Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-14-01429/USCOURTS-ca8-14-01429-0/pdf.json

Nature of Suit Code: 470
Nature of Suit: Civil (Rico)
Cause of Action: 

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United States Court of Appeals

For the Eighth Circuit

___________________________

No. 14-1429

___________________________

Tana S. Cutcliff; James A. Fields; Joshua P. Haeflinger; LaDonna S. Henderson,

(as Trustee for LaDonna S. Henderson Living Trust); Patricia A. Reitz, (as Trustee

for Frances L. Reitz Trust); Terry J. Schippers; James D. Teegarden, II; Michael S.

Trom; James D. Fields

lllllllllllllllllllll Plaintiffs - Appellees

v.

Nathan Paul Reuter; Vertical Group, LLC

lllllllllllllllllllll Defendants

Kathleen Reuter

lllllllllllllllllllllIntervenor - Appellant

___________________________

No. 14-1730

___________________________

Tana S. Cutcliff; James A. Fields; Joshua P. Haeflinger; LaDonna S. Henderson,

(as Trustee for LaDonna S. Henderson Living Trust); Patricia A. Reitz, (as Trustee

for Frances L. Reitz Trust); Terry J. Schippers; James D. Teegarden, II; Michael S.

Trom; James D. Fields

lllllllllllllllllllll Plaintiffs - Appellees

v.

Nathan Paul Reuter

Appellate Case: 14-1429 Page: 1 Date Filed: 06/30/2015 Entry ID: 4290089 
lllllllllllllllllllll Defendant - Appellant

Vertical Group, LLC

lllllllllllllllllllll Defendant

Kathleen Reuter

lllllllllllllllllllllIntervenor

____________

Appeals from United States District Court 

for the Western District of Missouri - Jefferson City

____________

 Submitted: January 15, 2015

 Filed: June 30, 2015

____________

Before LOKEN, MELLOY, and GRUENDER, Circuit Judges.

____________

GRUENDER, Circuit Judge.

Nathan and Kathleen Reuter each appeal from the district court’s entry of a

1

default judgment that awards damages against Vertical Group, LLC. We dismiss

Nathan’s appeal for lack of standing and affirm the district court’s judgment as to

Kathleen’s appeal.

The Honorable Nanette K. Laughrey, United States District Judge for the

1

Western District of Missouri, adopting the report and recommendations of the

Honorable Dennis R. Dow, United States Bankruptcy Judge for the Western District

of Missouri.

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I. Background

This is the second time we have considered a matter involving Nathan Reuter

and a scheme where victims were “lure[d]” into making a “high-yield, zero-risk

investment” from which their money was “appropriated.” Reuter v. Cutcliff (In re

Reuter), 686 F.3d 511, 513-14 (8thCir. 2012). Nine ofthese victims (“the plaintiffs”)

brought this lawsuit against Nathan and Vertical Group, LLC (“Vertical Group”)

based on their alleged roles in perpetrating this scheme. Our initial appeal dealt with

claims that the plaintiffs also asserted as creditors in Nathan’s ensuing bankruptcy. 

Id. This appeal concerns the plaintiffs’ original lawsuit against Vertical Group.

Vertical Group failed to defend against this action. The district court thus

granted, and the clerk entered, an order of default. The court did not award damages

at that time. Shortly thereafter, Nathan filed for Chapter 11 bankruptcy, and the

district court statistically closed this matter until Nathan’s bankruptcy was resolved.

Nathan proposed a Chapter 11 plan that would settle the plaintiffs’ claims

against him. The plaintiffs objected to this plan and brought an adversary proceeding

against Nathan, incorporating their allegations from the complaint in this case and

asserting that their claims against Nathan were non-dischargeable. After holding a

trial on these issues, the bankruptcy court found that the plaintiffs’ claims against

Nathan were non-dischargeable and rejected Nathan’s Chapter 11 plan. Cutcliff v.

Reuter (In re Reuter), 427 B.R. 727, 737-38, 779-80 (Bankr. W.D. Mo. 2010), aff’d,

443 B.R. 427, 438 (B.A.P. 8th Cir. 2011), aff’d, 686 F.3d 511, 520 (8th Cir. 2012). 

The bankruptcy court awarded actual and punitive damages to the plaintiffs for their

claims against Nathan. Id. at 766-68, 779. The court also determined that Nathan’s

bankruptcy estate acquired his interest in the Kathleen S. Reuter Revocable Trust (the

“Kathleen Trust”), a trust into which Nathan and his wife, Kathleen Reuter, had

transferred assets before his bankruptcy was filed. Id. at 768-69, 774-75. At that

juncture, the court declined to opine on the “specific value of [Nathan’s] interest in

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the [property in the trust] or how that value will be realized.” Id. at 779. The court

later converted Nathan’s bankruptcy to a Chapter 7 bankruptcy.

