Steyr-Daimler-Puch of America Corp. v. Pappas
| Decision Date | 25 July 1988 |
| Docket Number | Nos. 85-2046,85-2072 and 86-3566,STEYR-DAIMLER-PUCH,s. 85-2046 |
| Citation | 852 F.2d 132 |
| Parties | 20 Collier Bankr.Cas.2d 13, Bankr. L. Rep. P 72,419 OF AMERICA CORPORATION, a Delaware Corporation, Plaintiff- Appellee, and Charles L. Marcus, Trustee in Bankruptcy, for American Hawk Enterprises, Ltd., Plaintiff, v. James J. PAPPAS; American Hawk, U.S.A., Inc., a purported Virginia Corporation, Defendant-Appellant, v. Tavia GORDON; Daniel Gordon; Allen J. Gordon, Third Party Defendants- Appellees.OF AMERICA CORPORATION, a Delaware Corporation, Plaintiff- Appellant, and Charles L. Marcus, Trustee in Bankruptcy for American Hawk Enterprises, Ltd., Plaintiff, v. James J. PAPPAS; American Hawk, U.S.A., Inc., a purported Virginia Corporation, Defendants-Appellees, v. Tavia GORDON; Daniel Gordon; Allen J. Gordon, Third Party Defendants. James J. PAPPAS; Plaintiff-Appellant, American Hawk Enterprises, Ltd., Debtor-Appellant, v.OF AMERICA CORPORATION; Charles L. Marcus, Trustee for American Hawk Enterprises, Ltd., Defendants-Appellees, and Allen Tavia; Daniel Gordon, Defendants. |
| Court | U.S. Court of Appeals — Fourth Circuit |
Randal M. Reaves, Lawrence Glanzer, Norfolk, Va., for appellees.
No one argued for appellant.
Before WIDENER and MURNAGHAN, Circuit Judges, and McMILLAN, United States District Judge for the Western District of North Carolina, sitting by designation.
Three consolidated appeals are before the court. All concern a voluntary bankruptcy proceeding of American Hawk Enterprises, Ltd. We dismiss two of the appeals, Nos. 85-2046 and 86-3566, for failure to prosecute, and affirm the district court in the other, No. 85-2072.
A partial history of the matter is found in Steyhr [sic] Daimler Puch of America Corp. v. Pappas, 35 B.R. 1001 (E.D.Va.1983) [hereinafter Enterprises I ] and Steyr Daimler Puch of America Corp. v. Pappas (In re American Hawk Enterprises ), 52 B.R. 395 (E.D.Va.1985) [hereinafter Enterprises II ]. Five parties or groups of parties are relevant in the proceedings: American Hawk Enterprises, Ltd. (Enterprises), Tavia, Allen and Daniel Gordon (the Gordons), James J. Pappas (Pappas), American Hawk U.S.A., Inc. (Hawk U.S.A.), and Steyr-Daimler Puch of America Corp. (SDPA). Enterprises was owned by the Gordons and Pappas. Pappas was the principal officer and ran the day to day operations of Enterprises. Enterprises was in the business of retailing goods primarily, if not exclusively, to the United States Navy. Hawk U.S.A. was created approximately fourteen months after Enterprises and engaged in the same type of business. SDPA sold goods to Enterprises.
On July 17, 1981, SDPA obtained a default judgment against Enterprises for $258,686.22 in the City of Virginia Beach Circuit Court arising out of the delivery of goods for which Enterprises did not pay. Enterprises moved the state court to set aside the default judgment. The court denied the motion on October 23, 1981. No appeal was taken; rather, Enterprises filed a voluntary petition under Chapter 7 of the Bankruptcy Code on October 28, 1981, with the United States District Court for the Eastern District of Virginia at Norfolk. On February 3, 1982 SDPA filed a proof of claim against the bankrupt estate for $258,686.82 based upon the default judgment.
The trustee on March 30, 1984 objected to SDPA's proof of claim, but the objection was denied by the bankruptcy court and the denial was affirmed by the district court. The trustee subsequently filed two suits against SDPA: a state court action to set aside the default judgment, and a federal suit to assert an offsetting claim against SDPA. The trustee determined that he could not prevail in the two suits and decided to enter into a compromise with SDPA in which the trustee agreed to dismiss the two suits and SDPA agreed to put a ceiling of $1076 on its recovery from the estate. The bankruptcy court on October 31, 1985, over Pappas' objection, approved the compromise. Pappas challenged the compromise in the district court. The district court affirmed the bankruptcy court's approval of the compromise. Pappas filed a notice of appeal. The appeal was docketed as No. 86-3566 in this Court.
Earlier the trustee had filed on November 24, 1986 suits against Pappas and Hawk U.S.A. for breach of duty and corporate mismanagement claims. The trustee proposed to compromise and settle the actions against Pappas and Hawk U.S.A. for $20,000. On August 12, 1983 the bankruptcy court approved the settlement of the claims. On October 4, 1983 the district court affirmed and dismissed the suits with prejudice. The trustee executed a general release in favor of Pappas and Hawk U.S.A.
