In re Porter McLeod, Inc., Civ. A 97-B-1133

• Decision Date: 17 March 1999
• Docket Number: 96-24797 SBB,Adversary No. 96-1202 DEC.,96-24796 SBB,96-24795 DEC,Bankruptcy No. 96-24792 DEC,No. Civ. A 97-B-1133,Civ. A 97-B-1133
• Citation: 231 BR 786
• Parties: In re PORTER McLEOD, INC., Debtor. Harvey Sender, Trustee (as Trustee for Porter McLeod Inc.); PM Denver, Inc., PMNC, Inc., PMSC, Inc. and PMN, Inc., Plaintiffs, v. Bruce M. Porter; Joseph R. McLeod; William A. Johnson; Porter McLeod Holdings, Inc.; n/k/a PMCS, Inc.; Porter-McLeod National Retail, Inc.; Porter-McLeod Management, Inc.; Porter-McLeod Colorado, Inc.; Intermountain Companies, Inc.; Aurora National Bank, N.A.; Appel, Frey & Lucas, P.C., Garry R. Appel, Esq.; Johnson, Oldham & Angell, P.C.; Scott C. Brown, Esq.; and John Doe # 5; John Doe # 6; John Doe # 7; John Doe # 8; John Doe # 9; and John Doe # 10, Defendants.
• Court: U.S. District Court — District of Colorado

231 B.R. 786 (1999)

In re PORTER McLEOD, INC., Debtor Harvey Sender, Trustee (as Trustee for Porter McLeod Inc.); PM Denver, Inc., PMNC, Inc., PMSC, Inc. and PMN, Inc., Plaintiffs, v. Bruce M. Porter; Joseph R. McLeod; William A. Johnson; Porter McLeod Holdings, Inc.; n/k/a PMCS, Inc.; Porter-McLeod National Retail, Inc.; Porter-McLeod Management, Inc.; Porter-McLeod Colorado, Inc.; Intermountain Companies, Inc.; Aurora National Bank, N.A.; Appel, Frey & Lucas, P.C., Garry R. Appel, Esq.; Johnson, Oldham & Angell, P.C.; Scott C. Brown, Esq.; and John Doe # 5; John Doe # 6; John Doe # 7; John Doe # 8; John Doe # 9; and John Doe # 10, Defendants.

No. Civ. A 97-B-1133, Bankruptcy Nos. 96-24792 DEC, 96-24795 DEC, 96-24796 SBB, 96-24797 SBB, Adversary No. 96-1202 DEC.

United States District Court, D. Colorado.

March 17, 1999.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Jon S. Nicholls, Nicholls & Associates, P.C., Denver, CO, Paul G. Quinn, Denver, CO, for plaintiffs.

Marc R. Brosseau, Kerr, Friedrich, Brosseau, & Bartlett, LLC, Denver, CO, Gilbert R. Egle, Elrod, Katz, Preeo, Look Moison & Silverman, P.C., Denver, CO, Glenn W. Merrick, Brega & Winters, P.C., Denver, CO, I. Thomas Bieging, Gabe McFarland, Jr., McKenna & Cuneo, LLP, Denver, CO, Thomas B. Quinn, White and Steele, Denver, CO, for defendants.

Harvey Sender, Denver, CO, trustee, Jeffrey Weinman, Denver, CO, trustee.

MEMORANDUM OPINION AND ORDER

BABCOCK, District Judge.

In this bankruptcy case, defendants Appel, Frey, and Lucas, P.C. (Appel law firm) and Garry R. Appel, Esq. (Appel) (collectively, Appel defendants) joined by defendants Johnson, Olden and Angell (JOA law firm) and Scott C. Brown, Esq. (Brown), (collectively, Brown defendants) (all defendants known collectively, as legal defendants) move for judgment on the pleadings pursuant to Fed.R.Civ.P. 12(c). Also pending are Fed. R.Civ.P. 56 summary judgment motions filed by defendant JOA law firm, Appel defendants, and defendant Brown, individually. After consideration of the motions, briefs, and counsels' arguments, I will grant the motions in part and deny them in part.

