Henley v. Malouf (In re Roberts)

• Decision Date: 22 August 2016
• Docket Number: CASE NO. 0306146EE,ADVERSARY NO. 1500051EE
• Citation: 556 B.R. 266
• Parties: In re: William S. Roberts, Sara A. Roberts James L. Henley, Jr., Trustee v. Patrick C. Malouf, and Porter & Malouf, P.A.
• Court: U.S. Bankruptcy Court — Southern District of Mississippi

556 B.R. 266

In re: William S. Roberts, Sara A. RobertsJames L. Henley, Jr., Trustee

v.Patrick C. Malouf, and Porter & Malouf, P.A.

CASE NO. 0306146EE

ADVERSARY NO. 1500051EE

United States Bankruptcy Court, S.D. Mississippi.

Signed August 22, 2016

Hon. Jeffery P. Reynolds, jeff@jprpa.com, Carson H. Thurman, carson@jprpa.com, 200 South Lamar Street, Suite 1050-S, Jackson, MS 39201, Attorneys for Chapter 13 Trustee

Hon. John H. Dollarhide, john.dollarhide@butlersnow.com, J. Mitchell Carrington, mitch.carrington@butlersnow.com, Post Office Box 6010, Ridgeland, MS 39157, Attorneys for Patrick C. Malouf and Porter & Malouf, P.A.

Hon. James L. Henley, Jr., Post Office Box 31980, Jackson, MS 39286-1980, Chapter 13 Trustee

MEMORANDUM OPINION

Edward Ellington, Judge

THIS MATTER came before the Court on the Motion to Dismiss (Adv. Dkt. #18) filed by Patrick C. Malouf and Porter & Malouf, P.A. and the Response in Opposition to Defendants' Motion to Dismiss (Adv. Dkt. #22) filed by James L. Henley, Jr., Chapter 13 Trustee. Having considered same and the respective briefs filed by the parties, the Court finds that the Motion to Dismiss (Adv. Dkt. #18) filed by the Patrick C. Malouf and Porter & Malouf, P.A. should be granted in part, denied in part, and deferred in part.

FINDINGS OF FACT¹

The matter before the Court is the Motion to Dismiss (Adv. Dkt. #18) (Motion to Dismiss) filed by Patrick C. Malouf and Porter & Malouf, P.A. “For purposes of ruling on a motion to dismiss for want of standing, both the trial and reviewing courts must accept as true all material allegations of the complaint, and must construe the complaint in favor of the complaining party.” Warth v. Seldin , 422 U.S. 490, 501, 95 S.Ct. 2197, 2206, 45 L.Ed.2d 343 (1975).

On September 4, 2002, a complaint was filed in the Circuit Court for the First Judicial District of Hinds County, Mississippi, styled Pate, et. al. v. Minnesota Mining & Manufacturing Comp., et. al. (Civil Action No. 25–CI–1:02–01140) (Hinds County Action). The Hinds County Action was filed by ninety-three (93) plaintiffs, one of which was William S. Roberts. Patrick C. Malouf and Porter & Malouf, P.A. (collectively, Malouf) filed the Hinds County Action and represented William S. Roberts.

On October 22, 2003, William S. Roberts (Debtor) and Sara A. Roberts (collectively, Debtors) filed a petition for relief under Chapter 13 of the United States Bankruptcy Code. James L. Henley, Jr. (Trustee) was appointed the Chapter 13 Trustee. Neither the Debtor's Schedules² nor the Statement of Financial Affairs³ disclosed that the Debtor was a plaintiff in the Hinds County Action.

The Order Confirming the Debtor's Plan, Awarding a Fee to the Debtor's Attorney and Related Orders (Dkt. #12) (Confirmation Order) was entered on January 7, 2004, and provides in pertinent part:

[T]he court finds that:

....

B. The plan as presented for confirmation (hereinafter referred to as “the plan”) complies with the provisions of Chapter 13 of Title 11 of the United States Code and the other applicable provisions of said Title;

....

D. The plan has been proposed in good faith and not by any means forbidden by law;

E. The value, as of the effective date of the plan, of property to be distributed under the plan on account of each allowed unsecured claim is not less than the amount that would be paid on such claim if the estate of the debtor were liquidated under Chapter 7 of Title 11 of the United States Code on such date;....

G. b. the plan provides that all of the debtor's projected disposable income as disposable income is defined in 11 U.S.C. § 1325(b)(2) 1 (sic) to be received by the debtor in the three year period beginning on the date that the first payment is due under the plan will be applied to make payments under the plan.

....

IT IS ORDERED THAT:

....

4. All property shall remain property of the estate and shall vest in the debtor only upon dismissal, discharge, or conversion. The debtor shall be responsible for the preservation and protection of all property of the estate not transferred to the Trustee.⁴

Attached to the Confirmation Order is the Debtors' Chapter 13 Mini-Plan (Confirmed Plan). In the Debtors' Confirmed Plan, the Debtors state that their unsecured creditors hold claims totaling approximately $47,872.00, and that they are paying zero (0) to their unsecured creditors.⁵

In the Hinds County Action, Malouf filed a Motion to Enforce and Accelerate Settlement⁶ (Hinds County Motion) on October 8, 2004. In the Hinds County Motion, Malouf states that the parties had entered into a confidential settlement, but that the defendants had “paid only a portion of the claimants pursuant to the agreement.”⁷ Malouf then requests that the state court order the defendants to immediately comply with the settlement.