The bankruptcy trustee then tried to reach the assetsin the Kathleen Trust. The

court concluded that Nathan and Kathleen were co-trustees of the trust and that

Nathan’s powers as a co-trustee were the property of his bankruptcy estate. Olsen v.

Reuter (In re Reuter), 499 B.R. 655, 670-71 (Bankr. W.D. Mo. 2013). However,

Nathan lacked “the authority to carry out an action as a trustee under the [Kathleen

Trust] without Kathleen’s consent,” meaning that the rights to which the bankruptcy

estate succeeded were “limited to the extent they are subject to Kathleen’s consent.” 

Id. at 671. The court further concluded that only Kathleen had the power to revoke

the trust. Id. at 672, 682.

Before this ruling, the plaintiffs also sought to reach the assets in the Kathleen

Trust. They reopened this action to determine their damages and “to collect the

Vertical Group judgment fromthe assets of a revocable trust [i.e., the Kathleen Trust]

that has been determined to be the property of [Nathan’s] bankruptcy estate.” The 2

plaintiffs asked the district court to refer this matter to the bankruptcy court. Nathan,

who was still a party to this action, opposed this course of action. Kathleen joined

the litigation at this point due to her interests with respect to the Kathleen Trust and

likewise argued against having the bankruptcy court consider this matter. The district

court sided with the plaintiffs and referred this matter to the bankruptcy court.

Afterreceiving affidavits and documentary proof concerning howmuch money

the plaintiffs lost in the investment scheme, but without conducting an evidentiary

hearing, the bankruptcy court prepared proposed findings of fact and conclusions of

The plaintiffs explained that they intend to reach the assets in the Kathleen 2

Trust by means of a creditor’s bill to pursue any assets of Vertical Group that were

transferred into the trust.

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law in which it recommended awarding actual damages, punitive damages, and

attorneys’ fees to the plaintiffs. The amount of actual and punitive damages that the

court recommended was the same amount that the court had awarded to the plaintiffs

in the bankruptcy adversary proceeding against Nathan. Nathan and Kathleen

objected to the bankruptcy court’s recommendations, and after a de novo review, the

district court adopted the bankruptcy court’s proposed findings of fact and

conclusions of law and entered a default judgment against Vertical Group. Nathan

and Kathleen each appeal. Vertical Group did not file a notice of appeal.

II. Discussion

A. Standing to Appeal

We begin with the threshold issue of Nathan’s and Kathleen’s standing to

appeal. “Ordinarily, only a party aggrieved by a judgment or order of a district court

may exercise the statutory right to appeal therefrom.” Deposit Guar. Nat’l Bank v.

Roper, 445 U.S. 326, 333 (1980). Consequently, “a litigant that is a party to the

overall case may lack standing to appeal from a judgment [concerning] a claim to

which it was not a party [where] the appellants were not personally aggrieved by the

judgment under appeal.” United States v. Northshore Mining Co., 576 F.3d 840, 846

(8th Cir. 2009) (alterations in original) (ellipsis omitted) (quoting City of Cleveland

v. Ohio, 508 F.3d 827, 836 (6th Cir. 2007)). “A party may be aggrieved by a district

court decision that adversely affects its legal rights or position vis-a-vis other parties

in the case or other potential litigants, but a ‘desire for better precedent does not by

itself confer standing to appeal.’” Custer v. Sweeney, 89 F.3d 1156, 1164 (4th Cir.

1996) (quoting HCA Health Servs. v. Metro. Life Ins. Co., 957 F.2d 120, 124 (4th Cir.

1992)).

In the unique circumstances presented here, Kathleen has standing to appeal due

to her interests with respect to the Kathleen Trust. As the bankruptcy court found,

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Kathleen is a co-trustee of the trust with the sole power to revoke it. See Mo. Rev.

