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In re Taylor

United States District Court, N.D. Illinois, Eastern Division

June 9, 2014

In re Charles Edward Taylor II, Debtor.
Charles Edward Taylor II, Appellee. Patricia Caiarelli, Madeline Gauthier, and Charles A. Kimbrough, Appellants,


EDMOND E. CHANG, District Judge.

Appellants Patricia Caiarelli and her attorneys, Madeline Gauthier and Charles A. Kimbrough, appeal from a Contempt Order, Damages Order, and Judgment that the bankruptcy court entered against them in Caiarelli's adversary proceedings against Debtor Charles Edward Taylor II.[1] R. 1, Notice of Appeal. The parties are still briefing the substantive issues on appeal; this Opinion deals with two preliminary motions. Twin City Fire Insurance Company, which is Gauthier and Kimbrough's legal malpractice insurance carrier, has moved to intervene in the appeal [R. 29], and Taylor has moved to dismiss the appeal [R. 32]. For the reasons discussed below, the Court denies both motions.

I. Background

The tangled history of litigation that has culminated in this appeal stems from a lawsuit that Caiarelli filed against Taylor in a Washington state court. See R. 1-26, Caiarelli's Adversary Compl. ¶¶ 8, 13 [Adv. Dkt. 1]. Caiarelli is the mother and guardian of Alexander Taylor, a minor.[2] Id. ¶ 8. Caiarelli's son was the primary beneficiary of her ex-husband's estate, and Charles Taylor was the estate's personal representative. Id. ¶ 12. In the Washington lawsuit, Caiarelli sought to recover assets from Taylor that she believed her ex-husband had bequeathed to her son. Id. ¶ 13. The state court ultimately entered a judgment against Taylor and, according to Caiarelli, assigned the judgment to Caiarelli. See id. ¶¶ 8, 16-17 & Exh. 1. Taylor, however, filed a Chapter 11 bankruptcy petition. In re Taylor, No. 12-16471 (Bankr. N.D. Ill.). So to recover the judgment that was allegedly assigned to her, Caiarelli had to initiate adversary proceedings against Taylor in which she sought an order from the bankruptcy court that the judgment against Taylor was not dischargeable under the Bankruptcy Code. See Caiarelli's Adversary Compl. ¶¶ 18-41. The bankruptcy court, however, dismissed Caiarelli's adversary proceeding, ruling that Caiarelli did not have standing to enforce the judgment against Taylor. R. 1-31, Order Granting Mot. Dismiss Adversary Proceeding [Adv. Dkt. 116]. The bankruptcy court found that the assignment to Caiarelli had not actually been finalized because the Washington court had not issued a formal order assigning the judgment to Caiarelli and instead the state court had stated in a letter that Caiarelli had skipped steps that were necessary to effectuate the assignment. See R. 1-31, 3/19/13 Tr. at 37-38, 42 [Adv. Dkt. 121]. To fix this problem, Caiarelli returned to the Washington court to request that the court ratify the assignment to her. See R. 1-3, Debtor's Mot. Enforce Discharge Inj., Debtor's Exh. 6, Caiarelli's Mot. Ratify Assignment [Dkt. 224-6]. The Washington court granted Caiarelli's request. See R. 1-3, Debtor's Mot. Enforce Discharge Inj., Debtor's Exh. 16, Order Ratifying Assignment [Dkt. 224-16].

What happened next is the subject of this appeal. Because Caiarelli, with the help of her Washington attorneys, Gauthier and Kimbrough, returned to the Washington state court to ratify this alleged assignment, the bankruptcy court, on Taylor's motion, held Caiarelli and her attorneys in civil contempt for violating the discharge injunction in place in Taylor's bankruptcy proceedings. See R. 1-23, Order Granting Mot. Enforce Discharge Inj. [Dkt. 278] [hereinafter Contempt Order]. The Contempt Order also declared that the Washington ratification order was void ab initio (meaning that the order was not just incorrect, it should not have been entered at all). Id. In September 2013, after briefing, an evidentiary hearing, and oral argument, the bankruptcy court also entered a Damages Order and Judgment in the amount of $165, 662.36 against Caiarelli, Gauthier, and Kimbrough, jointly and severally, as compensatory damages to Taylor. See R. 1-25, 9/24/13 Minute Order [Dkt. 293] [hereinafter Damages Order]; R. 1-25, Judgment [Dkt. 294].

