Grogan v. Renfrow

IN THE UNITED STATES DISTRICT COURT FOR THE

NORTHERN DISTRICT OF OKLAHOMA

COURTNEY GROGAN, Successor

Trustee of the Joe C. Cole Revocable

Trust, under trust agreement dated

March 28, 2002,

and

ATKINSON, HASKINS, NELLIS,

BRITTINGHAM, GLASS & FIASCO,

an Oklahoma Professional Corporation,

Appellant/Defendants

vs. Case No. 19-CV-248-TCK-FHM

MIRANDA KRISTIN RENFROW, Appeal from: Adv Case No. 17-1027-R

U.S. Bankruptcy Court N. D. Oklahoma

Honorable Judge Dana L. Rasure

Appellee/Plaintiff.

OPINION AND ORDER

Appellant/Defendants’ Combined Motion to Stay Enforcement of Judgment Pending

Appeal & To Fix The Amount of Supersedeas Bond, [Dkt. 9], is before the undersigned

United States Magistrate Judge for decision.1 The matter has been briefed, [Dkt. 11, 13],

and hearing on the matter was held on June 6, 2019.

Background

On June 15, 2017, Renfrow received a discharge in bankruptcy entered under § 727

of the bankruptcy code for her dischargeable debts incurred before the March 10, 2017

date of her bankruptcy petition. Following the discharge Grogan prosecuted a state court

action against Renfrow and received a judgment against her of $89,500. Renfrow’s state

court appeal of that judgment is pending.

1 The parties will be referred to by their last names or by their designations before the Bankruptcy

Court in the adversary action: Grogan or Defendant; and Renfrow or Plaintiff.

Following a trial in an adversary action before the Bankruptcy Court, the Bankruptcy

Court found that Grogan obtained the judgment against Renfrow in the state court action

for pre-petition activities and ruled that the state court judgment was void ab initio. The

Court also found that the conduct of Grogan and her attorney violated 11 U.S.C. §

524(a)(2) and the Bankruptcy Court’s discharge order for which compensatory damages

of $104,867 and punitive damages of $100,000 were awarded against Grogan and her

attorney. [Dkt. 2-1]. The Bankruptcy Court ordered Grogan and her counsel to obtain an

order vacating the state court judgment and to dismiss the state court action against

Renfrow. Id. Grogan appealed the Bankruptcy Court decision to this court and moved for

a stay of the judgment, which the Bankruptcy Court denied. [Dkt. 9-1]. As permitted by

Fed. Rules Bankr. Proc. 8007, Defendants moved for stay in this court.

At the hearing before the undersigned, the parties represented that they will not

attempt to execute on their respective money judgments, so there is no need for a

supersedeas bond. Based on the parties representations, that aspect of Defendants’

motion is moot.

Analysis

The question that remains is whether the Bankruptcy Court’s order to Grogan to

obtain an order vacating the state court judgment and to dismiss the state court action

against Renfrow should be stayed. The parties agree that the moveant has the burden to

establish all of the following four factors:

1) whether the stay applicant has made a strong showing that

he is likely to succeed on the merits;

2) whether the applicant will be irreparably injured absent a

stay;

2

3) whether issuance of the stay will substantially injure the

other parities interested in the proceeding; and

4) where the public interest lies.

Nken v. Holder, 556 U.S. 418, 434, 129 S.Ct. 1749, 173 L.Ed.2d 550 (2009). The

Bankruptcy Court found that all four factors favored the denial of a stay. [Dkt. 9-1].

The court has not found a case where the Tenth Circuit has addressed whether the

district court addresses a motion to stay a Bankruptcy Court order as an appeal of the

Bankruptcy Court’s denial of a motion for stay, or whether the district court addresses the

applicable factors de novo. Bankruptcy Court Rule 8007, which provides that a motion for

stay may be addressed to the district court does not address the applicable standard to be

applied by the district court. In In re: Lang, 305 B.R. 905, 911 (10th Cir. BAP 2004), the

Bankruptcy Appellate Panel considered an appeal of a Bankruptcy Court decision denying

a stay. The Lang decision has been cited by other courts in the Tenth Circuit as

establishing that the Bankruptcy Court’s decision about a stay is reviewed for an abuse of

discretion.2 However, in Lang the Court noted that the request for review of the Bankruptcy

Court’s denial of stay was puzzling given that the Bankruptcy Rule permits the parties to

apply anew to the district court. Lang, 305 B.R. at 911, n.31.

In the present case, the court is not reviewing the Bankruptcy Court’s denial of a

stay. The court is deciding the motion anew, applying the same factors considered by the

Bankruptcy Court. See In re: Jet 1 Center, Inc., 2006 WL 449252 at *1 (M.D. Fla.

2006)(appeal of Bankruptcy Court denial of stay is reviewed for abuse of discretion, but

application to district court for stay is examined de novo).

2 In re: Neighbors, 2016 WL 8671890 (D. Kan. 2016); In re: Morrale, 2015 WL 429502 (D. Colo.

2015).

