In re Phillips

• Decision Date: 12 April 2012
• Docket Number: Case No. 09-28759/JHW
• Parties: In the Matter of Aubree S. Phillips Debtor
• Court: U.S. Bankruptcy Court — District of New Jersey

In the Matter of Aubree S. Phillips Debtor

Case No. 09-28759/JHW

UNITED STATES BANKRUPTCY COURT DISTRICT OF NEW JERSEY

Dated: April 12, 2012

OPINION

APPEARANCES: William P. Rubley, Esq.

Subranni Zauber LLC

Willow Ridge Executive Office Park

Counsel for Debtor

Eric A. Savage, Esq.

Littler Mendelson

Counsel for Harrah's Resort Atlantic City

Douglas S. Stanger, Esq.

Flaster/Greenberg

Chapter 7 Trustee

Before the court is the debtor's motion to reopen her Chapter 7 bankruptcy for purposes of administering a previously undisclosed asset. For the following reasons, the debtor's motion is granted.

FACTS

The debtor, Aubrey Phillips, filed a voluntary Chapter 7 petition on July 20, 2009. The Chapter 7 trustee filed his report of no distribution on August 21, 2009, the debtor received a discharge on October 23, 2009, and the bankruptcy case was closed on October 30, 2009.

The debtor filed a complaint against Harrah's Resort Atlantic City, in the Superior Court of New Jersey, Law Division, in Atlantic County, No. ATL-L-4506-09, on November 17, 2009, alleging employment discrimination. According to the debtor, she retained her attorney in that action on July 20, 2009, one week after she filed her bankruptcy petition. The record reflects that the debtor contacted attorneys regarding her employment claims at least six months before July 2009, and met with a psychologist to discuss her injuries on August 10, 2009. The debtor did not disclose her claims against Harrah's in her petition, nor did she reveal them at her § 341 meeting, held on August 20, 2009. Because of the debtor's failure to reveal her claim in the bankruptcy proceeding, Harrah's filed a motion for summary judgment in the state court proceeding on February 13, 2012, asserting that the debtor was judicially estopped from bringing these claims.

On the same date, February 13, 2012, the debtor moved to reopen her bankruptcy case so that the claim against Harrah's could be administered.Harrah's filed an objection on March 6, 2012. On March 13, 2012, the Chapter 7 Trustee filed a letter supporting the debtor's motion to reopen the case, and a hearing was held on the matter that same day. The court directed the parties to brief the issues and a follow-up conference call was scheduled and then adjourned to April 12, 2012. The court determined to resolve the matter by written opinion in lieu of holding the telephone conference call.

DISCUSSION

I. Standing.

Section 350(b) of the Code addresses reopening of cases and states that "[a] case may be reopened in the court in which such case was closed to administer assets, to accord relief to the debtor, or for other cause." 11 U.S.C. § 350(b). Bankruptcy Rule 5010 governs the procedure for reopening:

A case may be reopened on motion of the debtor or other party in interest pursuant to § 350(b) of the Code. In a chapter 7, 12, or 13 case a trustee shall not be appointed by the United States trustee unless the court determines that a trustee is necessary to protect the interests of creditors and the debtor or to insure efficient administration of the case.

Fed.R.Bankr.P. 5010. Standing to oppose reopening of a case is not directly addressed by the Code or the Rules. Some courts have stated that only a party in interest may object to the reopening of a bankruptcy case in a Chapter 7. In re Sweeney, 275 B.R. 730 (Bankr. W.D. Pa. 2002); In re Lewis, 273 B.R. 739 (Bankr. N.D. Ga. 2001). Other cases, relying primarily on Section 1109(b) ofthe Bankruptcy Code,¹ have applied the "party in interest" standard in the context of standing issues related to opposing the reopening of Chapter 11 cases. In re Miller, 347 B.R. 48 (Bankr. S.D. Tex. 2006); In re Koch, 229 B.R. 78 (Bankr. E.D.N.Y. 1999). Bankruptcy Rule 2018 provides that the court may allow any "interested entity" to intervene in a bankruptcy case or "any specified matter." Fed.R.Bankr.P. 2018(a).

The debtor asserts that Harrah's lacks standing to oppose the motion because it is not a creditor and "lacks any other relation to the bankruptcy case." Harrah's asserts that it is a creditor because it is the disputed owner of the asset that the debtor wishes to include in her estate, i.e., the funds the debtor would receive from Harrah's were she successful in the state court action. In addition, Harrah's asserts that it is a potential creditor of the debtor's estate because it seeks to recover fees and costs from the debtor related to the state court action.

Harrah's assertion that it has standing as a potential creditor has no merit. Harrah's is seeking fees and costs in the debtor's state court action, but the debtor's Chapter 7 petition was filed before her state court complaint wasbrought against Harrah's. Therefore, Harrah's did not accrue any fees and costs before the petition was filed, and does not have a pre-petition claim against the debtor.

