In re Sturm, Bankruptcy No. 81-05108S
| Citation | 121 BR 443 |
| Decision Date | 28 November 1990 |
| Docket Number | Adv. No. 90-0773S.,Bankruptcy No. 81-05108S |
| Parties | In re Frederick C. STURM, III, t/a Legal Insurance, Legal Associates, Judicare, Advanced Legal Systems, Debtor. Anthony B. QUINN, Plaintiff, v. FIDELITY & DEPOSIT CO. OF MARYLAND and Mitchell W. Miller, Esquire, Defendants. |
| Court | United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania |
Mitchell W. Miller, Philadelphia, Pa., Substitute Trustee.
Edward Cohen, Philadelphia, Pa., for debtor.
Edward J. DiDonato, Philadelphia, Pa., for Substitute Trustee.
James J. O'Connell, Asst. U.S. Trustee, Philadelphia, Pa., U.S. Trustee.
The instant matter, retained in this court upon remand from a state court because of its status as a core proceeding in this reopened case converted from Chapter 11 to Chapter 7, presents an alleged creditor's claim against a Trustee and his predecessor's bonding company for failure to pay his claim in the distribution of the estate's assets. In reviewing the divergent authorities regarding the potential immunity of the Defendants from liability for the stated cause of action, we conclude that, pursuant to the controlling law of this Circuit, a Trustee may be personally liable for negligent failure to properly distribute estate funds. However, we fail to find that the Trustee or his predecessor were negligent. We also find that the Plaintiff failed to prove the existence and terms of a contract of suretyship which could render the bonding company liable to him. Therefore, we proceed to enter judgment in favor of the Defendants.
The underlying bankruptcy case was commenced as a voluntary Chapter 11 case on September 12, 1981, by FREDERICK C. STURM, III ("the Debtor"), a purveyor of several legal clinics whom the Plaintiff testified was in fact not a licensed attorney. The case was converted to a Chapter 7 case on or about February 15, 1982. James J. O'Connell, Esquire ("O'Connell"), then the Philadelphia Standing Chapter 13 Trustee and presently the Assistant United States Trustee in this City, was appointed as interim Trustee. On February 15, 1982, Defendant FIDELITY & DEPOSIT COMPANY OF MARYLAND ("F & D") issued a surety bond of $150,000 in favor of O'Connell.
It is an understatement to observe that the estate was administered deliberately. As of May 24, 1988, when Defendant MITCHELL W. MILLER, ESQUIRE ("Miller"), was named to replace O'Connell after O'Connell's appointment as Assistant United States Trustee, nothing occurred after the completion of most of the litigation spawned by this case by late 1983 until an aborted Final Audit Hearing was scheduled in late 1987. With prodding by this court, beginning with an Order of November 17, 1988, requiring prompt filings, a Final Audit Hearing was consummated on March 1, 1989; a Final Order of Distribution was entered on May 9, 1989; and the case was closed on August 4, 1989.
On or about August 15, 1990, ANTHONY B. QUINN, ESQUIRE ("the Plaintiff"), commenced an action at No. 90-8-15-01406, in the Philadelphia Municipal Court ("the PMC"), the local small claims court, naming F & D and Miller as Defendants. This action was based upon the Plaintiff's failure to receive payment of an alleged Proof of Claim for wages, salary, or commissions in the amount of $4,867.84. The matter was listed for trial in the PMC on October 10, 1990.
On September 4, 1990, the Trustee filed a motion to reopen the underlying main bankruptcy case and an Application for Removal of the matter to this court. On October 2, 1990, the Plaintiff filed a Motion to Remand this proceeding to the PMC. We scheduled briefing on the Motion to be completed by October 18, 1990, and set down any trial necessary on October 25, 1990.
On October 19, 1990, we issued a Report, pursuant to Bankruptcy Rule ("B.Rule") 9027(e), recommending that the Motion to Remand be denied, since this matter (1) involved administration of the Debtor's estate; (2) directly affected the liquidation of the estate's assets; and (3) involved the allowance of the Plaintiff's claim against the estate, and hence was a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(A), (B), and (O), respectively. We ordered that the scheduled trial of October 25, 1990, should proceed. And it did.
