Christensen v. Jubber (In re Christensen)

• Decision Date: 27 March 2020
• Docket Number: Adversary Proceeding No. 19-2059,Bankruptcy Case No. 15-29773
• Parties: In re: BRENT DAVID CHRISTENSEN and JO-ANN HALL CHRISTENSEN, Debtors. BRENT DAVID CHRISTENSEN and JO-ANN HALL CHRISTENSEN, Plaintiffs, v. GARY E. JUBBER, DOUGLAS J. PAYNE, and FABIAN VANCOTT, Defendants.
• Court: U.S. Bankruptcy Court — District of Utah

In re: BRENT DAVID CHRISTENSEN and

JO-ANN HALL CHRISTENSEN, Debtors.

BRENT DAVID CHRISTENSEN andJO-ANN HALL CHRISTENSEN, Plaintiffs, v. GARY E. JUBBER, DOUGLAS J. PAYNE,and FABIAN VANCOTT, Defendants.

Bankruptcy Case No. 15-29773

Adversary Proceeding No. 19-2059

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF UTAH

March 27, 2020

Chapter 13

Hon. R. Kimball Mosier

MEMORANDUM DECISION

Brent and Jo-Ann Christensen commenced the above-captioned adversary proceeding against Gary Jubber, the former chapter 7 trustee in their main bankruptcy case; Fabian VanCott, the law firm employed as Jubber's general counsel in that case; and Douglas Payne, an attorney at that firm who performed a substantial amount of work for Jubber as general counsel (collectively with Jubber and Fabian VanCott, the Trustee). The Christensens' complaint principally alleges that the Trustee breached certain fiduciary duties by attempting to sell their residence. In response the Trustee filed a motion to dismiss the complaint for failure to state a claim and on grounds of immunity. The parties fully briefed the matter, and the Court conducted a hearing on the Trustee's motion. After considering the parties' memoranda and oral arguments, and after conducting an independent review of applicable law, the Court issues the following Memorandum Decision granting the Trustee's motion to dismiss.

I. JURISDICTION

The Court's jurisdiction over this adversary proceeding is properly invoked under 28 U.S.C. § 1334. This is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(A), and the Court may enter a final order. Venue is proper under 28 U.S.C. § 1409.

II. FACTUAL BACKGROUND

The Court's two prior decisions in this case provide a detailed history of the events leading to the current procedural juncture. For the sake of brevity, the Court incorporates the facts of those decisions herein by reference¹ and recites an abridged version here. The Christensens originally filed for relief under chapter 7. Among their assets was a home against which the IRS had filed a substantial lien, which left the home over-encumbered as of the petition date. The Trustee moved to sell the home and, in conjunction with that sale, reached astipulation with the IRS whereby it would provide a $10,000 carve-out to the estate while the Trustee's fees would be paid from the IRS's lien under 11 U.S.C. § 724(b).² The stipulation expressly provided that it was "subject to entry of an order by the United States Bankruptcy Court for the District of Utah in the [Christensens' bankruptcy case] approving [it]."³ The Trustee then filed a motion seeking Court approval of that stipulation.⁴

The Christensens objected to the proposed sale in part because the Trustee did not propose to pay them anything on account of their claimed homestead exemption, meaning they would lose their home without receiving proceeds they could use to rent or purchase a new residence.⁵ Before the Trustee filed a motion to sell the Christensens' home, they had filed a motion to compel the Trustee to abandon it, contending that it was burdensome and of inconsequential value to the estate. The Trustee objected to that motion. The Trustee's actions in seeking to sell the Christensens' home—including the refusal to abandon it, the objection to the Christensens' exemption therein, and the stipulation reached with the IRS—form the basis of their complaint in this case.

Before the Court could rule on the sale motion, the motion to approve the stipulation, and the abandonment motion, the Christensens converted their case to one under chapter 13. The Trustee subsequently filed applications for compensation for work done while the case was inchapter 7, which the Court denied in their entirety. The Court held that the Trustee's efforts to sell the Christensens' home were not necessary to the administration of the case nor reasonably likely to benefit the Christensens' estate.⁶ The Trustee appealed.

Approximately ten months after the Bankruptcy Appellate Panel for the Tenth Circuit affirmed this Court's decision on the Trustee's applications for compensation, the Christensens filed a motion for leave to sue the Trustee "in 'an appropriate forum.'"⁷ The Court denied the motion, determining that the Barton doctrine prevented the Christensens from suing the Trustee in state or federal district court. But that decision expressly did "not preclude the [Christensens] from filing suit" against the Trustee in this Court if they decided to do so.⁸ The Christensens commenced this adversary proceeding about three months later.

