Stern-Hamilton v. Mason County District Library et al

Filing 21

MOTION and brief in support to substitute party of Bankruptcy Trustee as Plaintiff/Real Party-in-Interest by interested party James W Boyd; (Attachments: # 1 Index, # 2 Exhibit A - Bankuptcy Order, # 3 Exhibit B - Knight v. New Farmers Nat'l Bank, # 4 Exhibit C - Piper v Dollar General Corp, # 5 Exhibit D - Charboneau v. Jordan, # 6 Exhibit E - Rodriquez v Mustang Manufacturing Co, # 7 Exhibit F - Dare v Citibank)(Blanchard, David) Modified to add text on 10/17/2011 (elc).

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
JAMES W. BOYD,
TRUSTEE IN BANKRUPTCY FOR THE
ESTATE OF SALLY STERN-HAMILTON,
Plaintiff,
v.

Case No. 1:11-cv-00717
Hon. Robert J. Jonker

MASON COUNTY DISTRICT LIBRARY,
ROBERT DICKSON, in his individual and
official capacity, and MARILYN BANNON,
in her individual and official capacity
Defendants.
______________________________________________________________________________
KATHLEEN H. KLAUS (P67207)
DAVID M. BLANCHARD (P67190)
MADDIN HAUSER WARTELL
EDWARD A. MACEY (P72939)
ROTH & HELLER, P.C.
NACHT, ROUMEL, SALVATORE,
28400 Northwestern Highway
BLANCHARD & WALKER, P.C.
Southfield, MI 48034
Attorneys for Plaintiff/Bankruptcy Trustee
[phone]
101 N. Main Street, Ste. 555
[e-mail]
Ann Arbor, MI 48104
[phone]
[e-mail]
[e-mail]
______________________________________________________________________________
MOTION FOR SUBSTITUTION OF BANKRUPTCY TRUSTEE AS
PLAINTIFF/REAL PARTY-IN-INTEREST
Now Comes JAMES W. BOYD, Bankruptcy Trustee for the Estate of Sally SternHamilton, by and through his attorneys, NACHT, ROUMEL, SALVATORE, BLANCHARD &
WALKER, P.C., who moves in support of his Motion for Substitution of Bankruptcy Trustee as
Plaintiff/Real Party-In-Interest pursuant to Fed. R. Civ. P. 17(a). In support of his motion,
Trustee states as follows:

History of Case
1.

The instant case was commenced on July 13, 2011, upon the filing by the named

Plaintiff Sally Stern-Hamilton against Defendants Mason County District Library, Robert
Dickson, and Marilyn Bannon in this Court.
2.

Following service of the Summons and Complaint, Defendants filed a Motion to

Dismiss Complaint alleging that the Plaintiff Sally Stern-Hamilton was without authority to
commence and prosecute the instant Complaint based upon the filing of her of a voluntary
petition in bankruptcy in 2009.
3.

This Court entered an Order denying Defendants’ Motion to Dismiss as premature

on September 2, 2011 (D/E #14).
4.

On September 16, 2011,, the Court entered an Order Setting Case Schedule,

including the deadline of October 15, 2011 to file opening briefs. (D/E #19).
History of Related Bankruptcy Proceedings
5.

On September 4, 2009, the Plaintiff Sally Stern-Hamilton filed her Voluntary

Petition under Chapter 7 of the Bankruptcy Code in Bankruptcy No. 09-10588 in the U.S.
Bankruptcy Court for the Western District of Michigan.
6.

Shortly following the filing of the Voluntary Petition, the undersigned James W.

Boyd was appointed Chapter 7 Bankruptcy Trustee.
7.

Following the filing by the Trustee of his report of No Distributions, the

Bankruptcy Court entered its Final Decree and closed the bankruptcy case on December 15,
2009.
8.

Defense has raised the issue of Plaintiff’s standing to sue, based on the Debtor’s

failure to reveal the existence of the Plaintiff’s claims against Defendants Mason County District

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Library, Robert Dickson, and Marilyn Bannon on her original 2009 Debtor’s Schedules of Assets
and Liabilities and her Statement of Financial Affairs and her.
9.