The only witnesses at the trial were the Plaintiff and Miller, both appearing pro se. Miller's answer indicated that he was also representing F & D. It was also stipulated that the court could consider the contents of the entire file in the Debtor's case. The file was retrieved from storage and carefully reviewed by the court prior to making it available to the parties. The parties were accorded until November 20, 1990, to simultaneously file their Briefs in this matter. Both remitted concise submissions in timely fashion.
As a result of this testimony and review of the file, we make the following Findings of Fact:
1. The Debtor did not list the Plaintiff as a creditor on his Schedules.
2. The only meeting of creditors pursuant to 11 U.S.C. § 341 ever held in this case was conducted on January 28, 1982, while the case was still proceeding under Chapter 11.
3. No bar date for filing claims was ever established while the case was in Chapter 11 and, since there was no § 341 meeting after the case was converted, no bar date was ever established pursuant to B.Rule 3002(c).
4. The claims docket, consistent with the claims physically included in the file, lists 20 claims filed between January 22, 1982, and August 22, 1983. No claim filed on behalf of the Plaintiff appears on either the claims docket or in the file.
5. The Plaintiff admitted into evidence a copy of a letter dated October 29, 1982, which is addressed to "Clerk, U.S.Bky.Ct., E.D.PA., 6021 Market St., Philadelphia, PA. 19106" and includes the notation "cf, with enclosure: James J. O'Connell, Esquire." This letter purports to cover a Proof of Claim. The Plaintiff testified that the address was corrected and the letter was sent to 601 Market St., Philadelphia, PA. 19106, the actual address of the courthouse in which the Bankruptcy Court is located.
6. The Plaintiff also admitted into evidence a copy of a Proof of Claim, containing a time-stamp of November 15, 1982, but no initials of a Deputy Clerk. The Proof of Claim reads as follows:
7. The Plaintiff had, in his file, two stamped copies of the Proof of Claim. He asserted that the filing was accomplished and the stamped copies were returned to him by a filing service.
8. The Plaintiff stated that he monitored the progress of the case by checking the case docket on approximately an annual basis. The last review was allegedly performed in late 1988.
9. The Plaintiff further stated that he never checked the claims docket or registry or reviewed the file to see whether his claim had been recorded.
No copy of any surety agreement between F & D and O'Connell was included in the record or the file.
11. Placed into the record is the following correspondence from Miller or O'Connell to the Plaintiff:
a. A letter of November 10, 1989, from Miller enclosing the Final Order of Distribution and advising that no funds were available to pay the Plaintiff.
b. A letter of December 18, 1989, from O'Connell to F & D agreeing to hold that company harmless from the Plaintiff's claim. The letter to the Plaintiff is rather insulting, referencing the Plaintiff's "apparent lack of knowledge of or even the basic law or mechanics of a trustee's bond," and cautioning him not to commence a "frivolous law suit."
c. A letter of January 2, 1990, from Miller which is also rather insulting, alleging that "apparently you absolutely refuse to listen to reason."
12. Miller testified that he was unaware that the Plaintiff had claimed to have filed any proof of claim prior to the closing of the case on August 4, 1989. He stated that he believed that he had received only "a portion" of O'Connell's complete file when he succeeded O'Connell as Trustee. He further stated that no copy of the Plaintiff's letter to O'Connell covering the Proof of Claim was included in the file that he received.
13. The Plaintiff argued vigorously that Miller was negligent in not assuring himself that he received the entire file from O'Connell, which he hypothesized may have included a copy of the letter covering the Proof of Claim.
The principal authority relied upon by the Plaintiff is a recent Opinion by Judge Fox of this court in In re Oxford Royal Mushroom Products, Inc., 93 B.R. 390 (Bankr.E.D.Pa.1988), aff'd, C.A. No. 89-0264 (E.D.Pa. March 1, 1989). That case involved an objection to a late proof of claim filed by Frezzo Brothers, Inc. ("Frezzo"), a claimant who was the alleged assignee of a timely proof of claim which the trustee had paid. Frezzo's claim was based upon its contention that, prior to the bar date or any distribution, it had filed a copy of the assignment of a timely claim, the assignment of which did not...
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