In re Washington Trust Deed Service Corp.
| Decision Date | 30 June 1998 |
| Docket Number | BAP No. CC-97-1873-BCH,Bankruptcy No. SA-93-23770-JW,Adversary No. SA-97-01981-JW. |
| Citation | 224 BR 109 |
| Parties | In re WASHINGTON TRUST DEED SERVICE CORPORATION, dba Lincoln Mortgage & Loan, Debtor. David NAERT, Appellant, v. Charles W. DAFF, Chapter 7 Trustee, Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
Kurt A. Ressler, Grant & Laubscher, L.L.P., Irvine, CA, for David Naert.
Michael K. Maher, Maher, Lee & Goddard, Irvine, CA, for Charles W. Daff, Trustee.
Before: BRANDT, HAGAN, and CARLSON1, Bankruptcy Judges.
The defendant in a fraudulent conveyance action entered into a settlement with the trustee. Before court approval of the settlement, the trustee determined that the settlement was not in the best interests of the estate and withdrew his support. The bankruptcy court granted the trustee's motion to dismiss the removed state court fraud action for failure to state a claim. The defendant appeals; we AFFIRM.
In November of 1993, David Naert, a Missouri investor experienced in speculative investments, paid Washington Trust Deed Service Corporation ("Washington Trust") $15,000 for its interest in three partnerships having a total face value of $220,000.
One month later, Washington Trust filed for relief under Chapter 7 of the Bankruptcy Code2. Charles Daff was appointed trustee. Washington Trust's president, Kenneth Sarvak, also filed a petition for relief under Chapter 7, and Wenata Kosmala was appointed trustee in his case.
Although Washington Trust did not schedule the transfers to Naert, Daff learned of the transfers from T. Edward Malpass, the lawyer for the Sarvak bankruptcy creditors' committee, and filed an adversary proceeding to avoid them.
In February 1996, Daff sought court approval for a sale of the adversary proceeding to Kosmala for $15,000. At the hearing to approve the sale, Naert offered $20,000 to purchase and settle the lawsuit. The bankruptcy court entered an order authorizing Daff to sell the estate's interest in "all present, future, and potential claims that the Estate may have against Mr. Naert" to Naert for $20,000. The order also provided that Naert pay Daff "within ten (10) days after the entry of an order approving a separate Compromise of Controversy."
In July 1996, Naert and Daff entered into a settlement agreement in which Naert agreed to pay Daff $20,000 to settle the estate's claims against Naert; in addition, Naert would hold Daff and Kosmala harmless. The agreement further provided that "this Settlement is made expressly contingent upon approval of the settlement by the Bankruptcy Court." In March 1997, Daff filed a motion to approve the compromise in which he argued that the compromise was reasonable.
After the parties signed the settlement agreement, but prior to court approval, Naert allegedly released claims against Kosmala and her attorney, and decided not to pursue claims against Malpass and the Sarvak creditors' committee. Shortly thereafter, Daff concluded that the settlement would not be in the best interests of the estate and, consequently, had the compromise motion taken off calendar.
In July 1997, Naert, represented by new counsel, filed a motion to compel the trustee to calendar the compromise motion, which Daff opposed. The court denied the motion, stating that "it was a foregone conclusion" that it would not have approved the sale. Therefore, the court declined to order "the trustee to file a motion to approve a compromise which the trustee now will not recommend and which, in the face of that, I will not approve." Naert did not appeal the denial of the motion to compel.
Naert then filed a suit in state court alleging that Daff had fraudulently misrepresented his intention to support the settlement agreement. According to the complaint, Daff intended to deceive and defraud Naert, and to induce him to act in reliance on the misrepresentations. Further, Naert averred he had relied on the misrepresentations by releasing the third-party claims and by failing to pursue other claims. Thus, Naert asserted, Daff's failure to support the settlement injured Naert. Daff had the state court suit removed to bankruptcy court.
Rather than answer, Daff filed a motion to dismiss for failure to state a claim under Rule 7012(b)(6), asserting quasi-judicial immunity. In the alternative, he argued that the court's denial of the motion to compel conclusively determined that the settlement agreement should not have been approved, and that Naert was barred from relitigating that issue. Naert responded that quasi-judicial immunity did not extend to fraudulent acts, and filed a motion to remand to state court. Daff opposed, claiming that actions against a trustee were within the bankruptcy court's core jurisdiction.