I.

The following facts are undisputed. Defendants Bruce Porter (Porter) and Joseph McLeod (McLeod), equal owners of a construction company, incorporated the company in 1985 under the name Porter McLeod, Inc. (PMI). Second Amended Complaint, ¶ 4; Porter Depo., pp. 27-28.; Exh. A, pp. 6, 17, 20. In 1991, as a result of significant losses suffered in its Southern California operations, PMI determined that it needed to restructure. Id. at ¶ 19. Early in 1992, defendants Porter, McLeod, former defendant William A. Johnson and attorneys for PMI, including defendant Brown, began discussions relating to a reorganization plan which might help deal with the losses. Id. at ¶ 21. On March 5, 1992, Porter and McLeod created three new corporations as part of the reorganization concept recommended by the attorneys: 1) Porter-McLeod Holdings, Inc. (PM Holdings), n/k/a PMCS; 2) Porter-McLeod Colorado, Inc. (PM Colorado); and 3) Porter-McLeod National Retail, Inc. (PM National). Id. at ¶¶ 11, 22. On March 5, 1992, PMI became a wholly-owned subsidiary of PM Holdings which served as a holding company for 100% of PMI's stock. Id. at ¶¶ 4, 12. On March 10, 1992, following the formation of PM Holdings and its subsidiaries, Porter, McLeod, and their attorneys retained the Appel defendants to review the reorganization concepts and the associated bankruptcy implications. Id. at ¶ 23. During the period from March 10th until March 19, 1992, meetings and discussions occurred among Porter, Johnson, Brown, and Appel. At Appel's suggestion, on March 19, 1992, Porter and McLeod created five new PMI subsidiaries: 1) PM Denver, Inc., 2) PMNC, Inc., 3) PMSC, Inc. 4) PMN, Inc.; and 5) Porter-McLeod Management, Inc. Id. at ¶¶ 24-25. Between March 19th and May 3, 1992, a series of transfers occurred among PMI and its subsidiaries and the three subsidiaries of PM Holdings. Id. at ¶¶ 26-32. As a result of the transactions, PMI and its subsidiaries were left with little, if any, assets. Id. at ¶ 35.

Unpaid trade creditors filed an involuntary petition for relief under Chapter 7 against PMI in the United States Bankruptcy Court for the District of Colorado on November 30, 1994. On January 9, 1995, the Bankruptcy Court appointed plaintiff Harvey Sender (Sender or Trustee) trustee for PMI's bankruptcy estate. Sender then assumed control of PMI. On March 5, 1996, pursuant to court order authorizing the use of the stock of the four subsidiaries owned by PMI, Sender held shareholder meetings of PMI's four subsidiaries, PMN, Inc., PMC, Inc., PMSC, Inc., and PM Denver (corporate plaintiffs). During the meetings, Sender, as sole shareholder, removed prior management and elected himself president of each of the corporate plaintiffs. Sender then held directors' meetings during which he was elected as the sole director of each subsidiary corporation. On November 22, 1996, Sender filed Chapter 7 petitions in bankruptcy on behalf of PMI's four new subsidiaries and Jeffrey Weinman (Weinman) was appointed trustee for these four corporations. Sender also filed an adversary proceeding complaint in the Bankruptcy Court on March 29, 1996. On December 2, 1996, the Bankruptcy Court ordered the bankruptcy cases of PMI and the four subsidiary corporations be jointly administered. On June 20, 1997, pursuant to Sender's motion, the Bankruptcy Court approved a restricted assignment between Sender and Weinman, Def. MSJ Brief, Ex. A, whereby Weinman, as Trustee for the four subsidiary corporations, assigned for purposes of collection his right in and to any and all causes of actions or claims of the four corporations. Id. On May 6, 1996, Sender filed a First Amended Complaint followed by a Second Amended Complaint on March 7, 1997. The bankruptcy action was transferred to this court on May 9, 1997 after several defendants requested trial by jury.

