In re Marston
| Decision Date | 21 July 2009 |
| Docket Number | Bankruptcy No. 08 B 19927.,Adversary No. 08 A 00816. |
| Citation | 417 B.R. 766 |
| Parties | In re Eileen C. MARSTON, Debtor. Joseph R. Voiland, Chapter 7 Trustee, Plaintiff, v. Greg L. Marston, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Joseph R. Voiland, Yorkville, IL, Pro se.
Stephen J. Costello, Costello & Costello, Carpentersville, IL, for Defendant.
This matter comes before the Court on the motion to dismiss filed by defendant Greg L. Marson ("Defendant"), pursuant to Fed. R. Bankr.P. 7012 and Fed.R.Civ.P. 12(b)(6), on December 9, 2008. On October 7, 2008, plaintiff Joseph R. Voiland ("Trustee"), as Chapter 7 trustee, filed an adversary complaint, pursuant to 11 U.S.C § 544, to recover $89,000 in credit card debt from Defendant, who is debtor Eileen C. Marston's non-filing husband, for debt incurred by debtor Eileen C. Marston ("Debtor") for expenses of their family and education of their minor children, pursuant to 750 Ill. Comp. Stat. 65/15 ("Illinois Family Expense Act"). For the reasons set forth herein, the Court grants Defendant's motion to dismiss.
The Court has jurisdiction to decide this matter pursuant to 28 U.S.C. § 1334 (2006) and Internal Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. This is an adversary proceeding brought pursuant to Fed. R. Bankr.P. 7001(4), (6). It is a core proceeding, pursuant to 28 U.S.C. § 157(b)(2)(H) (2006).
Debtor Eileen C. Marston ("Debtor") filed a voluntary Chapter 7 bankruptcy petition on July 31, 2008, On October 7, 2008, Trustee filed an adversary complaint, pursuant to 11 U.S.C. § 544, to recover $89,000 in credit card debt from Defendant, who is Debtor's non-debtor, third-party husband, for debt incurred by Debtor for expenses of their family, pursuant to the Illinois Family Expense Act, 750 Ill. Comp. Stat, 65/15. Trustee asserts that Debtor seeks to discharge this credit card debt that Debtor incurred during the course of Debtor's marriage to Defendant for expenses of their family and education of their minor children. Furthermore, Trustee states that the Illinois Family Expense Act provides that family expenses shall be chargeable upon husband and wife's property in favor of creditors, and, thus, they may be sued jointly or separately. Therefore, Trustee, in the shoes of Debtor's creditors pursuant to § 544, seeks to recover from Defendant all obligations, including the $89,000 credit card debt incurred by Debtor for family expenses under the Illinois Family Expense Act.
On December 9, 2008, Defendant, pursuant to Fed. R. Bankr.P. 7012 and Fed. R.Civ.P. 12(b)(6), filed a motion to dismiss Trustee's adversary complaint. Defendant asserts that § 544(a)(1) does not give Trustee all of the rights and powers of all Debtor's creditors, but, rather, it grants Trustee only the rights of a hypothetical creditor "that extends credit to the debtor at the time of the commencement of the case and that obtains . . . a judicial lien[,]" 11 U.S.C. § 544(a)(1). Furthermore, Defendant argues that § 544 limits Trustee to avoidance powers. Therefore, Defendant states that Trustee does not have power under the Bankruptcy Code to assert this third-party claim, and, thus, the Court should dismiss the complaint for failure to state a cause of action upon which relief may be granted.
Trustee filed a reply on February 4, 2009. Trustee reasserts his argument that he may bring third-party claims founded on the rights of Debtor's creditors, pursuant to 11 U.S.C. §§ 541(a)(3), 544(a)(1), 550(a). Trustee argues that the Illinois Family Expense Act, 750 Ill. Comp. Stat. 65/15(a), allows a creditor, or a trustee stepping into the shoes of a creditor, to sue either husband or wife for obligations that were incurred by a spouse on behalf of the spouse's family.
On February 19, 2009, Defendant filed his response to Trustee's reply to Defendant's motion to dismiss. Defendant asserts that the Illinois Family Expense Act was established to benefit the providers, such us a medical provider, of goods or services that qualify as "expenses of the family," rather than a trustee in bankruptcy. In addition, Defendant argues that Trustee's third party claim is a direct claim of an entity that is a provider of a "family expense" against the spouse, which is outside the realm of Trustee's power and rights under 11 U.S.C. § 544, rather than an avoidance of a judicial lien from a hypothetical creditor, pursuant to § 544(a)(1). Defendant further states that the relief requested by Trustee would improperly allow double recovery since the rights and powers of the Illinois Family Expense Act belong solely to each provider. In addition, Defendant states that the present case does not concern Debtor's property under 11 U.S.C. § 541, but, instead, concerns the rights of creditor claimants for "family expenses" against the spouse of a debtor for such claims. Thus, Defendant asserts that the Bankruptcy Code does not give Trustee either Bankruptcy Code or state court remedies to pursue the spouse for family expenses.
