Beem v. Ferguson

DAVID BEEM, Plaintiff - Appellee, v. GARY ALLAN FERGUSON, Defendant - Appellant.

No. 16-11842

UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT

February 6, 2018

[DO NOT PUBLISH]

D.C. Docket Nos. 1:15-cv-20550-RNS; 1:12-bkc-02010-LMI

Appeal from the United States District Court for the Southern District of Florida

Before JORDAN and JILL PRYOR Circuit Judges, and REEVES,^* District Judge.

PER CURIAM:

On August 24, 1992, Hurricane Andrew made landfall near Homestead, Florida, destroying at least 63,000 homes and 82,000 businesses, and leaving at least 175,000 people homeless. The extreme damage (about $25 billion) left an extensive amount of construction material debris across Homestead, and some entrepreneurs found new business opportunities among the wreckage. One of those men was Gary Ferguson, who in 1994 joined with David Beem to form Floors to Doors, Inc., which sold discount home improvement and building supplies. But like far too many homes in Hurricane Andrew's path, the business partnership between Mr. Ferguson and Mr. Beem collapsed. And, when that happened, the two did what disgruntled business partners often do—litigate.

This appeal marks the latest episode in a decade-long legal battle fought by Messrs. Ferguson and Beem in state and federal courts. Nine years ago, Mr. Beem won summary judgment in state court against Mr. Ferguson on his claim for "defamation; abuse of process." A jury awarded him damages on that claim in 2011 and the court entered judgment accordingly.

In 2012, Mr. Ferguson filed for bankruptcy and Mr. Beem sought to have the debt for that judgment declared non-dischargeable. Mr. Beem's lawyer, however, made a mistake. We must now decide whether Mr. Beem's untimely complaint in the adversary proceeding may relate back to the filing of a timely, but procedurally improper, motion in the bankruptcy case. We also must decide whether thebankruptcy court appropriately granted Mr. Beem's motion for summary judgment, declaring Mr. Ferguson's debt non-dischargeable. After careful review of the full record and the parties' briefs, and with the benefit of oral argument, we answer both questions yes, and affirm.

I

Mr. Ferguson and Mr. Beem incorporated Floors to Doors, Inc. on December 15, 1994. From that date until 2007, FTD served as a retailer of surplus building and construction supplies. The parties admit that the business never thrived and, over time, the business relationship deteriorated. The reasons for that deterioration have been hotly contested. In October of 2007, Mr. Ferguson filed a complaint in state court, alleging that Mr. Beem had been embezzling funds from FTD. Mr. Ferguson's complaint also alleged that Mr. Beem breached his fiduciary duties, and sought a judicial dissolution of FTD. Mr. Beem responded with seven counterclaims (brought both derivatively on behalf of FTD and by Mr. Beem individually). One of those seven counterclaims against Mr. Ferguson alleged "defamation; abuse of process," and was brought by Mr. Beem individually. In it, Mr. Beem alleged that Mr. Ferguson engaged a "campaign of harassment and defamation" against him and had filed numerous baseless complaints with government agencies to harm his reputation and "for the improper purpose of extorting [him] into selling FTD."

In January of 2009, Mr. Beem obtained summary judgment on four of his claims, including Count Three. The court's order stated that the ruling on that count was:

based upon the Court's finding that [Mr. Ferguson], despite having had more than a year to submit evidence in support of his allegation that Mr. Beem stole over $1 million from Floors to Doors, and despite [Mrs.] Ferguson's sworn testimony that she possessed this evidence before this lawsuit was filed, has failed to establish or submit any competent evidence of any such theft.

AP Doc. 106-1 at 72.¹ The state court held a trial on damages in March of 2011. The jury awarded Mr. Beem a total of $318,025, of which $118,025 was for attorney's fees "incurred ... resulting from the necessity to defend against" Mr. Ferguson's complaint, and the remaining $200,000 was for "emotional damages which were the direct and proximate result of [Mr. Beem's] defending against" Mr. Ferguson's complaint. AP Doc. 106-1 at 75. The judgment was affirmed on appeal.

Mr. Ferguson filed a Chapter 11 bankruptcy petition on May 21, 2012. On August 9, 2012, Mr. Beem sought an unopposed extension to file a complaint objecting to the discharge of Mr. Ferguson's debt for the state court judgment under 11 U.S.C. § 523. The bankruptcy court granted the motion and set October 12, 2012, as the deadline to file the complaint and commence an adversaryproceeding under § 523. But instead of filing a "complaint" and initiating an adversary proceeding, Mr. Beem's attorney filed an original and an amended "Motion to Dismiss or for Determination of Non-Dischargeability of His Debt" on October 5 and 9, respectively. Then, apparently realizing his procedural mistake, Mr. Beem's attorney filed an adversary complaint regarding dischargeability on October 17, 2012.

