In re Thomas

• Decision Date: 25 March 2008
• Docket Number: Civil Action No. 07-cv-01079-WDM.
• Citation: 387 B.R. 808
• Parties: In re Trudy Ann THOMAS, Debtor. David J. Adams, Plaintiff/Appellant, v. Trudy Ann Thomas, Defendant/Appellee.
• Court: U.S. District Court — District of Colorado

Page 808

387 B.R. 808

In re Trudy Ann THOMAS, Debtor David J. Adams, Plaintiff/Appellant, v. Trudy Ann Thomas, Defendant/Appellee.

Civil Action No. 07-cv-01079-WDM.

United States District Court, D. Colorado.

March 25, 2008.

MEMORANDUM OPINION AND ORDER

WALKER D. MILLER, District Judge.

Plaintiff/appellant David J. Adams d/b/a Bulldog Construction Services (Assignee) appeals the April 23, 2007 order of United States Bankruptcy Judge A. Bruce Campbell holding that Assignee Is not a real party in interest and therefore does not have standing to maintain an adversary proceeding against Defendant/appellee Trudy Ann Thomas (Debtor). There are essentially two issues on appeal: (1) whether a valid assignment from Debtor's creditors, to Assignee occurred; (2) whether the assigned claims are those of the creditor corporations, rather than the Assignee as an individual, such that the corporations must be represented by counsel and not the pro se Assignee in the adversary proceeding.

I have considered the parties' written and oral arguments, as well as the evidence contained in the record on appeal from the Bankruptcy Court. For the reasons set forth below, I will affirm Judge Campbell's decision, but on alternative grounds.

Background

Debtor was an officer, director, and 20% shareholder of a construction company Home Improvement Plus, Inc. ("HIP"). HIP filed for bankruptcy on January 19, 2005. Debtor filed an individual Chapter 7 petition for bankruptcy on October 12, 2005, which sought to discharge HIP debts attributable to her personally. Another HIP officer and shareholder, John Lucio ("Lucio"), filed a personal bankruptcy petition on January 25, 2005, also seeking to discharge certain debts of HIP.

Assignee filed adversary proceedings in the bankruptcy cases of both Debtor (Adv. Pro. No. 06-1133 ABC, filed January 6, 2006) and Lucio (Adv. Proc. No. 05-1348 ABC, filed April 21, 2005). In both cases, he purported to be the assignee of claims held by various HIP subcontractors allegedly owed money from HIP, specifically: (1) Kycon, Inc., (2) New Frontier Concrete, Inc., (3) Rich Garcia Concrete, (4) Big Horn Roll-Off Services LLC, and (5) Hirschfield Home Improvement. In both adversary proceedings, Assignee contested the discharge of the subcontractor debts under 11 U.S.C. § 523(a)(4). Specifically, he claimed that Debtor had violated the provisions of C.R.S. § 38-22-127 (the "Trust Fund Statute"), which requires that all funds disbursed to any contractor in a construction project be held in trust for payment to "subcontractors, laborer or material suppliers, or laborers who have furnished laborers, materials, services, or labor, who have a lien, or may have a lien, against the property. ..." C.R.S. § 38-22-127(1). The Trust Fund statute also imposes record keeping obligations on contractors. C.R.S. § 38-22-127(4). Colorado courts have held that section 38-22-127 creates a fiduciary duty or trust relationship running to those identified in the statute. Alexander Co. v. Packard, 754 P.2d 780, 782 (Colo.App.1988). The Trust Fund Statute also provides that failure to keep disbursed funds in trust is theft, entitling injured parties to pursue remedies under the civil theft statute, including treble damages. C.R.S. § 18-4-405. The Tenth Circuit has established that a debt owed under the Trust Fund Statute is not dischargeable pursuant to the exception for fiduciary fraud or defalcation set forth in 11 U.S.C. § 523(a)(4). In re Regan, 477 F.3d 1209, 1211 n. 1 (10th Cir.2007).

Debtor filed a Motion to Dismiss the adversary proceeding on the theory that Assignee was not the real party in interest because the assignments were not valid. Judge Campbell denied the motion but bifurcated the trial so as to first address the issue of Assignee's status. At trial, the written assignments were entered into evidence and the principals of the subcontracting entities each gave testimony. The written assignments are simple one-page documents which provide that the subcontractor assigns the rights and claims to Assignee and will receive 50% of whatever Assignee recovers as a result of his collection efforts. Four of the assignments are identical and provide as follows:

I, [subcontractor], do hereby fully and completely assign to David J. Adams, all rights to any and all claims [subcontractor] has or may have against Home Improvement Plus, Inc., John Lucio, Trudy Thomas, Wesley Thomas, or any other individual or entity, arising from any transaction or agreement with Home Improvement Plus, Inc., John Lucio, Trudy Thomas, Wesley Thomas, or any of their authorized agents. Consideration for this assignment shall be 50% of any amounts collected by David J. Adams on this claim. It is understood that this Assignment shall make David J. Adams the sole party in interest to any action regarding these claims, and that [subcontractor] shall have no right to any action relating to these claims until such time that Adams assigns those rights to [subcontractor]. This "Assignment of Rights to Claim" represents the full and complete agreement between [subcontractor] and David J. Adams.

