In re Miller

• Decision Date: 07 August 2006
• Docket Number: No. 04-31213-112-7.,04-31213-112-7.
• Citation: 347 B.R. 48
• Parties: In re James Lewellyn MILLER, II.
• Court: U.S. Bankruptcy Court — Southern District of Texas

347 B.R. 48

In re James Lewellyn MILLER, II.

No. 04-31213-112-7.

United States Bankruptcy Court, S.D. Texas, Houston Division.

August 7, 2006.

COPYRIGHT MATERIAL OMITTED

P.J. Franklin, Attorney at Law, Houston, TX, for Debtor.

MEMORANDUM OPINION, FINDINGS, AND CONCLUSIONS REGARDING SEPARATE WRITTEN ORDER GRANTING MOTION TO RECONSIDER (doc # 21) AND, AFTER RECONSIDERATION, AFFIRMING ORDER REOPENING CASE (doc # 18)

WESLEY W. STEEN, Bankruptcy Judge.

Merck & Co., Inc. ("Merck") seeks to deny Kenneth Havis (the chapter 7 "Trustee") the ability to reopen this bankruptcy case to prosecute a lawsuit against Merck. Technically, Merck's motion is a motion to reconsider the Court's order allowing the Trustee to reopen the case. Technically, the Court has granted that motion because the Court has reconsidered its decision. The ultimate relief that Merck seeks, however, is for the Court to vacate its order allowing the Trustee to reopen the case. No hearing is necessary because there are no disputed issues of fact, and the Court can rule as a matter of law from the motion, response, and respective memoranda of authorities. After reading Merck's motion and after reading the competing memoranda of authorities, the Court concludes that the decision to allow the Trustee to reopen the case was correct. Therefore, although technically Merck's motion is granted, i.e. the Court has reconsidered its decision, the ultimate relief that Merck seeks (to deny the Trustee the ability to reopen this case to administer undisclosed assets) is denied. A separate order has been issued this date.

UNCONTESTED FACTS

The following facts are either asserted by both parties in their pleadings and memoranda or are asserted by one party, not disputed by the other, and are taken (for purposes of this decision only) as established fact.

On February 4, 2003, James Miller II ("Debtor") had a heart attack. He filed a chapter 7 bankruptcy petition in 2004. Prior to filing this bankruptcy case, Debtor had investigated the possibility of filing suit against Merck because Debtor had taken Vioxx, a drug manufactured by Merck, which allegedly increases the risk of heart attack in some patients.

Debtors must provide extensive information when they file bankruptcy cases, including data required by an official form ("Bankruptcy Schedules"). The Bankruptcy Schedules require debtors to list all claims that they may have against other entities. Debtor did not list any claim against Merck in his Bankruptcy Schedules.

The Trustee examined the Debtor at the § 341 creditors' meeting concerning Debtor's assets and debts, and the Trustee issued a "no asset" report. In this era of electronic filing, a "no asset report" is a docket entry initiated by the Trustee. In this case the Trustee caused the following docket entry to be made:

Trustee's Report of No Distribution:

Trustee of this estate reports and certifies that the trustee has performed the duties required of a trustee under 11 U.S.C. 704. Debtor has appeared at the First Meeting of Creditors and the meeting was concluded. The trustee has determined that there are no assets to administer for the benefit of creditors of this estate. I have received no funds or property of the estate, and paid no monies on account of the estate. Wherefore, the trustee prays that this report be approved and the trustee be discharged from office. Debtor/Debtor's counsel notified. (Havis, Kenneth)(Entered: 03/03/2004 09:53 AM)

Merck concedes that the Trustee examined Debtor based on the Bankruptcy Schedules, which did not disclose a claim against Merck. Merck concedes that the Trustee's statement (that there were no assets to administer) was based on the schedules that did not disclose a claim against Merck.¹ There is no allegation in Merck's motion that the Trustee had any information suggesting that Debtor had a claim against Merck.

About one year later, March 2005, Debtor filed suit against Merck. The Trustee discovered the suit, and the Trustee filed a motion to withdraw the "no asset" report and to reopen the case to allow the Trustee to pursue the newly discovered claim against Merck The Court granted that motion. About a week later, Debtor filed amended Bankruptcy Schedules disclosing an alleged claim against Merck.

A few days later, Merck filed the motion to reconsider the Court's order reopening this bankruptcy case, which is the instant contested matter.

