Humphrey v. U.S. Trustee
Filing
10
OPINION AND ORDER Holding Case in Abeyance pending state court criminal charges. (See order for specifics). Signed by Honorable P. K. Holmes III on March 31, 2021. (src)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF ARKANSAS
FAYETTEVILLE DIVISION
LADONNA HUMPHREY
APPELLANT
v.
No. 5:20-CV-05048
ANTHONY CHRISTOPHER and
ABSOLUTE PEDIATRIC THERAPY
APPELLEES
OPINION AND ORDER
Appellant LaDonna Humphrey appeals (Doc. 1) an order approving sale of her defensive
appellate rights out of the estate in her Chapter 7 bankruptcy proceeding, In re LaDonna
Humphrey, Case No. 5:19-bk-72555, Doc. 73 (Bankr. W.D. Ark. Feb. 14, 2020). Humphrey filed
her appellant’s brief (Doc. 5) on May 1, 2020. Appellees Anthony Christopher and Absolute
Pediatric Therapy (Absolute), joined by the bankruptcy estate’s trustee, filed their appellees’ brief
(Doc. 8) on May 14, 2020. Humphrey filed a reply (Doc. 9) on May 28, 2020. The bankruptcy
court held a motion hearing on February 12, 2020, (the minutes for which were entered on the
bankruptcy court’s docket on February 13, 2020), and the Court requested and reviewed the digital
audio recording of that hearing.
After examination of the briefs and record, facts and law have been adequately presented
in this case for this decision, and oral argument will not significantly aid the decision. Fed. R.
Bankr. P. 8019(b)(3). The Court finds that Humphrey has standing to challenge the bankruptcy
court’s order, and this appeal will be held in abeyance pending resolution of related criminal
proceedings against Appellee Christopher in the Circuit Court of Pulaski County, Arkansas,
I.
Clarification of the Record
As an initial matter, whether through its authority to correct a “clerical mistake or mistake
arising from oversight or omission,” Fed. R. Civ. P. 60(a)(1), or as relief from a proceeding on the
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basis of “mistake, inadvertence, surprise, or excusable neglect,” Fed. R. Civ. P. 60(b)(1), or for
some “other reason that justifies relief,” Fed. R. Civ. P. 60(b)(6), the Court must clarify the record
in these proceedings. See Fed. R. 9024 (applying Federal Rule of Civil Procedure 60 to bankruptcy
cases). Humphrey’s estate separately listed unsecured liabilities of $3,570,977.88 to Absolute
Pediatric Services and $3,570,977.88 to Anthony Christopher on its Schedule E/F filing. In re
Humphrey, 5:19-bk-72555, Doc. 30, pp. 11–12 (Bankr. W.D. Ark. Oct. 25, 2019). These amounts
are based on a judgment entered against Humphrey on September 23, 2019 in Absolute Pediatric
Services Inc., et al. v. Humphrey, 04CV-18-2961, a state court civil defamation action filed by
Appellees in the Circuit Court of Benton County, Arkansas on October 9, 2018. 1 The judgment
entered in the state civil case explicitly awards a “total amount of $3,570,977.88,” and cannot be
construed as separate judgments of that amount in favor of each Appellee.
Rather than apportion the amount of this judgment owed to each Appellee in the Schedule
E/F filing, the estate listed the total amount as a liability owed to each Appellee. Appellees
acknowledge in their brief here that “Humphrey’s unsecured claims alone total $7,291,720.30
according to her amended schedule,” but, by apparent oversight, neglect to clarify for this Court
that that total amount is not correct. (Doc. 8, p. 5). However, Appellees’ counsel on this appeal
also represented them in the bankruptcy court (and in the state court civil action, in which counsel
prepared the judgment entered by the state court judge). 2 At the February 12 motion hearing,
Appellees’ counsel confirmed that the state court civil judgment was for a damages award of “three
point five million dollars.” Based on this record, it is clear that the unsecured claims listed on the
1
The Court takes judicial notice of the trial court and appellate record in that case, and the
complaint and the trial court’s judgment are appended as an exhibit to this opinion and order.
2
Appellees’ counsel does not appear to represent Appellee Anthony Christopher in the
state criminal case proceeding against him in Pulaski County, Arkansas charging him with
Medicaid Fraud.
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estate’s Schedule E/F forms instead should total $3,720,742.42.
II.
Jurisdiction and Standing
This Court has jurisdiction to hear an appeal from decisions of bankruptcy judges, whether
those decisions are final orders or interlocutory orders. 28 U.S.C. § 158(a). Humphrey has
standing to appeal the order permitting sale of her appellate rights in the state court civil action.
“[O]nly appellants who are directly and adversely affected pecuniarily by an order have standing
to appeal that order. Put another way, only appellants who have a financial stake in an order have
standing to appeal that order.” In re Marshall, 611 B.R. 861, 863 (B.A.P. 8th Cir. 2020) (citing In
re Belew, 608 B.R. 206, 208 (B.A.P. 8th Cir. 2019)). In Chapter 7 bankruptcy administration, if a
trustee can satisfy allowed claims and have money left over, the debtor is entitled to a distribution
of the balance of the estate. 11 U.S.C. § 726(a)(6). “If the debtor can show a reasonable possibility
of a surplus after satisfying all debts, then the debtor has shown a pecuniary interest and has
standing to object to a bankruptcy order.” In re Nangle, 288 B.R. 213, 216 (B.A.P. 8th Cir. 2003).
