Cutcliff v. Reuter, No. 14-1730 (8th Cir. 2015)
Annotate this CasePlaintiffs claimed they were lured into making investments from which their money was “appropriated” and sued Nathan and Vertical Group. The district court entered an order of default against Vertical, but did not award damages at that time. Nathan filed for Chapter 11 bankruptcy. The district court closed the matter during the bankruptcy. Nathan proposed a Chapter 11 plan. The plaintiffs objected and brought an adversary proceeding, restating their allegations and asserting that their claims were non-dischargeable. The bankruptcy court agreed, rejected Nathan’s plan, awarded actual and punitive damages, and determined that Nathan’s bankruptcy estate acquired his interest in the Kathleen Trust, into which Nathan and his wife had transferred assets before his bankruptcy, but did not identify a specific value of Nathan’s interest. The court converted Nathan’s bankruptcy to a Chapter 7 bankruptcy. The trustee tried to reach Trust assets. The court concluded that Nathan’s powers as a co-trustee were property of his bankruptcy estate, but Nathan lacked authority to act as trustee without Kathleen’s consent and only Kathleen could revoke the trust. Plaintiffs reopened the original action to determine damages and to collect the Vertical judgment from Trust assets. The district court referred the matter to the bankruptcy court, which recommended awarding actual damages, punitive damages, and attorneys’ fees in the amount awarded in the bankruptcy adversary proceeding. The district court adopted the findings and entered a default judgment against Vertical. The Eighth Circuit dismissed Nathan’s appeal for lack of standing and affirmed as to Kathleen.
Court Description: Gruender, Author, with Loken and Melloy, Circuit Judges] Civil case - Bankruptcy. Kathleen Reuter had standing to appeal the bankruptcy court's decision with with respect to a trust when she was co-trustee and had sole power to revoke it and where the plaintiffs have indicated that they intend to use this action to reach the assets of the trust to satisfy a judgment; Nathan Reuter's powers as co-trustee became the property of his bankruptcy estate and he does not have standing to pursue this appeal; district court did not err in referring this matter to the bankruptcy court as the outcome of the case could conceivably have an effect on the bankruptcy estate; Kathleen's argument that the real party liable was a partnership between Nathan and another man was precluded by a default judgment plaintiff's obtained against Vertical Group and she could not contest the Group's liability; there was no need to hold an evidentiary hearing on the punitive damages issues as the record was sufficient to permit the bankruptcy court, which had longstanding familiarity with the case and the damages, to rule on the claims.
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