Court Opinion

ID: 2745047
Source: CourtListenerOpinion
Date Created: 2014-10-23 15:03:15.462085+00
Date Added: 2024-06-11T13:04:10.585215
License: Public Domain

United States Bankruptcy Appellate Panel
                       For the Eighth Circuit
                   ___________________________

                           No. 14-6018
                   ___________________________

In re: Tri-State Financial, LLC, doing business as North Country Ethanol

                          lllllllllllllllllllllDebtor

                        ------------------------------

                     Thomas D. Stalnaker, Trustee

                   lllllllllllllllllllll Plaintiff - Appellee

                                      v.

George Allison; Frank Cernik; Phyllis Cernik; Chris Daniel; Amy Daniel;
                   Distefano Family LTD Partnership

                lllllllllllllllllllll Defendants - Appellants

     Mark E. Ehrhart; Robert G. Griffin; John Hoich; Denise Hoich

                       lllllllllllllllllllll Defendants

                  Timothy Jackes; James G. Jandrain;

                llllllllllllllllllllll Defendants - Appellants

                        American Interstate Bank

                       llllllllllllllllllllll Defendant

                   George Kramer; Bernie Marquardt
                   lllllllllllllllllllll Defendants - Appellants

Radio Engineering Industries, Inc.; Joseph Vacanti, Trustee of The Joseph and
                           Cynthia Vacanti Trust

                          lllllllllllllllllllll Defendants

                         Centris Federal Credit Union

                     lllllllllllllllllllll Defendant - Appellee

                           ------------------------------

                         Centris Federal Credit Union

      lllllllllllllllllllllCounterclaim and Cross-Claim Plaintiff - Appellee

                                        v.

                         Thomas D. Stalnaker, Trustee

              lllllllllllllllllllllCounterclaim Defendant - Appellee

  George Allison; Frank Cernik; Phyllis Cernik; Chris Daniel; Amy Daniel;
                     Distefano Family LTD Partnership

             lllllllllllllllllllllCross-Claim Defendants - Appellants

       Mark E. Ehrhart; Robert G. Griffin; John Hoich; Denise Hoich

                   lllllllllllllllllllllCross-Claim Defendants

   Timothy Jackes; James G. Jandrain; George Kramer; Bernie Marquardt

             lllllllllllllllllllllCross-Claim Defendants - Appellants

Radio Engineering Industries, Inc.; Joseph Vacanti, Trustee of The Joseph and
                           Cynthia Vacanti Trust

                   lllllllllllllllllllllCross-Claim Defendants
                     ___________________________

                             No. 14-6019
                     ___________________________

  In re: Tri-State Financial, LLC, doing business as North Country Ethanol

                            lllllllllllllllllllllDebtor

                          ------------------------------

                       Thomas D. Stalnaker, Trustee

                           lllllllllllllllllllll Plaintiff

                                         v.

George Allison, Jr.; Frank Cernik; Phyllis Cernik; Chris Daniel; Amy Daniel;
Distefano Family LTD Partnership; Mark E. Ehrhart; Robert G. Griffin; John
Hoich; Denise Hoich; Timothy Jackes; James G. Jandrain; American Interstate
                  Bank; George Kramer; Bernie Marquardt

                         lllllllllllllllllllll Defendants

                     Radio Engineering Industries, Inc.

                   lllllllllllllllllllll Defendant - Appellant

      Joseph Vacanti, Trustee of The Joseph and Cynthia Vacanti Trust

                         lllllllllllllllllllll Defendants

                        Centris Federal Credit Union

                    lllllllllllllllllllll Defendant - Appellee

                          ------------------------------

                        Centris Federal Credit Union
        lllllllllllllllllllllCounterclaim and Cross-Claim Plaintiff - Appellee

                                            v.