Humphrey has shown such a reasonable possibility. The core of her argument concerns
her appellate rights in the state court civil action. Should she prevail on her arguments, then one
of two things will be true. The $3,570,977.88 judgment may not be a liability belonging to the
estate, depending on Arkansas law, and so could not be sold by the trustee. Cf. In re Morales, 403
B.R. 629, 631–34 (Bankr. N.D. Iowa 2009) (finding under Iowa law that debtor’s appellate rights
over debts in the estate were not property of the estate and the debtor should have relief from the
automatic stay to pursue the appeal). Or the appellate rights may be estate property, but the
bankruptcy court could not approve a sale of those rights by the trustee without a showing that the
sale is fair and equitable and in the best interest of the estate (which showing would require a
substantive assessment of the value of the appellate rights that recognizes that market forces alone
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are likely insufficient to determine that a sale is in the estate’s best interest). Cf. In re Mozer, 302
B.R. 892, 897–99 (Bankr. C.D. Cal. 2003) (explaining that the value of defensive appellate rights
is likely to be minimized by a judgment debtor, who will also likely be the only party bidding
against the bankruptcy debtor for those rights, and so a substantive assessment will usually require
the trustee to analyze the legal merits of the appeal). In light of considerations addressed below,
there is a substantial possibility that sale of this judgment debt to the judgment debtor was not the
product of a substantive assessment.
In either case, there is a reasonable possibility that the estate’s Schedule E/F liabilities
should not have included the $3,570,977.88 judgment, or that the judgment should only have been
sold by the estate for an amount much nearer the judgment amount. Assuming the judgment
amount was not the estate’s to sell, or that analysis of the merits of the appeal and the demands of
equity would require the trustee to sell the appellate rights only for the amount of judgment, the
remaining Schedule E/F unsecured liabilities would total $149,764.54, rather than the
$7,291,720.30 currently appearing on those Schedules and mentioned in Appellees’ brief. With a
potential difference of this magnitude in the appropriate amount of liabilities, and in the absence
of any argument by Appellees or the trustee other than that the estate’s assets do not come close
to the $7,291,720.30 amount (Doc. 8, p. 5), it appears Humphrey may be able to show the
reasonable possibility of surplus.
III.
Mootness and Abeyance
Appellees also argue this matter is moot on the basis that Humphrey has made no showing
that Appellee Absolute was not a good-faith purchaser of the appellate rights. For the same reasons
this matter is being held in abeyance, the Court cannot say the matter is moot. Appellee Absolute
was a company run by Appellee Christopher. The substance of Appellees’ state court civil claim
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against Humphrey was that she had defamed them by accusing them of Medicaid fraud. Anthony
Christopher was subsequently charged with Medicaid fraud in connection with Absolute, based in
part on testimony by Humphrey, and a review of the docket reveals Christopher’s trial in the
Circuit Court of Pulaski County, Arkansas, is set for May 25, 2021. See State v. Anthony
Christopher, 60CR-20-2945 (filed Aug. 26, 2020).
If Christopher is convicted of committing the criminal acts Humphrey accused him of, the
effect on this case may be profound. Every court involved in some fashion with the merits of the
ongoing civil dispute between Humphrey and Appellees—the Circuit Court of Benton County,
Arkansas, the United States Bankruptcy Court for the Western District of Arkansas, and this
Court—operates under rules that allow relief when fraud has been committed on the court, or as
equity demands. See Ark. R. Civ. P. 55(c) (allowing courts to set aside default judgments on the
basis of fraud or misconduct); Fed. R. Civ. P. 60(b)(3), (5), (6) (allowing courts to grant relief from
final orders on the basis of fraud, equity, or other reasons justifying relief); Fed. R. Bankr. P. 9024
(applying Federal Rule of Civil Procedure 60 to bankruptcy cases). If Christopher is convicted,
additional briefing may be necessary to determine which courts should take action under these
rules. Further, if Christopher is convicted, Appellees’ counsel likely will prefer an opportunity to
determine whether the conviction gives rise to professional obligations under Arkansas Rule of
Professional Conduct 3.3. Finally, if Christopher is convicted, it may be difficult to say that his
corporate tool, Absolute, purchased any appellate rights in good faith.
If Christopher is acquitted, or if the charges against him are dismissed, additional briefing
and oral argument may become necessary in this case. In light of the unknowns giving rise to
these exceptional circumstances, it is most prudent to hold further proceedings in abeyance at this
time, pending Christopher’s conviction or acquittal, or dismissal of the Medicaid fraud charges
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against him.
IV.
Conclusion
IT IS THEREFORE ORDERED that this matter is HELD IN ABEYANCE pending
Appellee Anthony Christopher’s conviction or acquittal on the criminal charges of Medicaid fraud
pending against him in the Circuit Court of Pulaski County, Arkansas, or pending dismissal of
those charges. Appellees’ counsel is directed to file notice of conviction, acquittal, or dismissal of
charges within ten days of entry on the state court docket.
IT IS SO ORDERED this 31st day of March, 2021.
/s/P. K. Holmes, ΙΙΙ
P.K. HOLMES, III
U.S. DISTRICT JUDGE
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