On March 5, 2007, an Agreed Order of Dismissal of All Claims by Plaintiffs⁸ was entered in the Hinds County Action. The order dismissed the Hinds County Action with prejudice.

The Debtors completed their plan payments in January of 2007. The Trustee filed his Final Report and Account (Dkt. #32) (Final) on June 20, 2007. The Final shows that a total of $57,831.93 in allowed unsecured claims were filed in the Debtors' case and that zero (0) was paid to the allowed unsecured creditors. Further, the Final shows that the Debtors received a refund in the amount of $1,133.31.⁹

On June 22, 2007, the Discharge of Debtor After Completion of Chapter 13 Plan (Dkt. #33) and the Final Decree/Order Closing Case (Dkt. #34) were entered.

On October 31, 2011, a motion was filed to reopen the Debtors' bankruptcy case to disclose that Sara A. Roberts had settled a product liability claim against a drug manufacturer. The Motion for Approval of Proposed Settlement and Distribution of Proceeds from Personal Injury (Dkt. #40) (Sara's Settlement) was also filed on October 31, 2011, and states that Sara A. Roberts' use of a pharmaceutical product while her Chapter 13 case was open resulted in a personal injury. Sara's Settlement further states that she had settled with the pharmaceutical company and requested that the settlement be approved along with attorneys' fees and costs.

The case was reopened on December 22, 2011, and an order was entered on December 27, 2011, approving Sara's Settlement. The Trustee received the settlement funds ($64,210.37) on January 9, 2012. On January 10, 2012, a Motion to Approve Payment of Fees and for Disbursement of Money (Dkt. #54) was filed and noticed to all creditors. On February 6, 2012, an order was entered (Dkt. #59) approving the payment of attorneys' fees and costs and the payment to Sara A. Roberts.

The Court notes that the Debtors did not amend their schedules to disclose the existence of Sara A. Roberts' personal injury claim. Nor did Sara Roberts amend her claim of exemptions to claim the settlement funds as exempt. Regardless, after the payment of attorneys' fees and costs, the Trustee disbursed $30,474.82 to Sara A. Roberts.¹⁰ The Debtors' bankruptcy case was again closed on August 3, 2012. (Dkt. #64).

On May 27, 2015, the Trustee filed a Motion to Reopen Chapter 13 Case (Dkt. #72) because the Trustee believed that the Debtor, William S. Roberts, had settled an undisclosed personal injury lawsuit during the pendency of his Chapter 13 case. The Order on the Trustee's Motion to Reopen Chapter 13 Case [Dkt. No.: 72] (Dkt. #73) was entered on June 1, 2015.

The above-styled adversary proceeding was commenced on July 31, 2015, with the filing of the Complaint for Turnover of Property, Declaratory Judgment and Equitable Relief (Adv. Dkt. #1) by the Trustee. While not styled as amended, the Trustee filed an amended complaint on August 6, 2015, titled Complaint for Turnover of Property, Declaratory Judgment and Equitable Relief (Adv. Dkt. #7) (Amended Complaint). Malouf is the only defendant.¹¹

In the Amended Complaint, the Trustee alleges that the Hinds County Action was property of the Debtors' bankruptcy estate; that Malouf's representation of the Debtor was not approved by this Court; and that the settlement entered into by Malouf on the Debtor's behalf was never approved by this Court and is therefore void. Consequently, the Trustee requests that the Court order Malouf to turnover any and all settlement funds it received on behalf of the Debtor, including attorneys' fees and expenses, to the Trustee.

As noted previously, Malouf filed its Motion to Dismiss on October 30, 2015. In the Motion to Dismiss, Malouf alleges that the Amended Complaint should be dismissed pursuant to several subsections of Federal Rule of Bankruptcy Procedure 7012.¹² Malouf contends that the Amended Complaint should be dismissed: (1) under Rule 12(b)(1) for lack of subject matter jurisdiction; (2) under Rule 12(b)(6) for failure to state a claim upon which relief can be granted; and (3) Rule 12(b)(7) for failure of the Trustee to join the settling defendants in the Hinds County Action.

After the final brief was filed, the Court took the matter under advisement.

CONCLUSIONS OF LAW

I. Jurisdiction

For the reasons discussed below, this Court has jurisdiction of the subject matter and of the parties to this proceeding pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157. This is a core proceeding as defined in 28 U.S.C. § 157(b)(2)(A), (E) and (O ).

II. Rule 12(b)(1)

The Court of Appeals for the Fifth Circuit has held that before turning to the merits of a case, a court must first address a challenge to its subject matter jurisdiction. See Ramming v. United States, 281 F.3d 158, 161 (5th Cir.2001) (stating that a court must address Rule 12(b)(1) challenge to jurisdiction before dealing with other Rule 12 motions).

A complaint must be dismissed for lack of subject matter jurisdiction under Rule 12(b)(1) “when the court lacks the statutory or constitutional power to adjudicate the case.” Home Builders Ass'n of Miss., Inc. v. City of Madison, Miss., 143 F.3d 1006, 1010 (5th Cir.1998). Standing is a required element of subject matter jurisdiction and

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