Norris et al v. Causey et al
Filing
102
ORDER & REASONS: ORDERED that Garry Causey's Motion to Set Aside Judgment (Rec. Doc. 75 ) is DENIED. IT IS FURTHER ORDERED that Karry Causey's Motion to Set Aside Judgment (Rec. Doc. 76 ) is DENIED. Signed by Judge Carl Barbier on 7/25/16. (cc: Kenneth Nathan, 29100 Northwestern Highway, Suite 310, Southfield, MI 48034) (sek)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
JOSH NORRIS, ET AL.
CIVIL ACTION
VERSUS
NO: 14-1598
GARRY CAUSEY, ET AL.
SECTION: “J” (4)
ORDER AND REASONS
Before the Court are two Motions to Set Aside Judgment (Rec.
Doc. 75; Rec. Doc. 76) filed by Defendants, Garry Causey and Karry
Causey, an Opposition thereto (Rec. Doc. 87) filed by Plaintiffs,
Josh Norris and Jill Norris, and additional memoranda filed by
Plaintiffs (Rec. Doc. 97) and Defendants (Rec. Doc. 98; Rec. Doc.
99). The Court heard oral argument on the motions on July 13, 2016.
Having
considered
the
motion,
the
parties’
submissions,
the
record, and the applicable law, the Court finds, for the reasons
expressed below, that the motions should be DENIED.
PROCEDURAL HISTORY AND BACKGROUND FACTS
Plaintiffs Josh and Jill Norris are residents of the state of
Michigan. Mr. Norris, a licensed plumber, traveled to New Orleans
to seek work after Hurricane Katrina in 2005. In April 2007,
Plaintiffs met Defendants, brothers Karry Causey and Garry Causey.
The
Causeys
Plaintiffs
proposed
would
an
supply
investment
funds
to
1
to
Plaintiffs,
purchase
in
which
hurricane-damaged
properties in New Orleans. The Causeys would then renovate the
properties and sell them for a profit. The parties agreed to share
the profits of their venture equally. In furtherance of this
agreement,
Garry
Causey
drafted
a
Joint
Venture
Agreement.
Plaintiffs signed the agreement and returned it to Garry Causey.
Karry Causey did not sign the agreement. Plaintiffs transferred a
total of $93,000 to Garry Causey to purchase properties at 5103
Music Street and 4767 Marigny Street in New Orleans. They also
paid $1,000 for architectural plans for the properties.
Despite Plaintiffs providing funds for the projects, the
Causeys failed to move forward with the renovations. According to
Plaintiffs, the Causeys told them that Garry Causey was unable to
acquire additional funding for construction and materials. In the
meantime, Plaintiffs had to pay monthly finance charges on their
line of credit. The Causeys agreed to make monthly payments to
Plaintiffs, but they stopped making payments after a few months.
As a result, Plaintiffs initiated a Chapter 7 bankruptcy proceeding
on September 10, 2009, in the Eastern District of Michigan. (Rec.
Doc. 87-1.) After administering the bankruptcy estate, the trustee
filed a final report on September 15, 2011. (Rec. Doc. 87-2.) In
the report’s “Individual Estate Property Record and Report,” the
trustee listed a “potential lawsuit regarding LA property” as an
asset and estimated its net value to be $1,000. Id. at 3. The
2
report also stated that the potential lawsuit had been abandoned
by the trustee pursuant to Title 11, United States Code, section
554(c). Id. After the original trustee’s death, the second trustee,
Kenneth Nathan, filed a final account and distribution report on
May 15, 2012. (Rec. Doc. 87-3.) The report contained the same
information on the “potential lawsuit” as the original trustee’s
report. Id. Finally, on June 19, 2013, the bankruptcy court closed
the case. (Rec. Doc. 87-1.)
On July 10, 2014, Plaintiffs filed suit against Karry and
Garry Causey for rescission of the joint venture agreement and
asking for a judgment holding Defendants liable for the principal
amount of $94,000, interest, attorneys’ fees, costs, and any other
damages
allowed
by
law
or
equity.
Plaintiffs
alleged
unjust
enrichment, fraud, breach of contract, and other claims. After
Garry Causey failed to answer the complaint, Plaintiffs received
a default judgment against him on March 5, 2015. The Court held a
bench trial in this matter on February 1, 2016. After hearing the
evidence, the Court found that Garry Causey breached the contract
and breached his fiduciary duties to Plaintiffs. The Court held
him liable for $94,000, plus interest. Because Garry Causey failed
to answer or appear, the Court entered a judgment of default
against him. Further, the Court found that Karry Causey tacitly
accepted the contract and committed a breach of contract. The Court
3
held him liable for $15,780 to Plaintiffs, plus interest, in solido
with Garry.
The Court subsequently entered a Final Judgment. (Rec. Doc.
56.) After Plaintiffs filed a Motion for a Partial New Trial (Rec.
Doc. 59), the Court amended the Final Judgment to increase the
award against Karry Causey to $16,780. (Rec. Doc. 65.) The Court
also awarded $56,991.00 in attorneys’ fees and $1,745.53 in costs
to Plaintiffs. Id. Karry Causey filed a notice of appeal on April
14, 2016. (Rec. Doc. 67.) Plaintiffs filed a Notice of Cross Appeal
on April 26. (Rec. Doc. 68.) The appeal is currently pending before
the Fifth Circuit Court of Appeals. Following the appeals, the
bankruptcy trustee filed a motion to reopen the bankruptcy case to
administer Plaintiffs’ interest in the instant lawsuit. (Rec. Doc.
