Opinion
No. CV 08-5023063
June 4, 2009
MEMORANDUM OF DECISION RE MOTION TO DISMISS #115
This action arises out of a real estate transaction in which the plaintiff, Stephanie Bernstein, attempted to purchase a residential property from two of the defendants, Shawn M. Coyne and Carter Bibb Bailey Coyne. The other defendants are CTRE, L.L.C., doing business as Prudential Connecticut Realty, which was the listing agent for the Coynes' property, and Lorey Walz, a licensed real estate agent who was CTRE's agent or employee.
In the revised complaint, which the plaintiff filed on November 6, 2008, she alleges the following facts that are relevant to the motion that is before the court. In June 2006, the plaintiff and the Coynes, acting through their agents, entered into a sale and purchase agreement (contract) in which the plaintiff agreed to purchase the Coynes' residential property in Madison, Connecticut, for a set price. The contract contained an addendum that made the sale contingent on the Coynes' purchase of another specific property in Clinton, Connecticut. Two weeks later, the Coynes made the following misrepresentations to the plaintiff's agent; that they had decided not to purchase the Clinton property; they had decided to stay in their residence; and, as a result, were exercising their right to rescind the contract. They also misrepresented to the plaintiff's agent that they would honor the plaintiff's right of first refusal to purchase the property in the future. Based on these misrepresentations, the plaintiff executed a rescission agreement. Three weeks later, the Coynes sold the property to another individual for $200,000 more than the price set in their contract with the plaintiff, and they then purchased the Clinton property.
The plaintiff commenced the present action in May 2008. In the twenty-three count revised complaint, the plaintiff alleges, inter alia, the following causes of action: in counts one through nine, respectively, claims against the Coynes for breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, fraud, "silent" fraud, innocent, negligent and reckless misrepresentation, and violations of the Connecticut Unfair Trade Practices Act (CUTPA); in counts ten through sixteen, respectively, claims against Walz for unjust enrichment, fraud, silent fraud, innocent, negligent and reckless misrepresentation, and violations of CUTPA; in counts seventeen through twenty-three respectively, claims against CTRE for unjust enrichment, fraud, "silent" fraud, innocent, negligent and reckless misrepresentation and violations of CUTPA.
On April 23, 2009, the Coynes filed a motion to dismiss the plaintiff's action on the ground that the court lacks subject matter jurisdiction over the action in that the plaintiff filed a petition in bankruptcy in October 2008, and her bankruptcy case remains pending, which both renders the issues raised in the action moot and deprives the plaintiff of her status as the real party in interest therein. In addition to a memorandum in support of the their motion, the Coynes also filed an exhibit that indicates that the plaintiff's bankruptcy case was converted to a chapter 7 case. On May 6, 2009, the plaintiff filed an objection to the motion in which she contends that the court has jurisdiction over her action because the bankruptcy trustee has not decided whether the estate will pursue or abandon the action. She attached a copy of a property schedule that she filed with the bankruptcy court in which she listed her interest in this action.
"[A] motion to dismiss . . . properly attacks the jurisdiction of the court, essentially asserting that the plaintiff cannot as a matter of law and fact state a cause of action that should be heard by the court." (Internal quotation marks omitted.) Caruso v. Bridgeport, 285 Conn. 618, 627, 941 A.2d 266 (2008). "When a [trial] court decides a jurisdictional question raised by a pretrial motion to dismiss, it must consider the allegations of the complaint in their most favorable light . . . The motion to dismiss . . . admits all facts which are well pleaded, invokes the existing record and must be decided upon that alone . . . Where, however . . . the motion is accompanied by supporting affidavits containing undisputed facts, the court may look to their content for determination of the jurisdictional issue . . ." (Citation omitted; internal quotation marks omitted.) Cogswell v. American Transit Ins. Co., 282 Conn. 505, 516, 923 A.2d 638 (2007). In such cases, the court "need not conclusively presume the validity of the allegations of the complaint." (Internal quotation marks omitted.) Ferreira v. Pringle, 255 Conn. 330, 346-47, 766 A.2d 400 (2001).
The issues of mootness and the plaintiff's status as the real party in interest implicate the justicability of the action. "[J]usticability comprises several related doctrines [including, inter alia], standing . . . [and] mootness . . . that implicate a court's subject matter jurisdiction and its competency to adjudicate a particular matter . . . A case that is nonjusticiable must be dismissed for lack of subject matter jurisdiction." (Citation omitted; internal quotation marks omitted.) Chapman Lumber, Inc. v. Tager, 288 Conn. 69, 86, 952 A.2d 1 (2008).
The Coynes assert that the plaintiff's claims are moot and that she is not longer the real party in interest because she filed a petition for bankruptcy under chapter 13 of the United States Bankruptcy Code, the matter was converted to a chapter 7 case, and it remains pending in the bankruptcy court. This argument implicates the justicability elements of mootness and standing. The plaintiff admits that she filed a petition for bankruptcy in October 2008, that her bankruptcy action has been converted to a chapter 7 action, and that it is still pending. Furthermore, she does not dispute that the present action has become part of the bankruptcy estate. Nevertheless, she argues that this court continues to have subject matter jurisdiction over this action because she listed her interest in the action in the amended schedule of personal property that she filed with the bankruptcy court, and the bankruptcy trustee might decide to abandon this property interest, in which case, it would revert back to her.