Upon receiving notice of the omissions in the 2009 filing from defense counsel in

the instant case, Trustee Boyd was contacted by counsel for Sally Stern-Hamilton, advising of
the existence of the previously unrevealed cause of actions against Defendants Mason County
District Library, Robert Dickson, and Marilyn Bannon.
10.

Upon learning of the existence of the Debtor’s claim which is the gravamen of the

case at bar, Trustee Boyd filed a motion to reopen bankruptcy case on September 2, 2011.
11.

On September 8, 2011, the Bankruptcy Court entered its Order granting the

Trustee’s motion to re-open bankruptcy case and authorized withdrawal of the Trustee’s Report
of No Distribution. (Exhibit A).
The Instant Cause of Action is Property of the Bankruptcy Estate and the Trustee is Authorized
by Law to Prosecute the Same
12.

Pursuant to 11 U.S.C. §541, the cause of action described in the Complaint is the

property of the bankruptcy estate.
13.

As noted above, Trustee Boyd learned of the existence of the instant cause of

action only in August 2011. Since that time, Trustee Boyd has had the bankruptcy case reopened, withdrew his report of no distribution, and Application to Employ David M. Blanchard
as Special Counsel.
14.

Pursuant to the provisions of 11 U.S.C. §323, Trustee Boyd is the representative

of the bankruptcy estate and has the capacity to sue and be sued in the name of the bankruptcy
estate. In that capacity, Trustee Boyd represents the interests of the entire body of unsecured
creditors of Ms. Stern-Hamilton; a group which suffered unpaid losses in her bankruptcy
proceeding.
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15.

Substitution of the Trustee as the real party plaintiff in interest is contemplated

and required under Fed. R. Civ. P. 17.
16.

In the instant case, Trustee Boyd seeks exactly that relief contemplated in Federal

Rules 17(a) and 25(c).
“(1) Designation in General. An action must be prosecuted in the name of
the real party in interest..
…
(3) Joinder of the Real Party in Interest. 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 substitituion, the action proceeds as if it had been originally
commenced by the real party in interest”
Fed. R. Civ. P. 17(a)(Emphasis Added).
Substitution of the Trustee as Party Plaintiff Will Work No Prejudice Upon the Defendants and
is in the Best Interest of Justice
17.

Substitution of Trustee Boyd as the party plaintiff in these proceedings will work

no prejudice upon Defendants.

Indeed, Defendants has had timely notice of Ms. Stern-

Hamilton’s cause of action and has participated actively in the litigation to date.
18.

By way of contrast to the manifest lack of any prejudice to the Defendants, there

would be considerable injury to bankruptcy creditors if Trustee Boyd is not allowed to substitute
in as real party-in-interest plaintiff in this action.
Wherefore, Bankruptcy Trustee James W. Boyd respectfully request that this Court:
1.

ORDER that James W. Boyd, Bankruptcy Trustee for the Estate of Sally SternHamilton be substituted herein as the party plaintiff in the place and stead of the
originally named Plaintiff Sally Stern-Hamilton;

2.

ORDER that James W. Boyd, Bankruptcy Trustee for the Estate of Sally SternHamilton be permitted to file an Amended Complaint;
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3.

ORDER such other and further relief as the nature of this case and the intersts of
justice may require.

Respectfully submitted,
NACHT, ROUMEL, SALVATORE,
BLANCHARD & WALKER, P.C.
/s/ David M. Blanchard
David M. Blanchard (P67190)
Counsel for Plaintiff/Bankruptcy
Trustee
101 N. Main Street, Suite 555
Ann Arbor, MI 48014
[phone]
[e-mail]
Dated: October 14, 2011

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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
JAMES W. BOYD,
TRUSTEE IN BANKRUPTCY FOR THE
ESTATE OF SALLY STERN-HAMILTON,
Case No. 1:11-cv-00717
v.

