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holding that plaintiff did not have standing to sue on an employment contract because she did not previously list the contract as an asset on her bankruptcy petition
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Civ. No. 99-1503, SECTION "A".
February 10, 2000.
ORDER AND REASONS
Before the Court is a Motion to Dismiss filed on behalf of the defendant, Martha Ann Swider ("Swider") suggesting that pursuant to FRCP Rule 12 plaintiff's claim should be dismissed. Plaintiff, Robert M. Kagan, Jr. ("Kagan"), filed formal opposition to which the defendant replied. The matter was noticed for hearing on February 2, 2000 and was deemed submitted for decision on the briefs and documents of record.
Both the movant (defendant) and the opposing party (plaintiff) have filed documents outside of the record for the Court to consider in ruling on the defendant's motion. Since both parties have apparently had a reasonable opportunity to present all outside materials pertinent to the defendant's motion and the Court has accepted such for filing and consideration, pursuant to FRCP Rule 12(c) the motion shall be treated as one for summary judgment.
The defendant Swider makes several arguments in support of her motion to dismiss: (1) the bankruptcy court's 9/1/98 denial of Kagan's Motion to Assume the Employment Contract in his Chapter 13 proceeding was in effect "rejection" which deemed the contract breached by Kagan, and thus, Kagan right to enforce the contract is somehow terminated; and (2) assuming Kagan's rights with respect to the employment contract "rode through" and revested in him upon the close of his Chapter 13 case, his employment contract then became an asset of his Chapter 7 bankruptcy estate upon the filing of that proceeding and because Kagan failed to list/schedule such contract as an asset, it was not abandoned upon his discharge in the Chapter 7 proceeding, and the employment contract remains the property of his Chapter 7 bankruptcy estate, with only the Chapter 7 Trustee having standing to enforce the employment contract.
In opposition, Kagan argues that assuming the Chapter 13 bankruptcy court's denial of his Motion to Assume constituted a "rejection" of the employment contract, the law of the Fifth Circuit is that "rejection" does not terminate the contract. Kagan cites Matter of Austin Development Co., 19 F.3d 1077 (5th Cir. 1994), for the proposition that effect that such "rejection" merely places the trustee's obligation to perform under the contract "outside of the bankruptcy administration without destroying the leasehold estate." Id., at 1081. Essentially, Kagan's position is that "rejection" does not operate to protect Swider for her previous active breach of the employment contract — that is, the legal fiction of breach based on "rejection" is simply meant to benefit a creditor in bankruptcy, does not operate as substantive breach under state law, and thus, the employment contract "rides through" and remains the debtor's asset. As to defendant's second argument, plaintiff's counsel argues that in any event, because the United States Bankruptcy Trustee abandoned the asset (i.e., the employment contract) and the bankruptcy court did not order otherwise, the right to enforce this Contract revested in Kagan upon his discharge pursuant to the Chapter 7 proceeding.
In reply counsel for the defendant Swider points out and it is undisputed in the record that Kagan's Chapter 13 proceeding and his later filed Chapter 7 proceeding are totally separate proceedings (i.e., his Chapter 13 was dismissed and not converted to Chapter 7). In this vein, defense counsel argues that Kagan's right in the defaulted employment contract (a pre-Chapter 7 petition asset), became the property of Kagan's Chapter 7 bankruptcy estate — a separate, distinct, and totally unrelated to the Chapter 13 bankruptcy estate. The Chapter 7 Trustee appointed to administer Kagan's Chapter 7 bankruptcy estate was not advised of the employment contract because Kagan admittedly failed to list/schedule the contract as an asset or liability at the time he filed his Chapter 7 case. Defense counsel argues that as a matter of law and particularly considering Kagan's admitted failure to list the contract as an asset of his estate, the contract is an asset of his Chapter 7 bankruptcy estate which was not abandoned upon his discharge. Swider submits Kagan has no right of action and/or is without standing and only Kagan's Chapter 7 bankruptcy trustee has standing to sue to collect monies owed the Chapter 7 bankruptcy estate.
