916 F.3d 566
6th Cir.2019Background
- Freddie Fulson was the sole shareholder of Nicole Gas, which was in Chapter 7 bankruptcy; a trustee (Ransier, later Bowers) controlled the estate's claims.
- Fulson, with attorneys Sanders and Lowe, filed an Ohio Corrupt Practices Act (Ohio civil RICO) complaint in state court during the bankruptcy, alleging roughly $34 million in damages that in substance belonged to Nicole Gas.
- The Trustee maintained the Corrupt Practices Act claims were property of the bankruptcy estate and that Fulson’s state suit violated the automatic stay (11 U.S.C. § 362(a)(3)); the Bankruptcy Court found willful contempt and awarded sanctions (~$91,068).
- The Bankruptcy Appellate Panel affirmed; the Ohio Supreme Court declined to answer a certified question about shareholder standing under Ohio RICO.
- The Sixth Circuit reviewed whether Ohio’s statute conferred individual standing to a shareholder to assert claims that are derivative in nature, and whether contempt sanctions (including fees) were permissible.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Ohio Rev. Code § 2923.34(E) gives an individual shareholder standing to sue for injuries to the corporation | Fulson: the statute allows “any person directly or indirectly injured” to sue, so indirect (shareholder) injuries suffice and convert a derivative claim into an individual claim | Trustee: corporate-law principles (Adair) bar shareholders from suing for injuries that belong to the corporation; such claims belong to the bankruptcy estate | Held: No. Ohio RICO’s “indirect” language does not abrogate Ohio derivative-suit principles; Fulson had no independent standing |
| Whether the state-court filing violated the automatic stay | Fulson: no independent claim existed pre-petition, so nothing in the estate was appropriated | Trustee: the corporate claims were estate property upon filing; suing without relief from stay or trustee consent was an act to control estate property | Held: Filing violated § 362(a)(3); contempt finding affirmed |
| Whether sanctions/fee award to trustee were barred by Baker Botts | Fulson: Baker Botts prevents fee-shifting for fee-defense litigation under § 330 and related limits | Trustee: sanctions were imposed under § 105(a) for contempt, not under § 330; Baker Botts is inapplicable | Held: Baker Botts does not bar the contempt-based fee award under § 105(a); sanctions upheld |
| Proper remedy/process when shareholder disagrees with trustee’s valuation/settlement | Fulson: could press independent claim in state court without stay relief | Trustee: shareholder must seek trustee cooperation, estate abandonment, or court relief from the stay before suing | Held: Shareholder should have sought trustee cooperation or relief from stay; unilateral filing was improper and sanctionable |
Key Cases Cited
- Adair v. Wozniak, 492 N.E.2d 426 (Ohio 1986) (shareholders lack independent cause of action for injuries that are derivative of corporate injuries)
- In re Van Dresser Corp., 128 F.3d 945 (6th Cir. 1997) (determine whether claims are sole or shared under state law for inclusion in bankruptcy estate)
- In re Cannon, 277 F.3d 838 (6th Cir. 2002) (trustee’s exclusive right to assert debtor’s causes of action discussed)
- Baker Botts, L.L.P. v. ASARCO, L.L.C., 135 S. Ct. 2158 (2015) (limits on awarding fee-defense litigation fees under § 330)
- Tyler v. DH Capital Mgmt., Inc., 736 F.3d 455 (6th Cir. 2013) (state substantive law determines nature and extent of property rights in bankruptcy)
- Easley v. Pettibone Michigan Corp., 990 F.2d 905 (6th Cir. 1993) (actions taken in violation of the automatic stay are voidable and may be voided)