                           Thomas D. Stalnaker, Trustee

                     lllllllllllllllllllllCounter-Claim Defendant

    George Allison; Frank Cernik; Phyllis Cernik; Chris Daniel; Amy Daniel;
  Distefano Family LTD Partnership; Mark E. Ehrhart; Robert G. Griffin; John
Hoich; Denise Hoich; Timothy Jackes; James G. Jandrain; George Kramer; Bernie
                                  Marquardt

                     lllllllllllllllllllllCross-Claim Defendants

                        Radio Engineering Industries, Inc.

                lllllllllllllllllllllCross-Claim Defendant - Appellant

       Joseph Vacanti, Trustee of The Joseph and Cynthia Vacanti Trust

                      lllllllllllllllllllllCross-Claim Defendant
                         ___________________________

                                No. 14-6020
                        ___________________________

    In re: Tri-State Financial, LLC, doing business as North Country Ethanol

                               lllllllllllllllllllllDebtor

                             ------------------------------

                           Thomas D. Stalnaker, Trustee

                              lllllllllllllllllllll Plaintiff

                                            v.

    George Allison; Frank Cernik; Phyllis Cernik; Chris Daniel; Amy Daniel;
     Distefano Family LTD Partnership; Mark E. Ehrhart; Robert G. Griffin

                           lllllllllllllllllllll Defendants

                           John Hoich; Denise Hoich

                    lllllllllllllllllllll Defendants - Appellants

 Timothy Jackes; James G. Jandrain; American Interstate Bank; George Kramer;
Bernie Marquardt; Radio Engineering Industries, Inc.; Joseph Vacanti, Trustee of
                    The Joseph and Cynthia Vacanti Trust

                           lllllllllllllllllllll Defendants

                          Centris Federal Credit Union

                      lllllllllllllllllllll Defendant - Appellee

                             -----------------------------

                          Centris Federal Credit Union

       lllllllllllllllllllllCounterclaim and Cross-Claim Plaintiff - Appellee

                                         vs.

                          Thomas D. Stalnaker, Trustee

                    lllllllllllllllllllllCounterclaim Defendant

   George Allison; Frank Cernik; Phyllis Cernik; Chris Daniel; Amy Daniel;
    Distefano Family LTD Partnership; Mark E. Ehrhart; Robert G. Griffin

                    lllllllllllllllllllllCross-Claim Defendants

                           John Hoich; Denise Hoich

              lllllllllllllllllllllCross-Claim Defendants - Appellants

 Timothy Jackes; James G. Jandrain; George Kramer; Bernie Marquardt; Radio
Engineering Industries, Inc.; Joseph Vacanti, Trustee of The Joseph and Cynthia
                                  Vacanti Trust

                    lllllllllllllllllllllCross-Claim Defendants
                        ___________________________

                               No. 14-6025
                       ___________________________

   In re: Tri-State Financial, LLC, doing business as North Country Ethanol

                              lllllllllllllllllllllDebtor

                            ------------------------------

                         Thomas D. Stalnaker, Trustee

                      lllllllllllllllllllll Plaintiff - Appellee

                                          v.

  George Allison; Frank Cernik; Phyllis Cernik; Chris Daniel; Amy Daniel;
 Distefano Family LTD Partnership; Mark E. Ehrhart; Robert G. Griffin; John
          Hoich; Denise Hoich; Timothy Jackes; James G. Jandrain

                           lllllllllllllllllllll Defendants

                           American Interstate Bank

                     lllllllllllllllllllll Defendant - Appellant

George Kramer; Bernie Marquardt; Radio Engineering Industries, Inc.; Joseph
         Vacanti, Trustee of The Joseph and Cynthia Vacanti Trust

                           lllllllllllllllllllll Defendants

                         Centris Federal Credit Union

                     lllllllllllllllllllll Defendant - Appellee
                             ------------------------------

                          Centris Federal Credit Union

             lllllllllllllllllllllCounterclaim and Cross-Claim Plaintiff

                                          v.