The Court agrees with the defendant only after having considered the summary judgment record in its entirety, the written arguments of counsel including documents appended to the respective parties' motion papers, and the applicable law. For reasons explained more fully below, the Court GRANTS the defendant's motion because of plaintiff's lack of standing. Succinctly stated, however, it is clear under 11 U.S.C. § 554 that a pre-petition asset must be properly scheduled in order to pass to the Chapter 7 debtor through abandonment upon Chapter 7 discharge. It is uncontroverted that the employment contract at issue was considered by Kagan to be an asset prior to the commencement of his Chapter 7 proceeding and he admittedly failed to list or schedule the employment contract as an asset at the commencement of or at any time prior to the close of his Chapter 7 case. Under the undisputed facts and circumstances, as a matter of law the contract at issue is the property of Kagan's bankruptcy estate, and only the Chapter 7 bankruptcy trustee has standing to prosecute the claim for monies owed the Chapter 7 bankruptcy estate.
I. UNDISPUTED PROCEDURAL BACKGROUND.
Prior to instituting the captioned suit to recover liquidated damages under an employment contract, Kagan filed two bankruptcy proceedings. The first, his Chapter 13 petition for reorganization, was filed on May 29, 1998 and dismissed by the bankruptcy court on September 1, 1998, without Kagan receiving a discharge. Via order issued August 4, 1998 pursuant to a hearing, the bankruptcy court denied confirmation of Kagan's Chapter 13 Plan. On August 6, 1998, Kagan's Chapter 13 Trustee, S.J. Beaulieu, Jr., filed a Motion to Dismiss the Chapter 13 petition on the basis that the Trustee's and GMAC's objections were sustained by the bankruptcy court. On August 11, 1998, Kagan filed a Debtor's Motion to Assume the Employment Contract with Martha Ann Swider. On August 11, 1998, Kagan's Motion was denied. Thereafter, the bankruptcy court dismissed Kagan's Chapter 13 Case. Thereafter Kagan filed a Motion to Convert his Chapter 13 case to Chapter 7 which was denied on October 21, 1998 for the reason that his Chapter 13 case had already been dismissed.
See, Employment Agreement, dated November 12, 1996 (Defendant's Exhibit "A").
See, Kagan's Voluntary Petition for Relief, filed under Chapter 13 of the United States Bankruptcy Code in United States Bankruptcy Court for the Eastern District of Louisiana in case entitled, "In re Robert M. Kagan, Jr., case no. 98-12835 (Defendant's Exhibit "B"), listing the employment contract as an executory contract on Schedule G (Defendant's Exhibit "C"), and setting forth the employment contract as the proposed source of funding in his Chapter 13 Plan (Defendant's Exhibit "D").
See, Order Denying Confirmation entered August 10, 1998 in case no. 98-12835 (Defendant's Exhibit "E").
See, Chapter 13 Trustee's Motion to Dismiss filed August 6, 1998 (Defendant's Exhibit "F")
See, Debtor's Motion to Assume Contract with Martha Swider (Defendant's Exhibit "G").
See, Order issued September 1, 1998 and entered September 4, 1998, denying Debtor's Motion to Assume Contract (Defendant's Exhibit "H").
See, Order issued September 1, 1998 dismissing case no. 98-12835 (Defendant's Exhibit "I" and Defendant's Exhibit "2" to Reply Brief).
See, Order issued October 21, 1998 and entered October 22, 1998 in case no. 98-12835 with bankruptcy court's handwritten notation "Denied Case Dismissed" (Defendant's Exhibit "3" to Reply Brief).
Several months after the dismissal of his Chapter 13 case, Kagan filed his second case in the bankruptcy court for the Eastern District of Louisiana — a voluntary petition for relief under Chapter 7.
