Roussel v. Clear Sky Properties LLC et al

Filing 16

ORDER: For reasons stated in this order and the Court's order entered on December 13, 2013 in related case In Re Roussel, No. 4:13CV0055 SWW, the Bankruptcy Court's original decision on the issue of dischargeability under 11 U.S.C. §§ 523(a)(4) and 523(a)(6) is reversed, and the decision on remand is affirmed. Signed by Judge Susan Webber Wright on 8/14/2015. (ks)

IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF ARKANSAS
LITTLE ROCK DIVISION

IN RE: BLAKE ROUSSEL

CLEAR SKY PROPERTIES LLC
and LuANN DEERE
Plaintiffs
V.
BLAKE ROUSSEL
Defendant

*
*
*
*
*
*
*

*
*
*
*
*
*
*
*
*
*
*

Bankruptcy Case No: 4:11BK14470

Adversary Proceeding No: 4:11AP01266
Appeal/
District Court No: 4:15CV00212 SWW

ORDER
Clear Sky Properties LLC (“Clear Sky”) and LuAnn Deere (“Deere”) commenced this
adversary proceeding, asserting that a state judgment for breach of fiduciary duty owed by Blake
Roussel (“Roussel”) is nondischargeable in bankruptcy under 11 U.S.C. §§ 523(a)(4) and
523(a)(6). The Bankruptcy Court1 declined to apply collateral estoppel to the state judgment and
found that only a portion of Roussel’s debt was nondischargeable. Clear Sky and Deere
appealed, and by order entered December 30, 2013, this Court reversed and found that Roussel’s

1

The late Honorable James G. Mixon, United States Bankruptcy Judge for the Eastern
District of Arkansas.

entire debt for breach of fiduciary duty is nondischargeable under 11 U.S.C. §§ 523(a)(4) and
523(a)(6).2 Additionally, the Court remanded the case for a determination of whether any
portion of Roussel’s related debt for attorney fees and costs is also nondischargeable. Roussel
took a direct appeal, but the Eighth Circuit determined that this Court’s order reversing in part
and remanding did not qualify as a final, appealable order, and it dismissed the appeal for lack of
jurisdiction. See In re Roussel, 769 F.3d 574, 578 (8th Cir. 2014).
On remand, the Bankruptcy Court3 determined that the attorney fees and costs awarded to
Clear Sky in state court are nondischargeable. Roussel now appeals that decision and also asks this
Court to vacate its previous finding that Roussel’s entire debt arising from breach of fiduciary duty is
nondischargeable. After careful consideration, and for reasons that follow, the Bankruptcy Court’s
decision on remand is affirmed, and this Court’s previous ruling, that Roussel’s judgment debt for
breach of fiduciary duty is nondischargeable under §§ 523(a)(4) and 523(a)(6), remains.

I.
In 2006, Roussel and Deere formed Clear Sky for the purpose of operating a realty
business in Conway, Arkansas. In 2008, while Roussel was still a member of Clear Sky, he
opened a real estate office in Conway that competed with Clear Sky. Subsequently, Clear Sky
and Deere sued Roussel in state court, where a jury found that he breached fiduciary duties owed
to Clear Sky and Deere and that he breached contractual duties owed to Deere. Clear Sky’s

2

In Re Roussel, No. 4:13CV0055 SWW, 504 B.R. 510 (E.D. Ark. 2013).

3

Following the death of the Honorable James G. Mixon, this case was reassigned to the
Honorable Audrey R. Evans, United States Bankruptcy Judge for the Eastern District of
Arkansas. Following Judge Evans’s retirement, the case was reassigned to the Honorable Judge
Phyllis M. Jones, United States Bankruptcy Judge for the Eastern District of Arkansas, who
authored the final order on remand.
2

