Opinion
CIVIL NO. AMD 04-438
May 5, 2004
APPEAL FROM BANKRUPTCY CASE NO. 00-60732-JS
MEMORANDUM OPINION
This is an appeal from an order of the bankruptcy court. See In re Inner City Mgt., Inc., 304 B.R. 250 (Bankr. D. Md. 2003). Michael Bogdan and Inner City Management, LLC, debtors, filed voluntary Chapter 7 bankruptcy petitions on August 25, 2000. Appellant Sean C. Logan, the Trustee, seeks review of the bankruptcy court's dismissal of an amended complaint in an adversary proceeding. The issues have been fully briefed and oral argument is not needed. The order of the bankruptcy court shall be affirmed.
I.
On June 25, 2002, the Trustee filed a ten-count complaint against 46 defendants including appellees, JKV Real Estate Services, Inc., John K. Voyatzis, Stewart Title Guarantee Company, and Fidelity National Title Insurance Company, alleging breach of contract, fraud, civil conspiracy, and negligence. Id. at 252. The Trustee sought damages arising out of a fraud scheme to obtain mortgage loans. The bankruptcy court dismissed the initial complaint, largely on the ground of misjoinder, granting leave to file separate complaints against the various defendants. Thereafter, the Trustee filed amended complaints, one of which is the subject of this appeal.
The amended complaint against the appellees alleged, among other things, that debtor Bogdan participated with appellees in the scheme to obtain loans for the purchase of real property in Baltimore City, by submitting false and fraudulent documentation, e.g., inflated appraisals, as part of the loan applications, with the purpose of engaging in illegal "flipping" of real property. As a result of the scheme, mortgage lenders made loans secured by rental properties worth far less than the mortgage securing the property. Id. The real estate settlement agents involved in the scheme, including one of the appellees, disbursed the loan proceeds for the purchased properties contrary to the mortgage lenders' instructions, allowing the participants to receive substantial cash from the proceeds of the mortgage loans. Id.
The bankruptcy court dismissed the amended complaints. It held, citing numerous cases, that the Trustee lacked standing to sue the appellees, both because the ostensible claims belonged to the victim lenders, and also because the Trustee was precluded by the doctrine of in pari delicto. Id. at 254. (Indeed, Bogdan pled guilty in this court to charges arising out of the scheme.) Furthermore, the bankruptcy court held that the formal assignment to the Trustee of specific claims against the debtors by the mortgage lenders and/or the purchasers of the mortgages was insufficient to provide standing to the Trustee. Id. ("To grant such standing not specifically authorized by the Bankruptcy Code would unlawfully expand the traditional powers of bankruptcy trustees and defeat the statutory scheme created by Congress."). The Trustee has appealed.
II.
Appellee Fidelity National Title Insurance Company has moved to dismiss the appeal as untimely. Under Bankruptcy Rule 8002, a notice of appeal shall be filed with the clerk within ten days of the date of entry of the judgment, order, or decree appealed from; otherwise, this court lacks jurisdiction to hear the appeal. Souza v. United States, 795 F.2d 855, 857 (9th Cir. 1986). Fidelity's motion requires that I determine the date on which the bankruptcy court's order was in fact entered.
As noted above, the Trustee initially filed a single complaint against numerous defendants, including Fidelity. After dismissing the complaint, the bankruptcy court allowed the Trustee to file five separate amended complaints, all of which related back to the date of the original complaint. The clerk assigned separate adversary proceeding numbers to each of the amended complaints and established separate dockets for each. However, the bankruptcy court treated the adversary proceedings as part of a consolidated proceeding. It issued a single memorandum opinion granting the motions to dismiss with respect to the five amended complaints.
The timeliness issue presented here arose when, on October 7, 2003, the clerk docketed the court's order in only four of the proceedings. The fifth order, relating to the amended complaint in this case, was not filed until December 2, 2003, although the clerk docketed the date of entry as October 7, 2003. Fidelity contends that the present appeal, noted on December 12, 2003, is untimely because it was not filed until four months after the date of entry.
Fidelity's challenge is without merit. Although marked with the October 7, 2003, date, the order at issue was not in fact entered until December 2, 2003; thus, the December 12, 2003, notice of appeal was timely. The fact that the court's order was issued in October does not change this result. Federal Rule of Bankruptcy Procedure 9021 applies Federal Rule of Civil Procedure 58 to bankruptcy cases and states, "Every judgment entered in an adversary proceeding or contested matter shall be set forth on a separate document." "Entry" is defined as occurring "only when the essentials of a judgment or order are set forth in a written document separate from the court's opinion or memorandum and when the substance of the separate document is reflected in an appropriate notation on the docket sheet . . . Capteron v. Beatrice Pocahontas Coal Co., 585 F.2d 683, 688 (4th Cir. 1978) (identifying the entry of judgment requirements of Fed.R.Civ.P. 58). The entry of judgment in this case did not take place until the order at issue was entered in December 2003. Accordingly, the appeal is timely and properly before this court.
