United States District Court, S.D. Indiana, Indianapolis Division
ENTRY REVIEWING BANKRUPTCY COURT'S
RICHARD L. YOUNG, JUDGE United States District Court Southern
District of Indiana
Branham Corporation (“Branham”) appeals from
several orders of the bankruptcy court. These appeals involve
separate proceedings and issues spanning several years in
both federal and state courts. However, the issues, though
numerous, are not complex. The court therefore finds oral
argument unnecessary and denies Branham's request for
oral argument. For the reasons that follow, the bankruptcy
court's decisions will be affirmed in part and remanded
for further proceedings with respect to sanctions.
development firm, Newland Resources, LLC
(“Newland”), hired Branham to assist in obtaining
water and sewer utility service for a project in Boone
County, Indiana. Newland formed Boone County Utilities, LLC
(“BCU”) to operate the project. Newland is the
sole owner and member of BCU. In late 1995, Newland and
Branham entered into a contract under which Branham was to be
paid fees and expenses for securing the utility services,
including a success fee. Newland has not paid Branham its
a private utility company regulated by the Indiana Utilities
Regulatory Commission (“IURC”). In late 2001, the
Board of Commissioners of Boone County petitioned the IURC to
revoke BCU's certificates of territorial authority. The
IURC issued an interim order, directing Newland to pay BCU a
cash equity infusion. The IURC set a compliance hearing to be
held within 90 days.
September 8, 2003, BCU filed a petition for relief under
Chapter 11 of the United States Bankruptcy Code in the United
States Bankruptcy Court, Bankruptcy Court Case No.
03-16707-AJM-11. Branham filed several proofs of claims
against the bankruptcy estate based on the contract between
Branham and Newland. BCU is not a party to that contract. The
first three claims were filed on May 11, 2004 and September 9
and 10, 2004; the fourth claim was filed on May 17');">17, 2005.
moved to sell its assets. A month later, the IURC made
certain orders requiring BCU to do certain things. A
jurisdictional skirmish ensued between the IURC and
bankruptcy court. However, in its February 5, 2004 entry, the
IURC noted that the Bankruptcy Court “will direct the
sale of the utility [BCU] and the distribution of proceeds
thereof[.]” [Filing No. 18-3, Branham App. 2594]. Then
on February 25, 2004, the IURC, “recogniz[ing] that the
United States Bankruptcy Court has the full power and
exclusive jurisdiction to conduct the sale of [BCU's]
assets, ” stayed all proceedings before the IURC
involving BCU. [Filing No. 7-2 at ECF p. 65-66]. The court
will refer to this order as the “stand down”
order. The stand down order stated it “shall be
effective on and after the date of its approval, ”
which was on February 25, 2004. [Id.]
obtained authority to sell its assets to the Town of
Whitestown for $4, 200, 000. The bankruptcy court approved
the sale, and the sale closed on July 20, 2004. BCU received
$3, 891, 645 in net sale proceeds. After the closing on the
sale, BCU ceased its operations as a regulated entity.
bankruptcy court held a confirmation hearing on September 14,
2004, and entered an Order Confirming Debtor's Amended
Liquidating Plan of Reorganization (“Confirmation
Order”), over Branham's conditional objection.
[Filing No. 9-1, Branham App. 17');">17-20]. The bankruptcy court
disallowed three of Branham's claims because they were
based on a contract to which the debtor BCU was not a party;
it disallowed the fourth claim, filed months after the claims
bar dates and the day before the hearing on claims, as
untimely. The Confirmed Amended Plan (“Plan”)
provided for the balance of the sale proceeds to be paid to
Newland for its equity interest after payment of all other
allowed claims. Branham was not listed as a secured creditor
because Branham was not a creditor of BCU. The Confirmation
Order stated that “the Plan and its provisions shall
bind the Reorganized Debtor, any entity acquiring estate
property under the terms of the Plan, [and] all creditors of
and claimants against Debtor ….” [Filing No.