damage award for breach fiduciary duty totaled $300,000, and Deere’s damage awards totaled
$58,800 for breach of fiduciary duty and $40,000 for breach of contract.
After entry of the state court judgment, Clear Sky and Deere jointly moved for
$82,611.25 in attorney fees and $4,912 in costs. The prevailing plaintiffs argued that both Clear
Sky’s operating agreement, which Roussel had entered, and Ark. Code Ann. § 16-22-308
permitted the trial court to award them fees and costs. Clear Sky’s operating agreement provided
that in “any dispute arising between or among the members, the losing party shall pay to the
prevailing party reasonable costs and expenses incurred in connection . . . with any . . . suit . . . as
determined by the . . . court . . . . ”4 Arkansas Code § 16-22-308, on the other hand, permits a
reasonable fee award to a prevailing party in a breach of contract action.
Importantly, Clear Sky and Deere argued that Deere’s breach of contract claim was
inextricably intertwined with the plaintiffs’ breach of fiduciary duty claims, stating:
The facts proffered and the discovery necessary on the other claims was largely the
same as those related to the breach of contract, including the breach of the duty of
good faith and fair dealing. The facts and discovery on all claims necessary
overlapped. In fact the jury instruction for damages associated with the breach of
fiduciary duty claim included one category that was also included on the damages
instruction for breach of contract, specifically the personal loans she made to Clear
Sky [totaling] $58,800. The jury elected to award these damages to Deere on her
breach of fiduciary duty claim. As these claims were so closely connected, Deere
would have incurred the same expense in pursuing only the breach of contract claim
as she did in pursuing all the claims.5
The state court granted the motion for attorney fees and costs, awarding Clear Sky and
Deere $82,611.25 in attorney fees and $4,912 in costs. The state court did not apportion the

4

See ECF No. 10-4, at 56-58 (Pls.’ Mot. Atty. Fees and Costs), ECF No. 10-4, at 43
(Clear Sky Properties, LLC Operating Agreement, Pt. 7, ¶ 6).
5

ECF No. 10-5, at 2 (Pls.’ Br. Supp. Atty. Fees and Costs).
3

award between Clear Sky and Deere or their respective claims for breach of fiduciary duty and
breach of contract, nor did it specify whether it made the award pursuant to Clear Sky’s
operating agreement or § 16-22-308. The court’s order merely stated as follows:
Before the Court is Plaintiffs’ Motion for Attorneys’ Fees and Costs. Based on the
arguments in the Motion and Brief, the motion is hereby GRANTED and Defendant
Blake Roussel is ordered to pay Plaintiffs $82,611.23 in attorneys’ fees as well as
$2,912 in expenses and costs.6
On July 11, 2011, Roussel filed a voluntary petition for relief under Chapter 7 of the
United States Bankruptcy Code. Subsequently, Clear Sky and Deere initiated this adversary
proceeding, asserting that the Bankruptcy Court was bound under the doctrine of collateral
estoppel to declare Roussel’s judgment debt for breach of fiduciary duty excepted from
discharge under 11 U.S.C. §§ 523(a)(4) and 523(a)(6). The parties stipulated that Deere’s
$40,000 damage award for breach of contract is dischargeable in bankruptcy, but they disputed
whether Roussel’s debt for attorney fees and costs related solely to Deere’s breach of contract
claim.
The Bankruptcy Court concluded that the majority of Roussel’s judgment debt for breach
of fiduciary duty was dischargeable. As for Roussel’s related debt for attorney fees and costs,
the Bankruptcy Court concluded:
The award of attorneys fees and costs in state court was based on a contract [the
Clear Sky operating agreement] or breach of contract, which is dischargeable in
bankruptcy. Therefore, this Court finds that the fees and costs awarded by the state
court in the amount of $87,523.25 are dischargeable.
In re Roussel, 483 B.R. 915, 925 (Bkrtcy. E.D. Ark.,2012).
Clear Sky and Deere appealed the Bankruptcy Court’s decision, and by order entered

