Kartchner v. Harper (In re Harper)

• Citation: 557 B.R. 171
• Decision Date: 07 September 2016
• Docket Number: Case No. 4:12-bk-25915-SHG
• Parties: In re: Nina M. Harper, Debtor. Stanley J. Kartchner, Movant, v. Nina M. Harper, Debtor; Carl C. Harper, Jr., as both individual and as a Trust ee of the Nina M. Harper Trust; Earl E. Harper, as both individual and as a Trustee of the Nina M. Harper, Respondents.
• Court: United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — District of Arizona

557 B.R. 171

In re: Nina M. Harper, Debtor.

Stanley J. Kartchner, Movant,

v.Nina M. Harper, Debtor; Carl C. Harper, Jr., as both individual and as a Trust ee of the Nina M. Harper Trust; Earl E. Harper, as both individual and as a Trustee of the Nina M. Harper, Respondents.

Case No. 4:12-bk-25915-SHG

United States Bankruptcy Court, D. Arizona.

Signed September 7, 2016

Nina M. Harper, 9690 E. Stone Circle Lane, Gold Canyon, AZ 85118, Debtor

Christopher J. Dutkiewicz, Law Office of Christopher Dutkiewicz, PC, 3317 S. Highley Rd Suite 114-602, Gilbert AZ 85296, Attorneys for Debtor

Stanley J. Kartchner, 7090 N. Oracle Rd #178-204, Tucson, AZ 85704, Chapter 7 Trustee

Adam Nach, Joel F. Newell, Lane & Nach, PC, 2001 E. Campbell, Suite 103, Phoenix, AZ 85016, Attorneys for Chapter 7 Trustee

Russell Garrett, Douglas P. Cushing, Jodan Ramis PC, PO Box 230669, Portland, OR 97281, Jeff Hollen, Ouderkirk & Hollen, PO Box 1167, Newport OR 97365, Greg Hendrix, Hendrix Brinich & Bertalan LLP, 716 NW Harriman Street, Bend, OR

99703, Office of the U.S. Trustee, 230 North First Avenue, Phoenix, AZ 85003

RULING ON TRUSTEE'S MOTION FOR ORDER MODIFYING THE AUTOMATIC STAY

Scott H. Gan

, Bankruptcy Judge

FACTS AND PROCEDURAL HISTORY¹

Nina M. Harper (“Debtor”) filed for chapter 7 bankruptcy protection on December 4, 2014. Approximately nine months earlier, on February 24, 2014, Debtor's mother, also known and Nina M. Harper, died with a valid will (the “Will”) allegedly assigning to the Debtor an interest in the Nina M. Harper Trust (the “Trust”). The Debtor did not disclose her Trust interest on the initial bankruptcy petition or in any subsequent amendments. The Debtor received a discharge on March 26, 2013.

After entry of her discharge, the Debtor filed a lawsuit (the “Oregon Case”) in Deschutes County, Oregon, asserting claims against her brothers, Carl C. Harper Jr. and Earl E. Harper (the “Defendants”), individually and as trustees of the Trust, for: (1) Breach of Fiduciary Duty; (2) Unjust Enrichment; and (3) Conversion (collectively the “Claims”).

Stanley J. Kartchner, the presiding chapter 7 trustee in Debtor's bankruptcy (“Trustee”), learned of the Debtor's prosecution of the Claims in Oregon and secured an order from this Court to employ counsel to litigate the Claims for the benefit of the bankruptcy estate on May 17, 2015. The Trustee secured his second order to employ counsel, for the same purpose, on November 23, 2015. The probate court in the Deschutes County, Oregon (the “Oregon Court”) is currently presiding over the Oregon Case. The Oregon Court stayed its proceeding, on its own motion, pending an order from this Court.

The Trustee has filed a motion in this Court for a determination that: (1) the Claims are property of the Debtor's bankruptcy estate; (2) the Trustee, as administrator of the estate, has sole right to pursue the Claims subject to this Court's approval of any settlement; (3) the Trustee has the right to continue to litigate the Oregon Case as the Claims and is not judicially estopped by the Debtor's failure to list the Claims in her schedules or resulting from the entry of her discharge; and (4) the automatic stay of 11 U.S.C. § 362(a)(3)

(the “Stay”) should be terminated and aned to permit resolution of the Oregon Case.

Defendants filed a limited objection to the Trustee's motion. Defendants do not object to termination of the Stay so that the merits of Oregon Case may be decided by the Oregon Court (DE 46). Defendants claim, however, that this Court does not have jurisdiction and constitutional authority to opine and enter a final judgment concerning the chapter 7 estate's interest in the decedent Nina M. Harper's estate; whether the chapter 7 trustee is the real party in interest; or the applicability of the doctrine of judicial estoppel (Id.) After a preliminary hearing on May 26, 2016, this Court entered an order staying further proceedings in the Oregon Case on May 27, 2016 (DE 52). The Court asked the parties to file further briefs regarding the Court's jurisdiction and constitutional authority (DE 57). On July 7, 2016, the parties filed simultaneous briefs as requested by the Court (DE 61-62). Having reviewed the briefing and considered the arguments of counsel, the Court grants the Trustee's Motion for Relief from the Automatic Stay and overrules the Defendants' objections.