90-3.) Judge Mark Randon of the United States Bankruptcy Court for
the Eastern District of Michigan granted the motion, noting that
“it appear[s] that Debtors may have intentionally mislead [sic]
the Court as to their assets and said asset appears to be an asset
of the Debtor’s Estate.” (Rec. Doc. 90-4.) Subsequently, the
trustee withdrew his final report. (Rec. Doc. 90-5.)
On June 2, 2016, Garry Causey filed the instant motion. (Rec.
Doc. 75.) Karry Causey filed his motion on the following day. (Rec.
Doc. 76.) Plaintiffs opposed both motions on July 5, 2016. (Rec.
Doc. 87.) Plaintiff filed a motion for leave to file a supplemental
4
memorandum in opposition, which the Court granted on July 12. (Rec.
Doc. 92.) The Court simultaneously granted leave for Defendants to
file reply memoranda. Id. The Court heard oral argument on the
motions on July 13, 2016. Following oral argument, the Court
ordered the parties to file ten-page briefs on the issues arising
from Plaintiffs’ bankruptcy proceedings. The parties filed their
briefs on July 20, 2016. (Rec. Doc. 97; Rec. Doc. 98; Rec. Doc.
99.)
PARTIES’ ARGUMENTS
In his motion, Garry Causey raises two grounds for relief
under Rule 60(b). First, Garry Causey argues that Plaintiffs failed
to properly effect service on him. Plaintiffs served Garry Causey
at his Albuquerque, New Mexico address by posting the summons and
complaint on the front door of the residence. However, Garry
contends that he lived in Denver, Colorado, at the relevant time.
Further, Garry contends that his wife, who resided at the New
Mexico residence, refused service orally. She also returned a copy
of the summons to Plaintiffs’ counsel with the notation “Garry
Causey does not reside at this address.” Thus, Garry argues that
Plaintiffs
failed
to
properly
effect
service,
rendering
the
judgment against him void.
Second, Garry Causey argues that Plaintiffs lacked standing
to bring the instant action. Plaintiffs failed for Chapter 7
5
bankruptcy on September 10, 2009. Garry Causey contends that the
bankruptcy trustee has exclusive standing to assert Plaintiffs’
claims against the Causeys. According to Garry Causey, Plaintiffs
failed to list their potential claims against Defendants in the
schedules of their petition for Chapter 7 bankruptcy, even though
the law required them to do so. Thus, Garry Casey argues that
Plaintiffs’ cause of action against Defendants became property of
the bankruptcy estate. Because Plaintiffs lacked standing in this
case, Garry Causey contends that the Court must set aside the final
judgment.
In his motion, Karry Causey echoes the standing arguments
raised by Garry. Karry Causey notes that he has already filed an
appeal
in
the
Fifth
Circuit,
which
deprives
this
Court
of
jurisdiction and the ability decide a Rule 60(b) motion. However,
Karry Causey argues that the Court can indicate if it would grant
such a motion, and the Fifth Circuit can grant a limited remand of
the case for the purpose of granting the motion.
Plaintiffs opposed both Rule 60 motions. Plaintiffs first
argue that Garry Causey was properly served at the New Mexico
residence. Plaintiffs claim they made a good faith effort to serve
him in New Mexico and that their evidence indicated that the New
Mexico address was his residence. Plaintiffs point out that they
attempted to serve Garry Causey in Denver, but they suspect that
6
Garry was evading service. Further, Plaintiffs argue that the
process server properly left the summons and complaint with Garry’s
wife, a person of suitable age and discretion who was residing at
the New Mexico residence.
Second, Plaintiffs argue that the original bankruptcy trustee
listed the potential lawsuit against the Causeys in his September
15, 2011 final report. Further, the trustee assigned an estimated
value to the lawsuit, stated that the potential lawsuit had been
“fully
administered”
and
expressly
abandoned
the
lawsuit
to
Plaintiffs pursuant to Title 11, United States Code, section
554(c). Plaintiffs note that no interested parties objected to the
final report. Plaintiffs also note that the Court granted Karry
Causey’s counsel the opportunity to brief any “issues arising from
Plaintiffs’ bankruptcy proceedings.” Karry’s counsel failed to
file such a brief and withdrew his bankruptcy-related arguments at
trial. Plaintiffs also contend that Defendants attempt to raise
the
bankruptcy
issue
as
an
affirmative
defense
without
specifically stating it in their answers. Finally, Plaintiffs seek
leave of Court to file a motion to seek an additional award of
attorneys’ fees and costs based on Defendants’ motions.
The parties filed additional briefs regarding the issues
raised
by
arguments
Plaintiffs’
in
their
bankruptcy.
individual
briefs.
7
The
Causeys
raise
Defendants
similar
argue
that
Plaintiffs failed to list their interest in the present lawsuit on
their
bankruptcy
schedules.
Garry
Causey
points
out
that
Plaintiffs had an obligation to do so. Both Defendants argue that
the
bankruptcy
trustee
never
abandoned
the
asset
because
Plaintiffs did not disclose it. While Plaintiffs argue that the
trustee was aware of the potential claim, Karry Causey emphasizes
that Plaintiffs are unable to provide any details about when they
allegedly disclosed the claim to the trustee. Defendants argue
that the trustee valued the claim at $1,000, even though Plaintiffs
had given $93,000 to Garry Causey. According to Defendants, this
disparity indicates that Plaintiffs concealed the value of the
claim from the trustee. Because the trustee did not knowingly
abandon the asset, Defendants argue that it remained the property
of
the
bankruptcy
bankruptcy
trustee
estate.
