Filed: Jul. 28, 2009
Latest Update: Apr. 11, 2017
Summary: United States Court of Appeals FOR THE EIGHTH CIRCUIT _ No. 07-3782 _ In re: Linda Morgan; * James Morgan, * * Debtors. * * * James Morgan; Linda Morgan, * * v. * * Jo-Ann L. Goldman, * Appeal from the United States * Bankruptcy Appellate Panel Appellant, * for the Eighth Circuit. * Bank of America; Capitol One Bank; * AR Specialty Care Centers; * eCAST Settlement Corporation; * DeWitt Bank & Trust Company; * DeWitt City Hospital; Discover Bank; * St. Vincent’s Health System; and * Kyle Havner.
Summary: United States Court of Appeals FOR THE EIGHTH CIRCUIT _ No. 07-3782 _ In re: Linda Morgan; * James Morgan, * * Debtors. * * * James Morgan; Linda Morgan, * * v. * * Jo-Ann L. Goldman, * Appeal from the United States * Bankruptcy Appellate Panel Appellant, * for the Eighth Circuit. * Bank of America; Capitol One Bank; * AR Specialty Care Centers; * eCAST Settlement Corporation; * DeWitt Bank & Trust Company; * DeWitt City Hospital; Discover Bank; * St. Vincent’s Health System; and * Kyle Havner. *..
More
United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 07-3782
___________
In re: Linda Morgan; *
James Morgan, *
*
Debtors. *
*
*
James Morgan; Linda Morgan, *
*
v. *
*
Jo-Ann L. Goldman, * Appeal from the United States
* Bankruptcy Appellate Panel
Appellant, * for the Eighth Circuit.
*
Bank of America; Capitol One Bank; *
AR Specialty Care Centers; *
eCAST Settlement Corporation; *
DeWitt Bank & Trust Company; *
DeWitt City Hospital; Discover Bank; *
St. Vincent’s Health System; and *
Kyle Havner. *
*
*
National Association of *
Chapter 13 Trustees, *
*
Amicus on Behalf *
of Appellant. *
___________
Submitted: December 12, 2008
Filed: July 28, 2009
___________
Before MELLOY and BENTON, Circuit Judges, and MAGNUSON,1 District Judge.
___________
MELLOY, Circuit Judge.
Jo-Ann Goldman, a Chapter 13 bankruptcy trustee, appeals a Bankruptcy
Appellate Panel (“BAP”) decision that affirmed a bankruptcy court2 order removing
her as trustee from all cases assigned to her in the Eastern and Western Districts of
Arkansas. We affirm.
I.
Goldman was appointed trustee for James and Linda Morgan, who filed a
voluntary Chapter 13 bankruptcy petition on March 3, 2003. On July 30, 2003, the
bankruptcy court confirmed a plan for the Morgans providing that: (1) the Morgans
would pay $775 per month for 58 months to Goldman, the trustee; (2) the Morgans’
residential-mortgage lender, DeWitt Bank & Trust, would be paid the full value of its
secured claim, $32,500 with interest; (3) the remaining unsecured creditors would
“receive a pro-rata dividend from funds remaining after payment of administrative,
secured, priority, child support, and special nonpriority unsecured claims”; and (4) the
1
The Honorable Paul A. Magnuson, United States District Judge for the District
of Minnesota, sitting by designation.
2
The Honorable James G. Mixon, United States Bankruptcy Judge for the
Eastern District of Arkansas.
-2-
Morgans would “submit all projected disposable income for the benefit of unsecured
creditors during the first 36 months of the plan.”
On March 29, 2005, the Morgans moved for the bankruptcy court’s approval
to settle a tort claim that they had listed in their schedules as an unliquidated claim
with an unknown value. According to their motion, the Morgans intended to submit
their proceeds from the proposed settlement, which amounted to approximately
$30,000, to Goldman “to be distributed pursuant to [their] confirmed plan with the
exception that [they would] be allowed to request a refund in a sum sufficient to
replace the roof on their home and repair [their] vehicle.”
