Donarumo v. Furlong (In re Furlong)
| Decision Date | 01 November 2011 |
| Docket Number | Nos. 11–1364,11–1386.,s. 11–1364 |
| Parties | In re Michael FURLONG; Joann Furlong, Debtors.Andrew C. Donarumo; Murray Supply Corporation, Appellants, Cross–Appellees, v. Michael Furlong; Joann Furlong, Appellees, Cross–Appellants. |
| Court | U.S. Court of Appeals — First Circuit |
OPINION TEXT STARTS HERE
Anthony L. Gray, with whom Natalie A. Heineman, Jeffrey J. Phillips, Daniel Treger, Pollack & Flanders, LLP, and Phillips & Angley were on brief, for appellants, cross-appellees.
Jeffrey B. Renton, with whom Michael B. Feinman, Matthew J. Ginsburg, Gilbert & Renton LLC, and Feinman Law Offices were on brief, for appellees, cross-appellants.
Before LYNCH, Chief Judge, BOUDIN and STAHL, Circuit Judges.
On December 19, 2006, after the failure of their business, Drew's Plumbing & Heating II (Drew's II), Michael and JoAnn Furlong (the Furlongs) filed petitions under Chapter 7 for personal and corporate bankruptcy. During the pendency of the proceedings before the bankruptcy court, the Furlongs filed a Motion to Verify or Compel Abandonment of Certain Property of the Estate (Motion to Verify), which was opposed by Andrew Donarumo (Donarumo) and Murray Supply Corp. (Murray Supply). The bankruptcy court ruled on the motion on September 28, 2010, finding that claims against Donarumo had been properly abandoned from both estates but that the stock of Drew's II remained property of the personal bankruptcy estate. In re Furlong (Furlong I), 437 B.R. 712, 721 (Bankr.D.Mass.2010). Donarumo and Murray Supply appealed the abandonment ruling, while the Furlongs cross-appealed the ruling regarding the stock. The district court affirmed the bankruptcy court on April 1, 2011, In re Furlong (Furlong II), 450 B.R. 263, 271 (D.Mass.2011), and this timely appeal followed, with the parties maintaining their positions from below. We affirm.
On January 14, 2005, the Furlongs purchased the assets of Drew's Plumbing & Heating, Inc. (Drew's I) from Andrew Donarumo for $1 million, $800,000 of which was in cash and $200,000 of which was in the form of a promissory note secured by mortgages on the Furlongs' real property. With the purchased assets, the Furlongs formed Drew's II, but the business failed by June 5, 2006. The Furlongs claim that Drew's II failed because Donarumo engaged in fraud with respect to the original sale and competed with Drew's II after the sale, including poaching its customers. Donarumo contests these allegations.
On December 19, 2006, the Furlongs filed Chapter 7 bankruptcy petitions for themselves personally and for the corporate bankruptcy of Drew's II. John A. Burdick, Jr. (Trustee) was appointed to serve as trustee for both cases. In both bankruptcies, the Furlongs listed on the “Schedule B–Personal Property” (Schedule B) “Claims for Breach of Contract (Andrew Donarumo et al.),” with “Indeterminate” value. On the Schedule B for the personal bankruptcy, the Furlongs listed “Drew's Plumbing & Heating II, Inc.—100% Interest,” with “Unknown” value.
At a creditors' meeting held pursuant to 11 U.S.C. § 341 on January 17, 2007, Mr. Furlong discussed with the Trustee and present creditors the claims against Donarumo. Though the schedule only listed claims for breach of contract, at the § 341 meeting, Mr. Furlong described related claims stemming from Donarumo's sale of Drew's II that the Furlongs intended to bring on their own behalf and on behalf of Drew's II, including claims sounding in tort. After the creditors' meeting and before the Trustee took any action on the claims, Donarumo consulted his attorney as to how he should respond to the Furlongs' claims.1
Following the creditors' meeting, the Furlongs exchanged letters and emails with the Trustee regarding the claims and also sent him a sixteen-count draft complaint. The complaint laid out claims for breach of contract, but also claims for deceit, misrepresentation, breach of the implied covenant of good faith and fair dealing, negligence, breach of fiduciary duty, intentional interference with advantageous business or contractual relationships, intentional and negligent infliction of emotional distress, and for violations under the Massachusetts Consumer Protection Act, Mass. Gen. Laws ch. 93A. The Trustee, using the draft complaint, attempted to retain an attorney to pursue the case on a contingency basis but was unable to do so on terms he found acceptable.
With the statute of limitations on the state claims running, the Furlongs asked the Trustee to abandon the claims. At the same time, the Trustee was seeking to establish that $5,000 that the Furlongs held in a bank account was not exempt from the personal bankruptcy. The Furlongs agreed to turn over the $5,000 to the Trustee, while the Trustee agreed to abandon all claims against Donarumo.