Thus,
Defendants
is
real
party
the
in
assert
that
the
interest
in
this
litigation.
In their brief, Plaintiffs change track and argue that the
trustee abandoned the lawsuit to them pursuant to section 554(a),
instead of section 554(c). Section 554(a) provides that the trustee
can abandon property to the debtors after notice and a hearing.
However, Plaintiffs contend that the parties can waive the hearing
if they are aware of the abandonment. Plaintiffs argue that the
Court must consider whether the trustee exercised reasonable care
8
in deciding whether to abandon the asset. Further, Plaintiffs claim
that the asset can be abandoned even if it is not formally
scheduled, as long as the trustee’s decision to abandon the asset
was informed. Plaintiffs contend that their bankruptcy trustee
made the informed decision to abandon the lawsuit to them at the
close of the proceedings. Additionally, Plaintiffs point out that
no creditors objected to the abandonment. Thus, they claim that
the interest in the lawsuit irrevocably reverted to them.
Further, Plaintiffs argue that the trustee’s reopening of the
bankruptcy
did
not
revoke
the
abandonment.
Next,
Plaintiffs
contend that this Court lacks jurisdiction to determine whether
the trustee revoked the abandonment. Rather, Plaintiffs claim that
the
Michigan
bankruptcy
court
must
make
this
determination.
Nevertheless, Plaintiffs proceed to argue that the abandonment is
not
revocable.
According
to
Plaintiffs,
the
only
basis
for
revocation is Rule 60(b). However, Plaintiffs argue that Rule 60(b)
relief is barred as untimely. Further, Plaintiffs claim that
subsections (b)(4), (b)(5), and (b)(6) do not apply in this case.
LEGAL STANDARD
Rule 55 of the Federal Rules of Civil Procedure provides the
standard for setting aside an entry of default or a default
judgment. Rule 55 states, “The court may set aside an entry of
default for good cause, and it may set aside a default judgment
9
under Rule 60(b).” Fed. R. Civ. P. 55(c). Rule 60(b) of the Federal
Rules of Civil Procedure provides the limited circumstances under
which a litigant may seek relief from a final judgment. Rule 60(b)
provides that a court may reconsider an order for the following
reasons:
(1) mistake, inadvertence, surprise, or excusable
neglect;
(2) newly discovered evidence which by reasonable
diligence could not have been discovered in time to move
for a new trial under Rule 59(b);
(3) fraud, misrepresentation, or other misconduct;
(4) the judgment is void;
(5) the judgment has been satisfied, released, or
discharged, or it is based on a prior judgment that has
been reversed or vacated, or it is no longer equitable
for the judgment to have prospective application; or
(6) any other reason that justifies relief.
Fed. R. Civ. P. 60(b). Rule 60(b)(6), which provides that a court
may act to relieve a party from a final judgment for “any other
reason that justifies relief,” is catch-all provision, meant to
encompass circumstances not covered by the other specific grounds
enumerated in subsections (1)-(5).
A district court has considerable discretion to grant or deny
relief under Rule 60(b), and its decision will be reversed only
for an abuse of discretion. Hesling v. CSX Transp., Inc., 396 F.3d
632, 638 (5th Cir. 2005). A district court abuses its discretion
only if it bases its decision on an erroneous view of the law or
clearly erroneous assessment of the evidence. Id. However, the
Court lacks discretion when the Rule 60(b)(4) motion is based on
10
a void judgment. Recreational Prop., Inc. v. Sw. Mortg. Serv.
Corp., 804 F.2d 311, 314 (5th Cir. 1986). “[T]he judgment is either
void or it is not. . . . If a court lacks jurisdiction over the
parties because of insufficient service of process, the judgment
is void and the district court must set it aside.” Id. (internal
citations
omitted).
Courts
consider
two
factors
to
determine
whether a judgment is void under Rule 60(b)(4): (1) whether the
court
that
jurisdiction
rendered
and
(2)
it
lacked
whether
subject
the
matter
court
“acted
or
in
personal
a
manner
inconsistent with due process of law.” Carter v. Fenner, 136 F.3d
1000, 1006 (5th Cir. 1998).
Rule 60(b) relief is considered an extraordinary remedy, but
courts must construe the rule “in order to do substantial justice.”
Carter, 136 F.3d at 1007. “The desire for a judicial process that
is predictable mandates caution in reopening judgments.” Bailey v.
Ryan Stevedoring Co., 894 F.2d 157, 160 (5th Cir. 1990) (quoting
Fackelman v. Bell, 564 F.2d 734 (5th Cir. 1977)). Additionally,
“[i]n the interests of finality, the concept of void judgments is
narrowly construed.” Carter, 136 F.3d at 1007 (citing United States
v. Boch Oldsmobile, Inc., 909 F.2d 657, 661 (1st Cir. 1990)). “Most
circuits have interpreted Rule 60(b) quite narrowly, affording
relief
from
final
judgments
only
circumstances.” Id. at 1005.
11
in
the
most
specific
DISCUSSION
Both Defendants base their motions on Rule 60(b)(4). To
succeed on a Rule 60(b) motion, the movant has the burden of
showing initially “that his motion is timely, that he has a
meritorious defense to the action, and that the opposing party
would not be unfairly prejudiced by having the judgment set aside.”
Id. at 1005. In some cases, courts also require a threshold showing
of “exceptional circumstances.” Id. at 1005-06. In this case, a
showing of timeliness is not required because “[m]otions brought
pursuant to Rule 60(b)(4) . . . constitute such exceptional
circumstances as to relieve litigants from the normal standards of
timeliness associated with the rule.” Id. at 1006. In the Fifth
Circuit, such motions are not even subject to a “reasonable time”
limit. Callon Petroleum Co. v. Frontier Ins. Co., 351 F.3d 204,
208
n.3
(5th
Cir.