After the Morgans submitted their motion but before the court ruled, Goldman
and one of the Morgans’ lawyers, Jeremy Bueker, further discussed the disbursement
of the Morgans’ proposed settlement proceeds. In a series of emails, Bueker told
Goldman that, rather than paying the proposed settlement proceeds to unsecured
creditors, the Morgans wanted Goldman to use the proceeds to pay off their secured
mortgage with DeWitt Bank & Trust. Goldman responded that the proceeds were
“disposable income” earned within thirty-six months of the plan’s confirmation and
that, under the terms of the confirmed plan, the proceeds had to be paid to unsecured
creditors. Goldman stated, however, that she could pay the secured mortgage if the
Morgans’ increased their base payments and the settlement proceeds came to her
office without specific instructions from the bankruptcy court. Bueker, who was
drafting a proposed settlement-approval order for the bankruptcy court, replied to
Goldman:
If I state [in the proposed order] that the money comes to your office
period, will you first pay off secured and then priority claims before
money is disbursed to unsecured creditors? If not, I think the [Morgans]
are better off dismissing or converting to Chapter 7. I advised them to
proceed this way so that their house would be paid off.
-3-
Goldman responded, “I will pay it out but add whatever the amount is to the base, so
the unsecured creditors are being paid with monthly payments.” Bueker then sent
Goldman a proposed court order authorizing the Morgans’ tort settlement, which he
subsequently submitted to the bankruptcy court. The order simply instructed the
Morgans to pay their settlement proceeds to Goldman and provided that the Morgans
could “apply for a refund from said funds.” The court entered the order without
objection.
In May 2005, Goldman received the Morgans’ settlement proceeds. The
Morgans requested approximately $9,000 of the proceeds to repair their home and car,
and Goldman refunded the Morgans approximately $10,000 for those purposes.
Goldman later testified that she had intended to place a notation in the Morgans’ file
instructing her employees not to disburse the remaining $20,000 to unsecured
creditors, but she failed to make such a notation. Thus, Goldman’s office distributed
the Morgans’ remaining settlement proceeds to the Morgans’ unsecured creditors
instead of paying the Morgans’ secured mortgage with DeWitt Bank & Trust.
On August 30, 2005, the Morgans sued Goldman and their unsecured creditors
to recover the disbursed settlement proceeds. The Morgans argued that turnover of
the proceeds was necessary because the confirmed plan required Goldman to pay their
secured creditors first and, alternatively, because Goldman had agreed with Bueker
to use the proceeds to pay off their secured mortgage. Goldman responded that the
distribution of the proceeds to the unsecured creditors had been appropriate because
the proceeds were disposable income earned within thirty-six months of the
bankruptcy court’s confirmation of the Morgans’ bankruptcy plan.
On May 10, 2006, the bankruptcy court held a hearing regarding the Morgans’
claim. As relevant to this matter, one of the Morgans’ attorneys cross-examined
Goldman concerning her agreement with Bueker. They had the following exchange:
-4-
Q: The conversation that you talked about with Mr. Bueker, this
was after the order had been entered of record and the funds disbursed?
A: Oh, no. We had telephone conversations during the course of
the e-mail correspondence. Our total conversations were not limited to
e-mail.
Q: Okay. But you agree that the e-mail is very clear as —
A: Yes.
Q: — that you would disburse the money to the secureds first?
A: Yes.
....
Q: But your e-mail with Mr. Bueker was that you would pay [the
settlement proceeds] to secured [sic]?
A: As a professional courtesy, and with the meeting of the minds
that the debtor intended on staying in 58 months, I was willing to grant
his request.
Q: Okay. But then it didn’t happen?
A: Unfortunately, I didn’t docket that in the docket.
Q: Okay.
A: And my staff, it disbursed as it normally would pursuant to
office procedure.
The bankruptcy court also questioned Goldman regarding her disputed agreement with
Bueker and, in response to the court’s questions, Goldman gave the following
testimony:
-5-
THE COURT: Okay. So what happened here is you agreed to,
with Mr. Bueker, if he would give you the money you would disburse it
to the secured creditor and then you didn’t make that proper note or
something in the docket, and the money went out contrary to your
agreement?
THE WITNESS: Well, realize though this wasn’t to get the
money.
THE COURT: Okay. I understand.
THE WITNESS: I knew I was going to get the money.