On October 26, 2007, in the corporate bankruptcy, the Trustee filed a “No Asset and No Distribution Report,” and on December 28, 2007, the corporate bankruptcy estate was closed. Accordingly, any scheduled assets that had not been administered, including all properly-scheduled claims, were abandoned by operation of law under 11 U.S.C. § 554(c) as of the closing of the corporate bankruptcy estate.
The Trustee filed a “Notice of Intention to Abandon” (Notice) in the personal bankruptcy on November 6, 2007, in which the Trustee stated his intent to abandon “a cause of action against Andrew Donarumo, et al.” In the “Reason for Abandonment” section, the Trustee explained his failure to find an attorney who would prosecute the claims on acceptable terms, and stated that, in his business judgment, “pursuing this litigation would not be cost effective for the estate.” Also in the “Reason for Abandonment” section, the Trustee characterized the claims as “based upon the Debtors' allegation that certain misrepresentation and other business related tort cause [sic] of action arose from the purchase of a business known as Drew's Plumbing and Heating, Inc. II.” No objections to the Notice were filed, and the bankruptcy court approved the abandonment on November 30, 2007.
On January 10, 2008, the Furlongs and Drew's II filed suit against Donarumo and others in Suffolk Superior Court in Boston, Massachusetts, alleging claims similar to those outlined in the draft complaint that the Furlongs had shown to the Trustee, all of which related to the sale of the assets to Drew's II.
Prior to the filing of the bankruptcy petitions, Drew's II had surrendered its business assets, including both tangible assets and “general intangibles” (and therefore possibly some or all of its claims against Donarumo) to its secured lender, Key Bank. Key Bank then sold the tangible and intangible assets to Gem Plumbing. On February 13, 2010, Gem Plumbing assigned back to the Furlongs and Drew's II whatever rights it held in any claims against Donarumo or his business entities. On February 27, 2010, the Furlongs, at a meeting of the directors of Drew's II at which they were the sole attendees, assigned to themselves these rights. The Trustee was not invited to the meeting, of which he was unaware, nor was he asked to approve the assignment.
On December 9, 2009, the Trustee filed his Final Report and Account Before Distribution in the personal bankruptcy, but he subsequently moved to withdraw the report before any hearing could take place, citing Donarumo's January 26, 2010 offer to purchase from the personal bankruptcy estate both the claims against him and the Furlongs' stock in Drew's II for a total of $5,000. The bankruptcy court granted the motion to withdraw, and the Furlongs responded on March 12, 2010 by filing the Motion to Verify. Donarumo filed an opposition and cross-motion, and Murray Supply, a creditor, joined the cross-motion, adopting all of Donarumo's positions.
The bankruptcy court issued its memorandum of decision on September 28, 2010, ruling that the Trustee had abandoned all claims in the corporate bankruptcy case by operation of law under § 554(c), as well as all claims in the personal bankruptcy case via the Notice under § 554(a). Furlong I, 437 B.R. at 719–21. However, the bankruptcy court also ruled that the Drew's II stock had never been abandoned and remained the property of the personal bankruptcy estate, possibly entitling the personal bankruptcy estate to proceeds from any damages awarded to Drew's II.2 Id. at 721. Donarumo appealed the first ruling, and the Furlongs cross-appealed the second. On April 1, 2011, the district court issued its memorandum and order, affirming the rulings of the bankruptcy court. Furlong II, 450 B.R. at 271. This timely appeal followed, in which Donarumo and Murray Supply again appeal the ruling on the abandonments, and the Furlongs again cross-appeal the ruling on the Drew's II stock.
Though none of the parties raised the issue of standing before the district court, the Furlongs here argue that neither Donarumo nor Murray Supply has standing to appeal the ruling on the abandonments, while Donarumo and Murray Supply challenge the Furlongs' standing to cross-appeal the stock issue. Where the issue of standing was not raised below, this Court must undertake the inquiry without remanding. Spenlinhauer v. O'Donnell, 261 F.3d 113, 118 (1st Cir.2001). Standing to appeal a bankruptcy order is limited to “persons aggrieved,” that is, persons whose pecuniary interests are adversely affected by the challenged order. Id. at 117–18. All parties here meet the “persons aggrieved” standard and therefore have standing to appeal the various parts of the bankruptcy court's order.3
Donarumo and Murray Supply appeal the lower courts' determinations that claims against Donarumo held by the corporate bankruptcy estate were effectively abandoned by operation of law under 11 U.S.C. § 554(c). “On appeal from a district court decision reviewing a...
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