Salubrio's creditors that the accounts receivable at issue are property of Salubrio's estate. The Appellee points to the plethora of judicial admissions and findings by the Bankruptcy Court that the accounts receivable are the property of Salubrio's estate. This, the Appellee asserts, is the very reason the Bankruptcy Court entered the December 1, 2020 Orders and found Dr. Smith, by filing the Complaint initiating the Adversary Proceeding asserting claims that would be the property of the Salubrio estate and controlled by the Trustee, violated and is in contempt of the Bankruptcy Code's automatic stay provided by 11 U.S.C. § 362. See In re MortgageAmerica Corp., 714 F.2d 1266, 1275-76 (5th Cir. 1983); see also In re Educators Grp., 25 F.3d 1281, 1284 (5th Cir. 1994) ("If a cause of action belongs to the estate, then the trustee has exclusive standing to assert the claim."); see also Reed v. Cooper (In re Cooper), 405 B.R. 801, 807 (Bankr. N.D. Tex. 2009) (only the trustee has independent standing to pursue chapter 5 avoidance actions and other estate causes of action). The Court agrees.
As set forth in the record, Judge King specifically found that if anyone "owns a fraudulent transfer action relating to Salubrio or its assets or causes of action that it owns, those belong to Salubrio, LLC." Appellant's Appendix, docket #8-1 at p. 123, lines 14-16. And because this case is a Chapter 7 case, Judge King found that Mr. Terry, the Appellee herein, as the Chapter 7 Trustee is in effect the owner of these causes of action. "So the causes of action that Dr. Smith has alleged in his adversary proceeding are property of the estate and he's not allowed to pursue those causes of action." Id., lines 18-21. Therefore, Judge King found Dr. Smith "violated the stay by seeking to appropriate or enforce rights which are owned by the Trustee as the representative of the bankruptcy estate. So he's in violation of the stay." Id., lines 22-24.
Moreover, the Court finds the recent order by United States District Judge Xavier Rodriguez forecloses Appellant's argument on this issue in this appeal. Specifically, Judge Rodriguez found:
that Dr. Smith is judicially estopped from claiming that the accounts receivable at issue in his Complaint are his personal property, and not the property of the bankruptcy estate, and therefore affirms the Bankruptcy Court's Order Granting the Motion to Dismiss. Because Dr. Smith, under penalty of perjury, previously listed the accounts receivable of Salubrio as the property of Salubrio (ECF No. 6-3 at 24 (Schedule A/B: Assets -- Real and Personal Property)), and only in the Complaint does he begin to allege that the accounts receivable are his personal property (ECF No. 2-5 at 13 (Plaintiff's Original Complaint)), the doctrine of judicial estoppel bars his claims. Dr. Smith's position in his Complaint is clearly inconsistent with his position in the Salubrio schedules. Secondly, the Court, because the schedules were signed under penalty of perjury, accepted those previously held positions.In re Smith, Civil Action No. 21-CV-1135-XR, 2022 WL 16825195, at *4-5 (W.D. Tex. Nov. 2, 2022), appeal filed, No. 22-50999 (5th Cir. Nov. 10, 2022).
The Bankruptcy Court correctly reached the same conclusion, holding that "Dr. Smith previously listed the accounts receivable of Salubrio as the property of Salubrio and he's tried to switch and now say that somehow the accounts receivable are his personally because he's the physician [. . .] that's running the whole operation or was running the whole operation. But he's sworn under oath in the schedules in the Salubrio case that he's not the owner, that the owner of the causes of action against the various personal injury claimants and their attorneys is Salubrio." ECF No. 15-2 at 54.
B. Did the Bankruptcy Court err by ordering it necessary and appropriate to establish a "gatekeeping" procedure that requires Dr. Smith to first seek leave of court before filing any motion or complaint in any forum that seeks relief from or against the Trustee, his professionals, or other creditors or parties in interest?
Acknowledging that pursuant to 11 U.S.C. § 105, the Bankruptcy Court is authorized to "issue any order, process or judgment that is necessary or appropriate to carry out the provisions of this title," the Appellant contends this power is not unlimited and does not permit Bankruptcy Courts to " 'act as roving commission[s] to do equity.' In re Mirant Corp., 378 F.3d 511, 523 (5th Cir. 2004)." Appellant's Brief, docket #8 at p. 27. Appellant explains that the Bankruptcy Court in In re Mirant Corp. "implemented two injunctions, prohibiting the administrative agency, a party to the adversary proceeding, from taking any action to require the debtor to abide by the terms of certain contracts and requiring it to give ten-day advance notice to the bankruptcy court prior to taking any regulatory action with respect to the hundreds of debtor's contracts that were [within the scope of] its jurisdiction. Id. at 524." Appellant's Brief, docket #8 at pp. 27-28. "The Fifth Circuit held that the injunctions were overly broad and unnecessary to further the purposes of the Bankruptcy Code's rejection provisions. See id." Appellant's Brief, docket #8 at p. 28.
Appellant contends that similarly here, the Gatekeeping Order is overly broad and not necessary to further the purposes of the provisions of the Bankruptcy Code. Appellant, proceeding pro se, brought an adversary proceeding to protect his personal property rights and preserve the status quo in an effort to prevent liquidation of his property. Appellant asserts there is no need to "impose this overly broad injunction against him to seek leave from the bankruptcy court before he may file any suit against any party in any forum." Id.