                          Thomas D. Stalnaker, Trustee

                     lllllllllllllllllllllCounterclaim Defendant

    George Allison; Frank Cernik; Phyllis Cernik; Chris Daniel; Amy Daniel;
  Distefano Family LTD Partnership; Mark E. Ehrhart; Robert G. Griffin; John
Hoich; Denise Hoich; Timothy Jackes; James G. Jandrain; George Kramer; Bernie
 Marquardt; Radio Engineering Industries, Inc.; Joseph Vacanti, Trustee of The
                       Joseph and Cynthia Vacanti Trust

                     lllllllllllllllllllllCross-Claim Defendants
                                      ____________

                  Appeal from United States Bankruptcy Court
                     for the District of Nebraska - Omaha
                                ____________

                           Submitted: August 27, 2014
                             Filed: October 23, 2014
                                 ____________

Before KRESSEL, SCHERMER, and NAIL, Bankruptcy Judges.
                          ____________

NAIL, Bankruptcy Judge.

      James G. Jandrain, Distefano Family Ltd. Partnership, George Allison, Jr.,
Frank and Phyllis Cernik, Chris and Amy Daniel, Timothy Jackes, George Kramer,
and Bernie Marquardt (collectively, "Jandrain, et al.") appeal the May 22, 2014
judgment of the bankruptcy court determining certain funds were property of the
bankruptcy estate, awarding Trustee Thomas D. Stalnaker certain fees and expenses,
and surcharging those fees and expenses against the funds the bankruptcy court
determined were property of the bankruptcy estate. Radio Engineering Industries,
Inc. ("REI"), John Hoich and Denise Hoich, and American Interstate Bancorporation
("American Interstate") each separately appeal the same judgment. We reverse and
remand for further proceedings consistent with this opinion.

                                   BACKGROUND

       In June and July 2003, a group of investors referred to as "the Omaha Group"
transferred $2,000,000.00 to Tri-State Financial, LLC. Over the following year, Tri-
State Financial transferred $793,654.42 of those funds to Tri-State Ethanol Company,
LLC, which was in chapter 11 bankruptcy in the District of South Dakota, and
$1,190,000.00 of those funds to one of Tri-State Ethanol's vendors.

      In July 2004, Tri-State Ethanol's case was converted to chapter 7, and John S.
Lovald was appointed chapter 7 trustee. Tri-State Financial filed a request for
payment of an administrative expense and a proof of claim seeking recovery of both
the $793,654.42 and the $1,190,000.00. In July 2006, Lovald paid Tri-State Financial
the $793,654.42. Tri-State Financial distributed the entire sum to the Omaha Group.

      In November 2008, Tri-State Financial filed a petition for relief under
chapter 11 of the bankruptcy code. In January 2009, Stalnaker was appointed chapter
11 trustee. Sometime thereafter, Lovald paid Stalnaker the $1,190,000.00.

       In September 2010, Stalnaker filed an adversary proceeding to determine
ownership of the $1,190,000.00. Stalnaker claimed the funds were property of the
bankruptcy estate. Centris Federal Credit Union ("Centris") agreed the funds were
property of the bankruptcy estate, but it claimed the funds were subject to its blanket
security interest in Tri-State Financial's assets. Jandrain, et al. claimed the funds were
held in trust by Tri-State Financial and were thus not property of the estate. The

                                           -8-
matter was tried, and on February 13, 2013, the bankruptcy court entered an order:
(1) determining the funds were not property of the bankruptcy estate; (2) determining
the bankruptcy estate was entitled to be reimbursed both for the legal fees and
expenses it incurred in litigating and eventually settling with Lovald and for the
attorney fees, costs, and expenses it incurred in the adversary proceeding; and (3)
outlining the procedure for Stalnaker to request reimbursement for those fees, costs,
and expenses.

