Herrera v. Gonzales (In re Herrera)

• Decision Date: 16 April 2012
• Docket Number: Adversary No. 11–1011 S.,Bankruptcy No. 7–05–15578 SA.
• Citation: 472 B.R. 839
• Parties: In re Antonia Marie HERRERA, Debtor. Antonia Marie Herrera, Valerie Nieto, Mary Lucero, Plaintiffs, v. Yvette J. Gonzales, Yvette Gonzales, Trustee of Antonia Marie Herrera Bankruptcy Estate and Yvette J. Gonzales, LLC, Defendants.
• Court: U.S. Bankruptcy Court — District of New Mexico

472 B.R. 839

In re Antonia Marie HERRERA, Debtor.

Antonia Marie Herrera, Valerie Nieto, Mary Lucero, Plaintiffs,

v.Yvette J. Gonzales, Yvette Gonzales, Trustee of Antonia Marie Herrera Bankruptcy Estate and Yvette J. Gonzales, LLC, Defendants.

Bankruptcy No. 7–05–15578 SA.

Adversary No. 11–1011 S.

United States Bankruptcy Court,

D. New Mexico.

April 16, 2012.

Ryan T. Sanders, Allen Shepherd Lewis Syra & Chapman, PA, Albuquerque, NM, for Plaintiffs.

Charles R. Hughson, Rodey, Dickason, Sloan, Akin & Robb, P.A., Albuquerque, NM, for Defendants.

MEMORANDUM OPINION AND ORDER REQUIRING BARTON MOTION TO BE FILED AND PERMITTING AMENDMENT OF COMPLAINT

JAMES S. STARZYNSKI, Bankruptcy Judge.

Plaintiffs' complaint seeks to hold the chapter 7 case trustee (“Trustee”) personally liable for damages for an alleged loss of proceeds from a class action. Adversary Proceeding (“AP”) doc 1.¹ Trustee has moved to dismiss (“Motion”) (AP doc 4), which Plaintiffs oppose (AP doc 7). The Court finds the Motion well taken and will dismiss, subject to Plaintiffs having the opportunity to amend the complaint and attach it to a motion seeking permission to pursue the claims against the Trustee.²

Background

Plaintiffs are the daughters of Debtor Antonia Herrera. Debtor died December 1, 2009, and Plaintiffs are Debtor's only heirs.

On July 8, 2005, Debtor filed a chapter 7 bankruptcy petition. Doc 1. Neither the schedules nor the Statement of Financial Affairs made any mention of a class action pending in the state of Alabama against Family Dollar Stores, Inc. from which Debtor was allegedly entitled to share in a recovery. Doc 1. Trustee issued a No Distribution Report (doc 7) and the case was closed on October 31, 2005. Doc 9. On April 6, 2006, Trustee moved to reopen the case, asserting that a creditor informed Trustee that Debtor had a claim for back wages from the Family Dollar Store class action. Doc 10. Apparently it was discovered by some party involved in the Alabama action, after judgment, that certain class members had filed bankruptcy petitions but had not disclosed the bankruptcy filings to the Alabama court. The Court entered the order reopening the case the next day. Doc 11. Trustee then promptly withdrew the No Distribution Report (doc 12), issued a notice of assets (doc 13) and obtained a claims filing deadline of July 13, 2007 (doc 14). She also hired her own law firm to assist in the prosecution of a lawsuit against Family Dollar Stores, Inc., and to hire and oversee special counsel (motion–doc 16; order–doc 17). And she obtained the employment of other law firms as special counsel to assist the Trustee in the recovery of damages. (Motion–doc 21; order–doc 24). In the meantime, presumably pursuant to the notice of possible dividend, three proofs of claim were timely filed in the total amount of $14,141.29.³

Exactly what happened after that is a bit murky, and those events are of course at the heart of the complaint. What is clear from an examination of this Court's docket is that the Trustee filed an interim report on September 28, 2006 (doc 26) and another interim report on September 27, 2007 (doc 27). Six days later on October 3, 2007 the Trustee filed a text entry of No Distribution and Abandonment of Assets. The next day, October 4, a final decree was entered and the case reclosed. Doc 28. Approximately 26 months later Debtor died, apparently having taken no action while she was still alive to realize any distribution from the Alabama action.

A little over a year after Debtor's death, and over three years after the chapter 7 case had been reclosed, Plaintiffs filed this adversary proceeding. Trustee promptly filed her Motion to Dismiss (doc 3), to which Plaintiffs filed their Plaintiffs' Response to Motion to Dismiss (doc 7), to which Trustee filed her Reply on Motion to Dismiss (doc 8).

Claims

Plaintiffs make three claims in the complaint: that Trustee's law firm (Yvette Gonzales, LLC) committed malpractice (Count I), that the Trustee owed a fiduciary duty to Plaintiffs and breached it by failing to adequately monitor the attorneys the estate had hired (Count II), and that the estate's attorneys and the Trustee made misrepresentations to the Trustee [sic] (Count III). Based on those claims, Plaintiffs ask for compensatory, treble and punitive damages.⁴ For the reasons set forth below, the Court rules that the complaint in its present state fails to state a claim for which relief can be granted.

