Source: http://caselaw.findlaw.com/us-11th-circuit/1671158.html
Timestamp: 2017-09-26 20:11:57
Document Index: 128015174

Matched Legal Cases: ['§ 523', '§ 727', '§ 727', '§ 523', '§ 727', '§ 727', '§ 727', '§ 727', '§ 727', '§ 727', '§ 523', '§ 523', '§ 523', '§ 523', '§ 523', '§ 523', '§ 523', '§ 523', '§ 523', '§ 523', '§ 523', '§ 523', '§ 727', '§ 727', '§ 727', '§ 727', '§ 727', '§ 727', '§ 727', '§ 727', '§ 727', '§ 727', '§ 101', '§ 101', '§ 727', '§ 727', '§ 727', '§ 727', '§ 727', '§ 523', '§ 523', '§ 727', '§ 727', '§ 547']

IN RE: Harley N. KANE | FindLaw
IN RE: Harley N. KANE
IN RE: Harley N. KANE, Debtor. Harley N. Kane, Charles J. Kane, Plaintiffs–Appellants, v. Stewart Tilghman Fox & Bianchi Pa, Todd S. Stewart, P.A., William C. Hearon, P.A., Defendants–Appellees.
Before MARCUS, Circuit Judge, and PROCTOR* and EVANS, ** District Judges.Stephen B. Rakusin, Joseph Scott Van De Bogart, The Rakusin Law Firm, PA, Fort Lauderdale, FL, for Plaintiffs–Appellants. Charles Throckmorton, Kozyak Tropin & Throckmorton, PA, Coral Gables, FL, for Defendants–Appellees.
In a bankruptcy appeal, we review a bankruptcy court's fact-finding for clear error only. See In re Piazza, 719 F.3d 1253, 1260 (11th Cir.2013). “When the district court has affirmed the bankruptcy court's findings ․ we will apply the clearly erroneous doctrine with particular rigor.” In re Jennings, 533 F.3d 1333, 1338 (11th Cir.2008) (quoting In re Wines, 997 F.2d 852, 856 (11th Cir.1993)). Additionally, when we examine the facts adduced at trial, generally we will not disturb a bankruptcy court's credibility determinations. See In re Englander, 95 F.3d 1028, 1030 (11th Cir.1996) (requiring a reviewing court to “give due regard” to a bankruptcy court's credibility judgments); see also United States v. Peters, 403 F.3d 1263, 1270 (11th Cir.2005) (recognizing that “[a]ssessing witness credibility is uniquely the function of the trier of fact”). Here, to the extent the appellants dispute the relevant facts, they rely exclusively on evidence drawn from their own testimony, which the bankruptcy judge expressly disbelieved. Notably, at this stage, the appellants have provided us with no basis for disturbing the bankruptcy court's assessment of their credibility. Thus, in summarizing the essential facts developed over the course of a six-day hearing in the bankruptcy court, we accept as we must the bankruptcy court's factual findings in light of its credibility judgments.
The essential facts and procedural history are straightforward. The appellants, Charles Kane and his son, Harley Kane, are attorneys licensed to practice in Florida. They were the only partners in a law firm formed as a general partnership and known as Kane & Kane (the “Kane Firm”). Before 2002, the Kanes and the Kane Firm, in collaboration with attorneys Laura Watson, Darren Lentner, Amir Fleischer, and Gary Marks, and their respective law firms (all of the foregoing, together with the Kanes, the “PIP Lawyers”), filed thousands of claims (collectively, the “PIP Litigation”) in Florida on behalf of an estimated 441 healthcare provider clients (the “PIP clients”) against the Progressive Insurance Companies (“Progressive”) under the personal injury protection (“PIP”) provisions of many policies issued by Progressive. All of the PIP Lawyers, including the Kanes, were jointly retained by all of the plaintiffs in the PIP Litigation on a contingent-fee basis.
The PIP Lawyers jointly drafted a contingent fee agreement with the Stewart Firms. Initially, and in writing, the parties specifically limited the scope of the Stewart Firms' involvement to the Bad Faith Litigation alone. The parties agreed that the Stewart Firms would receive sixty percent of all attorneys' fees collected from the Bad Faith Litigation. Over time, the Stewart Firms and the PIP Lawyers entered into engagement agreements with approximately thirty-six plaintiffs in the Bad Faith Litigation. As Larry Stewart testified in bankruptcy court, however, the plan had always been to “add plaintiffs in ․ the future.” Thus, the bankruptcy court found that the Stewart Firms “effectively represented the interests of all of the clients in the PIP Litigation.” In fact, as the bankruptcy judge observed, the evidence “overwhelmingly” established that the Kanes and the Stewart Firms treated the PIP Litigation and the Bad Faith Litigation as being “inextricably intertwined.”
