In re Woodmoor Corp., Bankruptcy No. 74 B 282.

• Decision Date: 05 May 1980
• Docket Number: Bankruptcy No. 74 B 282.
• Citation: 4 BR 186
• Parties: In re The WOODMOOR CORPORATION, Bankrupt.
• Court: U.S. Bankruptcy Court — District of Colorado

4 B.R. 186 (1980)

In re The WOODMOOR CORPORATION, Bankrupt.

Bankruptcy No. 74 B 282.

United States Bankruptcy Court, D. Colorado.

May 5, 1980.

Arthur L. Fine, Denver, Colo., for the Millers and Bronners.

Alan R. Marsh, Denver, Colo., for trustee.

FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDERS ON MOTION FOR DETERMINATION THAT THE PURCHASERS OF PROPERTY IN STAGECOACH, COLORADO, MAY PROCEED AS A CLASS

PATRICIA ANN CLARK, Bankruptcy Judge.

The matter before the Court is the Motion of Robert and Carol Miller and James and Barbara Bronner for Determination that the Purchasers of Property in Stagecoach, Colorado, from Woodmoor May Proceed as a Class. The Millers and Bronners who have filed claims against the bankrupt, The Woodmoor Corporation (Woodmoor), contend that questions of law or fact common to the members of the putative class predominate over questions affecting only individual members and that a class should be certified pursuant to Rule 723 of the Rules of Bankruptcy Procedure. The trustee of the bankrupt, William C. Lam, opposes a class action claiming that it is unnecessary and unjustified. A hearing on the motion was held on February 19, 1980, at which Arthur L. Fine represented the Millers and Bronners and Alan R. Marsh represented the trustee.

The facts are as follows. Woodmoor was engaged in the real estate development business. Its method of operation was to acquire a large tract of unimproved land and subdivide it into residential, commercial and recreational areas. One of its projects was at Stagecoach, Colorado. On January 31, 1974, the company filed a petition under Chapter XI of the Bankruptcy Act and was subsequently adjudicated a bankrupt on July 18, 1975. Approximately 900 persons who purchased lots at Stagecoach from the bankrupt filed claims against the estate. The claims vary in amount. Some are for as little as $681.60, some are in excess of $10,000.00 and some are in unspecified amounts. The claims are based upon the failure of the bankrupt to provide allegedly promised amenities, including roads, water and sewer facilities, and electric, telephone and gas service. Other amenities supposedly promised to the lot purchasers include ski facilities, a country club, golf courses, tennis courts, a swimming pool, a recreational lake, and hiking and equestrian trails and facilities. In addition, claims against the estate are founded upon alleged misrepresentation concerning investment potential of lots, availability of a Woodmoor sales force to aid in the re-sale of lots, and the publishing of a newspaper. Claimants variously contend that the alleged promises and representations were made by means of sales brochures, verbal statements, property reports and a prospectus.

The Motion for Class Certification was filed on October 28, 1975. A hearing was requested on December 14, 1979 to determine whether a class should be certified. The Millers and Bronners seek to proceed as representatives of a class for the purpose of determining the allowability of the claims of Stagecoach, Colorado, lot purchasers against the bankrupt. The question before the Court is whether a class of those lot purchaser claimants against Woodmoor should be certified.

The trustee has objected to all of the Stagecoach landowner claims which are based upon the failure of the bankrupt to provide amenities. If claims are objected to, Rule 306(c) of the Rules of Bankruptcy Procedure is applicable. It provides in pertinent part:

If an objection to a claim is joined with a demand for relief of the kind specified in Rule 701, the proceeding thereby becomes an adversary proceeding.

Rule 723 of the Rules of Bankruptcy Procedure provides that Rule 23 of the Federal Rules of Civil Procedure relating to class action applies in adversary proceedings. However, since no demands for relief specified in Rule 701 were joined with the trustee's objections to Stagecoach landowners' claims, his objections to those claims are contested matters and not adversary proceedings. Rule 914 governs contested matters which are not otherwise governed by the Bankruptcy Rules. 3 Collier on Bankruptcy, 14th ed., ¶ 57.181, p. 290. Rule 914 does not automatically make Rule 723 applicable to these contested matters. However, if complexity and due process require the application of Rule 723 to contested matters, Rule 914 leaves discretion in the court to apply it. 13 Collier on Bankruptcy, ¶¶ 914.02 and 914.03, pp. 9-60 and 61. The question is, then: should Rule 723 be applied to these contested matters? Before deciding that question, the threshold issue of whether the Stagecoach claimants can satisfy the requirements of Federal Rule of Civil Procedure 23 must be decided.