III.
I now turn to address the merits of the Trustee's appeal. Section 158 of Title 28 of the United State Code authorizes United States District Courts to act as appellate tribunals for final orders from bankruptcy courts. 28 U.S.C. § 158. On appeal, district courts review bankruptcy courts' factual findings for clear error, and their conclusions of law under the de novo standard. In re Kielisch, 258 F.3d 315, 319 (4th Cir. 2001); In re Deutchman, 192 F.3d 457, 459 (4th Cir. 1999).The Trustee disputes the bankruptcy court's determination that it lacked standing to pursue the assigned claims. It is undisputed that a bankruptcy trustee has limited standing, namely, that the trustee enjoys standing to assert only causes of action belonging to the debtor at the commencement of the bankruptcy case. In re Ozark Restaurant Equipment Co., Inc, 816 F.2d 1222, 1225 (8th Cir. 1987), cert. denied, 484 U.S. 848 (1987). A trustee does not have standing to assert claims on behalf of creditors or third parties. Caplin v. Marine Midland Grace Trust, Co., 406 U.S. 416, 417 (1972) (decided under the former Bankruptcy Act); Williams v. California 1st Bank, 859 F.2d 664, 666 (9th Cir. 1988). In Caplin, the Supreme Court held that a bankruptcy trustee lacked standing to assert claims on behalf of debenture purchasers against an indenture trustee who allegedly violated its undertakings in managing the debtor's debentures. The Court articulated three reasons for its decision: (1) no provision in the Bankruptcy Act enabled the trustee to collect money not owed to the estate, 406 U.S. at 428; (2) the debtor had no claim against the indenture trustee and at most the allegation described a situation where the debtor was in pari delicto with the indenture trustee, id. at 429-30; and (3) the trustee's suit on behalf of the debenture holders could be "inconsistent with any independent actions [the debenture holders] might bring themselves." Id. at 431-32.
The Caplin holding was applied to a case like the one here, where the third party assigned its claim to the trustee, in Williams, 859 F.2d at 666-667. The Ninth Circuit noted that "the assignments notwithstanding, the investors plainly remain the real parties in interest in the transactions." Id. at 666. The court found that the trustee had no claim of its own that it could press against the defendant and that the debtor may have stood in pari delicto with the third party. Id. at 667. In reaching its decision, the court relied in large part on Congress's express decision not to overrule Caplin in rewriting the bankruptcy laws. Id.
In this case, the Trustee attempts to distinguish Williams on the basis that the William's trustee took only a limited assignment from certain creditors and reserved all recoveries over and above the costs of the suit for the assigning creditors. Instead, the Trustee would rely on Finova Capital Corp. v. Lawrence, No. CIV.A. 399-2552-M, 2000 WL 1808276 (N.D. Tex. December 8, 2000), in which the court allowed a trustee to be substituted for a creditor as to claims asserted in district court by the creditor against the debtor's corporate officers and directors. The trustee was conditionally assigned the claims as part of its settlement of claims of the creditors against the debtor. Id. at *2. After the assignment, the creditor and the trustee filed a motion to substitute the trustee as plaintiff in the case against the officers and directors of the debtor for failing to preserve the company's assets for the creditors. The magistrate judge rejected the objections for lack of standing and allowed the creditor and the trustee jointly to pursue the case.
The Trustee's reliance on Finova's narrow holding is misplaced. Finova merely found that, outside of the bankruptcy context, a bankruptcy trustee may pursue claims that are assigned to the trustee to settle the creditor's claims against the debtor, under circumstances (outside of the bankruptcy context) in which there is no suggestion that the debtor was in pari delicto with the proposed defendants, there the officers and directors of the debtor. Application of this narrow holding here would not avoid the Supreme Court's reasoning in Caplin, This case, like Williams, is governed by Caplin, Thus, the bankruptcy court correctly held that the Trustee lacks standing to pursue the lenders' claims against the appellees, notwithstanding the formal assignment of the claims to the Trustee.
IV.
For the reasons stated above, the order appealed from shall be affirmed. An order follows.
ORDER
For the reasons stated in the foregoing Memorandum Opinion, it is this 5th day of May, 2004, ORDERED(1) That the order of the bankruptcy court is AFFIRMED; and it is further ORDERED
(2) That the Clerk shall CLOSE THIS CASE and TRANSMIT a copy of this Order and the foregoing Memorandum Opinion to the Clerk of the United States Bankruptcy Court for this district.