United States Court of Appeals

FOR THE EIGHTH CIRCUIT

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No. 01-2852

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In Re: Just Brakes Corporate *

Systems, Inc., *

*

Debtor. *

------------------------------------------------ *

David A. Sosne, Trustee, *

* Appeal from the United States

Plaintiff - Appellant, * District Court for the

* Eastern District of Missouri.

v. *

*

Reinert & Duree, P.C., et al., *

*

Defendants - Appellees. *

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Submitted: January 14, 2002

Filed: June 12, 2002 (corrected 6/18/02)

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Before LOKEN, RICHARD S. ARNOLD, and MURPHY, Circuit Judges.

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LOKEN, Circuit Judge.

This is an action by a Chapter 7 bankruptcy Trustee to recover damages from

certain judgment creditors for violating the automatic stay. In a prior appeal, we

upheld a ruling that Defendants had violated the automatic stay but concluded that the

Trustee’s proper remedy was limited to compensatory damages and remanded for a
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determination of those damages. In re Just Brakes Corp. Sys., Inc., 108 F.3d 881 (8th

Cir.), cert. denied, 522 U.S. 947 (1997). On remand, the bankruptcy court awarded

the Trustee the proceeds at issue without determining whether the underlying asset

was part of the bankruptcy estate. On appeal, the district court held that this ruling

violated the law of the case established by our prior decision and entered judgment

for the Defendants. The Trustee appeals. We agree with the district court that the

bankruptcy court’s ruling violated our prior remand directions. But we conclude the

Trustee established that the asset in question was part of the bankruptcy estate.

Accordingly, we reverse and order the bankruptcy court’s judgment reinstated. 

In January 1991, Just Brakes Corporate Systems, Inc. assigned a registered

trademark, its only valuable asset, to FGR Management, Inc., a corporation whose

president was a shareholder and director of Just Brakes. Defendants sued to have the

conveyance set aside as fraudulent to Just Brakes creditors. The state court enjoined

Just Brakes from making further transfers and ordered a foreclosure sale of the

trademark to satisfy Defendants’ prior judgment against Just Brakes. The foreclosure

sale was scheduled for October 15, 1991. That morning, Just Brakes commenced this

Chapter 7 proceeding, thereby triggering the automatic stay of actions by its creditors

to enforce prior judgments or to collect prior claims against Just Brakes or its estate.

See 11 U.S.C. § 362(a). 

The state court allowed the foreclosure sale to proceed over the objection of

FGR Management, with the proceeds to be held in escrow while the parties litigated

the validity of the sale and rights to the sale proceeds. The trademark was sold for

$105,000. Defendants then moved the state court to award them the net sale proceeds

of $100,717, an action that violated the Chapter 7 automatic stay. The state court

granted the motion, Defendants were paid the proceeds, and the Trustee commenced

this action under § 362(a) to recover the proceeds for the bankruptcy estate. The

Trustee also asserted avoidance claims against Defendants and FGR Management
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seeking to recover the trademark and its proceeds under 11 U.S.C. §§ 547-550.

However, the Trustee later dismissed those claims. 

The bankruptcy court ordered Defendants to pay the net proceeds of $100,717

into the bankruptcy estate as compensatory or punitive damages for violating the

automatic stay. On appeal, we concluded the Trustee is limited to compensatory

relief under 11 U.S.C. § 362(a). We ordered the sale proceeds paid into escrow and

remanded for determination of compensatory damages. The value of the trademark

was not necessarily an appropriate compensatory remedy, we observed, because the

Trustee had “never established his right to avoid the debtor’s pre-petition transfer and

recover the trademark or its value for the estate.” In re Just Brakes, 108 F.3d at 885.

We further noted that Defendants’ violation of the automatic stay may have caused

the Trustee to incur additional litigation expenses. We encouraged the bankruptcy

court to revisit that issue “after the avoidance issues are finally resolved.” Id. at 886.

On remand, Defendants took the position that what we had referred to as “the

avoidance issues” could only be determined in a separate avoidance proceeding, and

that any such proceeding if commenced by the Trustee would be time-barred. The

contention is patently wrong. In this timely proceeding under § 362(a), liability was

established on the first appeal, and we remanded for a determination of the Trustee’s

damages. That determination was to be made in this proceeding, whether or not it

involved issues that, absent Defendants’ violation of the automatic stay, would have

been litigated in a separate avoidance proceeding. We held that the Trustee had to

prove the trademark was part of the bankruptcy estate before the full sale proceeds

could be awarded as compensatory damages for Defendants’ violation of the

automatic stay. We did not hold that the Trustee had to bring new avoidance claims

under 11 U.S.C. §§ 547-550, or otherwise replead those claims, in order to establish

the estate’s property interest for purposes of this § 362(a) proceeding. Unfortunately,

the bankruptcy court, the district court, and to a large extent the Trustee accepted
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Defendants’ position in this regard, which caused the proceedings on remand to

become seriously misdirected. 