THE COURT: That’s right.
THE WITNESS: So it was just under the terms we don’t want
that to be a restrictive order telling the Trustee how to disburse, so we
always request that it come in and it be disbursed pursuant to the
confirmed plan.
And had these e-mails not been exchanged or I had docketed it
correctly I was—that would have been a professional courtesy to do that
for him because the net result would have been the same, would have
been the only reason why. I rarely ever by e-mail agree to do that.
THE COURT: And the answer to my question is, “Yes,” then
that’s what happened?
THE WITNESS: Yes. Yes, that’s what happened.
THE COURT: All right. Okay. And then you agreed to that
under the assumption that he would continue to pay the plan over the
balance of the 58 months?
THE WITNESS: That’s right.
THE COURT: Was that ever expressly agreed to between you and
Mr. Bueker—
-6-
THE WITNESS: Well—
THE COURT: —as a quid pro quo that you would agree to do
this if he would stay for 58 months?
THE WITNESS: We were having a banter back and forth, and in
particular I remember a telephone conversation where I said, “Why does
it matter if the unsecured”—
THE COURT: No, no. Listen to my question. Was that
specifically agreed to that you would pay the secured claims with that
money if he would stay in for 58 months?
THE WITNESS: No.
THE COURT: There was no specific?
THE WITNESS: No.
THE COURT: It was just discussed?
THE WITNESS: No. It was just discussed.
THE COURT: Okay. And you sort of assumed that he would do
that.
THE WITNESS: I sort of assumed and hoped that he would—
THE COURT: Okay.
At the conclusion of the hearing, the bankruptcy court stated that “it may be that there
will have to be some action on the Trustee’s bond because [Goldman] admit[ted] to
agreeing to [pay the secured creditor], and it was just some sort of administrative error
that resulted in [the payment] not happening.” Goldman did not object to the court’s
finding, and the court took the matter under advisement.
-7-
Following the May 2006 hearing, the parties met and proposed a settlement
whereby Goldman agreed to recover sufficient payments from the unsecured creditors
to pay the remaining principal of the Morgans’ mortgage. On July 5, 2006, the
bankruptcy court held a hearing to discuss the parties’ proposed settlement. Goldman
did not testify at the hearing, but her attorney discussed with the court the payout of
the Morgans’ settlement proceeds and recognized on the record that Goldman had
made an agreement with Bueker. In particular, Goldman’s attorney stated that
Goldman’s “policy was to disburse [funds] the way she wanted to, but out of a
professional courtesy to [Bueker’s] office she did agree to a different disbursement,
against probably her better judgment, and presupposed some other conditions that now
have not happened.” Additionally, the court stated:
And I believe [Goldman’s previous] testimony was that in her opinion
she disbursed—it was disbursed correctly, even though contrary to the
agreement that you had, but that she and Mr. Bueker had cut an
agreement where she was going to disburse it the way he wanted to
because she had reasons that if you paid out—if the plan paid out the
total number of months that it was proposing to do, that it would be as
broad as it was long, and that everybody would get the same amount of
money.
The court also observed that Goldman had “acknowledged that she made the
agreement and that it was an inadvertent error that [the settlement proceeds] got paid
to the unsecureds.” Goldman’s attorney did not contest these statements.
At the conclusion of the July 2006 hearing, the bankruptcy court rejected the
parties’ proposed settlement because the court concluded that it had no authority to
require the unsecured creditors to turn over the disbursed proceeds. Additionally, the
court again acknowledged on the record that Goldman had made an agreement with
Bueker and that Goldman had not distributed the Morgans’ settlement proceeds in
accordance with that agreement. Nonetheless, the court stated that the Morgans’ off-
the-record request to have Goldman pay their mortgage in lieu of paying the
-8-
unsecured creditors was in violation of their confirmed plan. Therefore, the court
found that the Morgans were estopped from recovering damages for Goldman’s
“failure to fulfill her promise,” and it dismissed the Morgans’ claim.