One more litigation, initially begun outside the bankruptcy proceeding, is pertinent to the present appeal. On April 15, 1983, SDPA filed a complaint in district court alleging diversity jurisdiction against Pappas and Hawk U.S.A. alleging "alter ego" claims and seeking to have Pappas and Hawk U.S.A. answer for Enterprises' debt. Pappas and Hawk U.S.A. answered the SDPA suit, counterclaimed against SDPA and filed third party complaints against the Gordons. On November 10, 1983, the district court: (1) ordered the trustee in bankruptcy joined as a party plaintiff, thereby destroying diversity jurisdiction; (2) found that the district court retained jurisdiction because SDPA's action was "related to" a bankruptcy proceeding within the meaning of 28 U.S.C. Sec. 1471(b); (3) permitted the defendants to amend their counterclaim; and (4) referred the action to the bankruptcy court for its recommendations. Enterprises I, 35 B.R. at 1006.
Upon referral of the case to it, the bankruptcy court recommended that SDPA's action, as well as any claims of the trustee as party plaintiff, be dismissed. The district court, reviewing the matter de novo, agreed with the recommendation. It dismissed SDPA's action and also dismissed each of the contingent counterclaims of Pappas and Hawk U.S.A. against SDPA as well as their third-party claims against the Gordons. Enterprises II, 52 B.R. at 400-01. The district court reasoned that the general release executed by the trustee in bankruptcy barred any claims against Pappas and Hawk U.S.A. which the trustee brought or could have brought. Id. at 399. The court found that the alter ego claim was one that the trustee had brought pursuant to his power under 11 U.S.C. Sec. 544 to "step into the shoes" of creditors and to assert claims for the benefit of all creditors. Id. Because the trustee had brought, settled and released the alter ego claim on behalf of all creditors, including SDPA, the district court found that the trustee's settlement with Pappas and Hawk U.S.A. barred SDPA's action. Id. The counterclaims and third-party complaints of Pappas and Hawk U.S.A. were dismissed because they were contingent on the liability of Hawk U.S.A. and Pappas.
Pappas, acting pro se, appealed dismissal of his and Hawk U.S.A.'s counterclaim and third-party complaint. That appeal was docketed as Number 86-2046. SDPA later timely cross-appealed dismissal of its complaint against Pappas and Hawk U.S.A. That appeal was docketed as Number 86-2072.
Pappas is the appellant in two appeals, Numbers 86-3566 and 86-2046. Pappas has prosecuted neither appeal. Pappas, consistent with his conduct before the Bankruptcy Court and the District Court, has ignored virtually every order and request of this Court. For instance, the Clerk of the Court has repeatedly advised Pappas that while he can appear pro se on his own behalf, he may not represent Hawk U.S.A., a corporation, since he is not a member of the bar. Pappas left unanswered three letters from the Clerk inquiring about counsel for the corporate party. Additionally, he has failed to file a requested informal brief, and he failed to appear at oral argument though he was informed that the court expected him to appear.
A court has inherent discretionary power to dismiss an action for want of prosecution. 9 C. Wright and A. Miller Federal Practice and Procedure Sec. 2370 (1971). Pappas' prosecution of the appeals in Numbers 85-2046 and 86-3566 is wanting in virtually every respect. We dismiss them.
The trustee has asked for an award of his costs, including expenses and attorney's fees due to the frivolous and groundless nature of the appeals of Pappas and lack of good faith on Pappas' part in prosecuting the two appeals that he brought. Courts of Appeals may award damages, including attorney's fees and double costs, to an appellee when an appeal is frivolous. 28 U.S.C. Sec. 1912; Fed.R.A.P. 38. We assess double costs against Pappas for his failure to prosecute. We also award expenses and attorney's fees to the trustee and to SDPA.
We remand the case to the district court so that it may calculate the amount of attorney's fees due to the trustee and due to SDPA as a result of Pappas' bringing and failing to prosecute Appeals Nos. 85-2046 and 86-3566. Ginther v. O'Connell, In re Ginther, 791 F.2d 1151 (5th Cir.1986). The parties shall bear their own costs and attorney's fees arising from SDPA's appeal in number 85-2072.
SDPA's appeal in 85-2072 is an appeal of the district court's dismissal of its action against Pappas and Hawk U.S.A. seeking to have them answer for Enterprises' debt. The district court dismissed the suit after it concluded that the alter ego claim was one that the trustee had brought, compromised and released pursuant to his power under 11 U.S.C. Sec. 544 to "step into the shoes of creditors" and assert claims for the benefit of all creditors. SDPA's appeal presents an interesting issue of bankruptcy law, whether a bankruptcy trustee may bring an alter ego claim. We conclude that the trustee may and therefore affirm the district court's dismissal of SDPA's suit, but we so conclude on a different basis. We conclude that an alter ego claim, under Virginia law, is property...
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