ANALYSIS

Summary

First, Merck is not a party in interest in this bankruptcy case. Therefore, Merck has no standing to object to the administration of this bankruptcy estate. Second, the Court rejects Merck's contention that the Trustee is judicially estopped from reopening this case by Debtor's statements in the Bankruptcy Schedules; the Trustee and Debtor are different entities. Finally, Merck's objection to the Trustee's reopening this case confuses (i) administration of this estate with (ii) assertion of claims in the state court lawsuit. Whether or not the Trustee is estopped from asserting the claim against Merck, the Trustee is not estopped from reopening this case to address administration of assets that were not previously administered.

Merck is not a Party in Interest in this Bankruptcy Case and has no Standing with Respect to Case Administration

The issue in this contested matter is whether the Trustee may reopen this case. The viability of the Trustee's claim against Merck is not the issue. Merck does not assert that it is a creditor of this estate and makes no claim to any right to a distribution from this estate. Merck cites no right that it has, or interest it asserts, under the Bankruptcy Code relating to administration of this case. Merck did not participate in the case in any way prior to the date that the case was closed.

Merck correctly states in its reply memorandum:

Section 1109(b) contains a non-exclusive list of examples of what persons or entities may be considered to be a party in interest, which list includes the debtor, the trustee, a creditors' committee, an equity security holders' committee, a creditor, an equity security holder or any indenture trustee.

The Court acknowledges that the list is non-exclusive. But the Court sees no entity in that list that is in any way similar to Merck. Merck's only relationship to this case is that the Trustee asserts that Merck should pay money to the estate.

Merck cites In re Am. Appliance, 272 B.R. 587 (Bankr.D.N.J.2002), but that case involves a debtor lessee that was attempting to assume and to assign the lease to a creditor. Lease assumption in bankruptcy involves specific rights for the lessor under Bankruptcy Code § 365. The court specifically found that the lessor had standing to assert his rights under Bankruptcy Code § 365.

Merck also cites In re Public Service Co. of New Hampshire, 88 B.R. 546 (Bankr. D.N.H.1988). That case involved a regulated public utility. The Bankruptcy Code provides special rights in chapter 11 cases to regulatory agencies and the regulatory process.² In that case, the court recognized that the State of New Hampshire (which had regulatory authority over Debtor), a consumer advocate appointed by statute in New Hampshire, and industry associations that appeared before the New Hampshire Public Utility Commission were parties in interest. Like the lessor in Am. Appliance, those parties were litigating rights explicitly articulated in the Bankruptcy Code.

In its reply memorandum, Merck asserts that it is a party in interest because it is a defendant in a lawsuit that the Trustee is seeking to bring. The Court understands that Merck is a party to a state court lawsuit. Merck has cited no authority that being a defendant in a lawsuit brought by the Trustee, without more, makes Merck a party in interest that has a right to be heard on bankruptcy case administration. Estates are administered for the benefit of creditors and the debtor(s), not for the benefit of entities who may owe money to the estate.

Merck also argues that it has constitutional due process rights to be heard as a party in interest. The Court agrees that Merck has due process rights in the lawsuit in which it is sued. But since Merck has no right to distribution from the estate and no bankruptcy rights to protect, Merck has no right to complain about how the estate is administered.

In Giddens, M.D. v. Kreutzer (In re Kreutzer), 344 B.R. 634 (N.D.Okla.2006), the court held that a defendant in a claim brought by the trustee had no standing to challenge the debtor's motion to reopen the case because the defendant was not the debtor, the trustee, or a creditor and had no direct interest in the proceeding.

Giving Merck a voice in whether the chapter 7 trustee can sue Merck is a very strange idea, a little like putting the fox in charge of the hen house. The Court sees no authority for that in the Bankruptcy Code. Merck is not a party in interest merely on showing that the Trustee will sue Merck.

The Trustee Did Not Abandon the Claim Against Merck; Any Undisclosed Claim Remained Property of the Estate

Bankruptcy Code § 541 is an expansive definition of property that becomes comes "property of the estate" when a debtor files a bankruptcy case. In effect, any property right in which debtor had an interest when the bankruptcy case was filed becomes property of the estate. "Property of the estate" includes "... all legal or equitable interests of the debtor in property as of the commencement of the case." A debtor's "claims" against non-debtor entities become property of the estate when the bankruptcy petition is filed.³ There is no requirement that the property be listed in the debtor's Bankruptcy Schedules; the property becomes property of the estate merely because the debtor had the property right on the date that the bankruptcy case was filed. That property remains property of the estate unless the bankruptcy court authorizes sale or other disposition of the property. If the property has no...