9-1, Branham App. 20]. The order also said that the
bankruptcy court “shall retain jurisdiction over the
Chapter 11 case for the purposes set forth in the
Confirmation Date, BCU made a distribution to Newland of
approximately $2.5 million, leaving a balance of over $1
million in its account. A second distribution was made to
Newland in May 2005; Newland received approximately $3
million in distributions under the Plan.
appealed to the district court, which affirmed. See In re
Boone Cty. Utils, LLC, Case No. 1:05-cv-0117');">173-LJM-WTL.
Branham appealed to the Seventh Circuit Court of Appeals,
which also affirmed. See In re Boone Cty. Utils.,
LLC, 506 F.3d 541 (7th Cir. 2007) (holding claims based
on contract to which debtor was not a party were properly
disallowed and bankruptcy court did not abuse its discretion
in disallowing untimely unjust enrichment claim). Branham
sought rehearing and rehearing en banc, which requests were
denied. Branham did not move the bankruptcy or district court
to stay payment of the distributions due to Newland under the
1, 2011, BCU's bankruptcy case was closed.
in October 2005, Branham sued Newland in Boone Circuit Court
to collect its success fee. In November 2007, Branham
obtained a judgment against Newland in the amount of $397,
853.92. Newland appealed, but did not seek a stay of the
judgment. Thus, the judgment was enforceable, notwithstanding
the appeal. The Indiana Court of Appeals affirmed.
Newland Resources, LLC v. Branham Corp., 918 N.E.2d
763 (Ind.Ct.App. 2009). Before Branham obtained the judgment
against Newland, it knew that Newland had insufficient assets
to satisfy the judgment.
December 29, 2011, Branham filed a Verified Motion for
Proceedings Supplemental to Execution and Garnishment in
Boone Circuit Court in Cause No. 06C01-0409-PL-517');">17 (the
“517');">17 Case”), naming BCU and Newland, as party
garnishee-defendants, among others. [Filing No. 9-6, Branham
App. 842-912]. Branham alleged that the distributions
made by BCU to Newland were unauthorized under the plan and
that the transfer of property was void ab initio and
in violation of IURC orders and state business law. Branham
sought to recover all monies paid out under the Plan to
allowed claimants and professionals.
next day, December 30, 2011, Branham filed a complaint for
damages against Newland and numerous others in Boone Circuit
Court, Cause No. 06C01-1201-CT-0001 (the “001
Case”). The complaint alleged that Newland's
distributions of the BCU sale proceeds were unauthorized
under the Plan and were void ab initio in violation
of IURC orders, operating agreements, and Indiana law.
Branham asserted that Newland purposely depleted its assets,
rendering it unable to satisfy Branham's judgment.
Branham claimed fraud, deception, conversion, theft, and
receiving stolen property and asserted claims under the
Indiana Crime Victim Relief Act and Indiana Corrupt Business
Influence Act. BCU was not named a party defendant, but
BCU's principals, employees, and attorneys were named as
April 12, 2012, in response to Branham's state court
complaint and proceedings supplemental, BCU filed a Motion to
Reopen its Bankruptcy Case. [Filing No. 9-7, Branham App.
1061-70]. The bankruptcy court granted the motion on April
23, 2012, and BCU filed a complaint under Adversary
Proceeding No. 12-50128 (“AP-128”), naming
Branham and its attorneys in the state court cases, Stewart
& Irwin, P.C., as defendants. [Filing No. 9-1, Branham
amended its complaint in 2013. Count I sought a declaratory
judgment, asking the court to affirm and give preclusive
effect to various orders entered in the Chapter 11 case,
including a declaration that all distributions under the Plan
were authorized and lawful. BCU also sought a declaration of
whether BCU has undistributed assets in which Newland has an
interest. Count II sought sanctions against Branham, its
principals, and its counsel for their willful, intentional,
and malicious actions in prosecuting matters filed in the
Boone Circuit Court against BCU.
answered and filed a counterclaim. Its answer admitted that
the bankruptcy court “has jurisdiction to render a
declaratory judgment in this adversary proceeding relating to
the interpretation and enforcement of its orders, rulings,
judgment and decrees made with respect to the petition filed
by BCU [.]” [Filing No. 18-1, Branham App. 1838].
