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In re Gault

United States District Court, E.D. Missouri, Eastern Division

December 2, 2014

In re DAVID ALLEN GAULT, et al., Debtors.
v.
ROBERT J. BLACKWELL, Trustee. TINSON MORRISON HECKER, LLP, Appellant,

MEMORANDUM AND ORDER

RONNIE L. WHITE, District Judge.

This matter is before the Court on the Notice of Appeal by Creditor Stinson Leonard Street f/k/a Stinson Morrison Hecker LLP (hereinafter "Stinson") (ECF No. 1), under 28 U.S.C. ยง158(a) or (b) from the Order of the United States Bankruptcy Judge granting Trustee's Objection to Claim #3-1 on June 16, 2014.

BACKGROUND

Mr. and Mrs. Gault (the "Gaults" or "Debtors") filed the underlying bankruptcy proceedings under Chapter 7. Mr. Brian Trost and Mrs. Susan Trost (the "Trosts") filed a proof of claim (Claim #2-1) based upon a state court judgment rendered in case captioned Brian Trost, et al. v. David Gault, et al., St. Charles County Circuit Court, State of Missouri, Cause No. 0811-CV07063 ("state court action" or "Gault Litigation"), for claims relating to the Trosts' purchase of the Gaults' former residence at 59 Burgundy Place Drive, Dardenne Prairie, MO 63368 (the "Property"). On the Trosts' behalf, Stinson tried the Gault Litigation and obtained a $472, 110 judgment in favor of the Trosts, which included an award of attorneys' fees to the Trosts (the "Judgment") and is the basis for the Trosts' proof of claim in the bankruptcy litigation.

Stinson filed a statutory attorney's lien pursuant to the Judgment. Stinson also filed a proof of claim in the underlying bankruptcy proceeding (Claim #3-1) based on its statutory attorney's lien against any funds that may be due from the Debtor's Estate to Stinson's former clients, the Trosts, as a result of the Judgment. In response, the Trustee filed an objection to insure proper credit was given to the extent Stinson's claim was secured in part and unsecured in part. Trustee specifically objected for the following reasons:

X No credit given for value of security. Security for said claim, either 59 Burgundy Place Dr., Dardenne Prairie, MO 63368, or the Judgment rendered 11/0112011 have not been liquidated.

X Trustee is prepared to consent to the allowance of said claim in the full amount as a fully secured claim not entitled to participate in any distribution from this Estate.

Stinson filed a response with the Bankruptcy Court, stating that Stinson was entitled to a distribution from the Estate to the extent that any funds that were paid to the Trosts on the Judgment up to the amount of Stinson's attorney's lien.

Prior to addressing Stinson's claim, the Bankruptcy Court avoided the majority of the judgment lien encumbering the Property, such that the secured portion of the lien was reduced to an amount of $52, 773.34, which amount is being held in escrow by Debtors' counsel subject to Stinson's attorney's lien claim against any distribution to the Trosts.[1] Ultimately, the Bankruptcy Court sustained the Trustee's Objection to Stinson's claim prohibiting Stinson from participating in any distribution from the Estate on the grounds that, "the debt is not a debt of the Debtor [sic]." Thereafter, Stinson filed this appeal.

STANDARD OF REVIEW

On appeal, "the district court reviews the bankruptcy court's legal conclusions de novo and its findings of fact for clear error." In re Tasic, No. 4:13CV00479 ERW, 2013 WL 2425133, at *3 (E.D. Mo. June 4, 2013)(citing In re O'Brien, 351 F.3d 832, 836 (8th Cir. 2003)).

DISCUSSION

Stinson raises one point on appeal, contending:

The Bankruptcy Court erred when it sustained Trustee's Objections to Appellant's Proof of Claim based on Appellant's attorney's lien because, even after crediting any secured portion of the lien, there remains an unsecured balance due and owing, Appellant was entitled to a claim against Mr. and Mrs. Trosts' distribution from the Estate in that the lien was established in ...

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