See, Kagan's Voluntary Petition for Relief under Chapter 7, in case entitled, "In Re Robert M. Kagan, Jr.", case no. 98-16189 (Defendant's Exhibit "J"), with schedules appended there to which do not disclose or list the Employment Contracts with Swider.
It is clearly not disputed that Kagan failed to list the employment contract at issue as an asset in his separate Chapter 7 case which was filed approximately 2 months after his Chapter 13 case was dismissed. Kagan's position is that prior to the commencement of his Chapter 7 proceeding the employment contract he presently seeks to enforce was an asset. The opposition brief submits that it was "an asset of Kagan after Swider's repudiation of the Contract" in March/April 1997. Kagan also considered the employment contract to be an asset when his Motion to Assume was filed in the context of his Chapter 13 proceeding.
Memorandum in Opposition, at p. 10.
The Kagan's Chapter 7 Bankruptcy Record is uncontrovertedly to the effect that Kagan did not list or schedule the employment contract in his Chapter 7 proceeding. Also, Kagan admits his failure to list the contract as an asset in his later filed Chapter 7 proceeding when he argues:
"After the denial of the Motion to Convert, Kagan refiled his bankruptcy petition under Chapter 7, but did not need to include the Contract in the Chapter 7 proceedings because the United States Trustee [in the dismissed Chapter 13 proceeding] had already refused to assume the Contract."
Memorandum in Opposition, at p. 12.
Memorandum in Opposition, at p. 12.
It is further undisputed that pursuant to a creditor's meeting in the Chapter 7 proceeding and the filing of the Chapter 7 Trustee's report to the effect that Kagan's estate had insufficient assets to administer, that the bankruptcy court issued an order on March 4, 1999 granting Kagan's Chapter 7 discharge. (Defendant's Exhibit "K"). On March 22, 1999, Kagan's Chapter 7 case was closed by order of the bankruptcy court. (Defendant's Exhibit "L"). Approximately two months later, Kagan filed the captioned complaint seeking to enforce the Employment Contract which was admittedly an asset prior to the institution of his Chapter 7 proceeding and which asset he completely failed to list/schedule in his Chapter 7 case as required by § 521(1).
II. ANALYSIS.
The plaintiff's standing to sue is a threshold matter, without which the Court has no subject matter jurisdiction. FRCP Rule 12(h)(3); see also, Barrett Computer Services, Inc. v. PDA, Inc., 884 F.2d 214, 218, 220 (5th Cir. 1989) (standing issue can be raised pursuant to FRCP Rule 12(b)(1) or summary judgment motion).
Summary judgment is appropriate where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no material issue of fact and that the moving party is entitled to judgment as a matter of law." FRCP Rule 56(c). The party moving for summary judgment bears the initial burden of demonstrating the absence of a genuine issue of material fact.
The Court of Appeals for the Fifth Circuit has long recognized that materials filed concurrently with the pleadings are sufficient to convert a motion to dismiss into one for summary judgment. In the case at bar both counsel for the plaintiff and counsel for the defendant filed other materials along with their motion and/or memoranda consisting of copies of documents and/or orders which were filed in Kagan's Chapter 13 and Chapter 7 bankruptcy cases, in addition to deposition excerpts, employment agreements, etc. "When a trial court considers matters outside of the pleadings, the motion to dismiss should be treated as one for summary judgment. . . ." In the case at bar, the conversion is appropriate since both parties have submitted documents outside of the record which the Court has accepted and such extra-pleading material is complete and enables a thorough determination of the issue — whether the plaintiff has standing to enforce the employment contract issue.
See, Defendant's Exhibits "A" through "L" attached to her Motion to Dismiss; Plaintiff's Exhibits "A" through "D" attached to his Memorandum in Opposition; and Defendant's Exhibits "1" through "3" attached to her Reply Brief.