On June 16, 2004, the PIP Lawyers entered into an Amended Memorandum of Understanding (the “AMOU”), again without the knowledge or consent of the Stewart Firms. The AMOU arbitrarily allocated $1.75 million out of an aggregate settlement amount of $14 .455 million to settle the claims presented in the Bad Faith Litigation. Thus, under the AMOU, the Stewart Firms would receive $525,000 (thirty percent of $1.75 million). That sum was just a fraction of the amount offered only weeks before by Progressive during the April mediation. Tellingly, both the MOU and the AMOU included specific provisions pursuant to which the PIP Lawyers agreed to indemnify Progressive against any claims of the Stewart Firms for attorneys' fees.
Subsequently, on March 30, 2009, each of the Kanes and the Kane Firm filed voluntary Chapter 7 petitions with the bankruptcy court (the “Chapter 7 proceeding”). On July 31, 2009, the Stewart Firms filed adversary complaints against both Kanes, asserting claims for, inter alia: (1) exception from discharge of the state court judgment under 11 U.S.C. § 523(a)(6), which renders nondischargeable any debt “for willful and malicious injury by the debtor to another entity or to the property of another entity”; and (2) denial of discharge under § 727(a)(7) and § 727(a)(2), which when taken together bar a debtor's discharge where the debtor has transferred the property of an “insider” entity with the intent to hinder, delay, or defraud a creditor.1
On November 7, 9, and 10, 2011, and January 20, 23, and 24, 2012, the bankruptcy court conducted an extensive hearing to ventilate the appellees' adversary claims.2 Ultimately, the bankruptcy court entered judgment: (1) in favor of the Stewart Firms and against both Kanes for exception from discharge under § 523(a)(6); and (2) in favor of the Stewart Firms and against Harley (but not Charles) Kane for denial of discharge under § 727(a)(7), by application of § 727(a)(2) in a bankruptcy case concerning an insider. Additionally, although the Stewart Firms did not assert a denial of discharge claim under § 727(a)(6), see 11 U.S.C. § 727(a)(6) (barring discharge where a debtor refuses to obey a lawful order of the court), the bankruptcy court held that the issue had been tried by consent of all parties and ruled in favor of the Stewart Firms and against Harley (but not Charles) Kane on this claim too. The Kanes appealed these rulings to the district court.
“A Chapter 7 debtor is generally entitled to a discharge of all debts that arose prior to the filing of the bankruptcy petition.” In re Mitchell, 633 F.3d 1319, 1326 (11th Cir.2011) (citing 11 U.S.C. § 727(b)). But “this ‘fresh start’ policy is only available to the ‘honest but unfortunate debtor.’ “ Id. (quoting In re Fretz, 244 F.3d 1323, 1326 (11th Cir.2001)). “To ensure that only the honest but unfortunate debtors receive the benefit of discharge, Congress enacted several exceptions to § 727(b)'s general rule of discharge.” Id.
According to the terms of 11 U.S.C. § 523(a)(6), a bankruptcy court may prevent a debtor from discharging any debt “for willful and malicious injury by the debtor to another entity or to the property of another entity.” 11 U.S.C. § 523(a)(6). In reviewing a bankruptcy court's judgment, we independently examine the bankruptcy court's factual findings for clear error and review de novo the legal conclusions of both the bankruptcy and district courts. In re JLJ Inc., 988 F.2d 1112, 1116 (11th Cir.1993). A bankruptcy court's determination that an injury was “willful and malicious” is a factual finding that we review only for clear error. See Chrysler Credit Corp. v. Rebhan, 842 F.2d 1257, 1264 (11th Cir.1988), abrogated on other grounds by Grogan v. Garner, 498 U.S. 279 (1991). Moreover, in a bankruptcy court, a creditor must prove the applicability of § 523(a)(6) by a preponderance of the evidence. Grogan, 498 U.S. at 291. Thus, on appeal, we review de novo any legal interpretation of the terms “willful” and “malicious,” but we review only for clear error the bankruptcy court's finding that a creditor showed a willful and malicious injury by a preponderance of the evidence.