2003).
Therefore,
the
Court
finds
that
Defendants’ motions were timely filed. However, the Court notes
that neither Defendant made an initial showing of a meritorious
defense or a lack of prejudice to Plaintiffs. Nevertheless, the
Court will address Defendants’ arguments for voidness.
I.
Invalid Service of Process
The serving party bears the burden of proving valid service if
service of process is challenged. Conwill v. Greenberg Traurig,
L.L.P., No. CIV.A. 09-4365, 2010 WL 2773239, at *3 (E.D. La. July
12
13, 2010) (citing Sys. Signs Supplies v. U.S. Dept. of Justice,
Washington, D.C., 903 F.2d 1011, 1013 (5th Cir. 1990)). A defendant
cannot be held liable for failing to plead or defend unless service
of process complies with Rule 4 of the Federal Rules of Civil
Procedure. Id. (citing Rogers v. Hartford Life & Accident Ins.
Co., 167 F.3d 933, 940 (5th Cir. 1999)). “Absent proper service of
process, the court lacks jurisdiction over the defendant and an
entry of default granted under such conditions is void.” Id.
Rule 4 sets out the following rules for service of process on
an individual within a judicial district of the United States:
Unless federal law provides otherwise, an individual—
other than a minor, an incompetent person, or a person
whose waiver has been filed—may be served in a judicial
district of the United States by:
(1) following state law for serving a summons in an
action brought in courts of general jurisdiction in the
state where the district court is located or where
service is made; or
(2) doing any of the following:
(A) delivering a copy of the summons and of the
complaint to the individual personally;
(B) leaving a copy of each at the individual's
dwelling or usual place of abode with someone of
suitable age and discretion who resides there; or
(C) delivering a copy of each to an agent authorized
by appointment or by law to receive service of
process.
Fed. R. Civ. P. 4(e). In this case, the server could follow
Louisiana state law—the state where the action was brought—or New
Mexico state law—the state where the service was made. Fed. R.
13
Civ. P. 4(e)(1). Louisiana law allows for personal or domiciliary
service of an individual. “Personal service is made when a proper
officer tenders the citation or other process to the person to be
served.” La. Code Civ. Proc. art. 1232. Domiciliary service, which
resembles Federal Rule 4(e)(2)(B), “is made when a proper officer
leaves the citation or other process at the dwelling house or usual
place of abode of the person to be served with a person of suitable
age and discretion residing in the domiciliary establishment.” La.
Code Civ. Proc. art. 1234.
New Mexico follows similar rules for service of process. In
general,
“[p]rocess
shall
be
served
in
a
manner
reasonably
calculated, under all the circumstances, to apprise the defendant
of the existence and pendency of the action and to afford a
reasonable
opportunity
to
appear
and
defend.”
NMRA,
Rule
1-
004(E)(1). Personal service on an individual may be effectuated by
delivery of a copy of the summons and complaint:
(1)(a) to
individual
process at
found; and
copies or
constitute
the individual personally; or if the
refuses to accept service, by leaving the
the location where the individual has been
if the individual refuses to receive such
permit them to be left, such action shall
valid service; or
b) by mail or commercial courier service as
provided in Subparagraph (3) of Paragraph E of this
rule.
(2) If, after the plaintiff attempts service of process
by either of the methods of service provided by
Subparagraph (1) of this paragraph, the defendant has
14
not signed for or accepted service, service may be made
by delivering a copy of the process to some person
residing at the usual place of abode of the defendant
who is over the age of fifteen (15) years and mailing by
first class mail to the defendant at the defendant's
last known mailing address a copy of the process; or
(3) If service is not accomplished in accordance with
Subparagraphs (1) and (2), then service of process may
be made by delivering a copy of the process at the actual
place of business or employment of the defendant to the
person apparently in charge thereof and by mailing a
copy of the summons and complaint by first class mail to
the defendant at the defendant's last known mailing
address and at the defendant's actual place of business
or employment.
NMRA, Rule 1-004(F). Service under section F(2) is known as
“substituted service” and is to be strictly construed. See Houchen
v. Hubbell, 461 P.2d 413, 414 (N.M. 1969).
Garry Causey argues that the default judgment against him is
void because he was not properly served pursuant to federal,
Louisiana, or New Mexico law. The process server left a copy of
the summons and complaint outside the Albuquerque residence after
Garry
Causey’s
wife
refused
to
accept
service.
Garry
Causey
contends that this service was improper because he moved to Denver
in April 2010, almost five years before Plaintiffs filed suit.
Thus, Garry Causey argues that the process server did not leave
the summons and complaint at his dwelling house or usual place of
abode, as required by both Louisiana law and New Mexico law.
Further, Garry Causey claims that posting the summons and complaint
15
on the door of the residence was insufficient because the server
needed to physically hand the documents to his wife.
Plaintiffs
argue
that
all
evidence
suggested
that
the
Albuquerque residence was Garry Causey’s dwelling house or place
of abode. In support of their argument, Plaintiffs cite: (1) Karry
Causey’s testimony at trial stating that Garry Causey lives in
Albuquerque (Rec. Doc. 85, at 15); (2) W-2 forms issued by Garry
Causey’s employer, Southwest Airlines, and submitted to the IRS in
2010, 2013, 2013, and 2014 listing Garry Causey’s address as 10422
Cueva Del Oso NE, Albuquerque, New Mexico, 87111 (Rec. Doc. 874); (3) Bernalillo County property tax records for the Albuquerque
residence listing Garry Causey and his wife, Karla Causey, as the
owners in 2010, 2011, 2012, 2013, 2014, 2015, and 2016 (Rec. Doc.
