Opinion
Civil Action No. 3:01-CV-0220L
November 15, 2002
MEMORANDUM OPINION AND ORDER
Appellants Telpro, Inc. ("Telpro"), Clifford McKee ("McKee"), World Import Automotive, OK Print-N-Copy, Jerry W. Dooling ("Dooling"), Eddie Jeffers ("Jeffers"), Rubin Rosen, James Rainer ("Rainer"), George Spencer ("Spencer"), and Donna Sue Jacobs (jointly "Appellants") appeal the bankruptcy court's Order entered November 20, 2000, granting the Motion to Dismiss of Appellee John Litzler ("Litzler"). Appellants contend that the bankruptcy court erred in finding their claims untimely and in finding that they lacked standing to asserts their claims. Finding no reversible error, the court affirms the bankruptcy court's order.
Appellants also originally brought claims against Patrick J. Neligan, Jr., Craig H. Averch, Neligan Averch, L.L.P., and GTE Southwest, Inc. ("GTE"). The court dismissed those claims with prejudice by Order entered April 11, 2001 pursuant to a Stipulation of Dismissal by the parties.
I. Factual and Procedural Background
On January 3, 1996, WCI Acquisition Corp. ("VVCI") filed a voluntary petition for bankruptcy in the United States Bankruptcy Court for the Northern District of Texas, Dallas Division. On May 24, 1996, some of the petitioning creditors, including Spencer, filed an involuntary bankruptcy petition against U.S. Metro Line Services, Inc. ("USM"). Litzler was appointed trustee for the estate of USM. An official unsecured creditors' committee was appointed in the USM case, which included McKee as one of the members. The bankruptcy court subsequently consolidated the two cases.
On December 6, 1996, GTE filed a proof of claim in the bankruptcy case in the pre-petition amount of $342,279.99. GTE disclosed in the proof of claim that the total amount owed was $665,363.17. GTE also demanded cure of its claim before assumption of its contractual relationship with WCI. Telpro filed its proofs of claim three days later.
On December 23, 1996, VVCI and USM filed a joint plan of reorganization. The plan was signed by Jeffers and Rainer, among others. The plan provided for a new investor in USM and VVCI. The investor's involvement, however, was contingent on the assumption of the GTE contract because the contract was necessary for the reorganized debtor to continue to provide service to its customers. In furtherance of the reorganization and assumption of the GTE contract, GTE sought bankruptcy court approval of a settlement assigning the contract to USM in return for a payment to GTE of $304,000.
On December 24, 1996, VVCI filed a Supplemental Disclosure Related to Joint Plan of Reorganization, describing the proposed settlement with GTE and the included payments. The bankruptcy court entered an order on December 26 approving the Supplemental Disclosure. On December 30, VVCI file a certificate of service, certifying that the Supplemental Disclosure and order approving it were served on a number of parties, including each of the appellants.
On January 13, 1997, a number of creditors, including Spencer and Dooling, filed objections to the reorganization plan. Following two days of hearings, the bankruptcy court on January 17, 1997, entered an Order Confirming Debtor's Joint Plan of Reorganization. On January 27, the bankruptcy court entered an order approving the settlement with GTE. No party filed an appeal from either order.
On May 26, 2000, Appellants filed a Motion to Set Aside Order and Original Complaint for Surcharge, Damages and Disgorgement. Appellants alleged that Litzler, acting as a fiduciary to each creditor of the bankruptcy estate, breached his fiduciary duty by: (1) disregarding the advice of VVCI's special counsel for regulatory matters, relating to the regulatory authority for the charges being asserted against the estate by GTE; (2) approving the charges asserted by GTE and resultant settlement agreement; and (3) giving insufficient notice to creditors of the effect of the compromise. As relief, Appellants sought to set aside the bankruptcy court order approving the GTE settlement pursuant to Rule 60(b) of the Federal Rules of Civil Procedure. Appellants also requested punitive damages against Litzler for his allegedly grossly negligent conduct and an order compelling GTE to disgorge the moneys received pursuant to the settlement.