Similarly, the counterclaim asserted that the bankruptcy
court has “concurrent and ancillary jurisdiction to
decide whether distributions from BCU to Newland are in
breach of the Amended Plan and Confirmation Order, were made
prior to allowance by the Court[, ] and were made without the
express authorization of this Court.” [Filing No. 18-1,
Branham App. 1895 (citations omitted); see also Id.
at 1896 (asserting that “this [Bankruptcy] Court has
jurisdiction over the assets of BCU's estate”)].
The counterclaim sought a determination of whether the
distributions by BCU to Newland were lawful and requested an
order allowing discovery of BCU as to its assets and
garnishment of Newland's property in BCU's
August 22, 2012 hearing on the motion to dismiss for lack of
subject matter jurisdiction and failure to state a claim
filed by Stewart & Irwin, the parties (including Branham)
stipulated that the U.S. Bankruptcy Court has concurrent and
ancillary jurisdiction to construe and enforce its orders.
[See Filing No. 23-3, Branham App. 5624, 5680].
Branham's counsel acknowledged Branham's argument was
the following: the distributions to Newland under the Plan
were improper and illegal because they did not comply with
state law, BCU's operating agreement, the Plan itself
(specifically Section 6.1), and the IURC orders, and
therefore the transfer was void, and BCU still had a right to
the property. [Filing No. 23-3, Branham App. 5517');">17, 5524-26,
5534 (“I'm challenging distributions that were made
that we argue, pursuant to a construction of your plan and
confirmation, were not permitted to be made in the fashion
that they were made.”), and 5540].
October 4, 2012, the bankruptcy court issued an Order,
acknowledging the parties' stipulation that the court
“has … jurisdiction to construe and enforce its
orders.” [Filing No. 7-8 at ECF page no. 21]. The court
[I]t shall exercise its jurisdiction to interpret and enforce
all of its orders and rulings with respect to the [BCU]
Chapter 11 Bankruptcy Case from the petition date of
September 8, 2003, up to and including all distributions and
transfers made by [BCU] to Newland … and all matters
respecting the [IURC]'s involvement in the BCU bankruptcy
[Filing No. 9-8, Branham App. 1209, AP-128, 10/4/2012 Order
at 3; see also Filing No. 7-8 at ECF page no. 21].
The court granted the motion to dismiss with respect to
Stewart & Irwin only, without prejudice to BCU's
right to seek contempt sanctions against the attorneys if the
court were to determine that its orders were “willfully
disregarded in this matter.” [Filing No. 7-8 at 21-22].
The court further ordered that “[a]ny issues involving
[Newland's] actions upon or after receipt of the
distribution from [BCU] pursuant to the amended Plan are to
be decided in the Boone County Circuit Court.” [Filing
No. 7-8 at ECF page no. 22].
Branham moved to withdraw the proceedings supplemental as to
BCU in the 517');">17 Case. The trial court granted Branham leave to
dismiss the proceedings without prejudice, conditioned on the
payment of the garnishee defendants' attorney fees. The
court of appeals affirmed. See Branham Corp. v. Newland
Resources, LLC, 44 N.E.2d 1263 (Ind.Ct.App. 2015).
moved to dismiss Branham's counterclaim in AP-128, and
the bankruptcy court directed the parties to file proposed
findings and conclusions. The parties did so, and they filed
additional pleadings and other matters. The motion to
dismiss, responses, proposed findings, and other papers
referred to matters outside the pleadings. Since the motion
required the bankruptcy court to consider provisions of the
confirmed plan and matters outside the pleadings, the court
treated BCU's motion to dismiss as a motion for partial
April 1, 2014, the bankruptcy court made its Proposed
Findings of Fact and Conclusions of Law on Plaintiff's
Motion to Dismiss Treated as a Motion Under Rule 56 and found
that “all of [BCU]'s scheduled property was sold to
Whitestown.” [Filing No. 18-3, Branham App.
2377]. The court made “short work” of
any alleged claims of Newland against BCU, finding:
“Branham is a judgment creditor of Newland and at best
has only the rights of an assignee of Newland's interest
in the Debtor.” [Id. at 2381].
