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Roussel v. Clear Sky Properties, LLC

No. 15-3048 (8th Cir. July 25, 2016)
The 8th Circuit affirmed the ruling of the U.S. District Court (E.D. Ark.), which affirmed the ruling of the bankruptcy court that state court award of attorneys' fees was nondischargeable. Bankruptcy court properly applied collateral estoppel to bar relitigation of elements of willful and malicious injury, and in entering nondischargeable judgment for willful and malicious injury. State court jury finding awarding punitive damages on breach of fiduciary duty claim included finding of elements equivalent to willful and malicious injury, including requisite level of intent and willfulness. Evidence in state court proceeding supported jury findings. While portion of state court judgment attributed to breach of contract was dischargeable, attorney fee award was "deeply intertwined" with breach of fiduciary duty claim, and not subject to apportionment. Consequently, entire underlying attorney's fee award was nondischargeable.
Procedural context:
Creditor sued chapter 7 debtor to except state court judgment from discharge. Bankruptcy court found judgment dischargeable except for small portion. District court reversed, and remanded to determine if attorney fee award was nondischargeable. Debtor appealed to 8th Circuit, which ruled that it lacked jurisdiction to review case until bankruptcy court ruled on fee award issue. Bankruptcy court found attorneys' fees nondischargeable. District court affirmed; debtor appealed to 8th Circuit.
Roussel and Deere formed Clear Sky, LLC —an Exit Realty brokerage franchise—in Conway, Arkansas. Clear Sky purchased the right to operate its franchise in one half of Conway. The Operating Agreement provided that existing members had the right to veto a proposed sale of another member’s interest; it also included a provision allowing attorneys’ fees. About a year after forming Clear Sky, Roussel wanted to sell his 50% interest, but Deere refused. Roussel then proposed to sell two-thirds of his 50% interest. Deere agreed. Three months later, Roussel and two Clear Sky real estate agents filed articles of organization for Select Group Investments d/b/a Exit Realty Select—an Exit Realty brokerage franchise—in Conway, Arkansas. Select Group Investments purchased the right to operate its franchise in the other half of Conway. Twelve Clear Sky agents soon joined Select Group Investments. Deere and Clear Sky sued Roussel in state court for breach of fiduciary duty, fraud, breach of contract, and violations of the Arkansas Franchise Practices Act. A jury found that Roussel breached his fiduciary duty to Clear Sky and Deere. To Clear Sky, the jury awarded $184,683.60 for lost revenue, $1,480.00 for damage to property, and $113,836.40 in punitive damages. To Deere, the jury awarded $58,800 for breach of fiduciary duty and $40,000 for breach of contract. The court ordered Roussel to pay attorneys’ fees. Roussel filed Chapter 7 bankruptcy. Clear Sky and Deere filed an adversary proceeding against Roussel, requesting that the bankruptcy court declare the entire state court judgment nondischargeable under 11 U.S.C. § 523(a)(4) and § 523(a)(6). They argued, under the doctrine of collateral estoppel, the state court judgment bound the bankruptcy court to find the debt nondischargeable. Roussel countered that the § 523(a)(4) and (a)(6) issues were not actually litigated in state court. Agreeing with Roussel, the bankruptcy court found the entire Judgment Debt dischargeable, except the $1,480 award for property damage. In re Roussel, 483 B.R. 915 (Bankr. E.D. Ark. 2012). Clear Sky and Deere appealed to the district court.1 The district court reversed, finding the entire Judgment Debt nondischargeable. In re Roussel, 504 B.R. 510 (E.D. Ark. 2013). It remanded the attorneys’ fees issue to the bankruptcy court. On further appeal, this court held it lacked jurisdiction to review the case until the pending attorneys’ fees issue was resolved. In re Roussel, 769 F.3d 574 (8th Cir. 2014). The bankruptcy court found the attorneys’ fees award nondischargeable. In re Roussel, 536 B.R. 254 (Bankr. E.D. Ark. 2015). The district court affirmed, and Roussel appeals. This court reviews findings of fact for clear error and legal conclusions de novo. Pearson Educ., Inc. v. Almgren, 685 F.3d 691, 694 (8th Cir. 2012). Having jurisdiction under 28 U.S.C. § 1291, this court affirms the district court.
Smith, Gruender, Benton

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