Stat. § 456.8-816.24 (“[A] trustee may . . . prosecute or defend an action, claim, or

judicial proceeding in any jurisdiction to protect trust property and the trustee in the

performance of the trustee’s duties.”). In the plaintiffs’ filings before the district court

and this court, they have emphasized that they intend to use this action to reach the

assets of the Kathleen Trust. Because of the focused purpose of this action, we are

hard pressed to say that Kathleen somehow lacks standing to appeal. See City of

Cleveland, 508 F.3d at 837 (“We have little trouble concluding that the [appellant] had

‘a sufficient stake in the outcome of the controversy’ . . . . If it were not for the

[appellant], there would be no controversy in this case.” (quoting Bryant v. Yellen, 447

U.S. 352, 368 (1980))). And the parties seem to agree that the default judgment

presents a virtual certainty, rather than a remote possibility, that the plaintiffs will

pursue the assets in the Kathleen Trust. Compare Custer, 89 F.3d at 1164 (finding

standing to appeal where the order “presents a certainty, rather than a mere

hypothetical possibility, that [the appealing party] will be forced to incur considerable

expense relitigating [a claim in another case]”), with Rohm & Hass Tex., Inc. v. Ortiz

Bros. Insulation, Inc., 32 F.3d 205, 208 (5th Cir. 1994) (explaining that a speculative

concern about the eventual result of the district court’s judgment does not provide

standing to appeal). For these reasons, we conclude that Kathleen has standing to

appeal the district court’s judgment.

The trust documents also designated Nathan as a co-trustee of the Kathleen

Trust. But Nathan does not argue that this fact means that he is aggrieved by the

default judgment against Vertical Group. The bankruptcy court has determined that

Nathan’s powers as a co-trustee became the property of his bankruptcy estate. 

Because “[t]he [bankruptcy] trustee isthe ‘legalrepresentative’ of the bankrupt estate,

with the capacity to sue and be sued,” Vreugdenhil v. Hoekstra, 773 F.2d 213, 215 (8th

Cir. 1985), Nathan does not have standing to appeal on the same basis as Kathleen, see

Longaker v. Boston Scientific Corp., 715 F.3d 658, 662 (8th Cir. 2013) (“Because the

guaranteed payments, if due at all, are property of the bankruptcy estate, [the debtor]

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lacked standing to assert his breach of contract claim.”). Nathan offers no argument

to the contrary.

Nathan does argue that he has standing to appeal because he is a member of

Vertical Group, a limited liability company. In support of this argument, Nathan cites

three Missouri statutory provisions that discuss the powers of a member of a limited

liability company and the relationship between a member and a limited liability

company. See Mo. Rev. Stat. §§ 347.065.1, 347.069.1, 347.171. However, these

statutory provisions do not support the notion that Nathan was aggrieved by the

district court’s judgment merely by virtue of his status as a member of Vertical Group. 

Cf. Conway v. Heyl (In re Heyl), 770 F.3d 729, 730 (8th Cir. 2014) (per curiam). We

therefore dismiss Nathan’s appeal for lack of standing.

B. Kathleen’s Appeal

1. “Related to” Jurisdiction

Kathleen contends that the district court erred by referring this matter to the

bankruptcy court. Congress has provided that a district court may refer certain

proceedings over which it has jurisdiction to a bankruptcy court, including those that

are “related to a case under title 11” of the United States Code. 28 U.S.C. § 157(a)

(emphasis added); see also id. § 1334(b) (“[T]he district courts shall have original but

not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in

or related to cases under title 11.”). The statute further specifies that “[a] bankruptcy

judge may hear a proceeding that is not a core proceeding but that is otherwise related

to a case under title 11.” Id. § 157(c)(1). When the bankruptcy court hears such a

proceeding, the court is to submit proposed findings of fact and conclusions of law to

the district court. Id. “[A]ny final order or judgment shall be entered by the district

judge after considering the bankruptcy judge’s proposed findings and conclusions and

after reviewing de novo those matters to which any party has timely and specifically

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objected.” Id. Whether a proceeding is “related to” a bankruptcy case is an issue that

we review de novo. GAF Holdings, LLC v. Rinaldi (In re Farmland Indus.), 567 F.3d

1010, 1016-19 (8th Cir. 2009).

A proceeding is “related to” a bankruptcy case if “the outcome of that

proceeding could conceivably have any effect on the estate being administered in the

bankruptcy.” Speciality Mills, Inc. v. Citizens State Bank, 51 F.3d 770, 774 (8th Cir.

1995) (quoting Dogpatch Props., Inc. v. Dogpatch U.S.A., Inc.(In re Dogpatch U.S.A.,

Inc.), 810 F.2d 782, 786 (8th Cir. 1987)). This broad test is met if the proceeding

“could alter the debtor’s rights, liabilities, options, or freedom of action . . . and which

in any way impacts upon the handling and administration of the bankruptcy estate.” 