[E]ven if Newland had any additional claims against Debtor,
those were expressly waived by Newland and Branham (as
Newland's judgment creditor) is enjoined from bringing
them under the express terms of paragraph 11.2 [of the Plan]
which provides, in part, that “All holders of Claims
and Equity Interests, and their successors and assigns, shall
be permanently enjoined after the Confirmation Date from
asserting against the Debtor, or any of the Debtor's
Property, any Claims or interests based upon any act or
omission, transaction or other activity of any kind or nature
that occurred prior to the Confirmation Date.”
[Id. (quoting Plan, p. 19)].
to whether BCU retained any claims against Newland and
whether those claims were undistributed property, the
bankruptcy court determined that Branham was a “party
in interest” in the bankruptcy case, had a pecuniary
interest in the bankruptcy, was aware of the facts underlying
its alleged claims against Newland no later than September
2004, and could have moved for appointment of a bankruptcy
trustee. [Filing No. 18-3, Branham App. at 2382].
Nonetheless, Branham did not object that the Plan failed to
provide for prosecution of claims against Newland, failed to
move for the appointment of a trustee, and did not seek
pre-judgment attachment in state court to protect its
interests against Newland. [Filing No. 18-3, Branham App.
2382]. The bankruptcy court concluded that “[a]ll of
the [BCU]'s property was dealt with by the Plan”
and even “[a]ssuming that causes of action were
preserved under the Plan and that they revested in [BCU] upon
confirmation, the order confirming the … plan is
res judicata as to all issues which were decided and
which could have been decided before confirmation.”
[Id. at 2383]. The blanket reservation of rights,
the court concluded, was “insufficient to preserve
… [any] state law claims against Newland.”
[Id.] Along with its findings of fact and
conclusions of law, the bankruptcy court entered on April 1,
2014, a Partial Summary Judgment in AP-128, concluding:
[T]here are no genuine issues of material fact in that the
distributions made to Newland by [BCU] under [BCU]'s
confirmed plan were not unauthorized, [BCU] has no assets of
any kind or nature available for attachment or garnishment
and that [BCU] is entitled to partial summary judgment as a
matter of law on Branham's counterclaim.
[Filing No. 18-3, Branham App. 2385-86; see also id.
Branham moved to take a Rule 30(b)(6) deposition of a BCU
representative in an effort to collect on its judgment
against Newland. The bankruptcy court determined that
Newland's interest in BCU, a limited liability company,
was personal property and thus subject to execution. However,
the interest was limited by state law to “the economic
rights and nothing more.” [Filing No. 18-4, Branham
App. 2899]. The bankruptcy court's order of September 17');">17,
2014, reiterated its earlier determination “that all of
BCU's assets were distributed under the confirmed plan,
as stated in the plan, and that there were no other BCU
assets to pursue or distribute as of the date of distribution
to Newland.” [Filing No. 18-4, Branham App. 2901].
Because “the Plan unequivocally stated that all
property of [BCU] was dealt with by the Plan, there was no
property left to re-vest in [BCU].” [Id.]
the court decided that even if BCU was holding claims of
third parties that pre-dated the distributions to Newland,
Newland had no claim or right to them because Newland
released claim to any assets of BCU or interest in BCU,
including equity interests, under the Plan. [Branham App.
2901-02; see also Filing No. 9-5, Branham App. 632].
The order reiterated that “the provisions of the
confirmed plan were res judicata as to all issues
which were decided and which could have been decided before
confirmation, including whether BCU held causes [of] actions
against Newland or other persons or entities.” [Filing
No. 18-4, Branham App. 2905]. However, the bankruptcy court
concluded if BCU held claims that arose after the
Confirmation Order and asset distribution, it appeared that
Newland could pursue them; but Branham had no right to
directly pursue such claims or to direct Newland to do so.
[Id. at 2902].
bankruptcy court rejected Branham's efforts to hold BCU
in contempt for making $2.5 million in distributions to
Newland before the expiration of the then-twenty-day stay
under Bankruptcy Rule 3020(e). [Filing No. 18-4, Branham App.