The fifth assignment, from New Frontier Concrete, Inc., simply assigns the rights, with no provisions regarding sharing of recovery or any other kind of consideration.

Each subcontractor gave essentially the same testimony at trial: (1) the subcontractor intended to give Assignee all rights to the claim; (2) the subcontractor does not believe he/it owns a claim or has any rights against Debtor unless the claim is reassigned; (3) the subcontractor has taken no action to collect on the debt; (4) the subcontractor has no control over Assignee or the litigation. Only one assignment is dated (that of New Frontier Concrete, dated April 4, 2005) and there was no testimony as to when the other assignments occurred. It is undisputed that Assignee is not an attorney and that he solicited the assignments from these subcontractors.

Assignee has appeared in several prior bankruptcy cases asserting the same types of claims as a purported assignee of the debtor's creditors. See In re Tamminga, Bankr.Case No. 04-21621 MER, Adv. Proc. Case No. 04-1797 MER; In re Pederson, Bankr.Case No. 04-23668 HRT, Adv. Proc. Case No. 04-1858 HRT.¹ In both Tamminga and Pederson, Assignee's claims were dismissed on the grounds that he was not the real party in interest because the assignments did not completely and irrevocably vest title to the claims in Assignee. Those decisions in large part rested on an ancillary agreement for collection signed by the subcontractors, which gave the subcontractors the right to unilaterally cancel the collection agreement, and presumably revoke the assignments. At oral argument in this case, the parties explained that the subcontractors here signed identical collection agreements. After the decisions in Tamminga and Pederson, however, Assignee replaced the agreements with the current assignment forms, apparently with the intent to supersede the collection agreements.

Bankruptcy Court Order

Judge Campbell dismissed the adversary proceeding in an oral ruling on April 23, 2007 based on his conclusion that Assignee was not the real party in interest. Trial Transcript at 78. Judge Campbell found the witnesses to be credible and sincere. Id. He noted that the assignments "purport on their face to be absolute" but determined that the assignments in fact were not indefeasible. Id. Specifically, he concluded that the subcontractors still had a stake in the action and that Assignee could not simply walk away from the claims without leaving the subcontractors redress. Id. at 78-79. He contrasted this assignment to one where a collection agency pays up front for the claim and can then decide to abandon the claim. Id. at 79. In this situation, however, Judge Campbell concluded that Assignee could not simply abandon the claims. Since the subcontractors still had a stake, the assignments were not indefeasible and Assignee was not the real party in interest. Id. at 80. Accordingly, Assignee was acting in a representative capacity and could not prosecute the claims pro se. Id. Judge Campbell characterized the relationship as a kind of partnership whereby Assignee took on the burden of litigation and the subcontractors took a passive role or participated as much as necessary for the claims to succeed. Id. at 81. However, Judge Campbell noted, partnerships are also precluded from appearing in court except through counsel. Id.²

Standard of Review

The district court functions as an appellate court and is authorized to affirm, reverse, modify or remand the Bankruptcy Court's ruling. Bankr.R. 8013. I may set aside that court's findings of fact only if they are clearly erroneous. In re Blehm Land & Cattle Co., 859 F.2d 137, 138 (10th Cir.1988). Conclusions of law are subject to de novo review. Id. Mixed questions of fact and law are-reviewed de novo if they involve primarily legal issues and for clear error if they involve primarily factual considerations. In re Wes Dor Inc., 996 F.2d 237, 241 (10th Cir.1993). Legal conclusions drawn from facts are reviewed de novo. In re Golf Course Builders Leasing, Inc., 768 F.2d 1167, 1169 (10th Cir. 1985).

Discussion

The Bankruptcy Rules incorporate Fed.R.Civ.P. 17 regarding real parties in interest. Fed. R. Bankr .P. 7017. In making the determination of whether an assignee is a real party in interest here, I refer to the substantive law of Colorado. Hoeppner Constr. Co. v. United States, 287 F.2d 108, 111 (10th Cir.1960).

There is no real dispute that an assignee for collection may bring suit in his own name as the real party in interest to recover on the claim. See, e.g., Platte Valley Mortgage Corp. v. Bickett, 916 P.2d 631, 633 (Colo.App.1996) ("An assignee of a debt for collection is also a real party in interest."); see also Thibodeaux v. Creditors Serv., Inc., 191 Colo. 215, 551 P.2d 714, 715-16 (1976) (licensed collection agency...