3

Likelihood of Success on the Merits

On June 3, 2019, after the Bankruptcy Court decided the case and after the motion

for stay was denied, the United States Supreme Court decided Taggart v. Lorenzen where

it considered the standard to be applied by courts when determining whether to hold a

creditor in contempt for attempting to collect a debt that a bankruptcy discharge order has

immunized from collection. The Court ruled that a creditor may be held in contempt “when

there is no objectively reasonable basis for concluding that the creditor’s conduct might be

lawful under the discharge order.” Taggart v. Lorenzen, 587 U.S. —, 139 S.Ct. 1795, 1801

( 2019). Civil contempt may be appropriate “where the creditor violates a discharge order

based on an objectively unreasonable understanding of the discharge order or the statutes

that govern its scope.” 139 S.Ct. at 1802. The Court stated that a creditor may be held in

contempt for violating a discharge order where there is not a “fair ground of doubt” as to

whether the creditor’s conduct might be lawful under the discharge order. 139 S.Ct. at

1804.

The Bankruptcy Court applied a different standard to the question of whether

Defendants’ actions constituted civil contempt. The Bankruptcy Court stated the test for

whether contempt was established is whether the creditor had actual or constructive

knowledge of the discharged debt and intended the actions which were taken in violation

of the injunction. [Dkt. 2-1, p. 50]. The Taggart Court specifically rejected that standard

as operating much like a strict liability standard. 139 S.Ct. at 1803. Since the law

concerning the standard to be applied to a determination of contempt has changed, the

calculus of whether Defendants are likely to succeed on appeal has also changed.

4

The Bankruptcy Court indisputably applied the wrong standard to the determination

about whether Defendant was in contempt of the discharge. As a result, there is a

substantial likelihood of success on appeal of that issue. However, the change of the

standard for a contempt finding affects only the portion of the Bankruptcy Court’s order that

pertains to the award of damages. As previously stated, the parties have agreed to forego

collection activities on the money judgments pending appeal.

Taggart has no effect on the only aspect of the Bankruptcy Court’s judgment for

which Defendants seek a stay: the order to vacate the state court judgment and dismiss

the state court action. [Dkt. 2-1, p. 2]. The court will not exercise its discretion to stay the

entire judgment based on a showing of the strong likelihood of success on the aspect of

the judgment that the parties have agreed to stay. The court must therefore analyze the

likelihood of success on appeal on the aspect of the Bankruptcy Court’s order for which

Defendants seek a stay. That aspect is the Bankruptcy Court’s factual determination that

the state court judgment was based on events that, if they occurred at all, occurred pre-

petition, [Dkt. 2-1, pp. 32-34, 48, 52] and the resultant conclusion that the state court

judgment is void ab initio by virtue of the application of 11 U.S.C. § 524(a)(2).

Factual determinations made by the Bankruptcy Court may only be overturned for

clear error. In re Johnson, 477 B.R. 156, 168 (10th Cir. BAP 2012)(under the clearly

erroneous standard the appellate court defers to facts found by the bankruptcy court unless

they are without factual support in the record). Nothing Defendants have presented

demonstrate a substantial likelihood of success on overturning the Bankruptcy Court’s

factual determination that the state court judgment was based on conduct that, if it occurred

at all, occurred pre-petition. In that regard, Defendants contend that they have a high

5

likelihood of success because the jury was instructed it could not enter a judgment against

Renfrow for any pre-petition transfers. The Bankruptcy Court addressed this contention.

[Dkt. 9-1, p. 9]. As discussed further below, the court agrees with the Bankruptcy Court

that since Defendants could not establish issue preclusion, there was no obstacle to the

Bankruptcy Court’s consideration of evidence relevant to determining whether the alleged

fraudulently made transfers had been discharged in bankruptcy.

A bankruptcy court’s legal conclusions are reviewed de novo. Id. The question of

the applicability of the Rooker-Feldman doctrine is a legal conclusion. Defendants’ argue

that, based on the Rooker-Feldman doctrine, the Bankruptcy Court lacked the jurisdiction

to review the state court’s judgment. On that question, the court is unable to add anything

to the Bankruptcy Court’s analysis. The court finds that Defendants have not made a

strong showing of likelihood of success on appeal on that issue. The court finds that the

holding in Exxon Mobile Corp. v. Saudi Basic Industrial Corp., 125 S.Ct. 1517, 161 L.Ed.

2d 454 (2005), establishes that the Rooker-Feldman Doctrine does not affect the

Bankruptcy Court’s jurisdiction over the parties’ dispute or otherwise operate as a bar to

the effectiveness of the Bankruptcy Court’s order. See also, In re Ebel, 139 Fed.Appx. 26,

29 (10th Cir. 2005)(addressing Rooker-Feldman in the context of the automatic stay

agreeing with the Ninth Circuit in In re Gruntz, 202 F.3d 1074, 1083 (9th Cir. 2000) a

bankruptcy court does not conduct an improper review of a state court when it enforces an

automatic stay that issues from its own federal statutory authority).