Id. (ellipsis in original) (quoting In re Dogpatch U.S.A., 810 F.2d at 786). “Even a

proceeding which portends a mere contingent or tangential effect on a debtor’s estate

meets this broad jurisdictional test.” Buffets, Inc. v. Leischow, 732 F.3d 889, 894 (8th

Cir. 2013) (alterations omitted) (quoting Nat’l Union Fire Ins. Co. of Pittsburgh v.

Titan Energy, Inc. (In re Titan Energy, Inc.), 837 F.2d 325, 330 (8th Cir. 1988)).

We agree with the district court that the conceivable-effects test is met here. 

First, when the plaintiffs requested that this matter be referred to the bankruptcy court,

they unambiguously informed the district court of their intent to use the default

judgment against Vertical Group to reach the assetsin the Kathleen Trust. And at that

time, the bankruptcy court had concluded that Nathan’s bankruptcy estate succeeded

to Nathan’s powers with respect to this trust. Second, each of the plaintiffs had filed

a proof of claim in Nathan’s bankruptcy based upon their claims against Vertical

Group, on the ground that Nathan also isliable for these claims. Because the plaintiffs

intended to use a judgment in this case to access a trust in which Nathan’s bankruptcy

estate has rights and because the plaintiffs were trying to satisfy the judgment in this

case from Nathan’s bankruptcy estate, the district court did not err by concluding that

this matter could have a conceivable effect on Nathan’s bankruptcy. See, e.g., In re

Titan Energy, 837 F.2d at 330 (“It remains to be seen whether, and to what extent,

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[this] action will affect [the debtor’s] estate. Yet, even a proceeding which portends

a mere contingent or tangential effect on a debtor’s estate meets the broad

jurisdictional test . . . .”); Buffets, 732 F.3d at 894 (“We think the court was correct that

if [a party to the action] has an enforceable indemnification claim against [the debtor],

then its claim conceivably could affect the bankruptcy.”). As a result, referring this

proceeding to the bankruptcy court was permitted by 28 U.S.C. § 157(a).

2. Calculation of Damages

Kathleen raises two objections to the award of actual and punitive damages

against Vertical Group. A district court’s determination of damages in connection

with a default judgment is reviewed for clear error. Stephenson v. Batrawi, 524 F.3d

907, 915-16 (8th Cir. 2008). The necessity of an evidentiary hearing to determine a

plaintiff’s damages is committed to the sound discretion of the district court. Id. at

916.

Kathleen asserts that the district court clearly erred in awarding damages

because Vertical Group is not responsible for the plaintiffs’ damages. Kathleen

theorizes that the evidence from Nathan’s bankruptcy case “suggests” that the

complained-of misconduct is solely chargeable to a partnership between Nathan and

Daryl Brown that is “independent” from Vertical Group. See In re Reuter, 686 F.3d

at 517 (“[I]t was not clear error for the bankruptcy court to conclude that a partnership

existed between Reuter and Brown.”). This argument requires us to examine the

distinction between facts that relate to liability and facts that relate to the amount of

damages. Once a default has been entered on a claim for an indefinite or uncertain

amount of damages, “facts alleged in the complaint are taken as true, except facts

relating to the amount of damages, which must be proved in a supplemental hearing

or proceeding.” Everyday Learning Corp. v. Larson, 242 F.3d 815, 818 (8th Cir.

2001); see also 10A Charles A. Wright et al., Federal Practice & Procedure § 2688 (3d

ed. 1998). A defaulted claim thus precludes a party from contesting the facts in the

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complaint that establish liability. The facts that relate to the amount of the plaintiff’s

damages, by contrast, are fair game.

Kathleen does her best to frame her argument in terms of the amount of the

plaintiffs’ damages. However, by contending that a separate partnership between

Nathan and Brown committed the complained-of misconduct, she is contesting

Vertical Group’s liability—i.e., whether Vertical Group engaged in misconduct in the

first place. Because Vertical Group failed to defend against this action, Kathleen

cannot now argue that Vertical Group never should have been a defendant. This

defense has been lost. See Wehrs v. Wells, 688 F.3d 886, 893 (7th Cir. 2012) (“To

permit [the defendant] to argue that [the plaintiff] should have . . . mitigate[d] his

damages would allow [the defendant] to contest his liability, rather than the extent of

the damages suffered from the injuries pled. This he may not do; a defaulting party

‘has no right to dispute the issue of liability.’” (quoting 10 James W. Moore et al.,

Moore’s Federal Practice § 55.32(1)(a) (3d. ed. 2012));see also Stephenson, 524 F.3d

at 915 n.9. Because Kathleen is impermissibly contesting Vertical Group’s liability,

the court did not clearly err by rejecting her argument that a separate partnership is at

fault.