On October 13, 2006, the Morgans moved to amend the bankruptcy court’s
judgment or, alternatively, for a new trial. On November 7, 2006, the bankruptcy
court held a hearing on the Morgans’ motion. During the hearing, Goldman testified
again about her conversations with Bueker and denied that she had ever reached an
agreement with him regarding the payout of the Morgans’ settlement proceeds. In
particular, the court and Goldman had the following exchange:
THE COURT: Okay. But now, do I understand your testimony
to be that you deny that you had an—that you made an agreement with
Mr. Bueker that you would distribute that 20,000 to the secured claim at
the Bank of DeWitt?
THE WITNESS: That’s correct.
THE COURT: Did you—
THE WITNESS: I have e-mail and phone conversations with
attorneys everyday about how the plans are interpreted. And without a
modification of the plan, I would disburse the money as the plan is
interpreted.
THE COURT: You don’t recall those e-mails where you—where
they purport to show that you agreed to do that?
THE WITNESS: Yes, I recall the e-mails. I had numerous phone
conversations with him and numerous e-mails about how the money
would be disbursed. And I explained to Mr. Bueker on numerous
occasions, and I testified to this in the original hearing, and that was that
that’s not the way I read the plan, that’s not the way my office regularly
disburses the money.
-9-
I suppose that if what he’s saying is true, it could be interpreted
that way. But if he was arguing to me, it wouldn’t make a difference
because the unsecured creditors would get the benefit of the money.
The end result of my last conversation was: “Then why do you
care? What’s the difference?”
But none of that—I do not send e-mails and modify plans by
virtue of e-mails. I can’t do that. I have no power to do that.
The only thing I can modify a plan, is a modification of the plan.
THE COURT: So you deny his allegation that you agreed to pay
the 20,000?
THE WITNESS: Yes.
THE COURT: With him?
THE WITNESS: Yes.
THE COURT: Okay.
At the hearing’s conclusion, the court characterized Goldman’s testimony as “new”
and took the Morgans’ motion under advisement.
On November 20, 2006, the bankruptcy court filed an order denying the
Morgans’ motion to amend its judgment or, alternatively, for a new trial. The court
also issued a sua sponte order directing Goldman to show cause why it should not
remove her as the Morgans’ trustee “for cause” for giving “false testimony under
oath.”3 The court specifically stated that, in the November 2006 hearing, Goldman
3
The court also stated that “[f]urther cause exist[ed] to remove Ms. Goldman
as Trustee because she ha[d] a conflict of interest.” Specifically, the court stated that
Goldman was “a named defendant in her individual capacity” in the Morgans’
-10-
had “testified that she had no agreement with [Bueker] . . . when, in truth and fact, she
had made such an agreement.” As support for that conclusion, the court cited
Goldman’s prior testimony, the emails between Goldman and Bueker, and the
Morgans’ and Bueker’s testimony. On December 15, 2006, the court further directed
Goldman “to show cause why she should not be removed as Trustee in all cases
assigned to her[,] . . . . suspended from practice before the United States Bankruptcy
Court . . . [,] or referred to the Arkansas Supreme Court Committee on Professional
Conduct” for giving false testimony. This second order was consistent with a
November 21, 2006 order in a separate case, In re Dedmon, where a different
bankruptcy court in the Eastern District of Arkansas had ordered Goldman to show
cause why she should not be removed for cause as trustee in that case and all other
cases and “sanctioned, suspended, or disbarred from practice” for her conduct in the
Morgans’ case.
Both the Morgan and Dedmon courts subsequently held hearings regarding
Goldman’s potential removal. Goldman testified at both proceedings and denied that
she had ever reached an agreement with Bueker regarding the disbursement of the
Morgans’ settlement proceeds. On March 15, 2007, the Dedmon court issued an order
removing Goldman from all of her cases in which she was serving as trustee. See In
re Dedmon, 366 B.R. 1, 3 (Bankr. E.D. Ark. 2007), rev’d, In re Morgan,
375 B.R.
838, 842 (B.A.P. 8th Cir. 2007). On April 3, 2007, the Morgan court filed a similar
order in which it concurred with the Dedmon court’s findings and removed Goldman
as trustee from all cases assigned to her in the Eastern and Western Districts of
Arkansas for giving “misleading and false testimony under oath at the November 7,
2006[] hearing.”4
turnover case and that her “interests [were] adverse to the interests of the estate over
which she [was] Trustee.”