87-5); (4) a quitclaim deed dated December 18, 2013 and a special
power of attorney signed December 6, 2013, both of which identify
Garry Causey as a “resident of the state of New Mexico” and
identify the Albuquerque residence as his address (Rec. Doc. 875); (5) records from the Orleans Parish Tax Assessor stating that
the Music Street property is currently owned by Garry and Karla
Causey and giving their address as the Albuquerque residence (Rec.
Doc. 87-6); and (6) in another lawsuit against Garry and Karry
Causey in this District, the pre-trial order submitted on Garry
Causey’s behalf stating that he is “a major individual domiciled
16
in the State of New Mexico” (Rec. Doc. 87-9, at 2). Based on the
foregoing evidence, Plaintiffs argue that they reasonably believed
the Albuquerque residence was Garry Causey’s usual place of abode
and that their attempt to serve him there was proper.
First, the Court finds that the Albuquerque residence could
be considered Garry Causey’s dwelling house of place of abode at
the time of service. The term “abode” refers to a place where a
person lives. Klumker v. Van Allred, 811 P.2d 75, 78 (N.M. 1991).
New Mexico law defines “the usual place of abode” as “the customary
place of abode at the very moment the writ is left posted.” Vann
Tool Co. v. Grace, 566 P.2d 93, 95 (N.M. 1977). If the defendant
moved in good faith, attempted service at his old place of abode
is ineffective and invalid. Id. An intent to change the usual place
of abode may be demonstrated by the fact that the defendant never
returned to the former place to live. Household Fin. Corp. v.
McDevitt, 505 P.2d 60, 62 (N.M. 1973). A divorce from a spouse who
shared the former place of abode can also indicate the intent to
change the place of abode. Id.
Similarly, Louisiana law provides that “once a domicile is
acquired it continues until another has been established and the
burden of proving the change of domicile rests upon the party who
seeks to establish it.” Hornung v. Mills, 7 So. 2d 665, 666 (La.
Ct. App. 1942). In Louisiana, a domicile is “a person's . . .
17
principal establishment wherein he makes his habitual residence
and essentially consists of two elements, namely residence and
intent to remain in place. Jefferson Cmty. Health Care Ctr., Inc.
v. Roby, 180 So. 3d 585, 588 (La. Ct. App. 2015). Federal courts
follow similar principles but allow a person to have multiple
dwelling places or abodes. See Ali v. Mid-Atl. Settlement Servs.,
Inc., 233 F.R.D. 32, 36 (D.D.C. 2006). “[A]n individual may have
more than one dwelling house or usual place of abode, provided
each contains sufficient indicia of permanence. . . . When a
Defendant does not have a permanent place of residence, a Court
will consider whether he intended to return to the place of service
in order to determine whether it can be characterized as his usual
place of abode.” Id. (internal quotation marks and citations
omitted).
The Fifth Circuit has held that a plaintiff may rely on
outward appearances when effectuating substituted or domiciliary
service. N.L.R.B. v. Clark, 468 F.2d 459, 464 (5th Cir. 1972).
“[W]ould-be process servers are not entirely at the mercy of
elusive defendants.” Id. When a defendant “has in fact changed his
residence but to all appearances is still occupying a former
dwelling, substituted service at the former dwelling is proper .
. . .” Id. “A defendant who beclouds his whereabouts should not be
entitled
to
benefit
from
the
18
process
server's
consequent
confusion.” Id. In this case, Garry Causey outwardly claimed the
Albuquerque
residence
as
his
permanent
address.
Plaintiffs’
evidence provides numerous examples of Garry Causey claiming to be
a resident of New Mexico and of the specific address of the
Albuquerque residence. Thus, Plaintiffs were entitled to reply on
these outward appearances and effect service at the Albuquerque
residence.
Second, the Court finds that the process server properly left
the summons on the door of the residence after Garry Causey’s wife
refused service. New Mexico law “allows substituted service by
delivering a copy to a person of sufficient age residing at ‘the
usual place of abode’ of the defendant. If no such person be found
willing to accept a copy, then service shall be made by posting on
the defendant's premises.” Vann Tool Co., 566 P.2d at 94. Further,
the serving party must mail the summons and complaint to the
defendant’s last known mailing address. See Ortiz v. Shaw, 193
P.3d 605, 610 (N.M. Ct. App. 2008). In this case, Garry Causey’s
wife refused service, so the process server posted the summons and
complaint on the front door of the Albuquerque residence. (See
Rec. Doc. 75-1, at 5.) Plaintiffs’ counsel subsequently mailed a
copy of the summons and complaint to Garry Causey’s last-known
address. (Rec. Doc. 87-10; Rec. Doc. 87-13.) Thus, Plaintiffs
19
complied with the New Mexico requirements for service, which
satisfies Rule 4(e).
Further, the Court notes that Plaintiffs made a good faith
effort to effect service in a way “reasonably calculated” to give
Garry Causey “knowledge of the proceedings and an opportunity to
be heard.” Clark, 468 F.2d at 464; see Sakallah v. Harahan Living
Ctr., Inc., No. CIV.A. 05-5492, 2006 WL 2228967, at *2 (E.D. La.