Although the Connecticut appellate courts have not ruled on the issue of whether a plaintiff's filing of a petition for bankruptcy deprives the court of subject matter jurisdiction, numerous Connecticut trial court judges have done so, as have judges in the federal courts. Generally, in these decisions, the courts agree that if a plaintiff files a petition for bankruptcy, and while the matter is in chapter 7, the plaintiff no longer has standing to pursue a civil action on claims that accrued prior to the filing of the petition, which in turn, deprives the court of subject matter jurisdiction over the action, unless or until the bankruptcy trustee properly abandons the action. See, e.g. Rosado v. GMAC Mortgage Corp., Superior Court, judicial district of New Haven, Docket No. CV 04 4002609 (March 30, 2007, Holden, J.); Chartschlaa v. Nationwide Mutual Ins. Co., 538 F.3d 116, 122 (2d Cir. 2008), cert. denied, 129 S.Ct. 1534, 173 L.Ed.2d 658 (2009). This is consistent with the principle, which the Connecticut Supreme Court has recognized on other contexts, that "[a party's] [s]tanding can be lost if [the] party is divested of the property which is the subject of the action after the action has begun. Southbury v. American Builders, Inc., 162 Conn. 633, 634, [ 295 A.2d 566] (1972). This principle of loss of standing applies to lawsuits commenced by the debtor before [filing for] bankruptcy. Mele v. First Colony Life Ins. Co., 127 B.R. 82, 85 [(Bankr. D. D.C. 1991)]." Willis v. Ribiero, Superior Court, judicial district of Windham at Putnam, Docket No. CV 91 004357 (May 30, 1996, Sferrazza, J.).
The following succinctly summarize the conclusions reached by the judges of the Superior Court. "When an individual files for bankruptcy an estate is created which is comprised of all legal or equitable interests of the debtor in property as of the commencement of the case, 11 U.S.C. § 541(a), including all legal causes of action held by the debtor . . . Pursuant to 11 U.S.C. § 541(a)(1) all property of the debtor, including chose in action and pending suits, becomes the property of the bankruptcy estate and is under the exclusive control of the bankruptcy trustee . . . By virtue of 11 U.S.C. § 554(d), this property remains part of the [e]state unless and until the trustee abandons the lawsuit back to the debtor . . . Property of the estate includes causes of action belonging to the debtor which accrued prior to the filing of the bankruptcy petition . . . and a cause of action is part of the estate even if the debtor fails to schedule the claim in his petition . . . Therefore, [a]ctions brought on behalf of a bankruptcy estate must be brought in the name of the trustee as the real party in interest." (Citations omitted; internal quotation marks omitted.) Rosado v. GMAC Mortgage Corp., supra, Superior Court, Docket No. CV 04 4002609. See also Christophe v. Somerset Capital Group, Superior Court, judicial district of Fairfield at Bridgeport, Docket No. CV 06 5003587 (March 7, 2007, Matasavage, J.) (43 Conn. L. Rptr. 49, 50), and cases cited therein.
11 U.S.C. § 541(a) provides in relevant part: "the commencement of a case under sections 310, 302, or 303 of this title creates an estate. Such estate is comprised of all the following property, wherever located and by whomever held: (1) Except as provided in subsections (b) and (c) of this section, all legal or equitable interests of the debtor in property as of the commencement of the case . . ."
As used in this statute, "[t]he phrase `legal or equitable interests . . . in property' [includes] choses in action and other legal claims that could be prosecuted for the benefit of the estate." Cable v. Ivy Tech State College, 200 F.3d 467, 472-73 (7th Cir. 1999). See also Chartschlaa v. Nationwide Mutual Ins. Co., supra, 538 F.3d 122 (causes of action owned by debtor are clearly within reach of § 541).
11 U.S.C. § 554(d) provides: "Unless the court orders otherwise, property of the estate that is not abandoned under this section and that is not administered in the case remains property of the estate."
For emphasis, another judge noted: "Once a Chapter 7 petition is filed, the trustee becomes the proper party to maintain a cause of action on behalf of the debtor . . . Thus, neither the former owner nor the bankruptcy estate is a proper party, while the estate is in bankruptcy under Chapter 7. The trustee is the proper party . . . Actions brought on behalf of a bankruptcy estate must be brought in the name of the [t]rustee as the real party in interest . . . Only the trustee in bankruptcy could prosecute [a] claim that is an of a bankrupt estate . . . [Such claims] belong exclusively to the trustee in bankruptcy." (Citations omitted; internal quotation marks omitted.) Dana Investment Corp. Bankruptcy Estate v. Robinson Cole, Superior Court, complex litigation docket at New Britain, Docket No. X03 CV 02 0515043 (January 2, 2003, Aurigemma, J.).
