DeLorean Motor Co., In re

Decision Date17 June 1993
Docket NumberNo. 92-1520,92-1520
Citation991 F.2d 1236
Parties, Bankr. L. Rep. P 75,259 In re DeLOREAN MOTOR COMPANY, Debtor. David W. ALLARD, Jr., Plaintiff-Appellant, v. Howard L. WEITZMAN, an individual, Defendant-Appellee.
CourtU.S. Court of Appeals — Sixth Circuit

Judy B. Calton, Ronald S. Longhofer (argued and briefed), Honigman, Miller, Schwartz & Cohn, Seth D. Gould, Detroit, MI, for plaintiff-appellant.

James P. Feeney, S. Thomas Wienner (argued and briefed), Peter M. Kellett, Feeney & Kellett, Birmingham, MI, for defendant-appellee.

Before KENNEDY, NORRIS and SUHRHEINRICH, Circuit Judges.

KENNEDY, Circuit Judge.

Plaintiff appeals the District Court's order affirming the Bankruptcy Court's dismissal of plaintiff's complaint for failure to state a claim. Plaintiff David W. Allard, Jr., Trustee of the DeLorean Motor Company, filed a complaint seeking declaratory and monetary relief for the failure of defendant Howard L. Weitzman to seek leave of the Bankruptcy Court before instituting an action against the Trustee and the Trustee's representatives. The complaint also sought injunctive relief under 11 U.S.C. § 105(a) because the action allegedly interfered with the administration of the estate. Because we find that plaintiff's complaint stated claims for declaratory, monetary and injunctive relief, we reverse the order of the District Court upholding the Bankruptcy Court's dismissal of the Trustee's complaint.

I. Background

DeLorean Motor Company ("DMC") filed for bankruptcy in the Bankruptcy Court for the Eastern District of Michigan under Chapter 11 of the Bankruptcy Code on October 25, 1982. Late in 1983, the Chapter 11 proceedings were converted to Chapter 7 proceedings and plaintiff Allard was appointed trustee of DMC (the "Trustee"). On April 13, 1984, the Trustee instituted a fraudulent conveyance action against John Z. DeLorean, Christina F. DeLorean and defendant Weitzman, alleging that DeLorean owed the DMC estate at least nineteen million dollars ($19,000,000), was insolvent and had fraudulently transferred to Weitzman, his attorney, a 50-acre ranch located in Pauma Valley, California. Allard v. DeLorean, et al., No. 84-1038 JLI (CM) (S.D.Cal.1984) (the "Pauma Valley Case"). The Trustee alleged that the ranch had a fair market value of $2,500,000. The DeLoreans and Weitzman denied any wrongdoing. The Trustee and the Pauma Valley defendants entered into a proposed settlement agreement, which provided, inter alia, that Weitzman would pay the Trustee $325,000. The Unsecured Creditors' Committee objected to the proposal. The Bankruptcy Court denied the Trustee's motion for Authority to Enter into the Proposed Settlement. The fraudulent conveyance action proceeded to trial at which the DeLoreans and Weitzman prevailed. The Trustee appealed. However, before judgment was entered, the Trustee and DeLorean settled their dispute when DeLorean agreed to pay the Trustee approximately nine million dollars ($9,000,000). This settlement was approved by the Bankruptcy Court. Thereafter, the Trustee's fraudulent conveyance action against DeLorean was dismissed with prejudice and the judgment vacated. The Trustee's appeal of the judgment entered in Weitzman's favor was dismissed as moot in light of the settlement between the Trustee and DeLorean. Allard v. DeLorean, 884 F.2d 464 (9th Cir.1989). On January 9, 1991, Weitzman filed an action in the Superior Court of California for the County of Los Angeles against the Trustee and several of the Trustee's representatives 1 (the "Weitzman Defendants") alleging abuse of process and malicious prosecution in relation to the prosecution of the Pauma Valley Case. Weitzman v. Allard, et al., No. SC 005802 (the "Weitzman Action"). Weitzman filed this action without seeking leave from the Bankruptcy Court. Weitzman is seeking at least $2,550,000 in compensatory damages and additional punitive damages. On September 26, 1991, the Weitzman Defendants removed the action to United States District Court, which then referred it to the United States Bankruptcy Court for the Central District of California.

After receiving the Weitzman complaint, the Trustee commenced an adversary proceeding in the Bankruptcy Court for the Eastern District of Michigan on September 24, 1991. In the complaint, the Trustee seeks to enjoin further prosecution of the Weitzman Action and recover damages, including costs and attorneys' fees, incurred as a result of having to defend against the action. Count I of the complaint alleges that because the Weitzman Action was filed without obtaining leave of the Bankruptcy Court it violates 28 U.S.C. § 959(a). The Trustee seeks declaratory relief as well as actual damages incurred in defending against the action. Count II seeks alternative injunctive relief under 11 U.S.C. § 105(a) on the grounds that the Weitzman Action affects or threatens the integrity of the DMC estate.