Aug. 2, 2006) (”In this case, even if the defendant was not at the
door, he was either still in the house or returning shortly, and
was therefore in close enough proximity that he would reasonably
be calculated to know of the action against him. Therefore, the
plaintiff
has
satisfied
sufficient
service
of
process
under
4(e)(2).”)While the record reveals that Garry likely had actual
notice of the lawsuit, “due process does not require receipt of
actual notice in every case.” Id.
“Where the defendant receives actual notice and the plaintiff
makes a good faith effort to serve the defendant pursuant to the
federal rule, service of process has been effective.
Good faith
efforts at service are effective particularly where the defendant
has engaged in evasion, deception, or trickery to avoid being
served.” Conwill, 2010 WL 2773239, at *3 (quoting Ali, 233 F.R.D.
at 36). Moreover, “The service of process is not a game of hide
and seek. Where service is repeatedly effected in accordance with
20
the applicable rules of civil procedure and in a manner reasonably
calculated to notify the defendant of the institution of an action
against him, the defendant cannot claim that the court has no
authority to act when he has willfully evaded the service of
process.” Id. (quoting Ali¸ 223 F.R.D. at 36). Even if service on
Garry Causey did not strictly comply with federal, Louisiana, or
New Mexico law, the Court finds that Plaintiffs acted in good faith
to serve him, in a manner reasonably calculated to notify Garry
Causey of the impending lawsuit.
II.
Plaintiffs’ Lack of Standing
Both
Defendants
argue
that
the
bankruptcy
trustee
had
exclusive standing to assert Plaintiffs’ cause of action against
them. Filing a bankruptcy proceeding creates an estate comprised
of
the
debtor’s
property,
including
“all
legal
or
equitable
interests of the debtor in property as of the commencement of the
case.”
11
U.S.C.
§
541.
The
phrase
“all
legal
or
equitable
interests” includes any legal claims based on federal or state
law. In re Seven Seas Petroleum, Inc., 522 F.3d 575, 584 (5th Cir.
2008). A debtor is obligated to disclose all legal claims, both
pending and potential.
Kane v. Nat'l Union Fire Ins. Co., 535
F.3d 380, 384-85 (5th Cir. 2008). The debtor must disclose a
potential claim if he has enough information to suggest that he
has such a claim, even if he does not know all of the underlying
21
facts or the legal basis of the claim. In re Coastal Plains, Inc.,
179 F.3d 197, 208 (5th Cir. 1999). Further, “[a]n action must be
prosecuted in the name of the real party in interest.” Fed. R.
Civ. P. 17(a). “In the bankruptcy context, the bankruptcy trustee
is the real party in interest with respect to claims falling within
the
bankruptcy
estate.
The
bankruptcy
trustee
therefore
has
exclusive standing to assert undisclosed claims that fall within
the bankruptcy estate.” United States ex rel. Spicer v. Westbrook,
751 F.3d 354, 362 (5th Cir. 2014) (internal citations omitted).
In
a
Chapter
7
bankruptcy,
undisclosed
and
unscheduled
property remains the property of the estate, unless it is abandoned
by the trustee pursuant to Title 11, United States Code, section
554, or administered in the bankruptcy proceedings. Cargo v. Kansas
City S. Ry. Co., 408 B.R. 631, 637 (W.D. La. 2009) (citing Kane,
535 F.3d at 385). “If a debtor does not schedule an asset that he
or she is obliged to disclose, such as a pending or potential
claim, and the trustee later learns that such an asset exists, he
or she may reopen the bankruptcy to administer the claim on behalf
of the creditors.” Id. Once an asset becomes a part of the estate,
the debtor’s rights in the asset are extinguished unless the
trustee abandons the asset pursuant to section 554. Id. Section
554 provides in pertinent part:
22
(a) After notice and a hearing, the trustee may abandon
any property of the estate that is burdensome to the
estate or that is of inconsequential value and benefit
to the estate. . . .
(c) Unless the court orders otherwise, any property
scheduled under section 521(a)(1)1 of this title not
otherwise administered at the time of the closing of a
case is abandoned to the debtor and administered for
purposes of section 3502 of this title.
(d) Unless the court orders otherwise, property of the
estate that is not abandoned under this section and that
is not administered in the case remains property of the
estate.
11 U.S.C. § 554. In determining whether property is burdensome to
the estate or of inconsequential value, the trustee must act in
the best interest of the estate, rather than in the interest of
the debtors or creditors. 4 WILLIAM L. NORTON, JR, & WILLIAM L. NORTON
III, NORTON BANKR. L. & PRAC. 3D § 74:13 (2016).
In their additional brief filed July 20, 2016, Plaintiffs
argue that the trustee in fact abandoned the lawsuit pursuant to
section 554(a), not section 554(c), as they previously claimed.
1
Section 521(a)(1) requires the debtor to file a schedule of assets and
liabilities, unless the court orders otherwise. 11 U.S.C. § 521(a)(1)(B)(i).
2
Section 350 provides,
(a) After an estate is fully administered and the court has
discharged the trustee, the court shall close the case.
(b) A case may be reopened in the court in which such case was
closed to administer assets, to accord relief to the debtor, or for
other cause.
11 U.S.C. § 350.
23
Section 554(a) allows the trustee to abandon an asset after notice
and
a
hearing.
11
U.S.C.
§
554(a).
However,
a
hearing
is
unnecessary if no creditor objects to the abandonment. 4 WILLIAM L.
NORTON, JR, & WILLIAM L. NORTON III, NORTON BANKR. L. & PRAC. 3D §74:14
(2016) (citing In re Nikokyrakis, 109 B.R. 260, 261 (Bankr. N.D.
Ohio 1989)). If the trustee makes an “informed, procedurallycorrect” abandonment pursuant to section 554(a), the abandonment
is irrevocable. Tschirn v. Secor Bank, 123 B.R. 215, 218 (E.D. La.