Hon. Robert J. Jonker

MASON COUNTY DISTRICT LIBRARY,
ROBERT DICKSON, in his individual and
official capacity, and MARILYN BANNON,
in her individual and official capacity
Defendants.
______________________________________________________________________________
KATHLEEN H. KLAUS (P67207)
DAVID M. BLANCHARD (P67190)
MADDIN HAUSER WARTELL
EDWARD A. MACEY (P72939)
ROTH & HELLER, P.C.
NACHT, ROUMEL, SALVATORE,
28400 Northwestern Highway
BLANCHARD & WALKER, P.C.
Southfield, MI 48034
Attorneys for Plaintiff/Bankruptcy Trustee
[phone]
101 N. Main Street, Ste. 555
[e-mail]
Ann Arbor, MI 48104
[phone]
[e-mail]
[e-mail]
______________________________________________________________________________
BRIEF IN SUPPORT OF MOTION FOR SUBSTITUTION OF BANKRUPTCY
TRUSTEE AS PLAINTIFF/REAL PARTY-IN-INTEREST
INTRODUCTION
The issue before this Court is whether this suit can proceed where Plaintiff, Sally SternHamilton, is not the real party in interest. Federal Rule of Civil Procedure 17(a), and all cases
interpreting it, provide for a reasonable opportunity to substitute the real party in interest and
allow for that substitution to relate back to the original date of filing. Because Ms. SternHamilton has Constitutional standing, this Court has maintained jurisdiction and should now

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enter an order allowing the substitution of the bankruptcy trustee as the real party in interest in
this case.
BACKGROUND
Plaintiff Sally Stern-Hamilton filed a complaint alleging First Amendment Retaliation in
connection with her termination by Defendant Mason County District Library, Robert Dickson,
and Marilyn Bannon. Ms. Stern-Hamilton was terminated on July 23, 2008 after fourteen years’
employment with the library. She brought this suit on July 11, 2011, within the three-year
statute of limitations for a § 1983 action in this state. However, between her termination and the
filing of the suit, Ms. Stern-Hamilton filed for and was discharged from bankruptcy in the
Western District of Michigan.
Defendant filed a motion to dismiss under Rule 12(b)(6) alleging that Ms. SternHamilton was judicially estopped from proceeding with her claims. The Court denied the
motion, holding that factual development was required to decide the estoppel issue. Plaintiff
moves this Court to order the substitution of the bankruptcy trustee as the real party in interest.
Since Ms. Stern-Hamilton’s bankruptcy arose after the cause of action in this case arose,
this suit should be prosecuted on behalf of Plaintiff’s creditors, as represented by the trustee.
When Defense counsel notified Plaintiff counsel of the bankruptcy proceeding, Ms. SternHamilton immediately made arrangements to reopen her bankruptcy proceedings. The trustee
has now received permission to pursue this claim for the benefit of the estate and now moves to
be substituted as the real party in interest in this case. This procedure is exactly what was
recommended by the Sixth Circuit and is consistent with bankruptcy law to protect the interests
of Plaintiff’s creditors.

Therefore, Plaintiff respectfully requests that this Court allow the

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substitution of the trustee as the real party in interests in order to pursue this claim on behalf of
the estate.
DISCUSSION
Because Ms. Stern-Hamilton filed for bankruptcy after her termination by Defendants,
the real party in interest in these proceedings is the bankruptcy estate. The trustee seeks to
substitute in a the real party in interest in this case under Federal Rule of Civil Procedure 17(a).
This substitution relates back to the date of filing, which was within the three-year statute of
limitations for a § 1983 claim alleging first amendment retaliation. Plaintiff is aware of no case
law holding that diligent efforts to substitute the bankruptcy estate as the real party in interest
should be denied. Therefore, this Court should permit the substitution of the trustee and let the
trustee continue to pursue the claim on behalf of Ms. Stern-Hamilton’s estate.
I.

