United States District Court, D. Utah
ELLIS-HALL CONSULTANTS, LLC; a Utah limited liability company; and ANTHONY HALL, an individual, Plaintiffs,
GEORGE B. HOFMANN IV, an individual; PARSONS KINGHORN HARRIS NKA COHNE KINGHORN, P.C., a Utah professional corporation; MATTHEW M. BOLEY, an individual; KIMBERLEY L. HANSEN, an individual; GARY E. JUBBER, an individual; and DAVID R. HAGUE, an individual, FABIAN & CLENDENIN NKA FABIAN VANCOTT, P.C., a Utah professional corporation, Defendants.
MEMORANDUM DECISION AND ORDER
Benson United States District Judge
the court is Plaintiffs' Motion to Alter or Amend the
Court's January 18, 2017, Order. (Dkt. No. 70.) The court
has reviewed the briefing of the parties, other relevant
filings, and applicable law. Pursuant to civil rule 7-1(f) of
the United States District Court for the District of Utah
Rules of Practice, the Court elects to determine the motion
on the basis of the written memoranda and finds that oral
argument would not be helpful or necessary. DUCivR 7-1(f).
Pursuant to a recent Tenth Circuit decision, In re
Renewable Energy Dev. Corp., 792 F.3d 1274 (10th Cir.
2015) (“In re REDCO”), brought to the
court's attention in the reply briefing submitted by
Fabian & Clendenin, David R. Hague, and Gary E. Jubber
(the “Fabian Defendants”) (Dkt. No. 36), the
court reconsiders its previous ruling and denies
Defendants' motions to dismiss and for judgment on the
pleadings on Barton doctrine grounds.
their Amended Complaint, Plaintiffs allege five causes of
action: 1) Breach of Fiduciary Duty, 2) Malpractice, 3)
Aiding and Abetting Breach of Fiduciary Duty, 4) Breach of
Contract, and 5) Unjust Enrichment/ Disgorgement. (Dkt. No.
16 at ¶ 264-316.) Plaintiffs rely on actions taken by
the bankruptcy trustee of the REDCO estate, Defendant George
Hofmann (“Hofmann”), and the actions of the
counsel he appointed as special counsel to the bankruptcy
trustee, the Fabian Defendants, to form a basis for their
claims. (Id. at ¶ 70-263.) Plaintiffs assert
that Hofmann was retained as their attorney prior to his
appointment as bankruptcy trustee of the REDCO estate and
during his tenure as trustee. (Id. at ¶ 16-69.)
Plaintiffs then allege that Hofmann breached his duties to
Plaintiffs by failing to disclose conflicts, misappropriating
confidential information, and failing to act in
Plaintiffs' best interests, as their attorney.
(Id. at ¶ 70-263.)
place particular emphasis on a series of alleged
representations and transactions beginning in January 2012,
in which Hofmann informed Plaintiffs of several REDCO estate
assets, including eighteen option lease agreements, for
development of a wind energy project in San Juan County,
Utah. (Id. at ¶ 96-97.) Hofmann told Plaintiffs
that some of the options were “bad” (that is, the
debtor, REDCO had failed to make periodic payments or take
other steps necessary to keep the options valid) and some
were “good.” (Id. at ¶ 98, 103.)
Hofmann advised Plaintiffs to attempt to sign the
“bad” option landowners to new options.
(Id. at ¶ 100.)
further advised Plaintiffs to travel to Monticello, Utah, to
examine the “good” options. (Id. at
¶ 105-106.) Plaintiffs did, and they provided
information to Hofmann regarding their findings.
(Id.) Hofmann then used the information provided by
Plaintiffs against Plaintiffs in the bankruptcy bidding
January 23, 2012, Hofmann offered to sell both the
“good” and “bad” option leases to
Plaintiffs for $3, 000.00. (Id. at ¶ 108.)
Plaintiffs accepted and wrote a check for the purchase price.
(Id. at ¶ 113.) However, Hofmann had already
sold the “good” options on January 10, 2012, to
Sustainable Power Group (“SPG”), a company
allegedly affiliated with an owner and debtor of REDCO.
(Id. at ¶ 125.) Unbeknownst to Plaintiffs, the
sale was approved by the bankruptcy court in late January
2012. (Id. at ¶ 141-149.) Hofmann failed to
return Plaintiffs' purchase money until March 16, 2012.
(Id. at ¶ .) Unknown to Hofmann at the time,
Plaintiffs later purchased the “good” options
directly from SPG. (Id. at ¶ 153.) When SPG
realized the full value of the options, SPG attempted to get
the assets back. (Id. at ¶ 161.)
Plaintiffs refused to return the assets to SPG, Hofmann
demanded that Plaintiffs return the “good”
options to the estate and extorted Plaintiffs by threatening
to sue them for violating the automatic stay if they did not.
(Id. at ¶ 164-165, 175.) When Plaintiffs
refused, Hofmann sent a cease and desist letter to
Plaintiffs, then hired the Fabian Defendants to act as
special counsel for the trustee to bring suit against
Plaintiffs for violation of the automatic stay. (Id.
at ¶ .) Plaintiffs alleged that both Hofmann and Fabian
had conflicts arising from their former or current
representations of Plaintiffs and Ms. Ceruti. (Id.
at ¶ 181, 189-191.) Nevertheless, on April 4, 2012, the
Fabian Defendants, on behalf of Hofmann, moved the bankruptcy
court for an Order to Show Cause why Plaintiffs should not be
held in contempt for violations of the automatic stay.
(Id. at ¶ 194.) The Order to Show Cause issued
following a hearing before the bankruptcy court on April 12,
2012. (Id. at ¶ 207.)
seek only money damages from Defendants in their prayer for
relief, and do not request any form of injunctive relief with
respect to bankruptcy estate assets. (Id. at ¶
275, 285, 296, 305, 312-316.) Plaintiffs were not parties to
the REDCO bankruptcy proceedings; that is, Plaintiffs have
never been either debtors or creditors to the bankruptcy, and
were only involved in the bankruptcy proceedings because of
their preexisting relationship with Hofmann. (Id. at
¶ 1-2, 16-69.)
addition to the facts alleged by Plaintiffs, the facts and
reasoning of a recent Tenth Circuit decision, In re
REDCO, must be considered for the appropriate
disposition of the motion now before the court. 792 F.3d 1274.
In re REDCO involved almost identical parties to
those involved here,  and analyzed claims virtually identical to
those in this case. In In re REDCO, Plaintiffs and
Ms. Ceruti alleged that Hofmann “breached professional
duties due them because of conflicting obligations he owed to
the bankruptcy estate.” Id. at 1276. The court
determined that the plaintiffs, pursuant to an analysis of
the public rights doctrine and applicable law, were entitled
to a jury trial before an Article III judge on their claims.
Id. at 1277-1284. For the court, Judge Gorsuch
True, the plaintiffs claim they once enjoyed an
attorney-client relationship with a former bankruptcy
trustee. True, they now allege the former trustee breached
professional duties due them because of conflicting
obligations he owed the bankruptcy estate. But the plaintiffs
seek recovery only under state law and none of their claims
will be necessarily resolved in the bankruptcy claims
allowance process. And to know that much is to know this case
cannot be resolved in bankruptcy court.
Id. at 1276-77. This court views the facts and law
of this case in light of the Tenth Circuit's recent
ruling in this nearly identical case.