1991). In determining whether to abandon an asset, the trustee
must
act
with
reasonable
care
and
due
diligence.
See
In
re
Melenyzer, 140 B.R. 143, 154 (Bankr. W.D. Tex. 1992); 4 WILLIAM L.
NORTON, JR, & WILLIAM L. NORTON III, NORTON BANKR. L. & PRAC. 3D § 74:3
(2016). The party seeking to prove section 554(a) abandonment
carries the burden of proof. In re Heil, 141 B.R. 112, 114 (Bankr.
N.D. Tex. 1992).
In this case, Plaintiffs failed to introduce evidence showing
that the trustee abandoned the lawsuit pursuant to section 554(a).
Plaintiffs argue that the trustee learned of the claim against the
Causeys at some point between November 2009, when Plaintiffs filed
their amended schedule, and September 2011, when the trustee filed
his final report. Plaintiffs filed three supplemental exhibits
showing that the trustee was aware of the lawsuit in early 2010.
(Rec. Doc. 100-1; Rec. Doc. 100-2; Rec. Doc. 100-3.) The trustee
24
claimed to be investigating the potential lawsuit. (Rec. Doc. 1002; Rec. Doc. 100-3.) However, the evidence suggests that the
trustee was not completely informed about the lawsuit. For example,
the original trustee valued the lawsuit at $1,000, but Plaintiffs
sued for the $94,000 they paid to the Causeys, plus additional
damages. This suggests that the trustee was not aware of the true
value of Plaintiffs’ claim. Furthermore, the second trustee filed
a motion to reopen the bankruptcy proceeding and withdrew his final
report. (Rec. Doc. 90-3; Rec. Doc. 90-5.) In granting the motion
to reopen the case, the bankruptcy judge noted that Plaintiffs may
have deliberately misled the court. (Rec. Doc. 90-4.) Thus, the
evidence suggests that the trustee did not make an informed
decision to abandon the claim.
Further, the trustee’s report specifies that he abandoned the
interest in the lawsuit pursuant to section 554(c). Section 554(c)
abandonment is called “technical” abandonment. 4 WILLIAM L. NORTON,
JR, & WILLIAM L. NORTON III, NORTON BANKR. L. & PRAC. 3D § 74:3 (2016).
Scheduled but unadministered assets are technically abandoned upon
the closing of the bankruptcy case. 11 U.S.C. § 554(c). “The
granting of a discharge does not effectuate an abandonment, nor
does the mere filing of a ‘no asset’ report.” 4 WILLIAM L. NORTON,
JR, & WILLIAM L. NORTON III, NORTON BANKR. L. & PRAC. 3D § 74:14 (2016).
Moreover, “[u]nscheduled or otherwise concealed assets are not
25
abandoned upon the closing of the case.” Id. Unscheduled property
remains in the estate pursuant to section 554(d), unless the court
orders otherwise. 11 U.S.C. § 554(d). Thus, an unscheduled asset
cannot be abandoned pursuant to section 554(c). Kagan v. Swider,
No. CIV.A. 99-1503, 2000 WL 158329, at *4 n.16 (E.D. La. Feb. 10,
2000) (“The vast majority of courts have taken the statute at its
word requiring an asset to be scheduled before it can be abandoned,
regardless of the trustee's awareness of it.”) (citing Jeffrey v.
Desmond, 70 F.3d 183, 186 (1st Cir. 1995); In re Pace, 17, F.3d
395, *1 (9th Cir. 1994) (unpublished); Vreugdenhill v. Navistar
Int'l Transp. Corp., 950 F.2d 524, 526 (8th Cir. 1991); In re
Capozzi, 229 B.R. 250, 251 (Bankr. S.D. Fla. 1999)).3 Because such
an asset cannot be abandoned, it remains a part of the bankruptcy
estate. Id. at *4 (“[P]roperty never scheduled and/or that is not
listed
remains
property
of
the
estate
and
is
not
deemed
abandoned.”). Section 554 requires formal abandonment because
determining the trustee’s intent to abandon can create difficult
questions of fact. See Stanley v. The Sherwin-Williams Co., 156
B.R. 25, 26 (W.D. Va. 1993). If the formal procedures—including
3
The Eleventh Circuit also recognizes that an unscheduled asset cannot be
technically abandoned. Parker v. Wendy’s Int’l, Inc., 365 F.3d 1268, 1272 (11th
Cir. 2004).
26
scheduling—are not followed, the Court must find that the asset
was not technically abandoned. See id.
In this case, Plaintiffs failed to list their interest in the
instant
suit
in
their
voluntary
petition.
(Rec.
Doc.
75-2.)
Plaintiffs filed an amended Schedule B on November 25, 2009. (Rec.
Doc. 75-5.) Again, they did not list their interest in this
lawsuit. Id. On both schedules, they also failed to list their
interest in the joint venture with the Causeys and their interest
in the Music Street property. While the claim appeared on the
trustee’s final report, the Plaintiffs omitted it from their list
of assets. Thus, regardless of the trustee’s awareness of the
claim, it could not be abandoned pursuant to section 554(c).
Because this case involves a section 554(c) abandonment rather
than a section 554(a) abandonment, Plaintiffs’ failure to schedule
their interest in this lawsuit is fatal to their claim. The asset
was not scheduled, so it could not be abandoned pursuant to section
554(c). Therefore, the interest in the lawsuit never reverted to
Plaintiffs. The trustee remains the real party in interest in this
case for purposes of Rule 17(a).4
4
Because the Court has determined that the interest in the lawsuit was never
abandoned, the Court need not discuss whether the trustee revoked the
abandonment by reopening Plaintiffs’ bankruptcy proceedings.