Analysis⁵Standing

Trustee challenges Plaintiffs' standing to bring this action against her. The Court must address standing to the extent the issue arises at any point. Warth v. Seldin, 422 U.S. 490, 498, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975) (the existence of a case or controversy is the threshold question in every federal case).

In Board of County Commissioners of Sweetwater County v. Geringer, 297 F.3d 1108, 1111–12 (10th Cir.2002), the Court of Appeals for the Tenth Circuit described the requirements of standing in considerable detail:

“The standing inquiry requires us to consider ‘both constitutional limits on federal-court jurisdiction and prudential limitations on its exercise.’ ” Sac & Fox Nation of Mo. v. Pierce, 213 F.3d 566, 573 (10th Cir.2000) (quoting Warth v. Seldin, 422 U.S. 490, 498, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975)). Constitutional standing derives from Article III of the U.S. Constitution, which restricts federal courts' jurisdiction to suits involving an actual case or controversy. Schaffer v. Clinton, 240 F.3d 878, 882 (10th Cir.2001) (citing Allen v. Wright, 468 U.S. 737, 750, 104 S.Ct. 3315, 82 L.Ed.2d 556 (1984)). To satisfy constitutional standing requirements, a plaintiff must demonstrate the presence of three elements:

(1) “injury in fact”—meaning “the invasion of a legally protected interest that is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical”; (2) “a causal relationship between the injury and the challenged conduct”-meaning that the “injury fairly can be traced to the challenged action of the defendant”; and (3) “a likelihood that the injury will be redressed by a favorable decision”—meaning that the “prospect of obtaining relief from ... a favorable ruling is not too speculative.”

Buchwald [ v. University of New Mexico School of Medicine], 159 F.3d [487] at 493 (10th Cir.1998) (quoting Northeastern Fla. Chapter of the Associated Gen. Contractors of Am. v. City of Jacksonville, 508 U.S. 656, 663–64, 113 S.Ct. 2297, 124 L.Ed.2d 586 (1993)); see also Bennett v. Spear, 520 U.S. 154, 163, 117 S.Ct. 1154, 137 L.Ed.2d 281 (1997) (“To satisfy the ‘case’ or ‘controversy’ requirement of Article III, which is the ‘irreducible constitutional minimum’ of standing, a plaintiff must, generally speaking, demonstrate that he has suffered ‘injury in fact,’ that the injury is ‘fairly traceable’ to the actions of the defendant, and that the injury will likely be redressed by a favorable decision.”) (quoting, inter alia, Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992)). At its core, we have explained, constitutional standing requires a court “to ask not only whether an injury has occurred, but whether the injury that has occurred may serve as the basis for a legal remedy in the federal courts.” Schaffer, 240 F.3d at 883.

In addition to satisfying the prerequisites for constitutional standing, a plaintiff must also meet, generally speaking, the requirements of prudential standing, a judicially-created set of principles that, like constitutional standing, places “limits on the class of persons who may invoke the courts' decisional and remedial powers.” Warth, 422 U.S. at 499, 95 S.Ct. 2197;see also Allen, 468 U.S. at 751, 104 S.Ct. 3315 (describing prudential standing as “judicially self-imposed limits on the exercise of federal jurisdiction”). Under a prudential standing inquiry, a party that has satisfied the requirements of constitutional standing may nonetheless be barred from invoking a federal court's jurisdiction. Bennett, 520 U.S. at 163, 117 S.Ct. 1154;Warth, 422 U.S. at 499, 95 S.Ct. 2197, 45 L.Ed.2d 343. Like its constitutional counterpart, prudential standing establishes three conditions a party must overcome before invoking federal court jurisdiction. First, a plaintiff must assert his “own rights, rather than those belonging to third parties.” Sac & Fox Nation, 213 F.3d at 573; see also Warth, 422 U.S. at 499, 95 S.Ct. 2197, 45 L.Ed.2d 343 (explaining that a plaintiff “cannot rest his claim to relief on the legal rights or interests of third parties”). Second, the plaintiff's claim must not be “a ‘generalized grievance’ shared in substantially equal measure by all or a large class of citizens.” Warth, 422 U.S. at 499, 95 S.Ct. 2197;see also Allen, 468 U.S. at 751, 104 S.Ct. 3315 (explaining that generalized grievances should normally be directed to the legislative, as opposed to judicial, branches of government). Third, prudential standing requires that “a plaintiff's grievance must arguably fall within the zone of interests protected or regulated by the statutory provision or constitutional guarantee invoked in the suit.” Bennett, 520 U.S. at 163, 117 S.Ct. 1154.

When ruling on a motion to dismiss for want of standing, the Court must accept as true all material allegations of the complaint and must construe the complaint in favor of the complaining party. Warth, 422 U.S. at 501, 95 S.Ct. 2197.

Taking as true the factual allegations of the complaint and construing them most favorably to Plaintiffs, the Court nevertheless finds that Plaintiffs have not alleged sufficient facts to bestow standing upon themselves with respect to any of the counts of the complaint. Count I does not allege malpractice on the part of the Trustee. Rather, it alleges that the law firm, Yvette Gonzales, LLC, malpracticed. Count III is in part similar to Count I in that it charges counsel for the estate with violations of...