4
Although referenced in the Morgan court’s show-cause order, the Morgan
court’s removal order did not address whether there had been a conflict of interest.
-11-
Goldman appealed both removal orders to the BAP, which consolidated her
appeals. The BAP reversed the removal order in Dedmon and affirmed the removal
order in Morgan. In re Morgan, 375 B.R. at 842. Goldman now appeals the BAP’s
affirmance of the Morgan court’s removal order.5 The National Association of
Chapter 13 Trustees has filed an amicus curiae brief in her support.
II.
When reviewing a BAP decision, “[w]e apply the same standard of review as
the BAP.” In re Racing Servs., Inc., 540 F.3d 892, 897–98 (8th Cir. 2008). “We
review the bankruptcy court’s findings of fact for clear error and its legal conclusions
de novo.” Id.
A.
Goldman first argues that the Morgan court’s order removing her as trustee in
all of her pending cases in the Eastern and Western Districts of Arkansas
unconstitutionally deprived her of property without due process of law. She argues
that she had a property interest in her position as trustee in the cases in which she had
already been appointed, and she claims that the Morgan court’s order deprived her of
that property interest without due process because the court’s sua sponte order biased
the court and unconstitutionally shifted the burden to her to demonstrate that she had
Additionally, the Morgan court chose not to suspend Goldman from practice before
the U.S. Bankruptcy Courts in Arkansas or refer her to the Arkansas Supreme Court’s
Committee on Professional Conduct because it found that removing Goldman as
trustee from all of her pending cases in Arkansas was a sufficient sanction.
5
Goldman was unopposed on her appeal to the BAP, and, likewise, there is no
appellee in this appeal. Thus, the BAP’s reversal of Dedmon is not before us, and we
rely on the record and written opinions of the bankruptcy court and BAP as support
for their respective positions.
-12-
given truthful testimony. She also asserts that the Due Process Clause required the
court to utilize additional proceedings or parties to resolve the matter. We review her
due process claims de novo. See Coal. for Fair and Equitable Regulation of Docks on
Lake of the Ozarks v. Fed. Energy Regulatory Comm’n, 297 F.3d 771, 778 (8th Cir.
2002) (“[W]e review de novo constitutional questions, such as . . . due process
claims.”).
“The Due Process Clause of the Fifth Amendment prohibits the United States
. . . from depriving any person of property without ‘due process of law.’” Dusenbery
v. United States, 534 U.S. 161, 167 (2002). For plaintiffs to establish unconstitutional
deprivations of property under the Fifth Amendment, they must show that they (1)
have protected property interests at stake and (2) were deprived of such property
interests without due process of law. Gordon v. Hansen,
168 F.3d 1109, 1114 (8th
Cir. 1999). Assuming without deciding that Goldman had a property interest in her
trustee position in the cases in which she had already been appointed, we reject her
claim that the Morgan court deprived her of such property without due process.
“Due process is a flexible concept, and its procedural protections will vary
depending on the particular deprivation involved.” Johnson v. Outboard Marine
Corp., 172 F.3d 531, 537 (8th Cir. 1999). “In general, due process requires that a
hearing before an impartial decisionmaker be provided at a meaningful time, and in
a meaningful manner.” Id. (quotation omitted); see Caperton v. A.T. Massey Coal
Co.,
129 S. Ct. 2252, 2259 (2009) (“It is axiomatic that a fair trial in a fair tribunal is
a basic requirement of due process.’” (internal quotation and alteration omitted)).
When analyzing a judicial-bias claim under the Due Process Clause, we start
with “a presumption of honesty and integrity in those serving as adjudicators.”
Withrow v. Larkin, 421 U.S. 35, 47 (1975); see Gordon, 168 F.3d at 1114 (“Although
the Due Process Clause requires a fair and impartial tribunal, we begin with a
presumption that decision-makers are honest and impartial.” (internal quotation and
-13-
alteration omitted)); see also Caperton, 129 S. Ct. at 2267 (Roberts, C.J., dissenting)
(“All judges take an oath to uphold the Constitution and apply the law impartially, and
we trust that they will live up to this promise.”). In the absence of a finding of actual
bias, our inquiry is objective. Caperton, 129 S. Ct. at 2263. We ask “not whether the
judge is actually, subjectively biased, but whether the average judge in his position is
‘likely’ to be neutral, or whether there is an unconstitutional ‘potential for bias.’” Id.
at 2262.