Appellants also alleged that the law firm and lawyers acting as counsel for the unsecured creditors' committee breached their fiduciary duty and acted negligently by: (1) disregarding the advice of VVCI's special counsel for regulatory matters, relating to the regulatory authority for the charges being asserted against the estate by GTE; (2) approving the charges asserted by GTE and resultant settlement agreement without sufficient investigation; (3) giving insufficient notice to creditors of the effect of the compromise; (4) failing to disclose to creditors that the settlement with GTE would reduce the creditors' pool by $300,000; and (5) failing to provide zealous representation of the petitioning creditors' in connection with the GTE settlement. As noted above, these claims were dismissed pursuant to a stipulation of dismissal.
On June 26, 2000, Litzler filed a Motion to Dismiss the Motion to Set Aside Order. He maintained that: (1) the issues raised are moot; (2) the claims are barred by res judicata and issue preclusion; (3) the issues raised are barred by the applicable statute of limitations or the doctrine of laches, (4) the parties seeking relief lack standing; (5) as a trustee, he had judicial immunity from a suit asserting negligence; (6) the parties have waived their claims; and (7) the claims asserted have been satisfied. Appellants did not file a response. The bankruptcy court held a hearing on the motion on October 20, 2000. At the conclusion of the hearing, the judge orally denied relief
On November 20, 2000, the bankruptcy court filed its Findings of Fact and Conclusions of Law on Determination of Motions to Dismiss. The bankruptcy court determined that the Motion to Set Aside Order was not brought within the one year limitations period of Rule 60(b)(3) of the Federal Rules of Civil Procedure or within the reasonable time required under Rule 60(b)(6), and it was was not timely brought as a motion to vacate an order of confirmation for fraud under 11 U.S.C. § 1144. The bankruptcy court further found that the Appellants lacked standing to bring their claims.
II. Standard of Review
As this court functions as an appellate court when reviewing a bankruptcy court's decision, the same standards of review generally applied in federal court appeals also applies to this court. See In re Webb, 954 F.2d 1102, 1103-04 (5th Cir. 1992). The court reviews a bankruptcy court's findings of fact under the clearly erroneous standard, In re Webb, 954 F.2d at 1104, and reviews its conclusions of law de novo. See In re Pro-Snax Distribs., Inc., 157 F.3d 414, 420 (5th Cir. 1998); see also In re Eagle Bus Mfg., Inc., 62 F.3d 730, 735 (5th Cir. 1995). On appeal, the decision to grant or deny relief under Rule 60(b) is reviewed for an abuse of discretion. See Flowers v. Southern Regional Physician Services, Inc., 286 F.3d 798, 800 (5th Cir. 2002). The court may affirm on any legal ground raised by the appellee. In re Williams, 298 F.3d 458, 462 (5th Cir. 2002).
III. Analysis
Appellants contend the bankruptcy court erred in rejecting their claims. Specifically, they contend that: (1) the bankruptcy court applied the wrong statute of limitations; and (2) they, as unsecured creditors, have standing to attack the GTE settlement because the settlement reduced the money in the pool to pay their claims. The court will address the standing issue first.
A. Standing
The question of standing is jurisdictional and must be addressed at the outset. United States v. Hays, 515 U.S. 737, 742 (1995). See also FW/PBS, Inc. v. Dallas, 493 U.S. 215, 230- 231 (1990) ("standing is perhaps the most important of the jurisdictional doctrines").
The irreducible constitutional minimum of standing contains three elements. First, the plaintiff must have suffered an "injury in fact" — an invasion of a legally protected interest which is (a) concrete and particularized . . . and (b) actual or imminent not conjectural or hypothetical . . . Second, there must be a causal connection between the injury and the conduct complained of . . . Third, it must be likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision.Ford v. NYL Care Health Plans of Gulf Coast, Inc., 301 F.3d 329, 332 (5th Cir. 2002) (quoting
Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992)). See also Warth v. Seldin, 422 U.S. 490, 499 (1975) (plaintiff must assert own rights and interests rather than rest his claim to relief on legal rights or interests of third parties).
