Copelan v. Techtronics Indus. Co., Case No. 12–cv–01285–BASMDD.

• Decision Date: 27 March 2015
• Docket Number: Case No. 12–cv–01285–BASMDD.
• Court: U.S. District Court — Southern District of California
• Parties: Charles COPELAN, Plaintiff, v. TECHTRONICS INDUSTRIES CO., LTD., et al., Defendants.

95 F.Supp.3d 1230

Charles COPELAN, Plaintiff

v.TECHTRONICS INDUSTRIES CO., LTD., et al., Defendants.

Case No. 12–cv–01285–BASMDD.

United States District Court, S.D. California.

Signed March 27, 2015.

Eric D. Pearson, Michael E. Heygood, Charles W. Miller, Heygood Orr Reyes Pearson & Bartolomei, Dallas, TX, Richard J. Sullivan, Sullivan & Sullivan LLP, Wellesley, MA, Scott C. Cummins, Casey Gerry Reed Schenk Francavilla Blatt and Penfield, San Diego, CA, for Plaintiff.

Jeffrey R. Williams, Patrick Mark Mahoney, Schiff Hardin LLP, San Francisco, CA, for Defendants.

ORDER:

(1) GRANTING PLAINTIFF'S MOTION TO SUBSTITUTE (ECF NO. 56);

(2) DENYING DEFENDANTS' MOTION TO DISMISS (ECF NO. 41); AND

(3) SETTING PRETRIAL AND TRIAL DATES

CYNTHIA BASHANT, District Judge.

Presently before the Court is a motion to substitute U.S. Bankruptcy Trustee Richard Kipperman as the real party in interest filed by Plaintiff Charles Copelan (“Plaintiff”) and Mr. Kipperman (“Trustee”) (ECF No. 56), and a motion to dismiss filed by defendants One World Technology, Inc. and Home Depot U.S.A., Inc. (collectively “Defendants”) (ECF No. 41).

Having reviewed the papers submitted and heard oral argument, for the reasons set forth below, this Court GRANTS the motion to substitute Mr. Kipperman, and DENIES Defendants' motion to dismiss.

I. BACKGROUND

Plaintiff filed this personal injury action in state court on November 7, 2011. (ECF No. 1–2.) On January 11, 2012, Plaintiff filed a Chapter 7 bankruptcy petition. (ECF No. 41–2 at Ex. B; ECF No. 43–3.)¹ On May 25, 2012, this personal injury action was removed to federal court. (ECF No. 1.)

In his bankruptcy petition, under “Statement of Financial Affairs,” Plaintiff was asked to “List all suits and administrative proceedings to which the debtor is or was a party within one year immediately preceding the filing of this bankruptcy case.” (ECF No. 41–2 at 31; ECF No. 43–3 at 24.) Plaintiff checked a box indicating “none”. (Id. ) Plaintiff failed to list on the bankruptcy petition that he had filed this personal injury action. On April 10, 2012, the bankruptcy court discharged Plaintiff's debts. (ECF No. 41–2 at p. 20; ECF No. 43–4 at 3.)

During Plaintiff's deposition in this case on September 25, 2013, Plaintiff volunteered that he had previously filed for bankruptcy protection. (ECF No. 43–5.) On April 2, 2014, Plaintiff's counsel filed a motion to reopen Plaintiff's bankruptcy case. (ECF No. 41–2 at 21, 36–42; ECF No. 43–4 at 4; ECF No. 43–6.) On that same date, Plaintiff's counsel notified this court of the bankruptcy case. (ECF No. 36.) On April 22, 2014, the bankruptcy court granted the motion to reopen Plaintiff's bankruptcy case. (ECF No. 43–8.)

Defendants now move to dismiss this action pursuant to Rules 12(b)(1) and/or 12(b)(6) of the Federal Rules of Civil Procedure on the grounds that, based on the foregoing, Plaintiff is judicially estopped from maintaining this action. On February 2, 2015, the Court held a hearing on Defendants' motion to dismiss. (ECF No. 55.) At the hearing, the Court gave the Trustee thirty days to join the lawsuit. Plaintiff and Trustee now move to substitute the Trustee for Plaintiff in this lawsuit. (ECF No. 56.)

II. MOTION TO SUBSTITUTE

A. Legal Standard

Rule 17 of the Federal Rules of Civil Procedure requires that an action “be prosecuted in the name of the real party in interest.” Fed.R.Civ.P. 17(a)(1). Where the action is originally brought by a party other than the real party in interest, Rule 17 provides that a court “may not dismiss an action for failure to prosecute in the name of the real party in interest until, after an objection, a reasonable time has been allowed for the real party in interest to ratify, join, or be substituted into the action.” Fed.R.Civ.P. 17(a)(3). If the real party in interest ratifies, joins, or is substituted, the “action proceeds as if it had been originally commenced by the real party in interest.” Id.

“When a plaintiff files for bankruptcy after the initiation of [his] suit, the claims become the property of the bankruptcy estate and the trustee of the estate becomes the real party in interest.” Ritz Camera & Image, LLC v. Sandisk Corp., No. C 10–02787, 2013 WL 3387817, at *2 (N.D.Cal. July 5, 2013) (citing Barger v. City of Cartersville, Ga., 348 F.3d 1289, 1292 (11th Cir.2003) ; Sierra Switchboard Co. v. Westinghouse Elec. Corp., 789 F.2d 705, 707–09 (9th Cir.1986) ); see also Turner v. Cook, 362 F.3d 1219, 1225–26 (9th Cir.2004) ; In re Meehan, 2014 WL 4801328, at *4–6 (9th Cir. BAP Sept. 29, 2014) (holding the trustee has exclusive standing to pursue prepetition causes of action that have not been formally abandoned); 11 U.S.C. § 541(a)(1) (bankruptcy estate includes “all legal or equitable interests of the debtor in property as of the commencement of the case”); In re Chappel, 189 B.R. 489, 493 (9th Cir. BAP 1995) (“[T]he scope of § 541(a)(1) is broad, covering all kinds of property, including tangible or intangible causes of action....”).