II.

Pending claims and motions

In the second amended complaint, the Trustee brings claims one through ten for fraudulent transfer, turnover, subordination of claims, breach of contract, breach of fiduciary duty, constructive trust, civil conspiracy and conversion and civil theft against various corporate defendants, Mr. Porter, Mr. McLeod, and Aurora National Bank, N.A. There are no pending dispositive motions concerning claims one through ten.

In claim eleven, the Trustee, in his own right and as Trustee Weinman's assignee, alleges that the legal defendants committed professional malpractice. In the same capacity, in claim twelve, the Trustee alleges that the legal defendants aided and abetted breach of fiduciary duty. Pending are: 1) Fed.R.Civ.P. 12(c) motions for judgment on the pleadings; and 2) Fed.R.Civ.P. 56 summary judgment motions filed by the legal defendants.

III.

Motions for judgment on the pleadings

A. Claims eleven and twelve

Legal defendants seek judgment on the pleadings pursuant to Fed.R.Civ.P. 12(c) as to claims eleven and twelve for professional malpractice and aiding and abetting breach of fiduciary duty on the grounds that the Trustee does not have standing to bring these claims. I disagree.

1. Fed.R.Civ.P. 12(c) standard

The standards applicable to a motion to dismiss under Fed.R.Civ.P. 12(b)(6) also apply to Fed.R.Civ.P. 12(c) motions for judgment on the pleadings. O. Bishop v. Federal Intermediate Credit Bank of Wichita, 908 F.2d 658 (10th Cir.1990); see Wright & Miller, Federal Practice and Procedure: Civil 2d § 1368. A district court may grant judgment on the pleadings if it appears beyond doubt that the plaintiffs can prove no set of facts in support of their claim which would entitle them to relief. See Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). If plaintiffs have pleaded facts that would support a legally cognizable claim for relief, a motion for judgment on the pleadings should be denied. See id. In reviewing the sufficiency of the complaint, all well-pled facts, as opposed to conclusory allegations, must be taken as true. GFF Corp. v. Associated Wholesale Grocers, 130 F.3d 1381, 1384 (10th Cir.1997). All reasonable inferences must be liberally construed in the plaintiffs' favor. Id.

2. Judicial estoppel

The Trustee contends, as a initial matter, that the legal defendants are judicially estopped from raising standing based on the Appel defendants' contrary position as to the Trustee's authority to bring claims against third-parties taken in a pleading titled "Suggestion of Bankruptcy" filed in a proceeding against PMI and PM National in the United States District Court for the Central Division in Salt Lake City, Utah. Resp. Ex. B.

Contrary to the Trustee's assertions, "the Tenth Circuit has rejected the doctrine of judicial estoppel." United States v. 49.01 Acres of Land, 802 F.2d 387, 390 (10th Cir. 1986); see also Smith v. Midland Brake, Inc., a Division of Echlin, Inc., 138 F.3d 1304, 1312 (10th Cir.1998) ("We wish to make clear that under the law of this circuit, a party is not judicially estopped from . . . making claims that are inconsistent with . . . prior representations. . . ."). Thus, I will consider defendants' standing arguments.

3. Standing

The United States Constitution, Article III, § 2, cl. 1, limits the jurisdiction of federal courts to cases and controversies. Valley Forge Christian College v. Americans United for Separation of Church and State, Inc., 454 U.S. 464, 471, 102 S.Ct. 752, 70 L.Ed.2d 700 (1982); United States v. Colorado Supreme Court, 87 F.3d 1161, 1164 (10th Cir. 1996). From this limitation, springs the doctrine of standing which addresses whether a litigant is entitled to have the court decide the merits of a dispute or particular issue. Lujan v. Defenders of Wildlife, 504 U.S. 555, 559-61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992) quoting Warth v. Seldin, 422 U.S. 490, 498, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975). "The party...