In re James
| Decision Date | 25 October 1990 |
| Docket Number | Civ. A. No. 90-3807. |
| Citation | 120 BR 802 |
| Parties | In re Norma Y. JAMES. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
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Berneter Mallory, Mallory & Assoc., Philadelphia, Pa., Steven L. Scher, Deputy Atty. Gen., Trenton, N.J., James J. O'Connell, U.S. Asst. Trustee, Philadelphia, Pa., for debtor.
Carol Momjiam, Deputy Atty. Gen. of Pennsylvania, Steven Raslavich, Trustee, Siverman Markowitz, Meo & Raslavich, Philadelphia, Pa., for defendants.
Appeal is taken by defendants, executive branch officials of the State of New Jersey ("the State"), namely, Jacqueline Draper and Robert T. Winter, both of the Department of Law and Public Safety, Division of Criminal Justice, and Peter N. Perretti, Jr., Attorney General ("the State Defendants"), from a final order of the bankruptcy court administering a Chapter 7 proceeding. Jurisdiction in this court is founded upon 28 U.S.C. § 158.
The bankruptcy court ruled that the Chapter 7 filing by plaintiff-debtor Norma Y. James ("the Debtor") triggered an automatic stay of the State's civil forfeiture proceeding, that the State had no legitimate interest in $7,990 seized from the Debtor, and that the funds must, therefore, be turned over to Debtor's Trustee. Because the State Defendants' arguments in support of the appeal turn solely on questions of law, this court's review is plenary. Universal Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d 98, 101-03 (3d Cir.1981).
On March 2, 1988, several New Jersey state troopers stopped a car, apparently for speeding. The car, en route to New York City, was driven by Patrick Brown but belonged to Debtor. Neither Brown nor the other passenger in the car had a valid driver's license. The officers sought, and were granted, consent to search the car. Therein they discovered a duffle bag, in which was found a yellow plastic bag. The plastic bag contained eight bundles of currency: $1,000 in each of seven bundles and $990 in the eighth. Brown and his passenger, along with the car and the money, were taken to a local police station. There, a trained narcotics detection dog "alerted" to something in the currency, indicating that it, or some part of it, possessed the odor of an unidentified, and possibly, controlled substance. However, the criminal investigation uncovered no independent evidence of illegal drugs or of a drug transaction involving the money. No drug-related criminal charges were lodged against Brown, his passenger, or the Debtor, and the car was returned to the Debtor.
While initially claiming to own all of the money, Brown later told the police that only $2500 of the money was his and that $5500 had been borrowed from the Debtor. The police decided to retain the seized currency as related to an illegal drug transaction, ostensibly based on the police dog reaction to the money, the inconsistencies in Brown's statements, and the manner in which the currency was packaged.
The State Defendants instituted a civil forfeiture action against the money on May 31, 1988, allegedly pursuant to N.J.S. 2C:64-1 ("§ 2C:64-1"), which reads:
The State Defendants proffered no independent evidence during the course of the forfeiture action to show that the money had been used in, or was received pursuant to, an illegal drug or other criminal transaction.
The Debtor, as a potential claimant, was served notice of the forfeiture action, but failed to respond within the State's prescribed time period. The Debtor obtained counsel, who was able to reach an agreement with the state attorney to continue the matter. Through her attorney, Debtor claimed full ownership of the funds, which she claims to have lent to Brown so that he could transfer them to her business partner in New York toward the purchase of a restaurant. Brown made no claims to the money in the forfeiture proceeding. The Debtor's counsel failed, however, to file the agreed upon pleading, apparently due to the Debtor's inability to pay the attorney's fee. The State Defendants then filed a motion seeking a default judgment based upon the pleadings.
On July 18, 1989, the Debtor received notice that a default judgment hearing would be held on July 21. The Debtor filed for bankruptcy on July 19 and claims to have left a message informing the state attorney of that fact the same day. The state attorney claims to have had no knowledge of the filing until July 21, sometime after the default judgment had been entered. The bankruptcy court credited the state attorney's testimony on this point.
On September 21, 1989, the Debtor filed a complaint alleging that the State Defendants stood in violation of 11 U.S.C. § 362 ("§ 362"), the automatic stay provision of the bankruptcy code ("Code"). The Debtor sought an order under 11 U.S.C. § 542 ("§ 542"), the Code's turnover provision, directing the State Defendants to turn the disputed $7,990 over to her Trustee. The State Defendants filed an answer and a motion to dismiss on jurisdictional grounds. The bankruptcy court held a hearing on January 11, 1990, and subsequently requested post-trial briefs from the parties as well as a statement of the position of the Trustee. The Trustee, apparently misreading the Debtor's brief, stated that, since the default judgment had been entered prior to the onset of bankruptcy proceedings, the Debtor's chances for recovery were slim.
The bankruptcy court entered a provisional order on March 13, 1990. In that order the court denied the State Defendants' motion to dismiss, vacated the New Jersey state court default judgment, directed the Debtor to join the Trustee as a necessary plaintiff, and set April 5 as the date for a supplemental hearing, after which the ultimate disposition of the funds would be determined. On March 23, the State Defendants filed an interlocutory appeal. This district court heard oral argument on the appeal and on April 11 dismissed it without prejudice because the State Defendants proferred no evidence of an illegal drug or other criminal transaction related to the Brown arrest, although they were invited to do so.
The supplemental hearing was rescheduled for and held on April 26. Only the Debtor testified. The bankruptcy court found that, despite earlier averments to the contrary, the State Defendants had no evidence to indicate that the seized funds were received by the Debtor pursuant to criminal activity. The only putative evidence of criminality was the fact that a police dog alerted to the seized currency. Neither the Debtor nor any of those in the Debtor's car had been charged with any criminal offense related to the seized funds.
Thus, the bankruptcy court ruled that, ab initio, the State had had no ground on which to pursue forfeiture. Subsequent to the hearing, the bankruptcy court entered its final order of May 1, 1990. The court below ruled in favor of the Debtor on her § 362 and § 542 claims and ordered the State Defendants to turn over the seized funds to the Debtor's Trustee. The court also ordered the parties to agree upon reasonable attorney's fees and costs to be awarded the Debtor pursuant to 11 U.S.C. § 362(h) ("§ 362(h)"). The State Defendants appeal that decision in its entirety.
For the reasons that follow, the final order of the bankruptcy court is affirmed in all respects, except for the award of attorney's fees.
The State Defendants argue that the Debtor lacks standing to bring this action and that it should be dismissed. While the Debtor does lack standing, dismissal is not required. Joinder of the Trustee as a necessary plaintiff is a proper means of remedying the jurisdictional defect. The court below did not err in requiring joinder.
The starting point of analysis is 11 U.S.C. § 541(a) ("§ 541(a)"), which lists various interests included in a debtor's estate. Included are all causes of action held by the debtor upon filing for bankruptcy. Cain v. Hyatt, 101 B.R. 440 (Bankr.E.D.Pa. 1989), and cases cited therein; 4 COLLIER ON BANKRUPTCY, ¶ 541.10, at 541-65 (15th ed. 1989). Causes of action against a government body, such as the Debtor's...
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