6

ECF No. 13, at 150 (Pls.’ Ex. #26)(emphasis added).
4

December 30, 2013, this Court reversed, finding that Roussel’s entire judgment debt for breach
of fiduciary duty is nondischargeable. Further, in light of this Court’s determination that
Roussel’s entire debt for breach of fiduciary duty is nondischargeable, the Court remanded the
case for a determination of whether all or any portion of Roussel’s pre-petition debt for attorney
fees and costs is also nondischargeable.
II.
“Ancillary obligations such as attorneys' fees and interest may attach to the primary debt;
consequently, their status depends on that of the primary debt.” In re Hunter, 771 F.2d 1126,
1131 (8th Cir. 1985)(citations omitted). Accordingly, any portion of Roussel’s pre-petition debt
for attorney fees and costs that attaches to his primary judgment debt for breach of fiduciary duty
is nondischargeable. The complication in this case is that throughout the proceeding, the parties
have stipulated that Deere’s $40,000 state court judgment for breach of contract is dischargeable,
and it follows that any portion of Roussel’s debt for attorney fees and costs attributable to
Deere’s breach of contract claim is also dischargeable.
On remand, the Bankruptcy Court attempted to divide the state court’s fee award into
dischargeable and nondischargeable components. Deere’s judgment for breach of contract
comprised 40.48583% of her total judgment against Roussel, and the Bankruptcy Court reasoned
that the same percentage of Roussel’s debt for fees and costs is dischargeable “as to Deere.”
However, the Bankruptcy Court also recognized that the state court ordered Roussel to pay
“Plaintiffs,” Clear Sky and Deere, an undivided $86,611.25 in attorney fees and $4,912 in costs.
Consequently, the Bankruptcy Court concluded that “to give full effect to the state court award
of attorneys’ fees and costs to Clear Sky . . . . , as to Clear Sky, the entire . . . award . . . is

5

nondischargeable.”7
Roussel appeals the Bankruptcy Court’s ruling, asserting two arguments. First, he
reasserts his position that his entire debt for breach of fiduciary duty is dischargeable in
bankruptcy. Roussel suggests that this Court should “review its own prior opinion on appeal”
and “reverse its prior holding as erroneous.”
Rule 54(b) of the Federal Rules of Civil Procedure authorizes a court to reconsider
previous orders. Such discretion, however, is limited to the law of the case doctrine and
“subject to the caveat that ‘where litigants have once battled for the court's decision, they should
neither be required, nor without good reason permitted, to battle for it again.’” Official
Committee of Unsecured Creditors of Color Tile, Inc. v. Coopers & Lybrand, LLP, 322 F.3d
147, 167 (2d Cir. 2003)(quoting Zdanok v. Glidden Co., 327 F.2d 944, 953 (2d Cir.1964)); see
also Chism v. W.R. Grace & Co., 158 F.3d 988, 992 n. 4 (8th Cir.1998)(“Motions for
reconsideration cannot be used to introduce new evidence that could have been produced while
the summary judgment motion was pending.”). Here, Roussel seeks reconsideration based on
arguments that the Court has previously considered and rejected, and the Court finds no basis for
reconsideration.
Second, Roussel argues that because the dischargeable award to Deere for breach of
contract constitutes approximately 10% of the total judgment debt, 10% of the fee award is also
nondischargeable. However, the fees and costs awarded in the state court action are simply not
amenable to apportionment according to the dischargeable and nondischargeable parts of the
underlying judgment. The state court awarded Clear Sky and Deere fees and costs based on the

7

ECF No. 1-1 (Order on Remand) at 14.
6

arguments they presented in support of their motion, which included the assertion that Deere’s
breach of contract claim was “inextricably intertwined” with the breach of fiduciary duty claims.
Adopting the position that the plaintiffs’ claims overlapped and were inextricably intertwined,
the state court did not apportion the fees and costs awarded between the plaintiffs or between
the breach of fiduciary duty and breach of contract claims. Accordingly, Roussel’s debt for
attorney fees and costs attach to his primary debt for breach of fiduciary duty, and the prepetition debt for fees and cost is nondischargeble in its entirety.
Although the Bankruptcy Court endeavored to apportion Roussel’s debt for fees and
costs into dischargeable and nondischargeable components, it found that “as to Clear Sky,” the
entire debt is nondischargeable. The practical effect of the Bankruptcy Court’s ruling is that
Roussel’s entire debt for fees and costs is nondischargeable, and with that understanding, the
decision of the Bankruptcy Court on remand is affirmed.
III.
For reasons stated in this order and the Court’s order entered on December 13, 2013 in
related case In Re Roussel, No. 4:13CV0055 SWW, the Bankruptcy Court’s original decision on
the issue of dischargeability under 11 U.S.C. §§ 523(a)(4) and 523(a)(6) is reversed, and the
decision on remand is affirmed.

IT IS SO ORDERED THIS 14th DAY OF AUGUST, 2015.

/s/Susan Webber Wright
UNITED STATES DISTRICT JUDGE

7