Based on the record, we reject Goldman’s judicial-bias claims. There is nothing
in the record to support a claim of actual bias, and we do not believe that the Morgan
court’s sua sponte action objectively “created a constitutionally intolerable probability
of actual bias.” Id. at 2262. The undisputed facts show that the Morgan court viewed
evidence and heard testimony first hand that led it to determine independently that
Goldman had made false statements under oath. See Caperton, 129 S. Ct. at 2261–62
(discussing the Court’s decision in In re Murchison, 349 U.S. 133 (1955) and
recognizing that “‘adjudication by a trial judge of a contempt committed in [a judge’s]
presence in open court cannot be likened to the [unconstitutional] proceedings [in
Murchison]’” (quoting Murchison, 349 U.S. at 137)). Moreover, while the court did
ask Goldman and other parties questions related to the existence of the disputed
agreement, we reject Goldman’s contention that such questioning actually or
objectively rendered the court a biased accuser, advocate, or prosecutor. Instead, the
record reflects that the court’s questioning was rooted in its role as a fact finder
attempting to resolve the conflict before it. That the court found factual
inconsistencies in Goldman’s testimony and attempted to clarify her statements does
not make it an accuser or a prosecutor, and there is nothing in the record that leads us
to believe that the Morgan court’s proceedings created an unconstitutional potential
for bias. For those reasons, we are unconvinced “under a realistic appraisal of
psychological tendencies and human weakness” that the Morgan court’s sua sponte
action “pose[d] such a risk of actual bias or prejudgment that the practice must be
forbidden if the guarantee of due process is to be adequately implemented.” Id. at
-14-
2263 (quotation omitted). Moreover, we do not believe that this case presents
“circumstances in which experience teaches that the probability of actual bias on the
part of the judge or decision-maker is too high to be constitutionally tolerable.” Id.
at 2259 (internal quotation omitted).
Furthermore, the record demonstrates that Goldman received substantial, fair
process before the Morgan court removed her as trustee in her pending cases. The
Morgan court’s decision to remove Goldman stemmed from evidence involving four
different hearings, and the parties were on notice throughout that the alleged
agreement between Goldman and Bueker was a significant issue in resolving their
dispute. In those four hearings, Goldman testified before the Morgan court three times
on the subject of the disputed agreement, and the court on several occasions stated on
the record its finding that the Morgans had proved that the alleged agreement existed.
Nonetheless, it was not until November 2006—approximately six months after the
court first announced its finding that Goldman had agreed to pay the Morgans’
mortgage—that Goldman refuted the court’s conclusion, which the court had
previously relied upon when dismissing the Morgans’ original claim against Goldman.
At that point, the court gave Goldman notice of its finding that she had given
inconsistent testimony and held a hearing to allow Goldman an opportunity to explain
her statements and present evidence. Contrary to Goldman’s claim, by doing so, the
Morgan court did not place an unconstitutional burden on Goldman to prove that her
prior testimony had been accurate. Rather, because the Morgans had already proven
the existence of the disputed agreement, the court’s hearing merely allowed Goldman
an opportunity to clarify her testimony.
Finally, we reject Goldman’s contention that the Due Process Clause requires
a bankruptcy court to utilize different procedures or additional parties, such as the
U.S. Trustee or the state bar, to resolve matters such as the one before us. In Mathews
v. Eldridge, 424 U.S. 319, 335 (1976), the Supreme Court instructed courts to apply
a flexible, three-part balancing test to determine whether procedural due process is
-15-
satisfied in a given case. That test considers: “(1) the private interest that will be
affected by the governmental action, (2) the risk of an erroneous deprivation of such
interest through the procedures used, along with the probable value, if any, of
requiring additional or substitute procedures, and (3) the governmental interest
involved, including the burdens that the additional or substitute procedures would
create.” Walters v. Weiss, 392 F.3d 306, 314 (8th Cir. 2004). Considering these
factors, we do not believe that the Due Process Clause entitled Goldman to alternative
procedures or additional party involvement in this case. Though we agree that
Goldman’s interest in her position is significant, the Morgan court relied upon a
developed, undisputed record to reach its decision, and Goldman had more than ample
opportunity to call witnesses and present evidence before the court. For these reasons,
we reject each of Goldman’s due process arguments.6
B.