Rule 17(a) Allows For Amendment for the Real Party in Interest and Relation Back
As a preliminary matter, Plaintiff agrees that she is not the real party in interest in this

case. According to Federal Rule of Civil Procedure 17(a), an action must be litigated by the real
party in interest. In this case, Ms. Stern-Hamilton is not the real party in interest because this
claim is owned by the bankruptcy estate and has not been abandoned. “Property of a debtor’s
estate includes ‘all legal or equitable interests of the debtor in property as of the commencement
of the case.’” In re Van Dresser Corp., 128 F.3d 945, 947 (6th Cir. 1997) (quoting 11 U.S.C. §
541(a)(1)). "A debtor's appointed trustee has the exclusive right to assert the debtor’s claim." Id.
Therefore, Ms. Stern-Hamilton cannot personally pursue this suit, and Plaintiff seeks to
substitute the trustee as the real party in interest and allow the trustee to pursue Plaintiff’s
employment claim.

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A.

The Trustee Should Allow to Substitute in as the Real Party in Interest

The Federal Rules of Civil Procedure specifically provide that a court should not dismiss
a claim without allowing a reasonable time to add the real party in interest. Specifically, Rule
17(a)(3) states: "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." The Sixth Circuit has instructed
lower courts confronted with this situation to allow the plaintiff a reasonable opportunity to
substitute the trustee. See Knight v. New Farmers Nat’l Bank, No. 90-6071, 1991 U.S. App.
LEXIS 24819 (6th Cir. 1991)(Unpublished)(Exhibit B). In Knight, the district court dismissed
the suit when it determined that the plaintiffs were not the real parties in interest because the
causes of action were property of the bankruptcy estate. The Sixth Circuit reversed, holding that
“the district court did not afford plaintiffs any time to substitute the trustee after determining that
the trustee was the real party in interest. We believe the district court should first consider
ratification or substitution by the trustee prior to dismissing plaintiffs’ case.” Id. at *6.
This suggested path has been followed throughout the district courts. Most recently, in
Piper v. Dollar Gen. Corp., No. 3:11-554, 2011 U.S. DIST LEXIS 112071 (M.D. Tenn.
2011)(Unpublished)(Exhibit C), the court faced a very similar situation to this case. Plaintiff
filed her claim when the claim properly belonged to the bankruptcy estate. Defendant brought a
motion alleging Plaintiff’s claim was barred by judicial estoppel.1

The court found the

individual plaintiff estopped but held that "the appropriate way forward is to stay this action for a
brief period to allow the Trustee, on behalf of the estate, to be substituted for the plaintiff in this
case." Id. at *20. See also., Charboneau v. Jordan, No. 07-12929-BC, 2009 U.S. Dist. LEXIS

1

 Unlike this case, Defendant brought the judicial estoppel argument under a summary judgment
motion.   

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71682 (E.D. Mich. 2009)(Unpublished)(Exhibit D)(staying action for 60 days to allow plaintiff
to go through the bankruptcy court to determine if a trustee has an interest in pursuing the
claims.); Rodriguez v. Mustang Manufacturing, No. 07-cv-13828, 2008 U.S. Dist. LEXIS 50098
(E.D. Mich. 2008)(Unpublished)(Exhibit E)(citing Knight but finding that plaintiff's delay in
responding to Defendant's Rule 17 motion allowed for dismissal).
Plaintiff acknowledges that while an opportunity to substitute the trustee is provided, the
cases are consistent that if Defendant raises the issue, Plaintiff must at some point take
affirmative steps to substitute the bankruptcy trustee. For instance, in Rodriguez, the district
court dismissed the case where, among other factors, the plaintiff took no action in the month
following the defendant’s objection that he was not the real party in interest. The district court
noted that allowing time to reopen at this point would take months of delay.2 See also, Dare v.
Citibank, No. 1-06-165, 2007 US Dist. LEXIS 42278 (S.D. Ohio February 1,
2007)(Unpublished)(Exhibit F)(dismissing suit under Rule 17 where after a reasonable time, "the
trustee has not attempted to substitute herself as the real party in interest").
Here, however, Plaintiff has moved expeditiously since the issue was raised by
Defendant. Plaintiff has already successfully moved to reopen her bankruptcy, and now the
trustee has been empowered to pursue this action. Therefore, Ms. Stern-Hamilton and the
Trustee have complied with Rule 17(a)(3) by attempting to substitute the real party in interest in
a “reasonable time.”