Before the bankruptcy court on remand, the Trustee sought to avoid

Defendants’ mistaken contention by arguing that the bankruptcy court need not

address the avoidance issues at all. It was “implicit in the Eighth Circuit Opinion”

that the trademark was part of the bankruptcy estate, the Trustee asserted, because

there could be no violation of the automatic stay unless the proceeds were derived

from a sale of the estate’s property. This contention, too, was patently wrong. In the

first appeal, we squarely held that we did not need to decide whether the trademark

or its proceeds were property of the bankruptcy estate because Defendants violated

§ 362(a)(6) by taking post-petition action to collect their pre-petition judgment from

the trademark proceeds, and that violation “prejudiced the Trustee’s ability to litigate

a competing avoidance claim on behalf of all creditors.” 108 F.3d at 884. Because

the avoidance issues were therefore unresolved, we directed the Trustee to prove on

remand that the trademark was in fact property of the bankruptcy estate if he wished

to recover its proceeds as compensatory damages in this § 362(a) proceeding.

Faced with these competing erroneous contentions, the bankruptcy court

concluded that the Trustee is entitled to recover the sale proceeds because the

trademark and its proceeds were subject to an avoidance action by the Trustee that

“could have resulted in the return of the transferred assets.” The district court

concluded that this ruling “did not follow the mandate of the Eighth Circuit on

remand.” We agree. We reversed the prior award of the proceeds because the

Trustee had not established his right to recover the trademark’s value for the estate.

“The law of the case doctrine prevents relitigation of a settled issue in a case and

requires that courts follow decisions made in earlier proceedings to insure uniformity

of decisions, protect the expectations of the parties and promote judicial economy.”

Klein v. Arkoma Prod. Co., 73 F.3d 779, 784 (8th Cir.), cert. denied, 519 U.S. 815 &
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816 (1996); see In re Usery, 242 B.R. 450, 457-59 (8th Cir.BAP 1999), aff’d, 242

F.3d 378 (8th Cir. 2000), cert. denied, 533 U.S. 903 (2001).

Having rejected the bankruptcy court’s reasoning, the district court went on to

grant judgment in favor of Defendants because “the Trustee never established his

power to avoid the pre-petition transfer [of the trademark to FGR Management] and

his right to recover the trademark or its value for the estate.” If the record supported

this conclusion, we would affirm. But it does not. In his initial post-remand brief to

the bankruptcy court, the Trustee argued an alternative theory:

It is further clear from the record that the Trustee makes a prima

facie case and would be entitled to relief. . . . The Sheriff’s seizure [of

the trademark] resulted in an involuntary transfer of an interest in

satisfaction of an antecedent debt which allowed the creditor

(Defendants) to obtain more than it [sic] would have obtained in a

Chapter 7 proceeding. See 11 U.S.C. § 547. Additionally, if the Court

were to allow Defendants to assert that, in spite of their previous legal

positions [in state court], that the assignment to FGR was valid, such a

transfer is a preference based on the record. This is established as a

result of the status of FGR as an unsecured creditor in the amount of

$300,000 at the time of the filing of the bankruptcy Petition. The “lookback” period for such a transfer is one (1) year in the event the creditor

is an insider. . . There is no dispute that Daryl Dunn, President of FGR

Management, was a twenty-five percent (25%) shareholder and director

of the Debtor [and therefore an insider as defined in 11 U.S.C.

§ 101(31)]. In fact, in an Order in 1991, the Bankruptcy Court found

that Daryl Dunn, president of FGR Management, Inc., was a shareholder

and director of the Debtor. . . . [Thus,] the record evidence before this

Court provides sufficient evidentiary support for the Trustee’s prima

facie case under § 547.

Defendants did not address this argument in their responsive brief to the bankruptcy

court, nor in their brief as appellants to the district court. This alternative argument

to the bankruptcy court was consistent with our directions on remand, and the record
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supports its underlying assertions. Thus, the Trustee was not to blame when the

bankruptcy court violated the law of the case by failing to address this contention.

However, the Trustee did fail to pursue this sound alternative contention in

defending the bankruptcy court’s favorable decision on appeal to the district court,

and in arguing this appeal from the district court’s adverse decision. We have

discretion not to consider a legal theory abandoned on appeal. But in this case we

decline to exercise that discretion. It is apparent that the proceedings on remand were

misdirected by Defendants’ erroneous contention that the Trustee could only prove

his entitlement to the sale proceeds in a separate avoidance proceeding that is now

barred for various reasons. The Trustee erred in not attacking that contention headon, and by relying primarily on an argument squarely at odds with our prior opinion.

But we remanded for a determination of an appropriate equitable remedy, and the

equities strongly favor placing the trademark sale proceeds in the bankruptcy estate,

for the benefit of all creditors. In these circumstances, we are unwilling to sacrifice

the interests of those creditors merely because the Trustee made the correct argument

in the bankruptcy court, but failed to pursue that argument on appeal.

For the foregoing reasons, we conclude that the bankruptcy court properly

ordered Defendants to pay the Trustee $100,717.00, plus interest from October 15,

1991, to the date of payment, for the benefit of the bankruptcy estate. In reaching that

decision, the bankruptcy court denied the Trustee an additional award of costs and

attorney’s fees. That ruling was not an abuse of the court’s substantial remedial

discretion, particularly in light of the Trustee’s decision to dismiss his avoidance

claims many years ago, which has resulted in two unnecessary appeals. Accordingly,

the judgment of the district court is reversed, and the case is remanded with
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instructions to reinstate the bankruptcy court’s final Order dated June 29, 2000. The

parties shall bear their own costs and attorneys’ fees for this appeal. 

A true copy.

Attest:

CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.