United States District Court, D. Utah
In the Matter of ADAM L. PEEPLES and JENNIFER K. PEEPLES, Debtors.
SCOTT J. McCARDLE, an individual, and SCOTT J. McCARLE, trustee of the JACK AND RUTH McCARDLE TRUST, Defendants/Appellees/Cross-Appellants. ADRIAN J. LEE, an individual, and ANGELA LYNN NOYES LEE, an individual, Plaintiffs/Appellants/Cross-Appellees,
M. Warner Magistrate Judge.
MEMORANDUM DECISION AND ORDER AFFIRMING THE
BANKRUPTCY COURT'S ORDER AND JUDGMENT
N. Parrish United States District Court Judge.
the court are an appeal and cross-appeal from two orders of
the United States Bankruptcy Court for the District of Utah
(the “Bankruptcy Court”): (1) the Order and
Judgment Denying Plaintiffs' Motion for Summary Judgment,
Granting Defendants' Motion for Summary Judgment, and
Denying Defendants' Motion for Attorney's Fees (the
“Order”), and (2) the Order Denying
Defendants' Motion for Sanctions (the “Sanctions
Order”). Appellants Adrian and Angela Lee appeal the
Bankruptcy Court's denial of their motion for partial
summary judgment and the grant of Appellees' motion for
summary judgment. Appellee, Scott McCardle, in his individual
capacity and in his capacity as the trustee of the Jack and
Ruth McCardle Trust (the “Trust”), cross-appeals
the denial of his motion for attorney's fees and the
denial of his motion for sanctions. The court has
jurisdiction pursuant to 28 U.S.C. § 158(a)(1).
considering the record before it, the applicable law, and the
parties' arguments in their briefs and at the February
16, 2017 hearing on the matter, the court issues this
Memorandum Decision and Order AFFIRMING the Bankruptcy Court
in all respects.
AND PROCEDURAL BACKGROUND
Lees have two state court judgments against Adam and Jennifer
Peeples, the debtors in the underlying bankruptcy case. As
part of their effort to collect on these judgments, the Lees
obtained writs of garnishment directed to Mr. McCardle as
trustee of the Trust. The writs of garnishment concerned
property that the Lees allege belongs to Mr. Peeples as a
beneficiary of the Trust. In response to interrogatories on
the writs of garnishment, the Trust denied holding any of Mr.
Peeples's property, except for a few inconsequential
household items. The Trust maintains that Mr. Peeples's
beneficial interest in the Trust was terminated prior to the
Trust was created when Jack and Ruth McCardle executed a
Declaration of Trust on May 11, 1991. Jack and Ruth were the
trustees and primary beneficiaries of the Trust. Mr. McCardle
was to become the trustee upon the death of both Jack and
Ruth. In 1993, Jack and Ruth executed a memorandum amending
the Trust to provide that upon their deaths, the Trust would
be distributed 1/3 to Mr. McCardle, 1/3 to Patti Ann Peeples,
and 1/3 divided equally to Jack and Ruth's grandchildren,
one of whom is Mr. Peeples. Jack McCardle died on February 1,
2008. On September 17, 2008, Ruth McCardle executed a
memorandum again amending the Trust (the “2008
Memorandum”) to provide that after paying debts, the
Trust assets would be divided equally between Mr. McCardle
and Patti Ann Peeples, thus eliminating the
grandchildren's beneficial interests. Ruth McCardle died
in 2009. At that time, Mr. McCardle became trustee and was
obliged to distribute the Trust assets according to the terms
of the Trust, which he did.
the Trust denied holding any of Mr. Peeples's property,
Mr. Lee filed an action in the Third Judicial District Court
for the State of Utah (the “State Court Lawsuit”)
against Mr. McCardle, in both his individual capacity and as
trustee of the Trust alleging claims of undue influence,
rescission based on mistake, and two counts of breach of
fiduciary duty. Mr. Lee sought an order rescinding the 2008
Memorandum and “compensatory damages, ” including
“the amount of any overdue distributions that would
have otherwise been made to Adam L. Peeples in the absence of
the [2008 Memorandum] . . . up to the total amount of [the
writs of garnishment, ]” and “punitive damages in
the amount of three (3) times the amount of compensatory
damages” for breach of fiduciary duty by Mr. McCardle.
McCardle filed a motion for summary judgment in the State
Court Lawsuit. On March 23, 2014, the state court entered an
order granting Mr. McCardle's motion for summary
judgment, awarding attorney's fees and costs to Mr.