       Stalnaker requested $35,944.45 for the legal fees and expenses the bankruptcy
estate incurred in litigating and eventually settling with Lovald and $61,886.90 for
the attorney fees, costs, and expenses the bankruptcy estate incurred in the adversary
proceeding. No party in interest objected to the amounts requested or to the
$35,944.45 being surcharged against the $1,190,000.00. However, several parties in
interest, including Jandrain, et al., objected to the $61,886.90 being surcharged
against the $1,190,000.00. The matter was heard, and on May 21, 2013, the
bankruptcy court entered an order allowing the amounts requested and surcharging
both amounts against the $1,190,000.00.

      On that same date, the bankruptcy court entered a judgment incorporating the
terms of its February 13, 2013 and May 21, 2013 orders.1 Stalnaker and Centris
timely filed a notice of appeal. Jandrain, et al. timely filed a notice of cross-appeal.

      On appeal, the parties identified a plethora of issues they believed were
presented by the appeal and the cross-appeal. We boiled those issues down to two:
(1) whether the bankruptcy court erred in concluding the $1,190,000.00 was not
property of the bankruptcy estate; and (2) whether the bankruptcy court erred in
surcharging Stalnaker's attorney fees, costs, and expenses against the $1,190,000.00.

      1
      According to the judgment, the amounts awarded were $35,944.45 and
$61,286.90.

                                          -9-
After reviewing the record and considering the parties' arguments, we determined any
consideration of either issue would have been premature.

            In their post-trial brief, Stalnaker and Centris argued, inter
            alia, "[Tri-State Financial] is judicially estopped from
            having any intent or position imputed upon it other than the
            [$1,190,000.00] belong[s] to [Tri-State Financial]."
            Stalnaker and Centris also argued a "sweeping release"
            executed in August 2006 by all but two members of the
            Omaha Group–Jandrain and Radio Engineering Industries,
            Inc.–"includes any claimed obligation of [Tri-State
            Financial] to turn over the [$1,190,000.00] to [those
            parties.]" Finally, Stalnaker and Centris argued the Omaha
            Group "should be estopped from asserting ownership to the
            [$1,190,000.00]." Both the bankruptcy court's February
            13, 2013 order and its May 21, 2013 order are silent with
            respect to these arguments.

            We could, perhaps, interpret the bankruptcy court's silence
            as an implicit rejection of Stalnaker and Centris's
            arguments and render an opinion on that basis. However,
            we believe the better course is to afford the bankruptcy
            court an opportunity to consider those arguments, if it did
            not in fact do so, and explain its reasoning for accepting or
            rejecting them.

Stalnaker v. Allison (In re Tri-State Financial, LLC), 512 B.R. 209, 211-12 (B.A.P.
8th Cir. 2014) ("Stalnaker I"). We therefore reversed and remanded the matter for
further proceedings. Id. at 212.

                                        -10-
        On remand, the bankruptcy court2 reconsidered its earlier ruling, and on May
22, 2014, it entered an order determining the $1,190,000.00 was in fact property of
the bankruptcy estate and was subject to Centris's blanket security interest. The
bankruptcy court's order specifically left unaffected its May 21, 2013 order awarding
Stalnaker $35,944.45 for the legal fees and expenses the bankruptcy estate incurred
in litigating and eventually settling with Lovald and $61,886.90 for the attorney fees,
costs, and expenses it incurred in the adversary proceeding and surcharging both
amounts against the $1,190,000.00.

      On that same date, the bankruptcy court entered a judgment incorporating the
terms of its May 22, 2014 and May 21, 2013 orders.3 Jandrain, et al., REI, the
Hoiches, and American Interstate each timely filed a notice of appeal.

                             STANDARD OF REVIEW

      We review the bankruptcy court's findings of fact for clear error and its legal
conclusions de novo. Islamov v. Ungar (In re Ungar), 633 F.3d 675, 678-79 (8th Cir.
2011).

                                   DISCUSSION

      The parties again identify a plethora of issues they believe are presented by the
several appeals. Those issues may be condensed and restated as follows: (1) whether
the bankruptcy court exceeded its mandate on remand; (2) whether the bankruptcy
court disregarded the law of the case; (3) whether the bankruptcy court failed to

      2
        In January 2014, while Stalnaker I was still pending, the bankruptcy judge
originally assigned to this case retired. In February 2014, the case was assigned to
a different judge.
      3
      According to the judgment, the amounts awarded were $35,944.45 and
$61,286.90.