Isquith v. Middle South Utilities, 847 F.2d 186, 193-94 (5th Cir., 1988), cert. denied, 109 S.Ct. 310 (1988) (Fifth Circuit held that the matter was appropriately handled as a summary judgment motion because the district relied on matters clearly outside of the pleadings); Partridge v. Two Unknown Police Officers of Houston, 791 F.2d 1182, 1189 (5th Cir. 1986);General Guaranty Insurance Co. v. Parkerson, 369 F.2d 821, 823 (5th Cir. 1966) (treating a 12(b)(6) motion as a motion for summary judgment pursuant 12(c) because they considered "contracts, assignments and releases" which were not attached to the pleadings as exhibits).
It is not disputed that plaintiff's cause of action pursuant to the employment contract at issue accrued prior to the close of his Chapter 7 bankruptcy case. It is further not disputed that the employment contract was not listed as an asset in Kagan's Chapter 7 schedule. The applicable law is clearly to the effect that an unscheduled claim is not abandoned at the close of the bankruptcy case and remains the property of the bankrupt estate.
Generally, closing a case revests unadministered property in the debtor. 11 U.S.C. § 554(c) ("Unless the court orders otherwise, any property scheduled under section 521(1) of this title and not otherwise administered at the time of the closing of the case is abandoned to the debtor and administered for purposes of section 350 of this title.") However, "property of the estate that is not abandoned . . . and that is not administered in a case remains the property of the estate." 11 U.S.C. § 554(d).
Many courts have held, in fact the majority of courts to consider the issue have held, that "when the debtor has failed to disclose an asset in accordance with § 521(1) of the Code and the Trustee had not otherwise administered it, the asset is not, upon the closing of the case, deemed abandoned or administered for purposes of § 350, as it would be if the asset were properly disclosed." There is a wealth of jurisprudence holding precisely that — i.e., property never scheduled and/or that is not listed remains property of the estate and is not deemed abandoned.
Dwyer v. Peebles (In re Peebles), 224 B.R. 519 (Bankr.D.Mass. 1998) (citing 11 U.S.C. § 554(c)).
The vast majority of courts have taken the statute at its word requiring an asset to be scheduled before it can be abandoned, regardless of the trustee's awareness of it. See,Jeffrey v. Desmond, 70 F.3d 183, 186 (1st Cir. 1995) (holding that "[debtors'] alleged discussion with Trustee" about unscheduled cause of action does not lift requirement that it be scheduled under 521(1) to be abandoned under 554(c)); In re Pace, 1994 WL 55523 (9th Cir. February 24, 1994) ("Whether or not a trustee has knowledge of a potentially valuable asset, formal scheduling is required. . . ."); Vreugdenhill v. Navistar Int'l Transp. Corp., 950 F.2d 524, 526 (8th Cir. 1991) ("It is not enough that the trustee learns of the property through other means; the property must be scheduled pursuant to section 521(1)."); In re Capozzi, 229 B.R. 250, 251 (Bankr.S.D.Fla. 1999) ("Actual knowledge of the asset by the Trustee is irrelevant if the asset is not scheduled before the close of the case.").
Since the bankrupt estate retains unscheduled assets, only the bankruptcy trustee has authority to control them. 11 U.S.C. § 554(d) ("property . . . not abandoned under this section . . . remains property of the estate); see also, Mindlin v. Drexel Burnham Lambert Group, 160 B.R. 508, 514 (S.D.N.Y. 1993) ("By operation of 11 U.S.C. § 554(c) and (d), any asset not scheduled pursuant to § 521(1) remains property of the estate and the debtor loses all rights to enforce it under his own name.").
In Mindlin, the court observed:
[I]n clear contravention of the law, Mindlin sought to assert such unscheduled Additional Claims in the arbitration proceeding. He cannot be allowed to defraud his creditors by consciously omitting reference to these claims in his own bankruptcy, and then, upon emerging from bankruptcy, attempting to reclaim them. Because Mindlin lacks ownership of and standing to pursue the Additional Claims, the Bankruptcy Court appropriately granted summary judgment. . . . 160 B.R. at 514.
