In re Parkway Sales and Leasing, Inc.

• Citation: 411 B.R. 337
• Decision Date: 10 July 2009
• Docket Number: Bankruptcy No. 07-40713-BTR.,Adversary No. 09-4049.
• Parties: In re PARKWAY SALES AND LEASING, INC., Debtor. Automotive Finance Corporation, Dealer Services Corporation and Christopher Moser, Trustee, Plaintiffs, v. Ray Huffines Chevrolet, Inc., Huffines Chrysler-Plymouth, Inc., d/b/a Huffines Hyundai Plano, New Texas Auto Auction Services, L.P., d/b/a Dallas Auto Auction, d/b/a Manheim Dallas, and John Doe, Defendants.
• Court: United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Eastern District of Texas

411 B.R. 337

In re PARKWAY SALES AND LEASING, INC., Debtor.

Automotive Finance Corporation, Dealer Services Corporation and Christopher Moser, Trustee, Plaintiffs, v. Ray Huffines Chevrolet, Inc., Huffines Chrysler-Plymouth, Inc., d/b/a Huffines Hyundai Plano, New Texas Auto Auction Services, L.P., d/b/a Dallas Auto Auction, d/b/a Manheim Dallas, and John Doe, Defendants.

Bankruptcy No. 07-40713-BTR.

Adversary No. 09-4049.

United States Bankruptcy Court, E.D. Texas, Sherman Division.

July 10, 2009.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Richard A. Pelley, Sherman, TX, for Debtor.

MEMORANDUM OPINION

ROBERT C. McGUIRE, Bankruptcy Judge.

The Plaintiffs, Automotive Finance Corporation ("AFC"), Dealer Services Corporation ("DSC"), and Christopher Moser, in his capacity as Chapter 7 trustee, initiated this action by filing an adversary complaint on April 3, 2009. Two of the Defendants, Ray Huffines Chevrolet, Inc. and Huffines Chrysler-Plymouth, Inc. (collectively, "Huffines"), responded to the complaint by filing a Motion to Dismiss pursuant to Federal Rule of Civil Procedure ("Rule") 12(b)(1) and (6), as adopted and applied to this adversary proceeding by Federal Rule of Bankruptcy Procedure ("Bankruptcy Rule") 7012, and under the theory of estoppel. The remaining named Defendant, New Texas Auto Auction Services, L.P. d/b/a Dallas Auto Auction d/b/a Manheim Dallas ("DAA"), subsequently filed an answer to the complaint and joined in the Motion to Dismiss.

The Plaintiffs filed an opposition to the Motion to Dismiss and requested that they be permitted to amend their complaint if the Court grants any portion of the Motion. The Plaintiffs attached several affidavits to their opposition to the Motion to Dismiss in which they attempted to explain certain alleged contradictions between their complaint and the documents attached to their complaint, among other things. The Defendants filed an objection to the admission of the Plaintiffs' affidavits on numerous grounds. At the conclusion of the hearing on the Motion to Dismiss, the Court took the Defendants' Motion to Dismiss and their objections to the Plaintiffs' affidavits under advisement.

I. RELEVANT BACKGROUND

Parkway Sales and Leasing, Inc. ("Parkway") was an automobile dealer engaged in the business of leasing and selling new and used automobiles. In February 2007, Huffines filed suit in state court against Parkway based on Parkway's alleged failure to pay Huffines for an undisclosed number of vehicles transferred to Parkway in January 2007 (the "Huffines Vehicles"). On March 12, 2007, Huffines obtained a Final Default Judgment in state court against Parkway wherein Huffines was awarded $215,518 in liquidated damages and $7,547 in attorneys' fees.

Parkway filed a petition for relief in this Court under Chapter 7 of the Bankruptcy Code on April 4, 2007. According to the Chapter 7 trustee, this is an asset case. On June 24, 2007, the Court entered an order setting September 20, 2007, as the last day for non-governmental creditors to file their proofs of claim. Plaintiff AFC filed proof of its secured claim on May 18, 2007, and Plaintiff DSC filed proof of its secured claim on September 19, 2007. Defendant Huffines filed proof of its claim on July 11, 2008. Defendant DAA has not filed proof of any claim against Parkway's estate.

Insurers Indemnity Corporation initiated an adversary proceeding on or about May 29, 2007. In that adversary proceeding, Insurers Indemnity Corporation filed an interpleader with respect to Parkway's dealer bond. Huffines referenced the Huffines Vehicles in its answer to the interpleader and asserted a claim for all valid bank drafts drawn by Parkway "for the purchase of motor vehicles and transfer of good title to each motor vehicle...." On August 27, 2007, the Court entered a judgment in the amount of $19,819.06 in favor of Huffines.

On March 3, 2009, the Chapter 7 trustee objected to the claims of AFC and DSC on the grounds that the trustee had not administered the collateral securing the claims. The Chapter 7 trustee alleged that the claims did not qualify as secured claims under 11 U.S.C. § 506(a) of the Bankruptcy Code and, therefore, requested that the Court disallow the claims. AFC responded to the objection, and a hearing on the Chapter 7 trustee's objection to AFC's claim is currently scheduled for September 9, 2009. DSC did not respond to the Chapter 7 trustee's objection. Accordingly, on March 27, 2009, the Court granted the objection as unopposed. The order sustaining the Chapter 7 trustee's objection to DSC's claim states that the claim "is disallowed as a secured claim." Such order was not appealed.