                                         -11-
comply with Fed.R.Civ.P. 63 and Fed.R.Bankr.P. 9028; (4) whether the bankruptcy
court erred in concluding the $1,190,000.00 was property of the bankruptcy estate;
and (5) whether the bankruptcy court erred in surcharging Stalnaker's attorney fees,
costs, and expenses against the $1,190,000.00.

       With respect to the first issue, Jandrain, et al. argue in reconsidering its earlier
ruling that the $1,190,000.00 was not property of the estate, the bankruptcy court
failed to follow our mandate on remand. We disagree.

       The question of whether the bankruptcy court exceeded our mandate is a
question of law and is thus subject to de novo review. Gourley v. Usery (In re Usery),
242 B.R. 450, 456 (B.A.P. 8th Cir. 1999) (citation therein), aff'd 242 F.3d 378 (8th
Cir. 2000).

              When a case has been decided . . . on appeal and remanded,
              every question decided by the appellate court, whether
              expressly or by necessary implication, is finally settled and
              determined, thus creating a mandate for the lower court.
              The mandate of the appellate court is completely
              controlling as to all matters within its compass, but on
              remand the trial court is free to pass upon any issue that
              was not expressly or impliedly disposed of on appeal.

Id. at 457 (citations omitted) (first emphasis in original; remaining emphasis added).

       In Stalnaker I, we did not address–much less expressly or impliedly dispose
of–either of the issues framed by the parties to that appeal. To the contrary, we stated
unambiguously "any consideration of either issue is premature." Stalnaker, 512 B.R.
at 211. Consequently, on remand, the bankruptcy court was free to pass upon those
issues.

                                           -12-
      With respect to the second issue, Jandrain, et al. and REI argue in
reconsidering its earlier ruling that the $1,190,000.00 was not property of the estate,
the bankruptcy court disregarded the law of the case. Again, we disagree.

       Under the law-of-the-case doctrine, "when a court decides upon a rule of law,
that decision should continue to govern the same issues in subsequent stages in the
same case." Alexander v. Jensen-Carter, 711 F.3d 905, 909 (8th Cir. 2013) (citations
therein). The doctrine "applies to both appellate decisions and [trial] court decisions
that have not been appealed." Id. (citation therein).

       It is this latter point that precludes application of the law-of-the-case doctrine
in this case. The bankruptcy court's earlier decision was appealed. On remand, "[a]
lower court is not bound by its own earlier rulings unless explicitly or implicitly
adopted by the appellate court." Usery, 242 B.R. at 457 (citations therein). In
remanding the matter, we did not explicitly or implicitly adopt any of the bankruptcy
court's rulings. Consequently, the bankruptcy court was not bound by its earlier
rulings. And this is so, even though the case was transferred to a different judge
around the time of our remand. Id. at n.7 (citation therein).

       With respect to the third issue, American Interstate argues following the
retirement of the bankruptcy judge originally assigned to this case, the bankruptcy
court did not comply with Fed.R.Civ.P. 63 and Fed.R.Bankr.P. 9028. We agree.

      Pursuant to Rule 63,

             If a judge conducting a hearing or trial is unable to
             proceed, any other judge may proceed upon certifying
             familiarity with the record and determining that the case
             may be completed without prejudice to the parties. In a
             hearing or a nonjury trial, the successor judge must, at a
             party's request, recall any witness whose testimony is
             material and disputed and who is available to testify again

                                          -13-
               without undue burden. The successor judge may also
               recall any other witness.