The language of Section 554(c) is plain and unambiguous lending no support to the theory that somehow knowledge on the part of a Chapter 7 Trustee changes the express language of the statute. Section 554(c) expressly requires that assets must me formally scheduled before abandonment can be deemed to have occurred by the closing of a case. In other words, there is no assumed abandonment.
The formal listing of assets required by Section 521(1) provides the Trustee and other parties in interest with an opportunity to make timely and informed decisions on behalf of the estate concerning the debtor's property. The Code unmistakeably commands the result that an unscheduled asset is not deemed abandoned at the close of the bankruptcy case and remains an unadministered asset which is property of the estate under § 554(d)
With respect to § 554(c) abandonment, the jurisprudence is equally clear that property cannot be abandoned by operation of such provision unless the debtor formally lists the property in his schedules. Jeffrey v. Desmond, 70 F.3d 183 (1st Cir. 1995);Vreugdenhill v. Navistar Int'l Transp. Corp., 950 F.2d 524 (8th Cir. 1991); Stanley v. Sherwin-Williams Co., 156 B.R. 25 (W.D.Va. 1993). Actual knowledge of the asset by the Trustee is irrelevant if the asset is not scheduled before the close of the case.Vreugdenhill, 950 F.2d at 526; In re Winburn, 167 B.R. 673 (Bankr. N.D.Fla. 1993).
Standing is a jurisdictional element which cannot be waived and can be raised at any time. Federal court jurisdiction extends only to "cases" and "controversies". U.S. Const. art. 3, § 2; see also, Steel Co. v. Citizens for a Better Env't, 118 S.Ct. 1003 (1998) (the rigors of the injury requirement inherent in the case or controversy component of Article III will not be excused on the theory that they constitute mere prudential proceedings).
Standing is an essential and constitutionally mandated part of the case or controversy requirement of Article III which prevents the judicial process from being merely "a vehicle for the vindication of the value interests of concerned bystanders".Lujan v. Defenders of Wildlife, 112 S.Ct. 2130, 2136 (1992);Valley Forge Christian College v. Americans United for Separation, 102 S.Ct. 752, 758 (1982).
The Supreme Court has defined three indispensable elements that comprise the "irreducible constitutional minimum" required to establish Article III standing. Lujan, 112 S.Ct. at 2136. There must be an injury in fact — that is, the alleged injury must be concrete and particularized in the sense that it "affects the plaintiff in a personal and individual way." Id. at n. 1. Second there must be causation. Id. at 2136. Third, there must be redressibility. Steel Co., 118 S.Ct. at 1017.
Certainly, where as here the employment contract at issue is the property of the Chapter 7 bankruptcy estate, plaintiff cannot meet even the first of the three indispensable elements. More to the point, it is impossible to divine injury to the plaintiff personally or in an individual way since the employment contract is no longer his property and therefore, he stands to recover nothing personally by its enforcement. The unscheduled assets (Kagan's claim for liquidated damages pursuant to the employment contract) remain the property of his Chapter 7 bankruptcy estate within the meaning of 11 U.S.C. § 541(a)(1) and so only the Chapter 7 bankruptcy Trustee has standing to bring claims for monies owed to the bankrupt estate.
Unless otherwise authorized, a cause of action which is the property of the bankrupt estate can only be prosecuted by the Chapter 7 Trustee on behalf of the estate. See, Cundiff v. Cundiff (In re Cundiff), 227 B.R. 476, 478 (6th Cir. 1998); andMiller v. Shallowford Community Hospital, Inc., 767 F.2d 1556, 1559 (11th Cir. 1985).