McCardle, and dismissing Mr. Lee's claims. The state
court order stated that it did not constitute final judgment
and instructed Mr. McCardle to submit a declaration of his
attorney's fees and costs. Mr. McCardle submitted a
Declaration of Attorney Fees and Costs and Proposed Final
Judgment on March 25, 2014, and a Supplemental Declaration of
Fees and Costs on April 11, 2014.
Peeples filed their bankruptcy petition on April 17, 2014.
Five days later, Mr. Lee filed a notice of bankruptcy stay in
the State Court Lawsuit and informed Mr. McCardle's
counsel that he believed the State Court Lawsuit was
automatically stayed under 11 U.S.C. § 362(a)(1). On May
7, 2014, Mr. McCardle filed an objection to Mr. Lee's
notice of stay. Mr. Lee responded to Mr. McCardle's
objection that same day, but the state court nevertheless
lifted the stay. On May 29, 2014, the state court entered
final judgment in favor of Mr. McCardle and an award of
attorney's fees and costs against Mr. Lee (the
“State Court Judgment”). The State Court Judgment
confirmed the earlier order granting Mr. McCardle's
motion summary judgment, dismissed Mr. Lee's claims with
prejudice, and entered attorney's fees and costs to Mr.
McCardle in the principal judgment amount of $41, 889.00 and
“all further attorney [sic] fees and costs incurred by
[Mr. McCardle] in collecting the Principal Judgment
22, 2014, the Lees commenced an adversary proceeding in the
Bankruptcy Court seeking a declaratory judgment that the
State Court Judgment was void ab initio, as well as
damages and sanctions against Mr. McCardle and his attorneys
for violating the stay. The Lees argued that when the Peeples
filed their bankruptcy petition, the State Court Lawsuit was
automatically stayed under 11 U.S.C. § 362(a)(1). The
Lees thereafter filed a motion for partial summary judgment
on their claim for declaratory relief. Mr. McCardle filed a
cross-motion for summary judgment seeking dismissal of the
adversary proceeding on the basis that the State Court
Lawsuit was not subject to the automatic stay provision of
§362(a)(1). Mr. McCardle also filed a motion for
sanctions under Fed.R.Bankr.P. 9011 and a motion for
attorney's fees, arguing that he was entitled to fees
based on (1) the bad faith exception to the American Rule;
(2) the Utah Uniform Trust Code; and (3) the State Court
14, 2016, the Bankruptcy Court denied the Lees' motion
for partial summary judgment, granted Mr. McCardle's
motion for summary judgment, and denied Mr. McCardle's
motion for attorney's fees. The Bankruptcy Court
separately denied Mr. McCardle's motion for sanctions.
The Lees filed a notice of appeal on July 18, 2016. Mr.
McCardle filed his notice of cross-appeal on August 1, 2016.
reviewing the summary judgment ruling of a bankruptcy court,
the district court reviews the case de novo,
applying the same legal standard used by the bankruptcy
court, namely Fed.R.Civ.P. 56(c). In re Stat-Tech
Int'l Corp., 47 F.3d 1054, 1057 (10th Cir.1995).
Under Fed.R.Civ.P. 56(c), “[s]ummary judgment is
appropriate where there is no genuine issue of material fact
and the moving party is entitled to judgment as a matter of
law.” Id. Additionally, the court “may
affirm the [bankruptcy] court for any reason supported by the
record.” In re Myers, 362 F.3d 667, 674 n.7
(10th Cir. 2004).
reviewing a bankruptcy court's denial of a motion for
attorney's fees, the court reviews the bankruptcy
court's decision “for an abuse of discretion, but
any statutory interpretation or other legal analysis
underlying the [bankruptcy] court's decision concerning
attorney's fees is reviewed de novo.”
In re Taylor, 478 B.R. 419, 423 (B.A.P. 10th Cir.
2012), aff'd, 737 F.3d 670 (10th Cir. 2013).
Further, any factual findings of the bankruptcy court are
reviewed for clear error. In re Hodes, 402 F.3d
1005, 1008 (10th Cir. 2005).
If An Action Is Dependent On (Or Based Upon) A Claim Against
The Debtor, The Action Falls Within The
Scope Of Section 362(A)(1).
Lees seek a declaration that the State Court Lawsuit was
subject to the automatic Stay defined by the Bankruptcy Code,
11 U.S.C. § 362(a)(1). Specifically, Mr. Lee argues that
the State Court Lawsuit was an “action . . . to recover
a claim against the debtor” and should have been stayed
upon the Peeples's bankruptcy filing. The Bankruptcy
Court held that the State Court Lawsuit did not fall within
the scope of Section 362(a)(1) as an action to recover a
claim against the debtor. The Lees argue that the Bankruptcy
Court erred by (1) failing to properly interpret the ...