DISCUSSION

It is undisputed that Debtor had a duty to disclose her interest in the Trust upon filing of her bankruptcy case. 11 U.S.C. § 521(a)(1)(B)(i)

requires the debtor to file a schedule of assets. “Debtors must provide extensive information when they file bankruptcy cases, including data required by an official form ... [which] ... require debtors to list all claims that they may have against other entities.” In re Miller , 347 B.R. 48, 50 (Bankr.S.D.Tex.2006). The Debtor did not schedule any interest in the Will or the Trust. [DE 1]. Under § 541(a) both Debtor's rights in the Trust and her causes of action are property of the estate. 11 U.S.C. § 541 ; See

In re Goldstein , 526 B.R. 13, 21 (9th Cir. BAP.2015) (citing Sierra Switchboard Co. v. Westinghouse Elec. Corp. , 789 F.2d 705, 707 (9th Cir.1986) ) (“Legal causes of action are included within the broad scope of § 541.”).

On November 19, 2013, when Defendants allegedly conveyed property from the Trust to themselves as individuals, giving rise to the Claims, the Debtor's rights to seek relief arising from her interest in the Trust had already vested in the Trustee (DE 43, at 12). The Trustee, and not Debtor, represents the bankruptcy estate. 11 U.S.C. § 323(a)

. In this capacity he may sue and be sued. 11 U.S.C. § 323(b). As a result, the Trustee “[a]s prescribed in 11 U.S.C. § 323... is the ... only person authorized to make any decision about” litigating the Claims against the Defendants. In re DeGroot , 460 B.R. 159, 166 (Bankr.W.D.Mich.2011), aff'd, 484 B.R. 311 (6th Cir. BAP 2012).

Under 11 U.S.C. § 554(c)

any property scheduled under § 521(a)(1) not otherwise administered at the time of the closing of the case is abandoned to the debtor. Here, the Claims and the Debtor's interest in the Trust were never scheduled under § 521(a)(1) and the estate was never closed. As a result, the Claims remain property of the estate. 11 U.S.C. § 554(d). Further, where the events giving rise to a claim occur before the debtor files for bankruptcy, the claim is part of the bankruptcy estate, whether or not the claim is properly disclosed to the Bankruptcy Court. Wieburg v. GTE Sw. Inc. , 272 F.3d 302, 306 (5th Cir.2001) (citations omitted) (“Wieburg filed for bankruptcy after the events giving rise to her discrimination claims had occurred. Therefore, ... those claims are property of the bankruptcy estate and should have been disclosed in Wieburg's bankruptcy schedules.”). Croomes v. Stream Glob. Services—AZ, Inc., 2012 WL 1067915, at *2 (D.Ariz. Mar. 29, 2012).

Because the Debtor's interest in the Trust was never abandoned—its fruit—the Claims were likewise never abandoned. Upon the Trustee's discovery of estate assets, which were never administered, the Trustee is empowered to administer the assets which in this case are comprised of the undisclosed Claims. 11 U.S.C. § 350(b)

; In re Lopez , 283 B.R. 22, 28 (9th Cir. BAP 2002) (Even though the property was not listed in the schedules, it was neither abandoned nor administered and remained property of the estate even after the case was closed. See 11 U.S.C. § 541 (property of estate) and § 554(d) (property not abandoned or administered remains property of estate)); Pace v. Battley (In re Pace) , 146 B.R. 562, 564–66 (9th Cir. BAP 1992), aff'd, 17 F.3d 395, 1994 WL 55523 (9th Cir.1994) (table) (unscheduled property remains in estate after case is closed). Thus, the Claims and the Debtor's interest in the Trust remain assets of her bankruptcy estate and only the Trustee has the right to liquidate them.

Nevertheless, the Defendants contend this Court is without jurisdiction and constitutional authority: (1) to determine that the Trustee is legally empowered by the Bankruptcy Code to pursue Debtor's claims against them; and (2) must abstain so that only the Oregon Court can determine whether the doctrine of judicial estoppel precludes the estate from pursuing the Claims. The Court disagrees.

Several district courts as well as circuits courts have held that “[j]udicial estoppel does not apply to a bankruptcy trustee when the debtor's conduct occurred after the bankruptcy petition was filed.” Coble v. DeRosia, 823 F.Supp.2d 1048, 1052 (E.D.Cal.2011)

; see also

Lupian v. Cent. Valley Residential Builders, L.P. , No. 10cv2270, 2014 WL 465445, at *5–8 (S.D.Cal. Feb. 5, 2014) ; The district courts in Coble and Lupian rely on several circuit court decisions including Parker v. Wendy's Int'l Inc. , 365 F.3d 1268 (11th Cir.2004) and Biesek v. Soo Line R.R. Co., 440 F.3d 410, 413 (7th Cir.2006) (stating that “the threshold issue is not whether to apply [judicial] estoppel but whether [the plaintiff] is the real party in interest.”). See also

In re Riazuddin, 363 B.R. 177, 187–88 (10th Cir. BAP 2007) (“Even if the bankruptcy court had been correct in finding that the elements of judicial estoppel were met with respect to the Debtors, there was no basis to apply the doctrine to the Trustee.”); Reed v. City of Arlington, 650 F.3d 571, 579 (5th Cir.2011) ; Copelan v. Techtronics Indus. Co., Ltd. , 95 F.Supp.3d 1230, 1238 (S.D.Cal.2015)

In Reed,

The Fifth Circuit held that, as a general rule, “an innocent bankruptcy trustee may pursue for the benefit of creditors a judgment or cause of action that the debtor—having concealed that asset during bankruptcy—is himself estopped from pursuing,” and refused to apply judicial estoppel against the substituted trustee. Id. at 579. The court relied on the general principles that “[t]he Trustee became the real party in interest upon filing [of the petition], vested with the authority and duty to pursue the...