Calvert v. Bancorporation (In re Consolidated Meridian Funds)

• Decision Date: 03 January 2013
• Docket Number: Bankruptcy No. 10–17952.,Adversary No. 12–01767.
• Citation: 485 B.R. 604
• Parties: In re CONSOLIDATED MERIDIAN FUNDS, a/k/a Meridian Investors Trust, et al. Debtors. Mark Calvert, as liquidating Trustee of Meridian Investors Trust, et al., Plaintiffs, v. Zions Bancorporation, a Utah corporation; The Commerce Bank of Washington, N.A., a federally chartered commercial bank, Defendants.
• Court: U.S. Bankruptcy Court — Western District of Washington

485 B.R. 604

In re CONSOLIDATED MERIDIAN FUNDS, a/k/a Meridian Investors Trust, et al. Debtors.

Mark Calvert, as liquidating Trustee of Meridian Investors Trust, et al., Plaintiffs,

v.Zions Bancorporation, a Utah corporation; The Commerce Bank of Washington, N.A., a federally chartered commercial bank, Defendants.

Bankruptcy No. 10–17952.

Adversary No. 12–01767.

United States Bankruptcy Court,

W.D. Washington,

at Seattle.

Jan. 3, 2013.

Jane E. Pearson, Foster Pepper PLLC, Seattle, WA, Michael J. Avenatti, Newport Beach, CA, for Plaintiffs.

David Lieberworth, Garvey Schubert Barer, Seattle, WA, Gary I. Grenley, John Rothermich, Garvey Schubert Barer, Portland, OR, for Defendants.

ORDER ON COMMERCE BANK'S MOTION TO DISMISS

KAREN A. OVERSTREET, Bankruptcy Judge.

This matter came before the Court on December 7, 2012, on the motions to dismiss filed by The Commerce Bank of Washington, N.A. (“Commerce Bank”) and Zions Bancorporation (“Zions”). After Zions filed its motion to dismiss, the plaintiffs docketed a notice of dismissal without prejudice as to all claims against Zions. Dkt. No. 48. Consequently, the Court heard only the motion to dismiss filed by Commerce Bank (the “Motion”) at the hearing. The Motion incorporates portions of the argument made by Zions in its motion, most importantly, the arguments concerning jurisdiction and standing, which arguments are also addressed here.

At the hearing on December 7, 2012, the plaintiff trustee appeared through his counsel, Michael Avenatti, Scott Sims, and Jane Pearson, and Commerce Bank appeared through its counsel, David Lieberworth and Daniel Vecchio. The Court heard oral argument and considered the following pleadings:

Complaint and Jury Demand (Dkt. No. 1) (the “Complaint”)

Commerce Bank's Motion to Dismiss and Joinder in Zions Motion to Dismiss (Dkt. No. 37);

Declaration of Lauren Jassny in Support of Commerce Bank Motion to Dismiss (Dkt. No. 39);

Zions Bancorporation's Motion to Dismiss and Joinder in Commerce Bank Motion to Dismiss (Dkt. No. 40);

Plaintiff's Response to Motion to Dismiss (Dkt. No. 49); and

The Commerce Bank of Washington, N.A.'s Reply to Plaintiff's Response to Motion to Dismiss (Dkt. No. 53)

I. BACKGROUND

Plaintiffs contend that this adversary proceeding arises from a massive Ponzi scheme perpetrated by Frederick Darren Berg (“Berg”). Berg is a debtor in his own individual bankruptcy proceeding, along with six other related entities. This Court is presiding over 12 bankruptcy cases involving debtors that are/were investment funds and one affiliated entity formerly owned, managed or controlled by Berg. Those debtors have been substantively consolidated into one proceeding referred to hereinafter as the “Meridian Bankruptcy.” On June 22, 2011, this Court entered an order confirming a consensual Chapter 11 plan in the Meridian Bankruptcy (the “Plan”). The Plan provides for the creation of the Liquidating Trust for the Substantively Consolidated Meridian Funds, a/k/a/ The Meridian Investors Trust (the “Meridian Investors Trust”). Mark Calvert, the named plaintiff in this adversary proceeding, is acting as the Liquidating Trustee (the “Trustee”) of the Meridian Investors Trust, which holds all of the claims of the consolidated bankruptcy estates.

The Trustee, as plaintiff herein, has filed this action on behalf various individuals named in paragraph 2.2 of the Complaint (the “Investor Plaintiffs”) who are alleged to have invested in 11 Meridian funds managed by Berg and identified in paragraph 2.1 of the Complaint (the “Meridian Funds”). The Complaint alleges that pursuant to the terms of the Plan, the Investor Plaintiffs have assigned certain claims, including their claims against Commerce Bank, to the Trustee for the purpose of joint pursuit on their behalf. Alternatively, the Trustee contends that if the assignments are not treated as valid for these proceedings, the Investor Plaintiffs are themselves separate, named plaintiffs herein.

The complaint alleges two causes of action against Commerce Bank: that Commerce Bank, as the bank used by Berg and the Meridian Funds, aided and abetted Berg's breach of fiduciary duty to the Investor Plaintiffs, and that Commerce Bank aided and abetted a fraud by Berg perpetrated on the Investor Plaintiffs. Commerce Bank's Motion raises a number of grounds for dismissal of the Complaint which are addressed herein.