“A debtor is responsible for a ‘willful’ injury when he or she commits an intentional act the purpose of which is to cause injury or which is substantially certain to cause injury.” In re Jennings, 670 F.3d 1329, 1334 (11th Cir.2012) (quoting In re Walker, 48 F.3d 1161, 1165 (11th Cir.1995)) (alteration omitted); see Kawaauhau v. Geiger, 523 U.S. 57, 61–62 (1998) (holding that § 523(a)(6) requires the actor to intend the injury, not just the act that leads to the injury). Our sister circuits have disagreed about whether the term “substantial certainty” is a subjective standard, requiring a creditor to prove that a debtor actually knew that the act was substantially certain to injure the creditor, or an objective standard, requiring a creditor to show only that a debtor's act was in fact substantially certain to cause injury. Compare In re Ormsby, 591 F.3d 1199, 1206 (9th Cir.2010) (requiring creditor to show that “debtor believes that injury is substantially certain to result from his own conduct”), with In re Shcolnik, 670 F.3d 624, 630 (5th Cir.2012) (finding willfulness where creditor showed an “objective substantial certainty of harm”). This Court has never had occasion to parse that distinction, and we need not do so today. Even applying the more stringent, subjective standard, the evidence presented amply supports the bankruptcy court's finding that the Kanes intentionally committed acts that they knew were substantially certain to injure the Stewart Firms.
The bankruptcy court also properly determined that the injury was malicious. “ ‘Malicious' means wrongful and without just cause or excessive even in the absence of personal hatred, spite or ill-will. To establish malice, a showing of specific intent to harm another is not necessary.” In re Jennings, 670 F.3d at 1334 (internal quotation marks and citation omitted). Put differently, for the purposes of § 523(a)(6), “[m]alice can be implied.” In re Thomas, 288 F. App'x 547, 549 (11th Cir.2008). The bankruptcy court correctly applied this standard to find, based on a preponderance of the evidence, that each of the Kanes “acted not merely to pad his own pocket but with ill will toward the [Stewart Firms].”
In the first place, the bankruptcy court was free to imply malice because the preponderance of the evidence establishes that the Kanes committed acts that were “wrongful and without just cause.” The release of the bad faith claims, which the Stewart Firms had pressed, was one of the principal considerations for the Secret Settlement. Nevertheless, when Progressive asked the PIP Lawyers to exclude Larry Stewart from the settlement talks, the Kanes silently complied with this odd request and participated in the meeting anyway. Both Kanes assisted in crafting the one-sided Secret Settlement, though at least Charles Kane knew that the Stewart Firms were hoping to settle the Bad Faith Litigation for around $12 million. The Kanes also knew that Progressive had previously offered the Stewart Firms $3.5 million to settle only the Bad Faith Litigation, and that Larry Stewart had rejected that offer. Still, the Kanes and the other PIP Lawyers initially structured the settlement to allocate zero dollars to the Bad Faith Litigation (and ultimately allocated only $1.75 million to the Bad Faith Litigation). The bankruptcy court did not err in finding no just cause for this arbitrary allocation that enriched the Kanes and undeniably and materially injured the Stewart Firms.
Moreover, Charles Kane all but admitted that the challenged conduct was wrongful and unjustified. Thus, for example, he testified during the Chapter 7 hearing that he had never been comfortable with the indemnity provision in the MOU. The Kanes half-heartedly argue that circumstances justified their decision to marginalize the Stewart Firms, since Progressive allegedly refused to negotiate with Larry Stewart. But even Charles Kane acknowledged that this explanation was unpersuasive. From his testimony we learn that, even in the moment, the secrecy of the settlement did not “feel right.” In fact, according to his testimony, Charles Kane actually considered calling Larry Stewart at one point during the settlement negotiations. In light of all of the evidence, we cannot say the bankruptcy court clearly erred in observing that the Kanes' “after-the-fact attempt to explain away these alarming aspects of the Secret Settlement was patently selfserving.”
