In re Synergy Law, LLC

• Decision Date: 04 May 2020
• Docket Number: Case No. 19-00555
• Parties: In re SYNERGY LAW, LLC, Debtor.
• Court: United States Bankruptcy Courts. District of Columbia Circuit

In re SYNERGY LAW, LLC, Debtor.

Case No. 19-00555

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF COLUMBIA

May 4, 2020

(Chapter 7)

Not for publication in West's Bankruptcy Reporter.

MEMORANDUM DECISION AND ORDER APPROVING JOINT MOTION FOR APPROVAL OF SETTLEMENT AGREEMENT BETWEEN TRUSTEE AND DAIMLER TRUST

This addresses the Joint Motion Pursuant to Federal Rule Of Bankruptcy Procedure 9019 to Approve Settlement Between Mercedes-Benz Financial Services USA, LLC and the Estate of Synergy Law LLC and for Dismissal of Motion for Contempt For Violation of Automatic Stay With Prejudice filed by Marc Albert, Chapter 7 Trustee of the estate of Synergy Law, LLC ("Synergy"), and Daimler Trust ("Joint Motion").¹ I will grant the Joint Motion for the following reasons.

I

The Joint Motion addresses a settlement of a claim - the right to sue Daimler Trust for violating the automatic stay - that is property of the estate. The claim relates to Synergy's lease of a motor vehicle from Daimler Trust as lessor, and Daimler Trust's repossession of the motor vehicle after the petition was filed commencing this case. Pursuant to 11 U.S.C. § 365(p)(1), the later rejection of the lease terminated the automatic stay of 11 U.S.C. § 362(a) with respect to the car lease and, accordingly, any violation of the automatic stay necessarily occurred during the period preceding rejection of the lease. Synergy filed a Motion for Contempt for Violation of Automatic Stay against Daimler Trust. The Joint Motion seeks approval of a settlement under which Daimler Trust will pay the estate the sum of $2,500.00 in exchange for a release of claims against Daimler Trust stemming from the alleged repossession and a dismissal with prejudice of the Motion for Contempt for Violation of Automatic Stay.

The car lease at issue, and the rights under that car lease (including the right to possess and use the car) were (as discussed later) property of the estate when the stay violation occurred. The car lease was later rejected and not assumed by the trustee. However, when the seizure occurred, the car lease was property of the estate, and if the seizure damaged any rightsunder the lease, the seizure was a wrong against the estate. Under 11 U.S.C. § 541(a)(7), the claim to recover compensatory contempt damages for violation of the automatic stay is property of the estate. That claim for compensatory contempt damages has not been abandoned from the estate. It follows that the right to seek to recover compensatory contempt damages from Daimler Trust is property of the estate, not property of Synergy.

As noted in Moses v. Howard Univ. Hosp., 606 F.3d 789, 793 (D.C. Cir. 2010), "the trustee is the representative of the estate and retains the sole authority to sue and be sued on its behalf. See Parker v. Wendy's Int'l, Inc., 365 F.3d 1268, 1272 (11th Cir. 2004)." See also In re Seven Seas Petroleum, Inc., 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."); DiMaio Family Pizza & Luncheonette, Inc. v. Charter Oak Fire Ins. Co., 448 F.3d 460, 463 (1st Cir. 2006).

A debtor lacks standing to sue for a violation of the automatic stay occurring when the violation occurred with respect to property when it was property of the estate. See Wells Fargo Bank, N.A. v. Jimenez, 406 B.R. 935, 944-45 (D.N.M. 2008) (a debtor suffered no financial injury by reason of bank's "freezing" bank account when it was estate property and had not yet become exempted from the estate; right to sue for any violation of the automatic stay did not vest in the debtor uponthe bank account becoming exempt property); In re Briggs, 143 B.R. 438, 447-48 (Bankr. E.D. Mich. 1992) (a debtor had standing with respect to any stay violation regarding property occurring after it had become property of the debtor by way of exemption but not with respect to any stay violation occurring beforehand).

As noted in Moses, 606 F.3d at 794-95, the Supreme Court "has held that the plaintiff generally must assert his own legal rights and interest, and cannot rest his claim to relief on the legal rights or interest of third parties." (citing Warth v. Seldin, 422 U.S. 490, 499 (1975)); see also Powers v. Ohio, 499 U.S. 400, 409 (1991). Here, the injury arising from the conduct of which Synergy complains was to the estate of which the trustee is the representative. Under Moses and other decisions, merely derivative harm does not suffice to confer standing on a debtor or creditors to sue on claims that belong to the estate. See Eakin v. Goffe, Inc. (In re 110 Beaver St. P'ship), 355 Fed. App'x 432, 439 n.9, 2009 WL 4874783 (1st Cir. 2009) (in complaint asserting violations of the automatic stay, "the plaintiffs can allege no injury to themselves; they simply allege an injury to the partnership estate.").