In this vein, the Fifth Circuit in Ocean Energy II, Inc. v. Alexander Alexander, 868 F.2d 740, 746 (5th Cir. 1989) held similarly. In Ocean Energy II, the Fifth Circuit incorporated Bankruptcy law's standing requirement into the RICO statute. TheOcean Energy court affirmed summary judgment to the extent that it dismissed any claim for damages arising from fraud perpetrated on the bankrupt corporation Transit reasoning that if "[t]he actual RICO damage . . . is property of the bankruptcy estate, . . . only the trustee in bankruptcy has standing to bring the RICO claim for monies owed the bankrupt estate." Id. at 746.
Much like the plaintiff in the case at bar, the plaintiff in the case of Lawrence v. Jackson Mack Sales Inc., 837 F. Supp. 771, 781-82 (S.D.Miss. 1992), affirmed, 42 F.3d 642 (5th Cir. 1994) contended that the causes of action she asserted were abandoned by the bankruptcy trustee, and because they were abandoned, she was free to pursue them irrespective of when they accrued. Lawrence, like Kagan in this case, failed to schedule the claims asserted in her pending case as assets in her prior bankruptcy petition in accordance with Section 521(1)'s mandate. The district court in Lawrence granted summary judgment with respect to those claims which accrued prior to plaintiff's discharge in bankruptcy, because those claims were property of the bankruptcy estate and could only be prosecuted by the bankruptcy trustee. 837 F. Supp. at 780-81.
Turning to the case at bar, Kagan's Chapter 7 bankruptcy estate included "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1). It is undisputed that the employment contract he now seeks to enforce in the present case was not listed or scheduled as an asset in his Chapter 7 case which is now closed. Kagan admits that his breach of contract claim at issue here accrued prior to the commencement and close of his Chapter 7 case. According to Kagan, his cause of action for breach of the employment contract against Swider accrued in March or April of 1997.
The Bankruptcy Code broadly defines the property of a debtor's estate to include "all legal and equitable interests of the debtor and property as of the commencement of the case." 11 U.S.C. § 541(a)(1).
Federal court jurisdiction extends only to "cases and controversies." Standing is an essential and constitutionally mandated part of the "case or controversy" requirement of Article III. There is no genuine issue of material fact here. The pertinent factual background necessary to make a determination on the legal issue of standing is not disputed — that is, Kagan admits that the employment contract he seeks to enforce in the instant action was a pre-Chapter 7 petition asset which he failed to list in his Chapter 7 case and that proceeding is now closed. As a matter of law, the contract sued upon is the property of Kagan's Chapter 7 bankruptcy estate, was not abandoned, and only the Chapter 7 bankruptcy trustee has standing to enforce the contract to collect monies owed to Kagan's Chapter 7 bankruptcy estate. Any award of damages, liquidated or otherwise, would be an asset of Kagan's Chapter 7 bankruptcy estate. Only the Chapter 7 Trustee has standing to prosecute this claim.
Accordingly, and for the reason that standing relates to the "case or controversy" limitation of federal court jurisdiction, and that the plaintiff's lack of standing in this case robs the Court of jurisdiction,
IT IS ORDERED that the defendant's Motion is GRANTED and plaintiff's case is DISMISSED for lack of subject matter jurisdiction.
IT IS FURTHER ORDERED that the defendant's counterclaims filed pursuant to this Court's supplemental jurisdiction are DISMISSED without prejudice.
The Court had no jurisdiction over the main claim, since the plaintiff lacked standing (i.e., an essential constitutionally mandated part of the "case or controversy" requirement of Article III). The Court declines to exercise supplemental jurisdiction over the defendant's counterclaim.
The Clerk of Court is directed to enter judgment in accordance herewith DISMISSING plaintiff's claims for lack of jurisdiction and DISMISSING the defendant's counterclaims without prejudice, plaintiff to bear all costs.
New Orleans, Louisiana this 10th day of February, 2000.
Minute Entry Barbier, J. February 9, 2000