In re Muhlig

• Decision Date: 26 June 2013
• Docket Number: Case No. 11–14639–BKC–RAM
• Citation: 494 B.R. 755
• Parties: In re: Rolando Jorge Muhlig and Luz Stella Muhlig, Debtors.
• Court: U.S. Bankruptcy Court — Southern District of Florida

494 B.R. 755

In re: Rolando Jorge Muhlig and Luz Stella Muhlig, Debtors.

Case No. 11–14639–BKC–RAM

United States Bankruptcy Court, S.D. Florida

Filed June 26, 2013

Benjamin Reid, Esq., Carlton Fields, P.A., 100 S.E. 2nd Street, Suite 4200, Miami, FL 33131 (Attorney for Defendant, R.J. Reynolds Tobacco Co.)

Stephanie E. Parker, Esq., Jones Day, 1420 Peachtree Street, N.E., Suite 800, Atlanta, GA 30309 (Attorney for Defendant, R.J. Reynolds Tobacco Co.)

Stephen N. Zack, Esq., Boies, Schiller & Flexner, 100 S.E. Second Street, Suite 2800, Miami, FL 33131 (Attorney for Defendant, Phillip Morris USA)

Joel L. Tabas, Esq., Tabas, Freedman, Soloff, Brown & Rigali, P.A., 14 N.E. First Avenue, Penthouse, Miami, FL 33132 (Attorney for Joel L. Tabas, Trustee)

Kelley Anne Luther, Esq., Kasowitz, Benson, Torres & Friedman, LLP, 1441 Brickell Avenue, Suite 1420, Miami, FL 33131 (Attorney for Defendants, Liggett Group, LLC and Vector Group, Ltd.)

Austin Carr, Esq., Austin Carr Law Office, 371 North Royal Poinciana Blvd., Miami Springs, FL 33166 (Attorney for Rolando Muhlig)

Dorothy F. Easley, Esq., Easley Appellate Practice, P.L.L.C., 1200 Brickell Avenue, Suite 1950, Miami, FL 33131 (Appellate counsel for Trustee and Rolando Muhlig)

John B. Hutton, Esq., Greenberg Traurig, P.A., 333 Avenue of the Americas, Miami, FL 33131 (Attorney for Lorillard Tobacco Company)

Chapter 7

MEMORANDUM OPINION AND ORDER (1) DEEMING STATE COURT JUDGMENT VOID AND (2) GRANTING FURTHER RELIEF

Robert A. Mark, Judge United States Bankruptcy Court

The debtor in this Chapter 7 case failed to schedule a potentially valuable prepetition wrongful death lawsuit against several major tobacco companies. The defendants obtained a final summary judgment dismissing the complaint for lack of standing by arguing that the claim belonged to the bankruptcy estate. The contested matters before the Court raise the following question: Was the state court judgment dismissing the complaint obtained in violation of the automatic stay? The Court answers the question yes because the judgment was obtained without notice to the Chapter 7 trustee and the defendants seek to enforce the judgment against the trustee to extinguish the claim.

As detailed below, the Court initially denied the trustee's motion to hold the defendants in contempt for violating the automatic stay, concluding, in error, that the automatic stay terminated when this bankruptcy case was closed. Upon review of the trustee's pending motion for reconsideration, the Court concludes that the automatic stay remained in effect after the case was closed, that the state court claim is property of the estate which was never abandoned by the trustee, and that seeking entry of a judgment dismissing the state court claim without notice to the trustee was an act to exercise control over property of the estate in violation of 11 U.S.C. § 362(a)(3). As such, the judgment dismissing the claim is void and the trustee should be given the opportunity to substitute in as the proper plaintiff in the state court lawsuit and to pursue the claim on behalf of the creditors of this estate.

FACTUAL AND PROCEDURAL BACKGROUND

A. The Wrongful Death Action is Filed Before the Bankruptcy Case

The story begins on December 28, 2007, prior to the commencement of the bankruptcy case, when Rolando Jorge Muhlig (“Mr. Muhlig” or the “Debtor”) filed a complaint [Exhibit A to DE # 39] (the “State Court Complaint”) against several large tobacco companies in the Eleventh Judicial Circuit in and for Miami–Dade County, Florida, Case No. 07–46352 CA (27) (the “Wrongful Death Action”).¹ In the State Court Complaint, Mr. Muhlig alleges that his mother, Rosa Armenteros, died from lung cancer that she developed from years of smoking the Defendant Tobacco Companies' cigarettes. Mr. Muhlig is his mother's sole surviving child and was appointed as the personal representative of her estate after her death. As set forth in the State Court Complaint, Mr. Muhlig sought recovery under the Florida Wrongful Death Act in his personal capacity (the “Personal Claims”) and in his capacity as the representative of his mother's estate (the “Probate Estate Claims”).²

B. Initial Bankruptcy Proceedings

On February 23, 2011, Mr. Muhlig and his wife, Luz Stella Muhlig, (together, the “Debtors”) commenced this bankruptcy case by filing a voluntary Chapter 7 petition for relief. Joel L. Tabas was duly appointed as the Chapter 7 trustee (the “Trustee”). The Debtors failed to disclose the Wrongful Death Action on their schedules and statement of financial affairs.