The trustee decided not to act to assume the lease, and the lease was rejected by operation of 11 U.S.C. § 365(d)(1) because of the failure of the trustee to assume the lease within 60 days after the commencement of the case. That rejection of the leaseterminated the automatic stay as to the car lease by reason of 11 U.S.C. § 365(p)(1), and, accordingly, no violation of the automatic stay arose after the lease was rejected. The violation of the automatic stay occurred with respect to the car lease during the period it was property of the estate.

II

Rights in the car lease may have reverted to Synergy upon the lease being rejected, with Synergy free to exercise whatever rights remain under the lease. As observed in Moses, 606 F.3d at 791, "[o]nce the trustee abandoned the estate's claims, [the debtor] was free to seek redress as if no bankruptcy petition had been filed." Here, even if the car lease reverted to Synergy, the claim for contempt damages did not revert to Synergy. The trustee has not taken steps to abandon that claim, and it has not been abandoned.

Because the claim for contempt damages was not abandoned to Synergy, it lacks standing to sue for the violation of the automatic stay. See In re Cook, 520 F. App'x 697 (10th Cir. 2013) (Chapter 7 trustee did not abandon claims for stay violations to the debtor and, accordingly, the debtor lacked standing to pursue such claims).

Synergy's right under Moses, upon rejection of the lease, to seek any redress under the lease as if a bankruptcy petition had not been filed does not include the estate's right to sue for aviolation of the automatic stay, a statutory provision that arose under 11 U.S.C. § 362(a) because the bankruptcy petition had been filed. The contempt damages remedy is a right that arose when the lease was property of the estate and is a right that the trustee, as representative of the estate, is the entity with standing to pursue. Assume that a bankruptcy estate suffers significant financial damage by reason of a stay violation relating to a lease (for example, assume that a landlord locks out a trustee or rips out fixtures and prevents the trustee from operating a profitable business, thereby damaging the estate): the claim for contempt damages belongs to the estate, and it ought not be treated as becoming vested in the debtor by reason of the lease rights reverting to the debtor. Nunc pro tunc reversion arising upon abandonment "is a fiction, and a fiction is but a convenient device, invented by courts to aid them in achieving a just result. It is not a categorical imperative, to be blindly followed to a result that is unjust." Wallace v. Lawrence Warehouse Co., 338 F.2d 392, 395, n.1 (9th Cir. 1964). The trustee is entitled to collect, for the benefit of the unsecured creditors of the estate, damages suffered by the estate attributable to a violation of the automatic stay occurring during the period the lease was property of the estate. Despite nunc pro tunc reversion of the lease to Synergy, the claim for damages arising from the violation of the automatic stayoccurring when the car lease was property of the estate remains property of the estate and thus a claim the debtor lacks standing to pursue.

III

Synergy filed a Response to the Joint Motion on April 20, 2020, noting its position that the deadline for opposing the Joint Motion was April 22, 2020, but did not set forth any basis for opposing the Joint Motion, and indicated that it would file an opposition by April 22, 2020, and would want to put on evidence at any hearing on the Joint Motion.

On April 23, 2020, Synergy filed an untimely Supplemental Response to the Joint Motion. Synergy failed to seek leave to file the Supplemental Response out of time. Accordingly, Synergy's arguments must be rejected as untimely. In any event, if Synergy had been granted leave to file the Supplemental Response out of time, I would readily reject its arguments.

A.

The Supplemental Response argues that any injury to the rights under the car lease were not an injury to property of the estate based on the erroneous view that the result of rejection of a lease is that it never constituted property of the estate. Specifically, Synergy argues:

As a matter of law, the failure of the Trustee to assume the Lease means that the Lease never constituted property of the estate. As noted in In re Taylor, 198 B.R. 142, 159 (Bankr. D.S.C. 1996): "Leases do not vest in trusteeas of the date of the filing of the bankruptcy petition, but vest only upon the trustee's timely and affirmative act of assumption....", citing In re Tonry, 724 F.2d 467, 469 (5th Cir. 1984) ("Until the trustee assumes an executory contract, it does not become part of the bankruptcy estate...."); In re Cochise College Park, Inc., 703 F.2d 1339, 1352 (9th Cir. 1983); In re Northern Indiana Oil Co., Inc., 180 F.2d 669, 676 (7th Cir.), cert. den., 340 U.S. 824, 71 S.Ct. 58, 95 L.Ed. 605 (1950); In re Qintex Entertainment, Inc., 950 F.2d 1492 (9th Cir. 1991); Turner v. Avery, 947 F.2d 772 (5th Cir. 1991). Clearly, the Lease never became property of the bankruptcy estate.

Supplemental...