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Ellis-Hall Consultants, LLC v. Hofmann

United States District Court, D. Utah

April 11, 2017

ELLIS-HALL CONSULTANTS, LLC; a Utah limited liability company; and ANTHONY HALL, an individual, Plaintiffs,
v.
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

          Dee Benson United States District Judge

         Before 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.

         Plaintiffs' Claims

         In 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[1] 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.)

         Plaintiffs 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.)

         Hofmann 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 proceedings. (Id.)

         On 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.)

         When 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.)

         Plaintiffs 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.)

         In re REDCO

         In 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.[2] 792 F.3d 1274. In re REDCO involved almost identical parties to those involved here, [3] 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 explained:

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.

         Barton ...


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