A bankruptcy trustee may be held personally liable for breaches of fiduciary duty, Mosser v. Darrow, 341 U.S. 267, 274 (1951); however, a party may only assert against a trustee the harm it has directly suffered. In re San Juan Hotel Corp., 847 F.2d 931, 938 (1st Cir. 1988). Thus, an individual creditor generally does not have standing to pursue claims belonging to the bankruptcy estate as a whole, because the individual creditor is only injured indirectly as a result of injury to the estate itself Only the bankruptcy trustee has standing to pursue such claims. See, e.g., In re Schimmelpennick 183 F.3d 347, 359 (5th Cir. 1999) (trustee is proper party to bring action benefiting estate); In re Educators Group Health Trust, 25 F.3d 1281, 1284 (5th Cir. 1994) (if action belongs to the estate, only trustee has standing to sue). The Fifth Circuit breaks down bankruptcy-related claims into three categories:
1) Actions by the estate that belong to the estate;
2) Actions by individual creditors asserting a generalized injury to the debtor's estate, which ultimately affects all creditors; and
3) Actions by individual creditors that affect only that creditor personally.Schimmelpennick, 183 F.3d at 360. The trustee is the proper party to bring the first two types of claims, and the creditor may properly bring the third. Id. In determining whether a cause of action belongs to the bankruptcy estate, the court must "look to the injury for which relief is sought and consider whether it is peculiar and personal to the claimant or general and common to the corporation and creditors." In re E.F. Hutton Southwest Prop. II, Ltd, 103 BR. 808, 812 (Bankr. ND. Tex. 1989) (quoting Koch Refining v. Farmers Union Central Exchange, Inc., 831 F.2d 1339, 1349 (7th Cir. 1987)).
Appellants claim Litzler acted improperly by approving the charges asserted by GTE and the resulting settlement, in disregard of the advice of special counsel, and without sufficient notice to creditors of the effect of the settlement. Appellants maintain Litzler' s alleged breaches of his fiduciary duty as the trustee "reduced the amount of money in the pool to pay unsecured claims." (Appellants' Brief at 13). They suggest that this is sufficient to grant them "standing as individual creditors participating in the pool of funds available to pay creditors." ( Id.). That a group of creditors brought this action itself intimates that the action is not peculiar or personal to a singular creditor, and Appellants identify no singular or personal harm they have suffered. Rather, the only injury they point to is the reduction in the pool of money available to all unsecured creditors. Clearly, this harm affects all unsecured creditors equally, not the Appellants personally. The court therefore concludes that the breach of fiduciary duty claim asserted by Appellants is properly viewed as belonging to the bankruptcy estate. See e.g., San Juan Hotel Corp., 847 F.2d at 938 (assessing damages in favor of estate for breach of fiduciary duty by former bankruptcy trustee); In re J.E. Marion, Inc., 199 B.R. 635, 639 (Bankr. S.D. Tex. 1996) (legal malpractice claim arising out of post-petition representation of debtor is property of estate). Appellants thus lacked standing to file the underlying action.
The court is cognizant of the incongruity of placing the authority to bring a claim based on a breach of fiduciary duty by the trustee in the trustee himself The court notes that the solution is not to automatically confer standing on individual creditors. Rather, a party seeking to bring an action against the trustee for acts within the trustees authority as an officer of the court has long been required to seek leave of the appointing court. 3 Collier On Bankruptcy ¶¶ 323.03[3] (15th ed. rev. 2001). See also Barton v. Barbour, 104 U.S. 126, 129 (1881) (court-controlled receiverships may be sued by naming receivers in their official capacities if permission is granted by the appointing court.). Moreover, under the Joint Plan for Reorganization, all claims of the bankruptcy estate were assigned to the Disbursing Agent. (Debtors' Joint Plan ¶ 10.01 Order Confirming Plan at 3-5). Appellants did not seek leave before filing their claims and did not attack the validity or applicability of that assignment.
B. Statute of Limitations
As the court has concluded that Appellants lacked standing to assert their claims, the issue of the timeliness of this action need not be considered.
IV. Conclusion
Based on the record before it, the court determines that the bankruptcy court did not err in finding that Appellants lacked standing to assert their claims. Appellants' points of error are overruled, and the judgment of the bankruptcy court is affirmed. Pursuant Rule 8016(a) of the Federal Rules of Bankruptcy Procedure, the clerk of the court is directed to prepare, sign and enter judgment upon receipt of and in accordance with this Memorandum Opinion and Order. All allowable and reasonable costs shall be taxed against Appellants Telpro, Inc., Clifford McKee, World Import Automotive, OK Print-N-Copy, Jerry W. Dooling, Eddie Jeffers, Rubin Rosen, James Rainer, George Spencer, and Donna Sue Jacobs.