Fed.R.Civ.P. 63.4

       In this case, the bankruptcy court did not certify familiarity with the record and
determine the case could be completed without prejudice to the parties before
entering its judgment. The bankruptcy court's familiarity with the record is
abundantly demonstrated by its detailed recitation of the facts in its decision.
However, without the requisite certification, there is no suggestion that the parties
had any reason to believe a decision was imminent and the time within which they
might exercise their right under Rule 63 and Rule 9028 to ask the bankruptcy court
to recall witnesses whose testimony was material and disputed was passing.5 Under
the circumstances, we will remand the matter to allow the bankruptcy court to comply
with Rule 63 and Rule 9028.

      In reaching this conclusion, we are mindful of the opinion of the Eighth Circuit
Court of Appeals in Higginbotham v. The Corner Stone Bank (In re Higginbotham),
917 F.2d 1130 (8th Cir. 1990), in which the court of appeals recognized the
possibility that a party could waive its rights under Rule 9028. However, in that case,
the court of appeals was considering an earlier version of Rule 9028 that did not
require the bankruptcy court to certify familiarity with the record or afford the parties
an opportunity to ask the bankruptcy court to recall any witnesses. That earlier
version, as quoted by the court of appeals, provided:

      4
          Rule 63 applies in bankruptcy cases. Fed.R.Bankr.P. 9028.
      5
       No other party to this appeal responded to American Interstate's argument
regarding Rule 63 and Rule 9028. In any event, the record in this case is voluminous,
and the parties could reasonably have expected it would take some time for the
bankruptcy court to familiarize itself with the record.

                                          -14-
             If by reason of death, sickness or other disability, a judge
             before whom an involuntary petition or an adversary
             proceeding has been tried or a hearing conducted is unable
             to perform the duties to be performed by the court under
             these rules after a verdict is returned, or findings of fact
             and conclusions of law or a memorandum is filed, then any
             other judge regularly sitting in or assigned to the court in
             which the trial or hearing was conducted may perform
             those duties; but if the other judge is satisfied that he
             cannot perform those duties because he did not preside or
             for any other reason, he may in his discretion grant a new
             trial.

Id. at 1131-32 (without emphasis in original).

       Moreover, in that case, the party complaining about the bankruptcy court's
failure to comply with Rule 9028 had sought affirmative relief from the successor
judge, thereby demonstrating, at least implicitly, "a willingness to accept that judge's
authority to decide the case." Id. at 1133. In this case, Centris filed a motion asking
the bankruptcy court to accept briefs summarizing the parties' respective positions
regarding the issues of estoppel and release discussed in Stalnaker I. Thus, Centris
might be said to have implicitly demonstrated a willingness to accept the bankruptcy
court's authority to decide the case on the record it inherited. However, the same
cannot be said about American Interstate or any of the other parties.

       We are also mindful of the opinion of the Eighth Circuit Court of Appeals in
Littleton v. Pilot Travel Centers, LLC, 568 F.3d 641 (8th Cir. 2009), in which the
court of appeals stated a party who does not make a Rule 63 request to recall
witnesses "has no right to sit back and await decision of the case before objecting to
the procedure." Id. at 648 (quoting Higginbotham, 917 F.2d at 1133). However, we
cannot tell from that opinion whether the successor judge in that case made the
requisite certification.

                                         -15-
       In any event, in this case, American Interstate cannot be said to have sat back
and awaited a decision before objecting to the procedure, because, as noted above,
there is no suggestion the parties had any reason to believe a decision was imminent.
There is likewise no suggestion there was any "procedure" to which American
Interstate might have objected. The bankruptcy court simply entered its judgment,
at which point it was too late for American Interstate–or any other party–to object.

       In light of our decision to remand this matter, we do not reach the remaining
issues. We are not expressly or impliedly disposing of those remaining issues, and
on remand the bankruptcy court is again free to pass upon them. Likewise, we are not
explicitly or implicitly adopting any of the bankruptcy court's rulings regarding those
remaining issues, and on remand the bankruptcy court is still not bound by its earlier
rulings regarding them.

                                   CONCLUSION

      For the foregoing reasons, we again reverse and remand for further proceedings
consistent with this opinion.

                                         -16-