The burden is upon the party requesting a class action to show that the four requirements of Rule 23(a) and any one of the three subdivisions of Rule 23(b) are satisfied. Albertson's, Inc. v. Amalgamated Sugar Company, 503 F.2d 459, (10th Cir., 1974). Consequently, that burden falls on the Millers and the Bronners. They contend that the requirements of Rule 23(a) and of Rule 23(b)(3) are met. The trustee argues that neither the "numerosity" prerequisite of Rule 23(a)(1), the common-issue requirement of 23(a)(2), nor any of the subdivisions of Rule 23(b) has been satisfied.

I. RULE 23(a)

Rule 23(a) provides:

(a) Prerequisites to a Class Action. One or more members of a class may sue or be sued as representative parties on behalf of all only if (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.

"The raison d'etre of the class suit doctrine is necessity, which in turn depends upon the question of number." 3B Moore's Federal Practice, ¶ 23.051, p. 23-149. Subdivision (a)(1) of the Rule presents a question of what constitutes impracticability. That is, "when is a class so numerous as to make it impracticable to bring them all before the court?" Id. The Stagecoach landowner claimants are already parties to this bankruptcy proceeding by virtue of their filing proofs of claim against the bankrupt. Their approximately 900 claims are presently pending before the Court demonstrating that the claims are not so numerous that the individual joinder of each to the bankruptcy proceeding is impracticable. Their claims can be conveniently and expeditiously managed by following normal bankruptcy procedures. It is not unusual for large numbers of claims to be filed, objected to and allowed or disallowed in bankruptcy cases. The Bankruptcy Act and Rules are perfectly suited to effect the efficient handling of these landowner claims. Thus, the numerosity requirement of Rule 23(a)(1) has not been met.

Subdivision (a)(2) requires that "there are questions of law or fact common to the class Rule 23(a)(2)." As stated in Wright & Miller, Federal Practice and Procedure: Civil § 1763, at page 609:

It should be noted that Rule 23(a)(2) actually may be a superfluous provision, or at least partially redundant, since the existence of common questions can be viewed as an essential ingredient of a finding that the case falls within one of the three categories of class actions described in subdivision (b). (footnote omitted)

As will be explained below, the requirements of none of the three types of class actions of subdivision (b) are met. Hence, the common-issue requirement of subdivision (a)(2) has not been satisfied.

The trustee concedes that the typicality standard of subdivision (a)(3) is met. The Tenth Circuit stated in Taylor v. Safeway Stores, Incorporated, 524 F.2d 263 (10th Cir., 1975) at page 270 that "Rule 23(a)(3) requires a comparison of the claims or defenses of the representative with the claims or defenses of the class." The Millers' and Bronners' claims are based on the failure of Woodmoor to provide supposedly promised amenities as are the claims of other members of the putative class. However, it is not clear that the substance of those alleged promises or the manner in which they were made to the representatives are typical of the class. Nevertheless, in White v. Gates Rubber Company, 53 F.R.D. 412 (D.Colo., 1971) the Court stated at page 415:

A more reasonable reading of the requirement of subdivision (a)(3) would seem to entail the necessity of demonstrating that there are other members of the class who have the same or similar grievances as the plaintiff. (insert added)

Simply, subdivision (a)(3):

Is an attempt to assure that there is in fact a class needing representation. Id. at p. 415.

Claims of members of the putative class that the Millers and Bronners wish to represent are based upon the same grievances of which the representatives complain. Consequently, claims of the Millers and Bronners are typical of the class as required by subdivision (a)(3).

Turning to subdivision (a)(4), adequacy of representation is "Of critical importance in all class actions. . . ." Wright & Miller, Federal Practice and Procedure: Civil § 1765, p. 617. It is an essential element in due process considerations of class actions. The Millers and Bronners filed their Motion for Determination of a Class on October 28, 1975, but did not request a hearing on it until December 14, 1979 — more than four years later. In East Texas Motor Freight System Inc. v. Rodriguez, 431 U.S. 395, 97 S.Ct. 1891, 52 L.Ed.2d 453 (1977), despite class allegations in their complaint, the plaintiffs did not move to have that action certified as a class action prior to trial. The Court held at pages 404 and 405, 97 S.Ct. at page 1897 that a strong indication that the plaintiffs "would not `fairly and adequately protect the interests of the class' (footnote omitted)":

Was their failure to move for class certification prior to trial. Even

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