The Kanes argue, however, that there can be no showing of a “willful and malicious injury” under § 523(a)(6) without an independent and additional showing of an “intentional, tortious act .” We reject this claim for two reasons: first, the statute contains no language specifically calling for an independent showing of tortious conduct, see 11 U.S.C. § 523(a)(6) (excepting from discharge any debt “for willful and malicious injury by the debtor to another entity or to the property of another entity”); moreover, neither the Supreme Court nor this Court has ever introduced any such requirement.
According to the Kanes, the Supreme Court's decision in Kawaauhau, 523 U.S. 57, recognized an independent tort requirement implicit in § 523(a)(6). That claim is unpersuasive for additional reasons. The Kanes have misread Kawaauhau. It is true that the Supreme Court characterized the Eighth Circuit decision under review in Kawaauhau as having “confined” the § 523(a)(6) exception to debts “based on what the law has for generations called an intentional tort.” Kawaauhau, 523 U.S. at 60. In context, however, that observation, which the Supreme Court quoted directly from the Eighth Circuit's opinion, invokes the concept of an “intentional tort” for a limited purpose. The analogy to intentional torts merely emphasizes that § 523(a)(6) requires a creditor to show that a debtor “intended” the consequences of his actions:
We therefore think that the correct rule is that a judgment debt cannot be exempt from discharge in bankruptcy unless it is based on what the law has for generations called an intentional tort, a legal category that is based on the consequences of an act rather than the act itself. Unless the actor desires to cause consequences of his act, or ․ believes that the consequences are substantially certain to result from it, he or she has not committed an intentional tort.
Moreover, our binding precedent announced after Kawaauhau has made no mention of any independent tort requirement bundled into § 523(a)(6). In In re Jennings, a panel of this Court invoked the same standard for malice that we had applied at least twice before in the § 523(a)(6) context. See In re Jennings, 670 F.3d at 1334; In re Walker, 48 F.3d 1161; In re Thomas, 288 F. App'x 547; see also In re Williams, 337 F.3d 504, 510 (5th Cir.2003) (“[A] knowing breach of a clear contractual obligation that is certain to cause injury may prevent discharge under Section 523(a)(6), regardless of the existence of separate tortious conduct.”). The Kanes marshal no arguments compelling us to change our settled approach.
Harley Kane also appeals the bankruptcy court's denial of his discharge under: (1) the joint application of § 727(a)(7) and § 727(a)(2); and (2) § 727(a)(6).3 The bankruptcy court's § 727(a) rulings were premised on its finding that Harley Kane, on March 24, 2009, diverted certain funds from Kane Firm accounts to pay his own personal real estate taxes. Plainly, these transfers were in violation of the orders entered by the bankruptcy court on March 20, 2009, which dismissed the Kane Firm's Chapter 11 case effective March 30, 2009, and restricted all distributions from the Firm to the Kanes before that date. Because we affirm the bankruptcy court's determination that Harley Kane's discharge is barred pursuant to § 727(a)(7) and § 727(a)(2), we need not address the bankruptcy court's alternative holding that Kane's discharge would also be barred under § 727(a)(6). See In re Protos, 322 F. App'x 930, 932–33 (11th Cir.2009) (“A finding against the Appellant under any single subsection of section 727 is sufficient to deny him a discharge.” (citing 11 U.S.C. § 727 (using the disjunctive “or”))).
The court shall grant the debtor a discharge, unless ․ the debtor has committed any act specified in paragraph (2) ․ of this subsection, on or within one year before the date of the filing of the petition, or during the case, in connection with another case, under this title or under the Bankruptcy Act, concerning an insider.
The court shall grant the debtor a discharge, unless ․ the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of property under this title, has transferred, removed, destroyed, mutilated, or has permitted to be transferred, removed, destroyed, mutilated, or concealed ․ property of the debtor, within one year before the date of the filing of the petition; or ․ property of the estate, after the date of the filing of the petition.
Here, the bankruptcy court properly determined that Harley Kane's misconduct in the Kane Firm's Chapter 11 case barred his own discharge in Chapter 7 pursuant to § 727(a)(7) and § 727(a)(2) taken together. There is no dispute that the Kane Firm is an “insider” with respect to Harley Kane. The term “insider” under the Bankruptcy Code is defined at 11 U.S.C. § 101(31). Where, as here, the debtor is an individual, the term “insider” encompasses a “partnership in which the debtor is a general partner.” Id. § 101(31)(A)(ii). Harley Kane was one of two general partners in the Kane Firm; the Kane Firm is his insider. Moreover, Harley Kane caused the Kane Firm to pay his personal real estate taxes amounting to some $30,000 on March 24, 2009, only six days before he filed his personal bankruptcy petition. He does not dispute that a transfer occurred, nor does he challenge at this stage the bankruptcy court's finding that he transferred property of the Kane Firm.