If an interest is transferred, Rule 25(c) of the Federal Rules of Civil Procedure allows a court, on a motion, to order the transferee to be substituted in the action. Fed.R.Civ.P. 25(c). “Rule 25(c) is not designed to create new relationships among parties to a suit but is designed to allow the action to continue unabated when an interest in the lawsuit changes hands.” In re Bernal, 207 F.3d 595, 598 (9th Cir.2000) (quoting Collateral Control Corp. v. Deal (In re Covington Grain Co., Inc.), 638 F.2d 1362, 1364 (5th Cir.1981) ). Permitting the substitution of a bankruptcy trustee in the place of a debtor is among the transfers of interest that courts have found support substitution under Rule 25(c). See Ritz Camera & Image, LLC, 2013 WL 3387817, at *2 (citing Bauer v. Commerce Union Bank, 859 F.2d 438, 441–442 (6th Cir.1988) ); see also In re Countrywide Fin. Corp. Mortg. Mktg. & Sales Practices Litig., 601 F.Supp.2d 1201, 1222 (S.D.Cal.2009). The decision to grant or deny substitution under Rule 25(c) rests within the sound discretion of the court. In re Bernal, 207 F.3d at 598. “A Rule 17(a) substitution of plaintiffs should be liberally allowed when the change is merely formal and in no way alters the original complaint's factual allegations as to the events or the participants.” Advanced Magnetics, Inc. v. Bayfront Partners, Inc., 106 F.3d 11, 20 (2d Cir.1997).

B. Discussion

Here, the parties do not dispute that a transfer of interest occurred when Plaintiff filed for bankruptcy, or that the Trustee has become the real party in interest. Rather, Defendants oppose Plaintiff's motion to substitute the Trustee on the grounds their motion to dismiss is still pending and substitution of the Trustee “does not change the fact that this case should be dismissed in its entirety on judicial estoppel grounds.” (ECF No. 59 at p. 1.)

The Court finds that substitution is appropriate. The Trustee has decided to pursue this lawsuit on behalf of the creditors and has retained counsel to pursue the action. (ECF No. 56–2 at Ex. A.) Undisputedly, the change is merely formal and does not alter the factual allegations in the lawsuit as to the events or the participants. See Advanced Magnetics, Inc., 106 F.3d at 20. Moreover, the Trustee receives the causes of action at issue subject to all pre-petition defenses that would have been applicable to Plaintiff if no bankruptcy case had been filed. See Reed v. City of Arlington, 650 F.3d 571, 575 (5th Cir.2011). While the substitution of the Trustee precludes the application of judicial estoppel, as discussed below, the Court notes that “[j]udicial estoppel is an equitable doctrine, and using it to land another blow on the victims of bankruptcy fraud[, which could potentially occur here absent substitution,] is not an equitable application.” Biesek v. Soo Line R.R. Co., 440 F.3d 410, 413 (7th Cir.2006). For the foregoing reasons, the Court GRANTS the motion to substitute Trustee for Plaintiff in this lawsuit.

III. MOTION TO DISMISS

A. Legal Standard

1. Rule 12(b)(1)

Rule 12(b)(1) of the Federal Rules of Civil Procedure provides for a motion to dismiss for lack of subject-matter jurisdiction. Fed.R.Civ.P. 12(b)(1). A 12(b)(1) motion may be either facial, where the inquiry is confined to the allegations in the complaint, or factual, where the court is permitted to look beyond the complaint to extrinsic evidence. Wolfe v. Strankman, 392 F.3d 358, 362 (9th Cir.2004). On a facial challenge, all material allegations in the complaint are assumed true, and the question for the court is whether the lack of federal jurisdiction appears from the face of the pleading itself. Id.; Thornhill Publ'g Co. v. Gen. Tel. Elecs., 594 F.2d 730, 733 (9th Cir.1979).

When a defendant makes a factual challenge “by presenting affidavits or other evidence properly brought before the court, the party opposing the motion must furnish affidavits or other evidence necessary to satisfy its burden of establishing subject matter jurisdiction.” Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir.2004) (citation omitted). The court need not presume the truthfulness of the plaintiff's allegations under a factual attack. White v. Lee, 227 F.3d 1214, 1242 (9th Cir.2000) ; Augustine v. United States, 704 F.2d 1074, 1077 (9th Cir.1983). However, in the absence of a full-fledged evidentiary hearing, disputes in the facts pertinent to subject-matter jurisdiction are viewed in the light most favorable to the opposing party. Dreier v. United States, 106 F.3d 844, 847 (9th Cir.1996). The disputed facts related to subject-matter jurisdiction should be treated in the same way as one would adjudicate a motion for summary judgment. Id.

2. Rule 12(b)(6)

A motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure tests the legal sufficiency of the claims asserted in the complaint. Fed.R.Civ.P. 12(b)(6) ; Navarro v. Block, 250 F.3d 729, 732 (9th Cir.2001). The court must accept all allegations of...