Following a hearing on both motions, the court granted Daff's motion to dismiss the fraud complaint for two reasons. First, the court held that Daff had quasi-judicial immunity, citing Moore v. Brewster, 96 F.3d 1240, 1243 (9th Cir.1996), cert. denied, ___ U.S. ___, 117 S.Ct. 963, 136 L.Ed.2d 848 (1997), and Mullis v. United States Bankr. Ct., 828 F.2d 1385 (9th Cir.1987). Second, the court found Naert could not have "reasonably relied on Daff's promise to present and recommend a certain settlement to the court because the court would have rejected the settlement had it been so presented and recommended." The court also dismissed Naert's motion to remand as moot.
Naert filed this timely appeal of the dismissal.
Whether the trial court erred when it ruled that Daff had quasi-judicial immunity from suit.
Whether the trial court erred when it dismissed Naert's complaint.3
Dismissal based on judicial immunity is reviewed de novo. Moore v. Brewster, 96 F.3d 1240, 1243 (9th Cir.1996), cert. denied, ___ U.S. ___, 117 S.Ct. 963, 136 L.Ed.2d 848 (1997).
The panel "reviews a bankruptcy court's dismissal for failure to state a claim under Fed.R.Civ.P. 12(b)(6) de novo." In re Rogstad, 126 F.3d 1224, 1228 (9th Cir.1997). Dismissal under FRCP 12(b)(6) is proper only under extraordinary circumstances. United States v. City of Redwood City, 640 F.2d 963, 966 (9th Cir.1981).
"Our review is based on the contents of the complaint, the allegations of which we accept as true and construe in the light most favorable to the plaintiff." Rogstad, 126 F.3d at 1228 (citations omitted). "Dismissal is improper unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Id. (citations and internal quotation omitted). However, a court need not accept as true unreasonable inferences or conclusory legal allegations cast in the form of factual allegations. Western Min. Council v. Watt, 643 F.2d 618, 624 (9th Cir.1981).
The panel can affirm on any basis supported by the record. In re Prize Frize, Inc., 150 B.R. 456, 461 n. 11 (9th Cir. BAP 1993), aff'd, 32 F.3d 426 (9th Cir.1994); Kimes v. Stone, 84 F.3d 1121, 1126 (9th Cir.1996).
Although Naert questioned the bankruptcy court's jurisdiction in his initial motion to remand, on appeal he does not question subject matter jurisdiction. In any event, the court below had jurisdiction via 28 U.S.C. § 157(b)(2)(A).
On appeal, Naert argues that the trial court incorrectly determined that Daff was, as Chapter 7 trustee, protected by quasi-judicial immunity. In Moore, cited by the trial court, the Ninth Circuit held that the bankruptcy judge "enjoyed absolute judicial immunity from the plaintiff's action." Moore, 96 F.3d at 1243. This immunity is broad: it applies "however erroneous the act may have been, and however injurious in its consequences it may have proved to the plaintiff." Id. at 1244 (internal quotations omitted). In fact, "grave procedural errors or acts in excess of judicial authority do not deprive a judge of this immunity." Id. (internal quotations omitted).
Although Moore did not discuss the liability of bankruptcy trustees, in Mullis, also cited by the trial court, the Ninth Circuit stated that the trustee "has absolute quasi-judicial immunity from damages." Mullis v. United States Bankr. Ct., 828 F.2d 1385, 1390 (9th Cir.1987). According to the Mullis court, the "trustee or receiver derives his immunity from the judge who appointed him" and therefore "loses his immunity if he acts in the clear absence of all jurisdiction." Id. The Ninth Circuit Court of Appeals has "consistently held that liability will not be imposed on trustees for mistakes in business judgment" and has therefore "held trustees immune from collateral attack for acts of mismanagement when the trustee was acting within his court authorization." Bennett v. Williams, 892 F.2d 822, 824 (9th Cir.1989).
Although the Mullis court discussed the trustee's immunity in terms of "absolute quasi-judicial immunity," other cases have limited that immunity. For instance, in In re Cochise College Park, Inc., 703 F.2d 1339 (9th Cir.1983), which Naert cited to the trial court, the Ninth Circuit found that the trustee may be personally liable for misrepresentations. In Cochise, the Ninth Circuit stated that the trustee's immunity only extends to "a communication ... uttered `in good faith and with reasonable grounds for belief in its truth.'" Id. at 1359 (quoting Bankruptcy Act § 21i, former 11 U.S.C. § 44(i) (1976)). The court concluded that "where these conditions do not obtain ... the trustee is liable to the same extent as any other person for damages arising from misrepresentations actionable under the law of the state in which he acts." The Ninth Circuit did not overrule these qualifications with the use of "absolute quasi-judicial immunity" language in Moore: see Bennett, 892 F.2d at 824, citing Cochise with...
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