In re Presswood

• Decision Date: 15 September 2016
• Docket Number: Case No. 12–60237
• Citation: 559 B.R. 204
• Parties: In re: Alan Lee Presswood, Debtor(s).
• Court: U.S. Bankruptcy Court — Southern District of Illinois

559 B.R. 204

In re: Alan Lee Presswood, Debtor(s).

Case No. 12–60237

United States Bankruptcy Court, S.D. Illinois.

Signed September 15, 2016

Robert E. Eggmann, Danielle Suberi, Desai Eggmann Mason LLC, St. Louis, MO, Max G. Margulis, Margulis Law Group, Chesterfield, MO, for Debtors.

OPINION

Laura K. Grandy

, United States Bankruptcy Judge

This matter is before the Court on Trustee Robert T. Bruegge's (“Trustee's”) Application to Compromise the Chapter 7 Debtor's interest in a class action lawsuit and the Debtor's objection thereto. For the reasons discussed below, the Application is denied.

FACTS

Debtor Alan Presswood (“Debtor”) filed a Chapter 7 petition on May 29, 2012 and movant Robert T. Bruegge was appointed Trustee of the bankruptcy estate. At the time that the petition was filed, the Debtor did not schedule or otherwise disclose any pre-petition claims or causes of action in which he may have an interest.

On February 25, 2015, Alan Presswood, D.C., P.C.¹ filed a class action lawsuit against Pernix Therapeutics Holdings, Inc. (“Pernix”) and other defendants in the Circuit Court of St. Louis County, Missouri (Case No.15SL–CC00687) based, inter alia , on alleged violations of the Telephone Consumer Protection Act of 1991 (“TCPA”). See 47 U.S.C. § 227

. Specifically, the class action complaint alleges that in April 2011, Pernix sent two (2) unsolicited facsimiles to the Debtor in violation of the TCPA. Pernix subsequently removed the suit to the United States District Court for the Eastern District of Missouri (Case No.15–cv–00592–NAB) where it remains pending.² To date, the putative class remains unidentified and uncertified.³

On June 25, 2015, the Debtor filed an amended Schedule B with this Court in which he valued his interest in the Pernix litigation at $500. The Court notes that this was the first time that the Debtor disclosed his interest in the pre-petition causes of action against Pernix, despite the fact that the class action suit had been pending for several months. In addition to the amended Schedule B, the Debtor also filed an amended Schedule C in which he claimed a $500 exemption in the Pernix causes of action pursuant to 735 ILCS 5/12–1001(b)

(See Doc. # 72).⁴ The Trustee does not oppose this exemption.

On September 14, 2015, the Trustee filed the instant Application to Compromise the bankruptcy estate's claims against Pernix. The proposed settlement provides, in pertinent part:

3. Pernix shall pay the Trustee the sum of $10,000.00 USD (the “Settlement Payment”) within twenty-one (21) days of the Order approving the [Rule] 9019 Motion.

4. Except with respect to the Parties' obligations set forth in this Settlement Agreement, upon the Trustee's receipt of the full amount of the Settlement Payment, the Trustee, in his capacity as the chapter 7 trustee for the bankruptcy estate of the Debtor, hereby remise[s], release[s], discharge[s] and acquit[s] Pernix, and each of Pernix's representatives, principals, predecessors, executors, executrixes, employees, shareholders, attorneys, officers, directors, independent contractors, consultants, contractors, vendors, any party responsible for sending the facsimiles and all third parties (the “Releasees”) from any and all claims, actions, liabilities, debts and potential causes of action whatsoever, however incurred or arising, now existing or hereafter arising, known or unknown, actually brought or that could have been brought, relating to or pertaining to the TCPA Case.

See Application to Compromise Controversy and Settlement Agreement, p.6, ¶ 3–4 (Doc. # 66). Pursuant to the agreement, the Trustee requests in his Application that upon payment of the settlement amount, the Debtor be ordered to dismiss the Pernix litigation with prejudice. Alternatively, the Trustee asks that he be authorized to dismiss the action on the Debtor's behalf if the Debtor fails to do so.

The Application and proposed settlement were served on all creditors and parties in interest. The only objection was raised by the Debtor, who asserts that the proposed settlement amount grossly exceeds the value of the claim. He contends that the cause of action is worth no more than $500, is fully exempt and, therefore, should be abandoned by the Trustee. Specifically, the Debtor alleges that Pernix's settlement offer constitutes an impermissible attempt to “buy off” the Debtor in the TCPA litigation and should not be approved by this Court. See Debtor's Objection to Application to Compromise Controversy and Suggestions in Support Thereof , pp. 3–4, 8 (Doc. # 73). In reply, the Trustee requests that these objections be overruled as the Debtor lacks standing to challenge the proposed settlement.