2

Rodriguez does hint at a more limited approach to Rule 17(a)(3) and notes that, as here, the suit
was filed years after the bankruptcy. However, the court also specifically notes that Rule
17(a)(3) is not jurisdictional, and unlike the plaintiff in that case, here, Plaintiff has moved with
all deliberate speed to reopen the bankruptcy and substitute the estate once the defense was
raised. 
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B.

The Trustee’s Substitution Relates Back to the Date Ms. Stern-Hamilton
Filed Her Claim.

Rule 17 holds that if substitution of the real party in interest is permitted, that substitution
relates back to the time of filing. Rule 17(a)(3) specifically states that: “After ratification,
joinder, or substitution, the action proceeds as if it had been originally commenced by the real
party in interest.” Courts have unanimously held that this substitution relates back to the original
date of filing, which in this case was within the applicable three-year statute of limitations.
Under Rule 17(a)(3), no problem is presented by the fact that the claim actually belonged to the
trustee when Ms. Stern-Hamilton filed the court. Once a court allows joinder or substitution of
the real party in interest, “their clams automatically related back to the original filing of the
action.” Scheufler v. General Host Corp., 126 F.3d 1261, 1271 (10th Cir. 1997).
In Corbin v. Blankenburg, 39 F.3d 650, 654 (6th Cir. 1995) (en banc), the Court held that
substitution under Rule 17(a)(3) “relates back to the original time when the original party had
standing to sue” and that “no other conclusion is possible” given the language of the rule.
Corbin involved a suit by an ERISA trustee. The claim was properly brought by a trustee who at
some point ceased to be the trustee authorized to represent the plan. At that point, “the plaintiff
in this case ceased to be a real party in interest . . . and thus had no standing to prosecute the
action after that date.” Nonetheless, relation back was appropriate once a new trustee substituted
into the action under Rule 17(a).
Therefore, since substitution under Rule 17(a)(3) is appropriate, the case proceeds as if
the trustee originally commenced the suit in a timely fashion. While an action could not be
commenced as of this date, Ms. Stern-Hamilton properly filed her complaint within the
applicable three-year statute of limitations.

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II.

This Court Has Jurisdiction to Consider this Case
As stated above, Plaintiff should be allowed to substitute the trustee as the real party in

interest under Rule 17(a)(3). Plaintiff is aware that “this provision must be read with the
limitation that a federal district court must, at a minimum arguably have subject matter
jurisdiction over the original claims." Zurich Ins. Co. v. Logitrans, Inc., 297 F.3d 528, 531 (6th
Cir. 2002). This court has subject-matter jurisdiction over the case, and Ms. Stern-Hamilton had
sufficient Constitutional standing to file the claim within the appropriate statute of limitations.
“In order for a federal court to exercise jurisdiction over a matter, the party seeking relief
must have standing to sue. Standing has both constitutional and prudential dimensions. The
constitutional requirements for standing emanate from Art. III, § 2, of the U.S. Constitution,
which grants federal courts jurisdiction over ‘cases’ and ‘controversies.’” Kardules v. City of
Columbus, 95 F.3d 1335, 1346 (6th Cir. 1996). The question therefore is whether Ms. SternHamilton had constitutional standing when she asserted her claim. Ms. Stern-Hamilton must
show both an “injury in fact” and causation between the injury and the conduct of which she
complains. Id.
That test is easily established here, where Ms. Stern-Hamilton was personally injured by
the termination of her employment, and her complaint alleges that the termination itself was
unlawful. The lawsuit was filed by Ms. Stern-Hamilton inside the relevant statute of limitations
under 42 U.S.C. § 1983. Ms. Stern-Hamilton certainly has an interest in the lawsuit. Even if her
creditors are entitled to some portion of the recovery, these creditors include debts that are not
discharged in bankruptcy. Furthermore, Ms. Stern-Hamilton is entitled to any amount received
over and above the amount of her debts. Therefore, Ms. Stern-Hamilton has constitutional
standing.