II. STANDING

Commerce Bank challenges the Trustee's standing to bring the two causes of action under the Complaint on behalf of the Investor Plaintiffs. Article III limits a federal court's subject matter jurisdiction by requiring that plaintiffs have standing. Chandler v. State Farm Mut. Auto. Ins. Co., 598 F.3d 1115, 1122 (9th Cir.2010). “Standing addresses whether the plaintiff is the proper party to bring the matter to the court for adjudication.” Id. (citations omitted). Regardless of which type of standing is at issue, constitutional or prudential, both turn on whether the plaintiff can allege an “injury-in-fact” he or she suffered as a result of the defendant's alleged misconduct. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992); Powers v. Ohio, 499 U.S. 400, 410–11, 111 S.Ct. 1364, 113 L.Ed.2d 411 (1991). Because standing pertains to a federal court's subject matter jurisdiction, a motion to dismiss for lack of standing is properly brought as a motion to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1), Fed.R.Civ.P. White v. Lee, 227 F.3d 1214, 1242 (9th Cir.2000). When faced with a Rule 12(b)(1) motion, the plaintiff bears the burden of proving the existence of the court's subject matter jurisdiction. Thompson v. McCombe, 99 F.3d 352, 353 (9th Cir.1996).

The Complaint alleges that the Trustee has a valid assignment of the claims of the Investor Plaintiffs against Commerce Bank and that pursuant to his authority under the Plan, he may pursue those claims in this action. Commerce Bank contends that as a matter of law the Trustee cannot assert those claims notwithstanding their assignment to him. Commerce Bank relies primarily on Williams v. California 1st Bank, 859 F.2d 664 (9th Cir.1988). In Williams, a Chapter 7 trustee obtained assignments of claims from creditors of the debtor who had purchased investments sold by the debtor, who was alleged to have been operating a Ponzi scheme. The trustee then brought an action similar to the action here against the defendant bank asserting that it had allegedly participated in the debtor's Ponzi scheme. The bank moved to dismiss on the ground that the trustee did not have standing to assert the third party creditor claims. Following Caplin v. Marine Midland Grace Trust Co. of New York, 406 U.S. 416, 92 S.Ct. 1678, 32 L.Ed.2d 195 (1972), the Ninth Circuit Court of Appeals held in Williams that the trustee had no standing. Caplin addressed the standing of a trustee under Ch. X of the Bankruptcy Act who brought an action against an indenture trustee on behalf of holders of debentures issued by the debtor.

The Trustee contends that Williams and Caplin do not apply in this case because his standing derives from the Plan and not solely from the Bankruptcy Code. The order confirming the Plan (the “Confirmation Order”) provides that “[t]he assets and liabilities of the Estates shall be pooled and all Claims shall be satisfied from the assets of a single consolidated Liquidating Trust under the control of the Liquidating Trustee.” Confirmation Order, ¶ 5, Docket No. 427, Case No. 10–17952. The Liquidating Trust Agreement names Mr. Calvert as the Liquidating Trustee and representative of the estate with all the powers of a trustee as well as the powers under the trust agreement. Confirmation Order, Ex. B. The Trustee is authorized to prosecute what are referred to as “Non–Estate Claims,” which by definition include causes of action by individual investors arising from any matter regarding the Meridian Funds against third parties. Plan, Art. I, Sec. B. The Plan specificallyauthorizes the Trustee to prosecute causes of action related to the Non–Estate Claims and specifically reserves for later enforcement by the Liquidating Trustee all causes of action against “bankers or lenders who aided and abetted, were complicit in or otherwise contributed to the fraudulent activities of the Debtors, Berg or the Berg Entities.” Plan, p. 25. Individual investors were required as part of the Plan balloting process to indicate their approval of the Plan and agreement to assign their Non–Estate Claims to the Trustee. See Dkt. No. 376 (form of ballot). Thus, the Plan required those investors voting in favor of the Plan to transfer any claims they had against Commerce Bank to the Liquidating Trust and authorized the Trustee to pursue the claims on their behalf. For purposes of Commerce Bank's motion, the Court assumes the Trustee's well-pleaded allegation that he has a valid assignment of the claims of the Investor Plaintiffs against Commerce Bank.

This Court agrees with the Trustee that neither Williams nor Caplin dictate the result here. The Caplin case stands only for the general proposition that the trustee in bankruptcy does not have standing to assert claims that are not property of the estate. Williams builds on that concept by adding that the trustee cannot acquire standing to assert claims that are not property of the estate by taking an assignment of those claims. Caplin was decided under the Bankruptcy Act, which has long since been superseded by the Bankruptcy Code, and Williams arose in the context of a chapter 7 proceeding where the trustee was relying completely on his powers under the Bankruptcy Code.

Contract principles apply to a plan because it is effectively a new contract between the bankrupt entity and the creditors bound by the plan. See 11 U.S.C. § 1141(a); Hillis Motors, Inc. v. Hawaii Auto. Dealers' Ass'n, 997 F.2d 581, 588 (9th Cir.1993); In re Dow Corning Corp., 456 F.3d 668,...