The Plaintiffs initiated this adversary proceeding on April 3, 2009. In Count 1 of their adversary complaint, AFC, DSC and the Chapter 7 trustee seek a declaratory judgment regarding the extent, validity, and priority of the secured interests claimed by AFC and DSC. In Counts 2-4, AFC and DSC seek damages from Huffines and DAA based on claims of tortious interference with contract, conversion, and civil conspiracy. In Counts 5-6, the Chapter 7 trustee asserts claims against Huffines and DAA for preferential transfers and seeks turnover of property of the estate.

DAA responded to the Plaintiffs' adversary complaint on May 4, 2009. In its answer, DAA demanded a jury trial. Although this Court is not authorized to conduct jury trials, none of the parties have objected to this Court's jurisdiction over the Motion to Dismiss. See, e.g., Official Comm. of Unsecured Creditors v. Schwartzman (In re Stansbury Poplar Place, Inc.), 13 F.3d 122, 128 (4th Cir.1993) (holding that until a proceeding is ready for trial, a bankruptcy court may continue to oversee pre-trial matters); Sigma Micro Corp. v. Healthcentral.com (In re Healthcentral.com), 504 F.3d 775, 783-88 (9th Cir.2007) (holding that, after a party identifies a valid right to a Seventh Amendment jury trial in bankruptcy proceedings, "the bankruptcy court may retain jurisdiction over the action for pre-trial matters."). The Court, however, recommends that the District Court withdraw the reference following the resolution of the Motion to Dismiss for the reasons discussed below.

II. DISCUSSION

In the Motion to Dismiss, the Defendants urge this Court to dismiss all of the claims asserted by AFC and DSC in this adversary proceeding. The Defendants also urge this Court to dismiss the claim asserted by the Chapter 7 trustee in Count 1 of the adversary complaint, leaving only the Chapter 7 trustee's claims for the recovery of preferential transfers and turnover. The Defendants argue that AFC and DSC have failed to establish standing and, therefore, grounds exist to dismiss their claims pursuant to Rule 12(b)(1). The Defendants further argue that AFC and DSC have failed to state claims upon which relief can be granted due to their lack of standing and, therefore, grounds exist to dismiss their claims pursuant to Rule 12(b)(6). Finally, the Defendants argue that "[d]ismissal of the Chapter 7 trustee's claim under Count 1 is proper because no declaratory judgment regarding the amount of money purportedly owed the Plaintiffs can be made based on the alleged secured liens of AFC and DSC, in view of the fact that both AFC and DSC lack standing and have failed to state a claim upon which relief can be granted." Motion to Dismiss, p. 3, ¶ 4.

Article III of the Constitution limits the subject matter jurisdiction of federal courts to cases and controversies. A plaintiff, therefore, must demonstrate "a causal connection between the injury and the conduct complained of" to have standing in a federal court. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). The party seeking to invoke a federal court's jurisdiction has the burden of proving standing. See, e.g., In re La Sierra Financial Services, Inc., 290 B.R. 718, 726 (9th Cir. BAP2002) ("The party asserting standing bears the burden of proving it."); Hirsch v. Arthur Andersen & Co., 72 F.3d 1085, 1092 (2nd Cir.1995) ("The burden to establish standing remains with the party claiming that standing exists"); E.F. Hutton & Co., Inc. v. Hadley, 901 F.2d 979, 984 (11th Cir.1990) ("When standing has been contested, it is the burden of the party claiming standing"); Zahn v. Yucaipa Capital Fund, 218 B.R. 656, 662 (D.R.I.1998) ("The burden of proof must be carried by the party whose standing is questioned."). Since a motion to dismiss a case for want of standing challenges a court's ability to make any determination on the merits, standing must be resolved as a preliminary matter. See Ramming v. United States, 281 F.3d 158, 161 (5th Cir.2001) (holding that "[w]hen a Rule 12(b)(1) motion is filed in conjunction with other Rule 12 motions, the court should consider the Rule 12(b)(1) jurisdictional attack before addressing any attack on the merits").

A. Facial and Factual Attacks on Standing

The parties in this case disagree on the proper procedure for deciding the Plaintiffs' standing. The Defendants seek to limit the Court's inquiry to the adversary complaint, the documents attached to the complaint, and undisputed facts of which the Court may take judicial notice. The Plaintiffs, on the other hand, seek to introduce new factual allegations in support of their standing.

In Warth v. Seldin, 422 U.S. 490, 501-02, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975), the Supreme Court outlined the following procedure for determining whether a plaintiff has standing:

For purposes of ruling on a motion to dismiss for want of standing, both the trial and reviewing courts must accept as true all material allegations of the complaint, and must construe the complaint in favor of the complaining party. E.g., Jenkins v. McKeithen, 395 U.S. 411, 421-422 [89 S.Ct. 1843, 1848-1849, 23 L.Ed.2d 404] (1969). At the same time, it is within the trial court's power to allow or to require the plaintiff to supply, by amendme...