"Because a debtor in a bankruptcy case is not the owner of an unscheduled claim that has not been abandoned back to him, he has no standing to assert it; accordingly, no court has subject matter jurisdiction to entertain his claim." (Internal quotation marks omitted.) Rosado v. GMAC Mortgage Corp., supra, Superior Court, Docket No. CV 04 4002609.
The plaintiff correctly notes that if a bankruptcy trustee abandons a cause of action that was owned by the debtor, the debtor "[regains] standing to pursue [the] cause of action . . ." Williams v. United Technologies Carrier Corp., United States District Court, Docket No. 02 CV 1036 (S.D.Ind. March 25, 2006). "The ordinary rule is that, when a trustee abandons property of the bankrupt, title reverts to the bankrupt, nunc pro tunc, so that he is treated as having owned it continuously." Wallace v. Lawrence Warehouse Co., 338 F.2d 392, 394 n. 1 (9th Cir. 1964).
"Pursuant to 11 U.S.C. § 554, abandonment of estate property occurs in several different ways. The trustee may affirmatively `abandon any property of the estate that is burdensome or that is of inconsequential value and benefit to the estate.' 11 U.S.C. § 544(a). Alternatively, a bankruptcy court may order the trustee to abandon estate property that is burdensome or of inconsequential value at the request of a party. 11 U.S.C. § 544(b). Finally, `[u]nless the court orders otherwise, any property scheduled under section 521(1) of this title not otherwise administered at the time of the closing of a case is abandoned to the debtor . . .' 11 U.S.C. § 544(c)." Williams v. United Technologies Carrier Corp., supra, United States District Court, Docket No. 02 CV 1036.
"The burden of demonstrating trustee abandonment of estate property is on the party claiming abandonment. Mele v. First Colony Life Ins. Co., supra, [127 B.R.] 85." Willis v. Ribiero, supra, Superior Court, Docket No. CV 91 004357. Similarly, "[i]t is the burden of the party who seeks the exercise of jurisdiction in his favor . . . clearly to allege facts demonstrating that he is a proper party to invoke judicial resolution of the dispute." (Internal quotation marks omitted.) May v. Coffey, 291 Conn. 106, 113 (2009).
In the present case, the plaintiff does not present any evidence that her action against the defendants has been abandoned. Indeed, she states that the trustee "has not yet decided whether the estate will pursue or abandon the Plaintiff's claim." She then asserts, without citing to any authority, that the court retains its subject matter jurisdiction over the action until the trustee makes his decision. This assertion is contrary to the authority, referred to above, that the plaintiff as the debtor is not "a proper party, while the estate is in bankruptcy under Chapter 7. The trustee is the proper party . . . [Such claims] belong exclusively to the trustee in bankruptcy." (Citations omitted; internal quotation marks omitted.) Dana Investment Corp. Bankruptcy Estate v. Robinson Cole, supra, Superior Court, Docket No. X03 CV 02 0515043.
Furthermore, "`[a]bandonment' is a term of art with special meaning in the bankruptcy context. It is the formal relinquishment of the property at issue from the bankruptcy estate." Catalano v. Commissioner of Internal Revenue, 279 F.3d 682, 685 (9th Cir. 2002). "The requirements are exacting, in recognition of the potential harm to creditors from the trustee's abandoning property to which they would otherwise be entitled because it is property of the estate in bankruptcy, and of the fact that abandonment is revocable only in very limited circumstances . . ." (Internal quotation marks omitted.) Morlan v. Universal Guaranty Life Ins. Co., 298 F.3d 609, 618 (7th Cir. 2002), cert. denied, 537 U.S. 1160, 123 S.Ct. 968, 154 L.Ed.2d 893 (2003). "In light of the impact of abandonment on the rights of creditors, a trustee's intent to abandon an asset must be clear and unequivocal . . . Absent an unambiguous intent to abandon estate property, the proposed abandonment is not effective." Chartschlaa v. Nationwide Mutual Ins. Co., supra, 538 F.3d 123-24.
Therefore, the plaintiff is no longer the real party in interest in this action, as she lost her standing to pursue it when her bankruptcy matter was converted to a chapter 7 case, and this action became part of the bankruptcy estate. Because the plaintiff has not presented any evidence that the bankruptcy trustee has abandoned the action, she has not regained her standing. Therefore, the court lacks subject matter jurisdiction over the action.
Both parties recognize the possibility that the court might have retained its jurisdiction over the matter if the bankruptcy trustee filed a motion to substitute himself as the plaintiff in this action. See Christophe v. Somerset Capital Group, supra, 43 Conn. L. Rptr. 50-51; Dilieto v. County Obstetrics Gynecology Group, Superior Court, complex litigation docket at Waterbury, Docket No. X02 CV 97 0150435 (January 31, 2000, Sheldon, J.) [26 Conn. L. Rptr. 345]. Unfortunately for the plaintiff, the trustee has not done so.
For the foregoing reasons, the Coynes' motion to dismiss is granted.