On May 20, 2009, the record in the Chapter 11 proceeding revealed a telling colloquy between counsel and the bankruptcy court. Harley Kane's attorney asked the bankruptcy court to delay the effectiveness of the order dismissing the Chapter 11 petitions of Harley Kane, Charles Kane, and the Kane Firm, claiming that the Kanes needed time to unwind their practice. Counsel for the Kanes explained that, once the dismissal order took effect, the Kanes “would anticipate the garnishment” of the Kane Firm's accounts by the Stewart Firms, leaving the Kanes with “no funds to pay anything .” In response, counsel for the Stewart Firms expressed concern about the “bad faith dissipation of assets” that might occur in the interim. The bankruptcy court delayed the effectiveness of the order until March 30, but it authorized the Kane Firm to pay only those expenses incurred in the ordinary course of business. Furthermore, the court specifically prohibited distributions to the Kanes without a separate court order.
Two business days later, Harley Kane caused the Kane Firm to pay his personal real estate taxes. Notably, he never brought the tax payments to the attention of the bankruptcy court. Rather, the court only learned of the contested transfers when the Chapter 7 trustee for the Kane Firm filed an adversary proceeding to recover them. Moreover, when the tax collector agreed to settle the adversary proceeding by paying to the Chapter 7 trustee for the Kane Firm the entire amount received by the tax collector, the Kanes and the Kane Firm objected to the settlement. Against all of this evidence of bad intent, Harley Kane offers only his own testimony to argue that: (1) he did not know the transfer was prohibited, and (2) he contacted the bank to reverse the payments once he realized his mistake.4 But, the bankruptcy court found Harley Kane not to be credible. There was no clear error in the bankruptcy court's finding that Harley Kane “knew of” the bankruptcy court's May 20 ruling and “caused the Firm to pay his personal real estate tax obligations with the intent to hinder and delay the [Stewart Firms].” The evidence supports the inference drawn by the trial judge that Harley Kane—anticipating the garnishment of the Kane Firm's accounts—appropriated the Firm's funds while he still could. Thus, the bankruptcy court properly denied Harley Kane's discharge pursuant to § 727(a)(7) and § 727(a)(2) when read in concert.5
1. The Stewart Firms also brought separate adversary claims against the Kanes under 11 U.S.C. § 727(a)(2) (applied directly, not in conjunction with § 727(a)(7)), § 727(a)(5), and § 523(a)(4). The bankruptcy court adjudicated these claims in favor of the Kanes, and the Stewart Firms did not appeal.
2. With the consent of the parties, the bankruptcy court held a single hearing because the adversary proceedings were identical and based on the same underlying facts.
3. While § 523(a)(6) renders nondischargeable any debt specifically arising from a willful and malicious injury by the debtor, misconduct triggering § 727(a)(2)-(7) more broadly prevents a debtor from discharging otherwise dischargeable debts.
4. Harley Kane also claims that the tax payments were “preferential transfers,” which allegedly cannot form the basis of a claim under § 727(a)(7). See 11 U.S.C. § 547 (defining preferences). Like the district court, we decline to address this argument because Harley Kane did not raise it in his initial brief below. See Davis v. Coca–Cola Bottling Co. Consol., 516 F.3d 955, 972 (11th Cir.2008) (“It is well settled in this circuit that an argument not included in the appellant's opening brief is deemed abandoned.”).
5. On appeal, the Kanes also claim that the bankruptcy court improperly gave collateral estoppel effect in the Chapter 7 adversary proceeding to certain facts established in: (1) a related state court action, and (2) a related Chapter 11 proceeding. As the bankruptcy court repeatedly observed, however, the facts given preclusive effect served only to bolster the evidence directly adduced over the course of a consolidated six-day hearing in the Kanes' Chapter 7 cases. The bankruptcy court was careful to explain that the evidence established at the Chapter 7 hearing was independently sufficient to ground its legal conclusions. We agree, and thus we decline to address the Kanes' collateral estoppel argument.
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