3

Kathleen next argues that an evidentiary hearing was necessary to determine the

amount of the plaintiffs’ damages. We discern no abuse of discretion in the decision

to award actual damages without an evidentiary hearing. In connection with their

For the first time in her reply brief, Kathleen asserts that the plaintiffs failed 3

to plead that Vertical Group committed the misconduct alleged in the complaint. This

argument implicates an unsettled area of the law in our circuit. See Everyday

Learning Corp., 242 F.3d at 818 (describing as a “debatable proposition” whether “a

default judgment conclusively establishes liability, as opposed to establishing the fact

allegations in the complaint”). This provides all the more reason for usto enforce our

general rule that we do not consider an argument raised for the first time in a reply

brief. See Union Pacific R.R. Co. v. Progress Rail Servs. Corp., 778 F.3d 704, 711

n.5 (8th Cir. 2015).

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motion for damages, the plaintiffs submitted affidavits and documentary proof

evincing how much they invested in the complained-ofscheme. Neither Kathleen nor

Nathan challenged the accuracy of this evidence. Because the amount of the

plaintiffs’ investments wasreadily discernable on the basis of undisputed evidence in

the record, it was not an abuse of discretion to award actual damages without an

evidentiary hearing. See Taylor v. City of Ballwin, 859 F.2d 1330, 1333 (8th Cir.

1988).

Whether an evidentiary hearing was necessary before awarding punitive

damagesrequires closer examination. We agree with Kathleen’s contention that “[a]s

a general proposition, punitive damages cannot be awarded simply on the basis of the

pleadings, but must instead be established at an evidentiary hearing held pursuant to

Fed. R. Civ. P. 55(b)(2) because they clearly are not liquidated or computable.” 

Comdyne I, Inc. v. Corbin, 908 F.2d 1142, 1152 (3d Cir. 1990). However, we think

this rule is subject to at least one exception. In James v. Frame, 6 F.3d 307 (5th Cir.

1993), the Fifth Circuit affirmed an award of punitive damages without an evidentiary

hearing because of the district court’s longstanding familiarity with the matter. Id. at

310-11 (“The district judge, himself, has maintained a long and close familiarity with

the issues in this matter.”); see also Action S.A. v. Marc Rich & Co., Inc., 951 F.2d

504, 508-09 (2d Cir. 1991). In such a situation, we agree that a court “should be

trusted when [it] elects not to seek more evidence on matters with which [it] is already

familiar.” James, 6 F.3d at 311.

The district court referred this matter to the bankruptcy court because it was

handling Nathan’s bankruptcy. Not only was this referral permitted, see 28 U.S.C.

§ 157(a), but having the bankruptcy court initially consider this matter made sense

fromthe perspective ofjudicial economy. At that point, the bankruptcy court had been

handling Nathan’s bankruptcy for more than five years. More relevant here, the

bankruptcy court had conducted a trial concerning Nathan’s liability to the plaintiffs. 

Consequently, when the bankruptcy court recommended awarding punitive damages

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against Vertical Group without first having an evidentiary hearing, the court was well

acquainted with the facts and the issues atstake. Indeed, the bankruptcy court already

had awarded actual and punitive damages against Nathan in the same amount that it

ultimately recommended awarding against Vertical Group. When Kathleen filed

objections with the district court regarding the recommended award of punitive

damages, she did not raise the need for an evidentiary hearing. Instead, she merely

asserted, asshe does here, that the evidence fromthe bankruptcy adversary proceeding

against Nathan was insufficient to justify the imposition of punitive damages against

Vertical Group. Kathleen therefore appeared to recognize, as we do here, that the

bankruptcy court’s adjudication of the plaintiffs’ adversary proceeding provided the

bankruptcy court with a basis to consider whether punitive damages were justified and

in what amount. See James, 6 F.3d at 310-11. We thus find no abuse of discretion in

awarding punitive damages without an evidentiary hearing.

III. Conclusion

We dismiss Nathan’s appeal for lack of standing and affirm the district court’s

judgment as to Kathleen’s appeal.

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