On October 7, 1991, the Trustee filed a motion for a preliminary injunction. On October 15, 1991, Weitzman voluntarily dismissed the action against David W. Allard, Jr., as trustee, individually, and his professional corporation. The Trustee's former law firm, Spector, McCarron & Allard, was not dismissed. On November 4, 1991, attorneys for the Trustee filed a Certification of No Timely Response to Motion for Preliminary Injunction. On November 6, 1991, the Bankruptcy Court granted the Trustee's motion for a preliminary injunction.

On November 12, 1991, Weitzman filed a Motion to Reconsider and to Vacate Order Granting Preliminary Injunction. The Trustee filed objections to the motion. At a status conference held on November 26, 1991, the Bankruptcy Court dissolved and vacated the preliminary injunction because the Trustee had been dismissed from the Weitzman Action. On December 11, 1991, the Trustee refiled his Motion for Preliminary Injunction. On December 26, 1991, Weitzman filed a Motion to Dismiss for Failure to State a Claim.

On January 16, 1992, the Bankruptcy Court held a hearing on Weitzman's Motion to Dismiss and on the Trustee's Motion for a Preliminary Injunction. However, no testimony on the latter motion was taken because the court granted the Motion to Dismiss. In reaching its decision, the court reasoned that the Weitzman Action was not against the Trustee, that the protections of section 959 do not extend to fiduciaries of the estate other than trustees, receivers or managers, and that the action did not affect the assets of the estate or the administration of the estate.

On January 22, 1992, the Bankruptcy Court entered an order vacating the preliminary injunction and dismissing the Trustee's complaint. The United States District Court for the Eastern District of Michigan affirmed. It held that it was not error for the Bankruptcy Court to have concluded that section 959 protection did not extend to the remaining Weitzman defendants and that, therefore, leave of the Bankruptcy Court was not required before filing the Weitzman Action. The District Court also held that Count II of the Trustee's complaint, seeking injunctive relief under 11 U.S.C. § 105(a), failed to state a claim and that the Bankruptcy Court properly vacated the injunction. It found that the assets of the estate and the administration of the estate were not threatened by the Weitzman Action. The Trustee then filed a timely notice of appeal to this Court.

II. Motion to Dismiss
A. Standard of Review

We review the dismissal of a complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) on a de novo basis. Sinay v. Lamson & Sessions Co., 948 F.2d 1037, 1039-40 (6th Cir.1991). This Court must construe the complaint in the light most favorable to the plaintiff, accept all factual allegations as true, and determine whether the plaintiff undoubtedly can prove no set of facts in support of his claims that would entitle him to relief. Meador v. Cabinet for Human Resources, 902 F.2d 474, 475 (6th Cir.), cert. denied, 498 U.S. 867, 111 S.Ct. 182, 112 L.Ed.2d 145 (1990). A complaint need only give "fair notice of what the plaintiff's claim is and the grounds upon which it rests." Lawler v. Marshall, 898 F.2d 1196, 1199 (6th Cir.1990) (quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 103, 2 L.Ed.2d 80 (1957)). A judge may not grant a Fed.R.Civ.P. 12(b)(6) motion to dismiss based on a disbelief of a complaint's factual allegations. Id. While this standard is decidedly liberal, it requires more than the bare assertion of legal conclusions. Scheid v. Fanny Farmer Candy Shops, Inc., 859 F.2d 434, 436 (6th Cir.1988). "In practice, 'a ... complaint must contain either direct or inferential allegations respecting all the material elements to sustain a recovery under some viable legal theory.' " Id. (quoting Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1106 (7th Cir.1984), cert. denied, 470 U.S. 1054, 105 S.Ct. 1758, 84 L.Ed.2d 821 (1985) (quoting In re Plywood Antitrust Litigation, 655 F.2d 627, 641 (5th Cir.1981)). Applying these standards, we hold that the complaint withstands the motion to dismiss on both counts.

B. The Leave Requirement (Count I)

The Trustee alleges in Count I of his complaint that Weitzman violated 28 U.S.C. § 959(a) by failing to obtain leave of the Bankruptcy Court before filing his malicious prosecution and abuse of process action against the Trustee and the Trustee's representatives. Section 959(a) provides:

Trustees, receivers or managers of any property, including debtors in possession, may be sued, without leave of the court appointing them, with respect to any of their acts or transactions in carrying on business connected with such property. Such actions shall be subject to the general equity power of such court so far as the same may be necessary to the ends of justice, but this shall not deprive a litigant of his right to trial by jury.

28 U.S.C. § 959(a) (1978).

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