On April 13, 2011, the Trustee conducted a meeting of the Debtors' creditors pursuant to section 341 of the Bankruptcy Code, following which the Trustee filed the Chapter 7 Trustee's Report of No Distribution [DE # 13], reflecting the Trustee's determination that no assets were available for distribution to the Debtors' creditors from the estate. The Court entered its Order Discharging Debtor(s) [DE # 18] on June 1, 2011 and the Final Decree [DE # 20] discharging the Trustee and closing the Debtors' bankruptcy case on June 6, 2011. In sum, for all appearances, this case was a short and simple no-asset Chapter 7 case.

C. The Tobacco Companies Obtain a Judgment Dismissing the Wrongful Death Action

On October 6, 2011, approximately five months after the bankruptcy case was closed, the Defendant Tobacco Companies filed the Defendants' Motion for Summary Judgment Based on Lack of Standing and Judicial Estoppel [Exhibit B to DE # 39] (the “State Court Summary Judgment Motion”) in the Wrongful Death Action. The Defendant Tobacco Companies sought summary judgment on the ground that the Wrongful Death Action was property of Mr. Muhlig's bankruptcy estate and, as such, Mr. Muhlig lacked standing to pursue the Wrongful Death Action. Significantly, and probably deliberately, the Defendant Tobacco Companies did not serve the State Court Summary Judgment Motion on the Trustee, even though they were obviously aware of the bankruptcy case given that they asserted that the claim was property of the bankruptcy estate.

On May 8, 2012, the Miami–Dade County Circuit Court (the “State Circuit Court”) entered a Final Summary Judgment [Exhibit C to DE # 39] (the “State Court Judgment”) granting final summary judgment in favor of the Defendant Tobacco Companies on the sole ground that Mr. Muhlig lacked standing to pursue the Wrongful Death Action. On June 5, 2012, Mr. Muhlig appealed the State Court Judgment to the Florida District Court of Appeal for the Third Circuit (the “State Court of Appeal”), appellate Case No. 3D12–1497.

D. The Trustee's Discovery of the Wrongful Death Action and Subsequent Litigation

According to the Trustee's Motion for Contempt and for Sanctions Against R.J. Reynolds Tobacco Company; Philip Morris USA, Inc.; Lorillard Tobacco Company; Liggett Group, LLC; Vector Group Ltd. for Violation of the Automatic Stay [DE # 39] (the “Trustee's Motion for Contempt and Sanctions”), the Trustee first learned that the State Circuit Court had entered the State Court Judgment on or about June 11, 2012. Prior to entry of the State Court Judgment, on or about February 13, 2012, an agent of Austin Carr, Esquire, Mr. Muhlig's counsel in the Wrongful Death Action, contacted the Trustee to inform him of the existence of the Wrongful Death Action. However, the Trustee asserts that, at that time, he was not apprised of the then-pending State Court Summary Judgment Motion. The Trustee further asserts that, at that time, he requested copies of pleadings and documents relating to the Wrongful Death Action as well as information with respect to Mr. Muhlig's potential recovery, but that he was not provided with a copy of the State Court Complaint until April 25, 2012. Presumably, the Trustee could have reviewed the docket in the Wrongful Death Action and learned about the pending Summary Judgment Motion. However, the Trustee's failure to do so does not excuse the Defendant Tobacco Companies' decision not to serve the Trustee nor affect the Court's conclusion that the State Court Judgment was obtained in violation of the automatic stay.

On June 14, 2012, several months after learning of the existence of the Wrongful Death Action and approximately three days after learning that the State Circuit Court had entered the State Court Judgment, the Trustee filed Joel L. Tabas, Trustee's Ex Parte Motion to Reopen Case to Administer Undisclosed Asset and Defer Payment of Filing Fee [DE # 22] (the “Motion to Reopen”), which sought entry of an Order reopening the Debtors' Chapter 7 case to administer the unscheduled Wrongful Death Action. On June 16, 2012, the Court entered its Order Granting [the Motion to Reopen] [DE # 24].

On July 17, 2012, the Trustee filed papers in Mr. Muhlig's appeal pending before the State Court of Appeal. Specifically, the Trustee sought to substitute in as the proper party plaintiff in the Wrongful Death Action by filing the Bankruptcy Trustee's Motion (1) for Substitution as Proper Party Plaintiff/Appellant as to the Survivor Rolando Muhlig's Claims in this Wrongful Death Action, (2) Inclusion as an Administrator Ad Litem as to this Wrongful Death Action, Along with Roland Muhlig as Continuing Personal Representative and (3) for (I) Stay of Appeal and (II) Relinquishment of Jurisdiction for Same [Exhibit C to DE # 50] (the “Trustee's Motion for Substitution”).

On October 2, 2012, the State Court of Appeal entered an Order [Exhibit D to DE # 50] (the “Order Relinquishing Jurisdiction”) relinquishing jurisdiction to the State Circuit Court for a period of forty-five (45) days and requiring the State Circuit Court to determine the issues raised by the Trustee's Motion for Substitution. The Trustee and the Defendant Tobacco Companies subsequently filed pleadings with the State Circuit Court, arguing their positions with respect to the validity and enforceability of the State Court Judgment and to the propriety of the...