2904-05]. The court gave several reasons for this, including
that any argument about compliance with Rule 3020(e) was not
an argument for Branham to make since it was not a creditor
of Newland's at the time of confirmation and
distribution. [Id. at 2905]. In conclusion, the
court wrote that the Plan's provisions “are binding
on Newland, and, as Newland's judgment creditor,
Branham.” [Filing No. 18-4, Branham App. 2908].
on September 12, 2014, Branham had filed its Protective
Action to Renew and Refresh the Confirmation Order And Stay
Thereof Under Bankruptcy Rule 3020(e) (a complaint) in
Adversary Proceeding No. 14-50168 (AP-168), seeking to renew
and refresh the Confirmation Order and enforcement of the
Bankruptcy Rule 3020(e) injunction. [Filing No. 9-1, Branham
App. 14-16; Filing No. 23-1, Branham App. 5493-95]. The
bankruptcy court directed the parties to brief the issue of
Branham's standing to seek renewal. The parties did so,
and BCU filed a motion to dismiss the complaint for failure
to state a claim based, in part, on Branham's lack of
April 1, 2015, in granting the motion to dismiss, the
bankruptcy court explained that bankruptcy standing is
“more exacting” than Article III standing as it
requires a party “to have a pecuniary interest in the
outcome of the bankruptcy proceeding.” [Filing No. 9-1,
Branham App. 4]. In addition, a party must be “directly
and adversely affected pecuniarily by a bankruptcy court
order.” [Id.] The court decided that Branham
was “not entitled to make an issue of any of the
Confirmation Order's provisions” because Branham
was not “among the group of entities for which the
protections of § 1141 were intended” such as
creditors, equity security holders, etc. [Filing No. 9-1,
Branham App. 5-6]. The court also found that, as of
confirmation of the plan, Branham “had no legally
protected interest that it could assert directly against BCU,
as proven by the disallowance of its claims and subsequent
affirmance by the Seventh Circuit[.]” [Id. at
5]. The bankruptcy court further determined that the
Confirmation Order “did not adversely and
directly affect any pecuniary interest of
Branham's.” [Id.]. Therefore, the court
concluded that even taking every factual allegation in
Branham's complaint as true, “there is no legal
theory upon which Branham may recover and ‘renew'
the Confirmation Order.” [Filing No. 9-1, Branham App.
6]. The court granted BCU's motion to dismiss for failure
to state a claim and dismissed Branham's complaint in
8, 2015, after hearing oral argument on the cross-motions for
summary judgment, the bankruptcy court issued its Findings of
Fact and Conclusions of Law on Cross Motions for Partial
Summary Judgment in AP-128. [Filing No. 18-6, Branham App.
3518-48]. Both parties had moved for summary
judgment on Count I of BCU's complaint-seeking an
interpretation of court orders and a declaratory judgment
based on that interpretation. Although BCU did not expressly
seek summary judgment on Count II for sanctions, its prayer
for relief asked for a finding that Branham willfully and
intentionally violated the bankruptcy court's orders.
Based on that, the bankruptcy court understood BCU as seeking
partial summary judgment on Count II as to sanctions
liability. [Filing No. 18-6, Branham App. 3525].
bankruptcy court again ruled it “had exclusive
jurisdiction over BCU's assets, sale proceeds and
distributions made under the confirmed plan.”
[Id. at 3529]. It determined that the sale order of
March 25, 2004, the Confirmation Order, the order disallowing
Branham's claims, and the order on BCU's amended
application to allow Newland's claim in the amount of
approximately $4.1 million were final and non-appealable
orders. [Filing No. 18-6, Branham App. 3529-33, 3544]. The
bankruptcy court declared that “[a]ll of BCU's
pre-petition property was dealt with under the plan and there
were no additional pre-confirmation BCU assets to pursue or
distribute as of the date of distribution to Newland, ”
[id. at 3544], and reiterated that “[a]ll
distributions under the plan were authorized.”