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The only reason Ms. Stern-Hamilton cannot pursue a claim on her own behalf is the
salutary decision of Congress to pass bankruptcy legislation that calls for all causes of action that
accrued at the time of filing to go to the bankruptcy estate. Thus, Ms. Stern-Hamilton does not
have statutory standing to pursue the claim (just as she would not if Congress had not passed a
statute akin to § 1983). However, where the deficiency is not Constitutional, Rule 17(a) applies.
“A Rule 17(a) substitution of plaintiffs should be liberally allowed when the change is merely
formal and in no way alters the original complaint's factual allegations as to the events or the
participants.” Zurich, 297 F.3d at 535 (Gillman, J. concurring) (quoting Advanced Magnetics,
Inc. v. Bayfront Partners, Inc., 106 F.3d 11, 20 (2d Cir. 1997)).
Moreover, a real party in interest defense can be waived, demonstrating that unlike
Constitutional standing, it is not jurisdictional. See, e.g., Sch. Bd. of Avoyelles Parish v. United
States DOI, 647 F.3d 570, 577-78 (5th Cir. 2011) (noting that the Rule 17(a)(1) requirement is
prudential and finding that defendant had waived the issue); Anderson v. Old Nat’l Bankcorp,
675 F. Supp. 2d 701, (W.D. Ky. 2009) (holding Rule 17(a) defense was waived and citing cases
from the Second, Eighth, Tenth, and Eleventh Circuits). Since Defendant could waive this issue,
this Court could have allowed Ms. Stern-Hamilton to pursue this matter on her own behalf all the
way through trial, even if it knew about the bankruptcy issue. For instance, in Steger v. Electric
Co., 318 F.3d 1066, 1080 (11th Cir. 2003), the defendant actually opposed the joinder of the
trustee. Plaintiff filed for bankruptcy while her employment claim was pending and moved to
join the trustee shortly before trial. The Eleventh Circuit affirmed the district court’s decision to
allow the plaintiff to try the case on her own behalf.

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For these reasons, this Court retains jurisdiction over the case. Ms. Stern-Hamilton had
constitutional standing to bring her claim, and any deficiency for her not being the real party in
interest is eliminated by the plain language of Rule 17(a)(3).
CONCLUSION
Plaintiff's claim belongs to the bankruptcy estate. Therefore, the trustee should substitute
in as the real party in interest. Rule 17 and the unanimous case law interpreting the rule allow
the plaintiff a reasonable time to make the necessary substitution. In this case, Plaintiff has
diligently taken the necessary steps to reopen her bankruptcy proceeding and have the trustee
receive permission from the bankruptcy court to pursue this action on behalf of the estate. Under
Rule 17(a)(3), the substitution of the trustee relates back to the date of filing. Finally, Plaintiff
had sufficient standing to bring this suit, meaning this Court has and still maintains jurisdiction
over the action.
Respectfully submitted,
NACHT, ROUMEL, SALVATORE,
BLANCHARD & WALKER, P.C.
/s/ David M. Blanchard
David M. Blanchard (P67190)
Counsel for Plaintiff/Bankruptcy
Trustee
101 N. Main Street, Suite 555
Ann Arbor, MI 48014
[phone]
[e-mail]
Dated: October 14, 2011

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CERTIFICATE OF SERVICE
I hereby certify that on October 14, 2011, my paralegal, Natalie M. Walter, electronically
filed the foregoing paper with the Clerk of the Court using the ECF system which will send
notification of such filing to the following: Kathleen J. Klaus, Esq.
Respectfully submitted,
NACHT, ROUMEL, SALVATORE,
BLANCHARD & WALKER, P.C.
/s/ David M. Blanchard
David M. Blanchard (P67190)
Counsel for Plaintiff/Bankruptcy
Trustee
101 N. Main Street, Suite 555
Ann Arbor, MI 48014
[phone]
[e-mail]
Dated: October 14, 2011

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