The issue before the Court is whether Trustee, standing in the shoes of Debtor's creditors, pursuant to 11 U.S.C. §§ 541, 544(a)(1), 550, may recover $89,000 in credit card debt from Defendant, who is Debtor's non-filing husband, for debt incurred by Debtor for expenses of their family and education of their minor children, pursuant to 750 Ill. Comp. Stat. 65/15, the Illinois Family Expense Act.
A motion to dismiss under Fed. R. Civ. R. 12(b)(6), made applicable by Fed. R. Bankr.P. 7012, tests the sufficiency of the complaint, rather than the merits of the case. In re Irmen, 379 B.R. 299, 307 (Bankr.N.D.Ill.2007) (citing Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990)). Under Rule 12(b)(6), a court must take as true all facts alleged in the complaint and construe all reasonable inferences in favor of the plaintiff. See Murphy v. Walker, 51 F.3d 714, 717 (7th Cir. 1995); In re Irmen, 379 B.R. at 307.
The Seventh Circuit addressed the Supreme Court's Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) opinion on Fed. R.Civ.P. 12(b)(6) as establishing "two easy-to-clear hurdles" for a complaint in federal court: First, pursuant to Fed, R. Civ. P. 8(a)(2) made applicable by Red. R. Bankr.P. 7008, the complaint must describe the claim in sufficient detail to give the defendant fair notice of what the claim is and the grounds upon which it rests. See Tamayo v. Blagojevich, 526 F.3d 1074, 1084 (7th Cir.2008) (citing Equal Employment Opportunity Comm'n v. Concentra Health Servs., Inc., 496 F.3d 773, 776 (7th Cir.2007)); In re Irmen, 379 B.R. at 307-08. Second, its allegations must plausibly suggest that the plaintiff has a right to relief, raising that possibility above a "speculative level;" if they do not, the plaintiff pleads itself out of court, Tamayo, 526 F.3d at 1084 (citing Concentra Health Servs., Inc., 496 F.3d at 776).
Section 541 of the Bankruptcy Code, which creates the bankruptcy estate, offers an expansive definition of property comprising the estate: Whatever "legal and equitable interests" the debtor had in property as of the filing of the bankruptcy petition is property of the bankruptcy estate, Koch Refining v. Farmers Union Central Exchange, Inc., 831 F.2d 1339, 1343 (7th Cir.1987) (citing 11 U.S.C. § 541). While the debtor's interest in property is determined by nonbankruptcy law, the determination of what constitutes section 541 property is a federal question. Ibid. (citing H.R.Rep. No. 595, 95th Cong., 1st Sess. 367-68 (1977); S. Rep, No. 989, 95th Cong., 2d Sess. 82-83 (1978), U.S.Code Cong. & Admin. News 1978, p. 5787). Once the bankruptcy petition has been filed, however, property rights belonging to a debtor under state law become assets of the estate. Id. (citing Butner v. United States, 440 U.S. 48, 54, 99 S.Ct., 914, 917, 59 L.Ed.2d 136 (1979); In re Kaiser, 791 F.2d 73, 74 (7th Cir.1986), cert. denied, 479 U.S. 1011, 107 S.Ct. 655, 93 L.Ed.2d 710 (1986)). Thus, under 11 U.S.C. § 541, the trustee of a bankrupt debtor may bring any cause of action that the debtor could have brought under state law as of the commencement of the case. Stanziale v. McGladrey & Pullen, LLP (In re Student Finance Corp.), 334 B.R. 776, 778 (D.Del.2005) (citing Bd. of Trustees of Teamsters Local 863 Pension Fund v. Foodtown, Inc., 296 F.3d 164, 169 n. 5 (3d Cir.2002)). The parties do not dispute that Illinois law applies.
Courts typically apply section 541 broadly to include property fraudulently or improperly transferred by the debtor before bankruptcy. Id. (citing Sampsell v. Imperial Paper & Color Corp., 313 U.S. 215, 221, 61 S.Ct. 904, 905, 85 L.Ed. 1293 (1941); Carlton v. Baww, Inc., 751 F.2d 781, 785 (5th Cir.1985); In re MortgageAmerica Corp., 714 F.2d 1266, 1275 (5th Cir.1983); In re Mishkin, 58 B.R. 880, 882 (Bankr.S.D.N.Y.1986)). In this case, Trustee does not contend that the property was fraudulently or improperly transferred by Debtor before bankruptcy. Instead, Trustee states that he brought his claims on behalf of Debtor's creditors against Defendant. Thus, the Court concludes that Trustee does not have standing under § 541 to pursue Defendant.
The trustee represents not only the rights of the debtor but also the interests of creditors of the debtor. Koch Refining, 831 F.2d at 1342. Section 544(a), the "strong arm clause," vests a trustee with the rights of a hypothetical lien creditor whose lien was perfected at the time the bankruptcy petition was filed. JSI Liquidating, Inc. v. Heller Financial Leasing, Inc. (In re JII Liquidating, Inc.), 341 B.R. 256, 273 (Bankr.N.D.Ill.2006) ...
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