Caiarelli, Gauthier, and Kimbrough now appeal all three orders: the Contempt Order, the Damages Order, and the Judgment. Notice of Appeal at 1. Appellants raise three issues in this appeal. First, they ask this Court to review whether Appellants violated the discharge injunction or Taylor's Plan injunction by proceeding in the Washington court on Caiarelli's motion to ratify the assignment. R. 21, Appellants' Br. at 1. Second, if they did violate the injunctions, they ask whether the bankruptcy court abused its discretion by holding them in civil contempt. Id. And finally, they ask whether the compensatory damages award was appropriate. Id. at 2.

While this appeal was pending and before briefing was completed, [3] Taylor notified the Court that he had reached a purported settlement with Twin City, which is Gauthier and Kimbrough's legal malpractice insurance carrier. See R. 25, Mot. Suspend Briefing at 1, 3. The principal terms of the settlement are memorialized in an email between Twin City's coverage counsel and one of Taylor's attorneys. See R. 32-1, Appellee's Exh. 1, 3/10/14 Hayes Email. Under the settlement, Twin City will pay Taylor $140, 000. Id. In return, Taylor will file a satisfaction and release of the Judgment in the bankruptcy court, as well as a joint motion with Twin City asking the bankruptcy court to vacate the Contempt Order, the Damages Order, and the Judgment. Id .; see also R. 32-2, Appellee's Exh. 2, Joint Mot. Vacate Contempt Order & J.

But in contrast to the insurer, two of the appellants-that is, Gauthier, and Caiarelli[4]-disagree that a full settlement has actually been reached. Initially, Taylor claimed that both Gauthier and Kimbrough consented to the settlement. See Mot. Suspend Briefing at 3; see also R. 25-2, Appellee's Exh. 2. Gauthier, however, denies that the parties have agreed on all of the material settlement terms. R. 39-1, Appellants' Exh. A, Gauthier Decl. ¶¶ 6-9. Gauthier also claims that Caiarelli, her client, does not consent to the settlement. Id. ¶¶ 7, 9. Despite this disagreement between Taylor and Gauthier, Taylor moved to dismiss this appeal as moot because of the settlement reached between Taylor and Twin City. R. 32, Mot. Dismiss Appeal.

To help the Court address this mootness issue, the Court asked Taylor to seek an indicative ruling from the bankruptcy court as to whether, upon remand, the bankruptcy court would grant Taylor's motion to vacate the Orders and Judgment against Caiarelli, Gauthier, and Kimbrough-the vacatur was a condition of the purported settlement, so it was important to find out what the bankruptcy court would do if asked to enter the vacatur. R. 35, 3/31/14 Minute Entry. In response to this request, the bankruptcy court stated, as relevant here:

[M]y indicative ruling would be that if the parties upstairs settle this, and they come in arm and arm, and they want me to-as a condition to effectuating the settlement, to vacate the contempt order, I'm perfectly happy to do that.... I just want to make clear that in vacating it, if we had Ms. Gauthier, for example, come back before me, and if she says that there is not a settlement agreement, that could have some impact on it.... If what is holding up the settlement is the existence of the contempt order, I will-I'm indicating that I would, in order to effectuate that settlement, be happy to vacate the contempt order. I think that's all I need to say....

R. 36-1, Appellee's Exh. 1, 4/8/14 Tr. at 4-6, 9. After the bankruptcy court responded in that way, the parties returned to this Court and completed briefing on both the dismissal motion and Twin City's motion to intervene. Just as before, Gauthier still asserts that she and Caiarelli do not agree to the settlement terms, and Gauthier also opposes Twin City's motion to intervene. It is now time to resolve both motions.

II. Analysis

A. Motion to Intervene

First, Twin City, which is Gauthier and Kimbrough's legal malpractice insurance carrier, moves to intervene in this appeal. Mot. Intervene. Under Rule 24(a), intervention as of right is available to anyone who has "an interest" in the action and "is so situated that disposing of the action may as a practical matter impair or impede the movant's ability to protect its interest." Fed.R.Civ.P. 24(a)(2). Intervention is not permitted, however, if the "existing parties adequately represent that interest." Id. The Seventh Circuit has clarified that courts must allow intervention as of right only when movants satisfy four requirements: "(1) their motions to intervene were timely; (2) they possess an interest related to the subject matter of the... action; (3) disposition of the action threatens to impair that interest; and (4) the [parties] fail to represent adequately their interest." Ligas ex rel. ...

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