III. DISCUSSION

A. Legal Standard Under Rule 12(b)(6)

To avoid dismissal under Rule 12(b)(6), made applicable to adversary proceedings by Federal Rule of Bankruptcy Procedure 7012(b), a plaintiff must allege sufficient facts "to state a claim to relief that is plausible on its face."⁹ Facial plausibility exists when "the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged."¹⁰ Where the well-pleaded facts "are 'merely consistent with' a defendant's liability," the plaintiff has not crossed the "'line between possibility and plausibility of entitlement to relief.'"¹¹ A court reviewing a complaint under Rule 12(b)(6) must "accept astrue all well-pleaded factual allegations . . . and view them in the light most favorable to the [plaintiff]."¹² Bare assertions and conclusory allegations are not entitled to the presumption of truth, however, nor are legal conclusions.¹³

The Christensens' complaint alleges four counts: two for breach of fiduciary duty, one each against Jubber and Fabian VanCott; one for negligence against Fabian VanCott; and one for civil conspiracy against Jubber and Fabian VanCott. Because a negligence claim—which alleges a breach of the applicable duty of care—is a type of breach of fiduciary claim, the Court will address the first three counts together and the civil conspiracy count separately.

B. The Christensens' Breach of Fiduciary Duty Claims

The Code does not state what a bankruptcy trustee's fiduciary duties are.¹⁴ Instead, "bankruptcy courts have fashioned a common law of trusts for use in bankruptcy cases."¹⁵ That common law describes a trustee's fiduciary duties in diverse ways, but commonly boils them down to three main kinds: "the duty of care (i.e., the obligation not to act negligently), the duty of loyalty (i.e., the obligation not to act in the fiduciary's own interests), and the duty of obedience (i.e., the obligation not to act outside the fiduciary's permitted authority)."¹⁶

The first, second, and third counts in the complaint ultimately allege that Jubber and Fabian VanCott breached their duties of loyalty and care, though the complaint gets there in a roundabout way. The first count, which applies exclusively to Jubber, alleges that he owed the Christensens—as well as "all participants in the bankruptcy proceeding who would be adversely affected by [a] breach"—a host of fiduciary duties.¹⁷ Those include the duties: (1) to exercise due care, diligence, and skill in performing his responsibilities as trustee; (2) to act primarily for the benefit of unsecured creditors; (3) to abandon fully encumbered assets; (4) to not administer or liquidate assets if the proceeds of liquidation would primarily benefit the Trustee; (5) to protect the Christensens' exempt interest in their residence and to not impair the Christensens' exempt interest primarily for his benefit; and (6) to not act out of self-interest—to not take actions primarily for his personal benefit or interest.¹⁸ The first and sixth duties plainly allege that Jubber owed the Christensens the duties of care and loyalty. The Christensens appear to have derived the remainder from the Handbook for Chapter 7 Trustees (Trustee Handbook).¹⁹ While the Trustee Handbook recognizes on multiple occasions that chapter 7 trustees owe fiduciary duties and provides such trustees with "detail on the nuts-and-bolts of case administration"²⁰ to fulfill those duties, the Court declines to endorse the additional alleged duties drawn by theChristensens from the Trustee Handbook as independent fiduciary duties of a trustee. Instead, the Court views them as extensions of the duties of care and loyalty.²¹ To the extent the Christensens assert that they are independent duties, such allegations are legal conclusions not entitled to the presumption of truth under Rule 12(b)(6). Consequently, the Court concludes that the complaint plausibly alleges that Jubber owed the duties of care and loyalty.

The second count, which applies exclusively to Fabian VanCott, alleges that it owed the Christensens the same fiduciary duties as stated in the first count as well as the "duty to exercise due care, diligence, and skill in representing Jubber and the estate."²² The third count, which alleges a claim of negligence exclusively against Fabian VanCott, repeats the second count's assertions of duties owed by Fabian VanCott.²³ The Court therefore concludes that the complaint plausibly alleges that Jubber and Fabian VanCott owed the duties of care and loyalty.²⁴ A trustee in bankruptcy certainly owes those duties and, because it is not material to this decision, the Court will assume, without deciding, that a trustee's counsel also owes those duties.

To whom a trustee and his counsel owe such duties represents a horse of a different color, however. A trustee owes fiduciary duties solely to the bankruptcy estate and its beneficiaries,²⁵ and, as a result, only beneficiaries can bring claims for breach of those duties against the trustee. The term "estate beneficiaries" encompasses creditors of all kinds and, in appropriate cases, shareholders.²⁶ As the Court noted in Christensen II, a debtor counts as an estate beneficiary generally "only if the debtor has an interest in surplus proceeds distributed under § 726(a)(6) or properly exempted property of the estate."²⁷ The complaint does...