Mr. Ferguson moved to dismiss the adversary complaint as untimely. The bankruptcy court ruled that the complaint was timely for two reasons: it could retroactively extend the deadline to file the complaint because there was excusable neglect and the complaint related back to the timely, but improperly filed, motion.

In September of 2014, Mr. Beem moved for summary judgment, arguing that the debt arising out of the state court judgment for abuse of process was non-dischargeable. The bankruptcy court granted Mr. Beem's motion on December 8, 2014, ruling that, as a matter of law, the state court abuse of process judgment constituted a non-dischargeable debt for a willful and malicious injury under § 523(a)(6).

Mr. Ferguson appealed the bankruptcy court's orders denying his motion to dismiss and granting Mr. Beem's motion for summary judgment to the district court, which affirmed, ruling that Mr. Beem's untimely adversary complaintrelated back to the timely motion and that summary judgment was appropriate. This is Mr. Ferguson's appeal.

II

In bankruptcy cases, we sit as a "second court of review" and "examine[ ] independently the factual and legal determinations of the bankruptcy court and employ[ ] the same standard of review as the district court." In re Optical Techs., Inc., 425 F.3d 1294, 1299-1300 (11th Cir. 2005) (citation omitted). Factual findings of the bankruptcy court are reviewed for clear error, and legal conclusions by either the bankruptcy court or the district court are reviewed de novo. Id. at 1300. See also In re Fin. Federated Title & Tr., Inc., 309 F.3d 1325, 1328-29 (11th Cir. 2002).

III

The "central purpose" of the Bankruptcy Code "is to provide a procedure by which certain insolvent debtors can reorder their affairs, make peace with their creditors, and enjoy a new opportunity in life with a clear field for future effort." In re St. Laurent, 991 F.2d 672, 680 (11th Cir. 1993) (quotation omitted). "[T]his 'fresh start' policy is only available to the 'honest but unfortunate debtor,'" In re Fretz, 244 F.3d 1323, 1326 (11th Cir. 2001) (quoting Grogan v. Garner, 498 U.S. 279, 286-87 (1991)), and under 11 U.S.C. § 523, certain types of debts are not dischargeable. A debt incurred "for willful and malicious injury by the debtor toanother entity or to the property of another entity" is one such non-dischargeable debt. 11 U.S.C. § 523(a)(6). For creditors asserting that a debt is non-dischargeable, the Federal Rules of Bankruptcy Procedure provide that the proper means to achieve a non-dischargeability determination is through an adversary proceeding. See Fed. R. Bankr. P. 7001(6). An adversary proceeding is commenced by the filing of a complaint, which usually must be done with the same court that is handling the bankruptcy petition. See Fed. R. Bankr. P. 5005(a)(1); 7003.

"[A] complaint to determine the non-dischargeability of a debt under [11 U.S.C.] § 523(c) shall be filed no later than 60 days after the first date set for the meeting of creditors." Fed. R. Bankr. P. 4007(c). Although the bankruptcy court may extend this deadline for cause upon the motion of a party in interest, the motion must be filed before the deadline expires. See id. We have explained that Rule 4007(c) removes a bankruptcy court's discretion to grant a late filed motion to extend time to file a dischargeability complaint. See In re Alton, 837 F.2d 457, 459 (11th Cir. 1988).

In this case, the bankruptcy court purported to extend the deadline for Mr. Beem to file his complaint after the deadline had expired. The district court, however, ruled that the bankruptcy court lacked the authority to retroactively extend this deadline. Mr. Beem has not challenged this ruling on appeal.Therefore, the only basis upon which Mr. Beem's non-dischargeability complaint could be timely is if it relates back, pursuant to Federal Rule of Bankruptcy Procedure 7015, to his motion to determine dischargeability that was filed in the main bankruptcy action before the deadline.

A

Bankruptcy Rule 7015 incorporates Federal Rule of Civil Procedure 15. Rule 15(c) provides, in relevant part:

(c) Relation Back of Amendments

(1) When an Amendment Relates Back. An amendment to a pleading relates back to the date of the original pleading when: ...

(B) the amendment asserts a claim or defense that arose out of the conduct, transaction, or occurrence set out - or attempted to be set out - in the original pleading.

We must first determine whether Mr. Beem's timely filed motion in the bankruptcy case functioned as an "original pleading" to which the untimely adversary complaint related back. If it does, we must then address the merits and consider whether the complaint's non-dischargeability allegations "arose out of the conduct, transaction, or occurrence set out—or attempted to be set out—in the original pleading."

We first address whether Mr. Beem's improperly filed and...