In Response, the Appellee points out that the Gatekeeping Order is not overly broad because Dr. Smith is not required to seek leave from the Bankruptcy Court before he "may file suit against any party in any forum." Appellee's Brief, docket #17 at p. 23 (emphasis in original). The Gatekeeping Order provides, in part, in Paragraph 4 as follows:
As a necessary and appropriate "gatekeeping" procedure, Dr. Smith must first seek leave from this Court before filing any motion or complaint in any forum that seeks relief from or against the Trustee, his professionals, or other creditors or parties in interest, including Pioneer Bank, MedLegal Solutions, Inc., and BooToo, Ltd.Id. Appellee maintains the Order was necessary given the Appellant's history of violating Bankruptcy Court orders and "thumb[ing] his nose at the automatic stay." Id. It also provides a means by which to hold the Appellant "accountable to parties, including the Trustee and his professionals, when he causes parties to Salubrio's bankruptcy case to incur unnecessary fees and expenses responding to litigation that is procedurally improper, legally baseless, or otherwise frivolous and without merit." Id. at p. 24. It also conserves judicial resources.
In Reply, Appellant recognizes that although the Order is not as broad as he first stated, it still excludes many types of proceedings that are not within the jurisdiction of the Bankruptcy Court because it prohibits "any motion or complaint in any forum that seeks relief." Reply, docket #19 at page 11. The Order is "manifestly overbroad, as the bankruptcy court lacks jurisdiction over most proceedings outside the purview of bankruptcy. See Stern v. Marshall, 564 U.S. 462, 131 S. Ct. 2594, 2596, 180 L.Ed.2d 475 (2011). ("Bankruptcy courts may enter final judgments in 'all core proceedings arising under Title 11 or arising in a case under Title 11.' ")." Id. The Bankruptcy Court, through its Order is "restricting Mr. Smith's ability to assert his rights on any number of issues that could arise outside the core jurisdiction of the Bankruptcy court." Id. For example, this Court has "no jurisdiction over Mr. Smith's right to seek legal action against Pioneer Bank for a fair debt collection action or MedLegal Solutions, Inc. for a contract dispute that may arise from one of his other entities. By enforcing a gatekeeping order with such terms, the court strays far beyond its own jurisdiction and cannot enforce the order as written." Id. at pp.11-12. Appellant believes a "a plain reading of the Order renders it overly broad. Therefore, the bankruptcy court erred in enforcing such an order and this Court should reverse accordingly." Id. at 12. The Court disagrees.
In granting the Gatekeeping Order, Judge King explained its terms as follows:
if Dr. Smith wants to file anything that seeks relief, whether it's an adversary proceeding or whether it's a motion, he can do that on his own behalf pro se. If his entities that he owns or controls want to do that, then they need to have counsel. And then, secondly, he needs to file a motion for leave and have an
order granted granting leave before he can file any motion seeking relief against the Trustee, the Trustee's attorneys, the Trustee's professionals, or the estate. And if he files a motion for leave and then gets that granted, then he can file that pleading. Certainly we're not going to prevent him from asserting lawful and valid bankruptcy theories or bankruptcy issues. He just can't sue the Trustee, the Trustee's attorney, other creditors, for causes of action that are owned by the estate of Salubrio, LLC under the Mortgage America case. Oh, by the way, the cite for Mortgage America is 714 Federal Second 1266. It's a Fifth Circuit case from 1983 by Judge Carolyn Randall, now known as Judge Carolyn King.Appendix to Appellant's Brief, docket 8-1 at p. 125, lines 3-25; p.126, lines 1-9 (emphasis added). Based on the record, this Court does not find the Bankruptcy Court's Gatekeeping Order is overly broad as the Appellant claims. Judge King was clear that the Appellant may not file any further pleadings against the Trustee, the Trustee's attorney, or other creditors without leave of Court. See Matter of Highland Capital Mgmt., L.P., 48 F.4th 419, 439 (5th Cir. 2022) ("Courts have long recognized bankruptcy courts can perform a gatekeeping function." Court not persuaded the record supported a finding the injunction was overbroad and vague for failing to define a term or that the gatekeeper provision "impermissibly extends to unrelated claims over which the bankruptcy lacks subject-matter jurisdiction." Court explained, "we need not evaluate whether the bankruptcy court would have jurisdiction under every conceivable claim falling under the widest interpretation of the gatekeeper provision. We leave that to the bankruptcy court in the first instance."), petition for cert. filed, No. 22-631 (U.S. Jan. 5, 2023).
So the motion's granted in the most -- for the most part. The stay will be enforced. Dr. Smith is ordered not to violate the stay any further by filing either motions or adversary proceedings for causes of action owned by the bankruptcy estate. And, number two, the motion is denied as far as the Barton Doctrine because we're in the same court as the case and he has filed this in the same court. Number three, Dr. Smith was in contempt for filing this but I'm not asserting or imposing any sanctions at this point. But just a warning for further conduct that may be in violation of the stay. And then finally a gatekeeper order to require Dr. Smith to seek leave of Court to file any further pleadings against the Trustee, the attorneys, or other creditors.
Conclusion
Based on the appropriate standard of review, a review of the briefing, the arguments and authorities presented by the Appellee, and a review of the record on appeal, the Court finds the Bankruptcy Court did not reversibly err when it granted the "December 1, 2020 Orders." Accordingly, IT IS HEREBY ORDERED that the "December 1, 2020 Orders" of the Bankruptcy Court are hereby AFFIRMED. Having affirmed the Bankruptcy Court's orders, IT IS FURTHER ORDERED that motions pending, if any, are DISMISSED and this case is CLOSED.
It is so ORDERED.