Defendants assert that the doctrine of issue preclusion applied to prevent Renfrow

from arguing that the fraudulent transfer claim asserted in state court was precluded by the

bankruptcy discharge injunction. [Dkt. 11, p. 13]. The court finds that Defendants have not

6

made a strong showing of the likelihood of success on appeal on this issue. The issue

preclusion doctrine requires the existence of a valid final judgment on the merits and

Defendants’ state court judgment is not final under Oklahoma law as that appeal is still

pending. See Nealis v. Baird, 996 P.2d 438, 459 (Okla. 1999). Aside from the lack of

finality of the Defendants’ state court judgment, a federal court need only give full faith and

credit to valid state court judgments. A state court judgment that is violative of the debtor’s

bankruptcy discharge is void under 11 U.S.C. § 524(a)(2). A void judgment is not a valid

judgment and therefore is not entitled to the full faith and credit embodied in issue

preclusion. See In re Pavelich, 229 B.R. 777, 782 (9th Cir. BAP 1999) (11 U.S.C. § 524(a)

is a statutory exception to the Full Faith and Credit Statute and a void judgment may be

collaterally attacked), In re Gray, 573 B.R. 868, 878-79 (B.Ct. D. Kan. 2017)(state court’s

post discharge in personam judgment against Chapter 7 debtor which included discharged

debt was void, and legal nullity that neither full faith and credit statute nor issue preclusion

barred bankruptcy court from addressing violation of discharge injunction).

The other arguments Defendants make in favor of a stay (denial of requests for

discovery about Plaintiff’s mental distress, admission of hearsay evidence, and Bankruptcy

Court’s authority to award punitive damages) are raised entirely in relation to the

Bankruptcy Court’s money judgment. The court will not address Defendant’s likelihood of

success on these issues because, as previously stated, the parties have resolved the stay

issue among themselves as to the money judgment.

The court rejects Defendants’ assertion that a modified likelihood of success

standard may be applied where one seeking a stay meets the other three requirements for

a stay pending appeal. The Tenth Circuit has formerly deemed the likelihood of success

7

element satisfied if the applicant shows “questions going to the merits so serious,

substantial, difficult and doubtful, as to make the issues ripe for litigation and deserving of

more deliberate investigation.” McClendon v. City of Albuquerque, 79 F.3d 1014, 1016

(10th Cir. 1996)(further citations omitted). In Dine’ Citizens Against Ruining Our

Environment v. Jewell, 839 F.3d 1276 (10th Cir. 2016) the Tenth Circuit abandoned the

modified test as inconsistent with the Supreme Court’s decision in Winter v. Natural

Resources Defense Council, 555 U.S. 7, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008) which held

that the Ninth Circuit had impermissibly deviated from the standard for preliminary

injunctions by modifying the likelihood of harm element by granting an injunction where only

the possibility, rather than a strong likelihood of irreparable harm was shown. The Tenth

Circuit held that any modified test which relaxes any of the prongs for preliminary relief is

impermissible. Dine’ 839 F.3d at 1282. The impermissibility of relaxing one of the factors

or prongs applies with equal force to the requirements for a stay pending appeal. See

Pueblo of Pojoaque v. State, 233 F.Supp.3d 1021, 1092-93 (D. N.M. 2017)(applying Dine’

to the factors concerning the issuance of a stay).

The likelihood of success on appeal does not weigh in moveants’ favor, it is

therefore clear that Defendants cannot establish all four required factors and therefore the

motion for stay should be denied.

Irreparable Injury to Defendants Absent a Stay

If the Bankruptcy Court judgment is not stayed, Defendants will be required to obtain

an order vacating the judgment against Renfrow as void and to dismiss the action against

8

Renfrow. The court is persuaded that dismissal of the state action would constitute

irreparable harm to Defendants.

Substantial Injury to Plaintiff Resulting from Issuance of a Stay

Even though Defendants have represented that they will not execute on the money

judgment pending the outcome of this appeal, the court agrees with the Bankruptcy Court

that the very existence of a substantial money judgment for a fraudulent transfer impacts

Plaintiff’s credit, her reputation, and her ability to obtain permanent employment. This

constitutes a substantial injury to Plaintiff that would result from the issuance of a stay.

Public Interest

The court finds that the public has an interest in the efficacy of bankruptcy

discharges. On the other hand, federal and state courts have concurrent jurisdiction over

whether a debt has been discharged, as recognized by the Supreme Court in Taggart.

There the Court quoted the Advisory Committee Note of subd. (c)(1) of Fed.R.Civ.P. 8 that

“‘whether a claim was excepted from discharge’ is ‘in most instances’ not determined in

bankruptcy court.” Taggart, 2019 WL 2331303 at *5. The Supreme Court’s recognition of

this fact suggests public interest in the ongoing interplay between bankruptcy discharges

and the determination of their scope in state court. The court finds, therefore, that the

public interest is neutral concerning a stay.

9

Conclusion

Based on the foregoing discussion, the court finds that Defendants have not made

the substantial showing that all four factors weigh in favor of a stay. Appellant/Defendants’

Combined Motion to Stay Enforcement of Judgment Pending Appeal & To Fix The Amount

of Supersedeas Bond, [Dkt. 9], is DENIED.

SO ORDERED this 2nd day of July, 2019.

10