27
However, this is not to say that the final judgment is void
for lack of subject matter jurisdiction. Defendants’ arguments
confuse “jurisdictional standing under Article III of the United
States Constitution, which would impact the court's subject matter
jurisdiction, with the principle of real party in interest, which
does not impact the court's subject matter jurisdiction.” Dunn v.
Advanced Med. Specialties, Inc., 556 F. App'x 785, 789-90 (11th
Cir. 2014). In Dunn, the Eleventh Circuit affirmed the district
court’s denial of a bankruptcy trustee’s Rule 60(b)(4) motion. Id.
at 790. As in this case, the trustee argued that the plaintiff
lacked standing because the trustee had exclusive standing to
assert the plaintiff’s cause of action. Id. at 789. The Eleventh
Circuit disagreed. Id. While it found that the trustee was the
real party in interest pursuant to Rule 17(a), it decided that the
district court’s judgment was not void for lack of subject matter
jurisdiction. Id. at 790. The court noted that it could simply
substitute the trustee for the plaintiff as the real party in
interest,
even
on
appeal.
Id.
(citing
Barger
v.
City
of
Cartersville, Ga., 348 F.3d 1289, 1297 (11th Cir. 2003)).
Fifth
Circuit
jurisprudence
conforms
to
the
principles
announced by the Eleventh Circuit in Dunn. The Fifth Circuit has
noted, “The real party in interest is the person holding the
substantive right sought to be enforced, and not necessarily the
28
person who will ultimately benefit from the recovery. The purpose
of this provision is to assure a defendant that a judgment will be
final and that res judicata will protect it from having to twice
defend an action, once against an ultimate beneficiary of a right
and then against the actual holder of the substantive right.”
Wieburg v. GTE Sw. Inc., 272 F.3d 302, 306 (5th Cir. 2001) (quoting
Farrell Construction Co. v. Jefferson Parish, La., 896 F.2d 136,
140 (5th Cir. 1990)) (internal quotation marks and citations
omitted).
While the trustee is the real party in interest in this case,
the failure to join the trustee does not impact the court’s subject
matter jurisdiction. See id. at 308. In such a case, the Fifth
Circuit holds that outright dismissal of the plaintiff’s claim is
inappropriate. Id. Rule 17 provides, “The court may not dismiss an
action for failure to prosecute in the name of the real party in
interest until, after an objection, a reasonable time has been
allowed for the real party in interest to ratify, join, or be
substituted
into
the
action.
After
ratification,
joinder,
or
substitution, the action proceeds as if it had been originally
commenced by the real party in interest.” Fed. R. Civ. P. 17(a)(3).
The Fifth Circuit notes that “most courts have interpreted the
last sentence of Rule 17(a) as being applicable only when the
plaintiff brought the action in her own name as the result of an
29
understandable mistake, because the determination of the correct
party to bring the action is difficult.” Wieburg, 272 F.3d at 308.
In
Wieburg,
the
Fifth
Circuit
reversed
the
district
court’s
dismissal of the plaintiff’s action and remanded so the court could
determine whether joinder of the trustee or ratification by the
trustee were possible. Id. at 309.
In this case, Plaintiffs may have reasonably believed that
they were entitled to bring their claims against Defendants because
the trustee’s final report stated that it abandoned the potential
claim to them. Further, Plaintiffs waited until the bankruptcy
court closed their case to proceed against Defendants. Thus,
Plaintiffs’ failure to join the trustee was likely a reasonable
mistake. While the trustee is the real party in interest in this
case, the failure to join the trustee does not deprive this Court
of subject matter jurisdiction. Rather, the Court may simply
substitute the bankruptcy trustee for the Plaintiffs in this case.5
Because the Court had subject matter jurisdiction over this matter,
the final judgment is not void. Therefore, Defendants’ motions
shall be denied.
5
The trustee may file a motion to substitute in this Court, in the court of
appeals, or in both courts.
30
III. Attorneys’ Fees and Costs
Plaintiffs requested attorneys’ fees and costs incurred in
defending against the instant motions. While Plaintiffs did not
specify the basis for their request, the Court has previously
acknowledged
that
the
Joint
Venture
Agreement
entitles
the
prevailing party to recover attorneys’ fees and costs. (See Rec.
Doc. 29-3, at 4-5.) The contract provides,
In any arbitration, suit, action, or proceeding between
the parties arising out of or in connection with any of
the terms, covenants, provisions, or agreements in this
Agreement, the prevailing party . . . shall be awarded
. . . all costs provided by law, all out of pocket costs
of each and every type, including expert witness fees
and investigation costs and expense [sic], as well as
all reasonable attorney’s fees.
Id.
Therefore,
the
Court
will
allow
Plaintiffs
to
file
a
supplemental motion to claim attorneys’ fees and costs pursuant to
the Joint Venture Agreement.
31
CONCLUSION
Accordingly,
IT IS HEREBY ORDERED that Garry Causey’s Motion to Set Aside
Judgment (Rec. Doc. 75) is DENIED.
IT IS FURTHER ORDERED that Karry Causey’s Motion to Set Aside
Judgment (Rec. Doc. 76) is DENIED.
New Orleans, Louisiana this 25th day of July, 2016.
CARL J. BARBIER
UNITED STATES DISTRICT COURT
The clerk is to serve:
Kenneth Nathan
29100 Northwestern Highway
Suite 310
Southfield, MI 48034
32
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