Even if the Morgan court’s order did not violate the Due Process Clause,
Goldman claims that it was unlawful pursuant to stricter tenets of bankruptcy law. We
review interpretations of the Bankruptcy Code de novo. Velde v. Kirsch, 543 F.3d
469, 472 (8th Cir. 2008).
Goldman contends that the Morgan court’s sua sponte removal order was
inconsistent with 11 U.S.C. § 324, which provides:
6
Our conclusion should not be read to indicate, however, that it would not be
valuable, and arguably preferable, to ask a third party to prosecute a removal
proceeding. In particular, the U.S. Trustee, as the supervising agency for panel
trustees, could play a useful role in investigating and prosecuting a claim such as this.
In addition, we note that the task of reviewing courts such as the BAP and the court
of appeals is made more difficult when there is no appellee to defend the bankruptcy
court’s decision.
-16-
(a) The court, after notice and a hearing, may remove a trustee,
other than the United States trustee, or an examiner, for cause.
(b) Whenever the court removes a trustee or examiner under
subsection (a) in a case under this title, such trustee or examiner shall
thereby be removed in all other cases under this title in which such
trustee or examiner is then serving unless the court orders otherwise.
She claims that § 324 and the Bankruptcy Code itself do not authorize sua sponte
removals of private trustees and that, because the party seeking removal pursuant to
§ 324 has the burden to prove cause for removal, see In re Alexander, 289 B.R. 711,
714 (B.A.P. 8th Cir. 2003), a bankruptcy court cannot legally be both the party
seeking removal and the party adjudicating the matter. Goldman also argues that
removal under § 324 requires actual harm to the bankruptcy estate or its creditors and
that no such harm was present here.
Goldman’s arguments fail to recognize that the Morgan court not only acted
pursuant to § 324 of the Bankruptcy Code, but it also acted pursuant to 11 U.S.C.
§ 105(a). Section 105(a) states:
(a) The court may issue any order, process, or judgment that is
necessary or appropriate to carry out the provisions of this title. No
provision of this title providing for the raising of an issue by a party in
interest shall be construed to preclude the court from, sua sponte, taking
any action or making any determination necessary or appropriate to
enforce or implement court orders or rules, or to prevent an abuse of
process.
11 U.S.C. § 105(a).
Contrary to Goldman’s contention then, section 105(a) expressly provides
bankruptcy courts with authority to take sua sponte action to remove private trustees,
-17-
and it places no requirement of actual harm to the estate or its creditors when doing
so. Instead, § 105(a) allows courts to take such actions when “necessary or
appropriate to carry out the provisions of [the Bankruptcy Code]” or when “necessary
or appropriate to enforce or implement court orders or rules, or to prevent an abuse of
process.”
Here, the Morgan court’s removal order emphasized that Goldman’s testimony
lacked the candor that local and state rules require when trustees such as Goldman
testify, and Goldman does not dispute the existence or validity of those rules.
Moreover, besides attacking the Morgan court’s factual findings, Goldman makes no
argument that the Morgan court’s removal order was unnecessary or inappropriate to
implement or enforce those rules or the provisions of the Bankruptcy Code, or “to
prevent an abuse of process.” Id. Thus, pursuant to § 105(a), we reject Goldman’s
claim that the Morgan court’s sua sponte order was unlawful.
C.
Goldman’s third contention is that the Morgan court’s removal order is void
because it relied on the Dedmon court’s decision, which the BAP subsequently
reversed. This argument is factually unavailing.
While the Morgan court’s removal order referenced and concurred with the
Dedmon court’s order, a review of the Morgan court’s order reveals that the Morgan
court made independent findings sufficient to justify its action. The Morgan court
order specifically explained the court’s finding that Goldman had given false
testimony under oath, stated that the court “has to have complete confidence in a
Chapter 13 trustee’s testimony to effectively administer cases filed under Chapter 13,”
and, citing legal authority, stated that “Goldman’s testimony at the November hearing
lacked the candor required by [the court].”