Recently, the Third Circuit has provided guidance on what defines a "party in interest" in the context of opposition to a Chapter 11 plan. In re Global Indus. Techs., Inc., 645 F.3d 201, 210-212 (3d Cir.), cert. denied, 132 S. Ct. 551, 181 L.Ed.2d 397 (2011). The court described a "party in interest" "as one who 'has a sufficient stake in the proceeding so as to require representation,'" Id. at 210 (quoting In re Amatex Corp., 755 F.2d 1034, 1042 (3d Cir. 1985)), also adopting the Seventh Circuit's definition of "'anyone who has a legally protected interest that could be affected by a bankruptcy proceeding.'" Id. (quoting In re James Wilson Associates, 965 F.2d 160, 169 (7th Cir.1992)). A "party in interest" under either of these definitions is also subject to the dictates of the standing conferred by Article III. Id. The Circuit described constitutional standing as follows:

A party seeking constitutional standing must demonstrate an "injury in fact" that is "concrete", "distinct and palpable", and "actual or imminent." Whitmore v. Arkansas, 495 U.S. 149, 155, 110 S.Ct. 1717, 109 L.Ed.2d 135 (1990). Additionally, the party must establish that the injury "fairly can be traced to the challenged action and is likely to be redressed by a favorable decision." Id. (internal quotations omitted). We have noted that "[t]he contours of the injury-in-fact requirement, while not precisely defined, are very generous." Bowman v. Wilson, 672 F.2d 1145, 1151 (3d Cir.1982). The standard is met as long as the party alleges a "specific, 'identifiable trifle' of injury," id. (quoting United States v. Students Challenging Regulatory Agency Procedures, 412 U.S. 669, 686-90, 690 n. 14, 93 S.Ct. 2405, 37 L.Ed.2d 254(1973)), or a "personal stake in the outcome of [the] litigation," The Pitt News v. Fisher, 215 F.3d 354, 360 (3d Cir.2000).

Id.

Courts have disagreed about whether parties who are defendants in state court actions brought by debtor-plaintiffs have standing to oppose the reopening of a bankruptcy. Compare In re Lewis, 273 B.R. 739, 743 (Bankr. N.D. Ga. 2001) (state court defendants can oppose motion to reopen because of impact reopening would have on both forums), In re Koch, 229 B.R. at 81-82 (defendant had standing as owner of property) with In re Riazuddin, 363 B.R. 177, 182-83 (10th Cir. BAP 2007) (state court defendant did not have standing to oppose the motion because its liability would be affected by the state suit but not by the bankruptcy)² ; In re Miller, 347 B.R. at 52; In re Sweeney, 275 B.R. at 733 (defendants do not have standing in bankruptcy simply because they have standing in state court action). See also In re Kreutzer, 2007 WL 2891064, 249 Fed. Appx. 727, 729 (10th Cir. 2007)(state court defendant did not qualify for more stringent "person aggrieved" standard for appellate review of bankruptcy reopening).

Under both constitutional standing principles and the statutory provisions governing standing under the Bankruptcy Code, the better view isthat the defendant is not subject to an injury in fact based upon the reopening of the bankruptcy estate, nor does it hold a "legally protected interest" that the debtor seeks to affect through the course of the bankruptcy, and is thus not a party in interest. "'[T]he mere act of reopening a closed bankruptcy . . . is a purely ministerial act with no legal significance for the underlying bankruptcy,' let alone for an independent tort action." In re Kreutzer, 249 Fed. Appx. at 729 (quoting In re Quarles, No. 06-CV-0137-CVE-SAJ, 2007 WL 171913, *5 (N.D.Okla. Jan.18, 2007)). Harrah's is free to proceed with the state court action unhampered by the process in the bankruptcy court and is free to assert whatever defenses it possesses in that action, including the defense of judicial estoppel, which is not precluded even if the debtor is able to include her claim against Harrah's in her bankruptcy.³ See In re Krystal Cadillac-OldsmobileGMC Truck, Inc. v. General Motors Corp., 337 F.3d 314, 320-21 (3d Cir. 2003), cert. denied, 541 U.S. 1043, 124 S. Ct. 2172, 158 L.Ed.2d 732 (2004) (finding debtor estopped from making claim not included in a disclosure statement even after the disclosure statement was amended). See also In re Kreutzer, 249 Fed. Appx. at 729 (noting that state court defendant had opportunity to present a judicial estoppel defense in state court and thus the availability of the defense did not impact upon reopening of the bankruptcy).

I conclude that Harrah's does not have standing to oppose the motion to reopen. I will now consider the merits of the debtor's motion to reopen the case.

II. Motion to Reopen.

"A bankruptcy court exercises broad discretion in deciding whether to reopen a case." In re Dimogerodakis, No. 10-0004, 2011 WL 1362342, *4 (D.N.J. Apr. 11, 2011) (citing to In re Zinchiak, 406 F.3d 214, 223 (3d Cir. 2005)). The Third Circuit reviews such decisions for abuse of discretion. In re Zinchiak, 406 F.3d at 223. The standard employed is set out in § 350(b): "toadminister assets, to accord relief to the debtor, or for other cause." 11 U.S.C. § 350(b). "The moving party has...