[Id. at 3535].
the court declared that “Branham was not and is not a
creditor of BCU, ” Section 6.1 of the Plan did not
require BCU to obtain a separate order directing payment to
Newland, and the distribution to Newland shortly after
confirmation of the plan was not a basis on which to hold BCU
and Newland in contempt. [Filing No. 18-6, Branham App.
3545]. The court determined that Newland had waived any
argument with respect to Rule 3020(e) and, if Newland could
not raise Rule 3020(e), then Branham as Newland's
judgment creditor, could not raise it either. [Id.]
The court declared that the distributions made to Newland
under the plan “were in full and final satisfaction,
settlement and release and discharge as against BCU of any
and all claims or interests in BCU; Newland expressly waived
any pre confirmation claims against BCU and is permanently
enjoined under Section 11.2 of the plan from asserting those
claims;” “[t]he provisions of the confirmed plan
were res judicata as to all issues which were
decided and which could have been decided before the
Confirmation Date, including whether BCU held causes of
action against Newland or other persons or entities.”
[Filing No. 18-6, Branham App. 3546]. Also, the court decided
that Branham had knowledge of the factual allegations
underpinning its claims and the claims BCU might have had
against Newland or other persons as of the Confirmation
Date….” [Filing No. 18-6, Branham App. 3546].
the bankruptcy court ruled that after BCU sold its assets to
Whitestown on July 20, 2004, the IURC no longer had
jurisdiction over BCU regarding issues related to management,
capital structure or operation of the utility. [Filing No.
18-6, Branham App. 3532, 3536, 3546]. In addition, the court
determined that the IURC interim orders were no longer viable
because BCU was no longer operating a utility after July 20,
2004, and the IURC's “stand down” order
stayed all proceedings involving BCU that were before the
IURC. [Id. at 3536, 3546]. The bankruptcy court
stated the Plan expressly preempted any otherwise applicable
nonbankruptcy law that interfered with the Plan's
implementation, such as Indiana law governing limited
liability companies. [Filing No. 18-6, Branham App. 3537].
The court stated that the allegations in the 001 and 517');">17
cases “directly implicated the very essence of the
confirmed plan-distribution[s] ….” [Id.
at 3547]. The court found that Branham's
“unreasonable and vexatious” conduct in both
state court cases and in the bankruptcy court had been an
abuse of the bankruptcy process and set a hearing on
sanctions. [Id. at 3544].
August 14, 2015, after holding an evidentiary hearing, the
bankruptcy court issued its Order on Sanctions in AP-128.
[Filing No. 18-6, Branham App. 3640-48]. The court began by
stating that “Branham has repeatedly attempted to
circumvent the orders of this Court, including the
confirmation order, to obtain access to funds distributed
many years earlier.” [Filing No. 18-6, Branham App.
3641]. Although the bankruptcy court found the Plan to be
“explicit” regarding preemption of the IURC
orders, and despite Branham's participation in the
bankruptcy and the IURC's “stand down” order,
the court concluded that “Branham has repeatedly
pressed [a] baseless position [that the Plan did not preempt
enforcement of the IURC's interim orders] in both state
and bankruptcy court.” [Id.]. The bankruptcy
court found it “difficult to draw any conclusion other
than Branham's repetitive attempts to argue baseless
claims are the result of bad faith.” [Id. at
bankruptcy court found that Branham failed to disclose
certain facts to the state court in the 001 Case, for
example, the IURC had issued a “stand down”
order. The court also found that Branham misrepresented the
record in the 517');">17 Case, for example, by omitting mention of
the IURC's “stand down” order and the
disallowance of Branham's claims in the bankruptcy case.
[Id. at 3642-43]. Branham, the court concluded,
“crossed the line from exploring novel theories to
harassment of BCU and manipulation of these proceedings to
badger BCU.” [Id. at 3645]. Upon finding the
evidence insufficient to show Branham disregarded the
corporate form, the court declined BCU's request to hold
Branham's sole shareholder, officer, and director George
Pendygraft personally liable for sanctions. [Id. at
3646-48]. The court found a sanction of $38, 924 appropriate
and ordered Branham to pay that sum to BCU's counsel.
[Id. at 3648].
appeals of AP-168 and AP-128 followed and have been
consolidated for a decision by this court.