-18-
Moreover, contrary to Goldman’s contention, the BAP’s reversal of the
Dedmon court did nothing to undermine the Morgan court’s conclusions. The BAP
reversed the Dedmon court for failing to give Goldman proper notice, specifically
finding that the Dedmon court’s show-cause order failed to “specify which of the
Morgan judge’s findings and conclusions formed the basis for removal and sanctions.”
In re Morgan, 375 B.R. at 849–50. The BAP, however, ruled that the Morgan court
had given Goldman appropriate notice, id. at 850–51, and the BAP affirmed the
Morgan court’s removal decision for the reasons contained in the Morgan court’s
order, see id. at 851–55. Thus, we reject Goldman’s claim that the BAP’s reversal of
the Dedmon court undermined the Morgan court’s order or rendered it a nullity.
D.
Goldman’s final arguments relevant to this appeal7 are that she did not give
false testimony, that the court failed to properly evaluate her testimony under a perjury
standard, and that any agreement with Bueker was not legally binding.
As already stated, “[w]e review the bankruptcy court’s findings of fact for clear
error and its legal conclusions de novo.” In re Racing Servs., Inc., 540 F.3d at
897–98. Based on Goldman’s testimony recounted above, we cannot say that the
Morgan court clearly erred in reaching its factual conclusion that Goldman gave false
testimony under oath. At the very least, Goldman’s testimony was inconsistent, and
she made no effort to clarify her initial testimony despite the Morgan court’s repeated
statements that it interpreted her testimony and the evidence to mean that she and
Bueker had reached an agreement that Goldman would use the Morgans’ settlement
7
Goldman’s brief makes additional arguments related to whether she had a
conflict of interest. The Morgan court’s removal order, however, did not reference
Goldman’s potential conflict of interest. Thus, the issue is irrelevant. Moreover, even
if the issue were relevant, our affirmance of Goldman’s removal on the grounds
related to her testimony renders any conflict-of-interest issue moot.
-19-
proceeds to pay off the Morgans’ secured mortgage with DeWitt Bank & Trust. Thus,
there is more than adequate evidence on the record to support the Morgan court’s
findings regarding the veracity of Goldman’s testimony.
Additionally, we reject Goldman’s invitation to apply a perjury standard in this
case. The Bankruptcy Code contains no requirement that bankruptcy courts apply a
perjury standard when evaluating testimony for truthfulness. Rather, the Code only
requires courts to make sufficient factual findings to support removal under § 105(a)
or § 324. See 11 U.S.C. §§ 105(a), 324; see also In re Walker, 515 F.3d 1204,
1212–13 (11th Cir. 2008) (affirming the removal of a bankruptcy trustee for giving
contradictory and false testimony and rejecting the perjury standard as “irrelevant” to
the proceedings because the trustee was not charged with or convicted of criminal
perjury). As explained above, the court made such findings here.
Finally, whether Bueker and Goldman entered into an agreement that was
legally binding is irrelevant for purposes of this appeal. The issue in this case is not
whether there was an agreement that was actually binding, it is whether Goldman gave
false testimony. As stated above, we cannot say that the bankruptcy court clearly
erred in finding that she did. Therefore, we reject Goldman’s remaining claims.
-20-
III.
We note that the sanction in this case, removal as trustee in all of Goldman’s
pending cases in the Eastern and Western Districts of Arkansas, is severe. That result,
however, is dictated by § 324(b) when a trustee is removed in any one case, and we
can find nothing in the record, nor any argument on appeal, that Goldman requested
the Morgan court to exercise its discretion and not remove her in all pending cases.
Goldman and amicus also do not contest the Morgan court’s or the BAP’s finding that
giving false testimony in a bankruptcy proceeding constitutes cause for removal of a
trustee under § 105(a) or § 324(a). Having determined that the bankruptcy court’s
action was permissible and that the record supported its findings, we therefore affirm
the BAP’s decision.
______________________________
-21-