DISCUSSION

Upon the filing of a bankruptcy petition, an estate is created that is comprised of, among other things, “all legal or equitable interest of the debtor in property as of the commencement of the case.” 11 U.S.C. § 541(a)(1)

. These “legal and equitable interests” include any causes of action that belonged to the debtor at the time that the bankruptcy case was filed. Parker v. Wendy's Int'l, Inc. , 365 F.3d 1268, 1272 (11th Cir. 2004) ; In re Ozark Restaurant Equipment Co., Inc. , 816 F.2d 1222, 1225 (8th Cir. 1987). Accordingly, “a trustee, as the representative of the bankruptcy estate, is the proper party in interest and is the only party in interest to prosecute causes of action belonging to the estate.” Parker , 365 F.3d at 1272. See also

Matter of New Era, Inc., 135 F.3d 1206, 1209 (7th Cir. 1998) (“When a debtor has a trustee in bankruptcy ... the trustee has, with immaterial exceptions, the exclusive right to represent the debtor in court.”); In re Seven Seas Petroleum , 522 F.3d 575, 584 (5th Cir. 2008) (“If a claim belongs to the estate, then the bankruptcy trustee has exclusive standing to assert it.”). This right of representation by the Trustee extends to any interest that the debtor may have in class action litigation. In re Merrill Lynch & Co., Inc. Research Reports Securities Litigation , 375 B.R. 719, 725 (S.D.N.Y 2007). See also

Morlan v. Universal Guar. Life Ins. Co. , 298 F.3d 609, 616 (7th Cir. 2002) (upon filing Chapter 7 petition, portion of debtor's uncertified class action claim “fell into the estate in bankruptcy”).

Because the cause of action belongs to the Trustee, a Chapter 7 debtor only has standing to challenge a proposed settlement of the claim under limited circumstances. The question of whether a party has standing is a threshold inquiry in every federal case. In re Thomas , 469 B.R. 915 (10th Cir. 2012)

. The doctrine of standing limits federal court authority by requiring the courts to satisfy themselves that a plaintiff has “ ‘alleged such a personal stake in the outcome of the controversy’ as to warrant his invocation of federal-court jurisdiction' ” Summers v. Earth Island Institute , 555 U.S. 488, 493, 129 S.Ct. 1142, 1149, 173 L.Ed.2d 1 (2009) (quoting

Warth v. Seldin , 422 U.S. 490, 500, 95 S.Ct. 2197, 2205, 45 L.Ed.2d 343 (1975) ). Standing inquiries invoke both constitutional and prudential considerations. Warth, 422 U.S. at 500, 95 S.Ct. 2197.

Constitutional standing stems from the “case or controversy” requirement of Article III of the Constitution. A plaintiff has Article III standing if and only if

it has suffered an ‘injury in fact,’ which is ‘fairly traceable’ to the challenged action of the defendant, and which would ‘likely’ be redressed by a favorable decision. Standing is lacking if it is merely ‘speculative’—as opposed to ‘likely’—that the plaintiff's injury would be redressed by a favorable decision.

In re GT Automation Group, Inc. , 828 F.3d 602, 605 (7th Cir. 2016)

(internal citations omitted) (quoting

United States v. Windsor , –––U.S. ––––, 133 S.Ct. 2675, 2685–86, 186 L.Ed.2d 808 (2013) ). The Debtor asserts that he has Article III standing because if the Court approves the proposed settlement, he will suffer an “injury in fact” in that he will be precluded from acting as the class representative in the TCPA litigation and will be unable to obtain the statutory and injunctive relief provided thereunder. Debtor's Memorandum on Standing of Debtor to Object to Application to Compromise Controversy (Doc. # 112) at 3.

However, while a federal litigant must certainly possess Article III standing, the doctrine of standing in the bankruptcy context also encompasses prudential limitations. Bankruptcy standing, a form of prudential standing, is narrower than Article III standing. In re Cult Awareness Network , Inc. , 151 F.3d 605, 607 (7th Cir, 1998)

.⁵

See also

Matter of Andreuccetti

, 975 F.2d 413, 416 (7th Cir. 1992). In order to establish bankruptcy standing, “a litigant must qualify as a ‘person aggrieved’ by the [bankruptcy] order. A ‘person aggrieved’ ... must demonstrate that the order diminishes the person's property, increases the person's burdens, or impairs the person's rights.” Andreuccetti , 975 F.2d at 416. In other words,

[t]o have standing to object to a bankruptcy order, a person must have a pecuniary interest in the outcome of the bankruptcy proceedings. ... Debtors, particularly Chapter 7 debtors, rarely have such a pecuniary interest because no matter how the estate's assets are distributed by the trustee, no assets will revert to the debtor.

* * *

There is an established “exception” to the rule that debtors do not have standing to object to bankruptcy orders, which is not so much an exception as a careful application of the pecuniary interest rule itself. Occasionally, a debtor might be able to satisfy all debts with the assets from the estate and be left with some amount remaining. If the debtor can show a reasonable possibility of a surplus after satisfying all debts, then the debtor has shown a pecuniary interest and has standing to object to a bankruptcy order.

In re Cult Awareness Network, Inc. , 151 F.3d at 607–08

(emphasis added). See also

Andreuccetti , 975 F.2d at 417 ; In re Nangle , 288 B.R. 213, 216 (8th Cir. BAP 2003).

T...