Brown et al v. Florida Coastal Partners, LLC et al

Filing 69

OPINION AND ORDER - The Court grants Ms. Brown 21 days from the issuance of this Opinion and Order to file a response to Carlisles motion for summary judgment (Doc. 66). Carlisle may file a reply within fourteen days thereafter. Signed by Magistrate Judge Terence P. Kemp on 10/30/2015. (sr)(This document has been sent by regular mail to the party(ies) listed in the NEF that did not receive electronic notification.)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION

Ronald Brown, et al.,

:

Plaintiffs,

:

v.

:

Florida Coastal Partners, LLC,

Case No. 2:13-cv-1225

:
:

Magistrate Judge Kemp

Defendants.
OPINION AND ORDER
This case (in which the parties have consented to full
disposition by the Magistrate Judge) is before the Court to
determine the effect of a “Notice of Trustee’s abandonment of
Tonya Brown’s claims agaisnt [sic] defendant Carlisle and
Defendant Carlisle’s motion for summary judgment” (Doc 66) which
was filed by defendant Carlisle, McNellie, Rini, Kramer & Ulrich,
Co., LPA (“Carlisle”).
(Doc. 68).

Tonya Brown filed a document in response.

For the reasons set forth below, the Court will allow

Ms. Brown 21 days from the issuance of this Opinion and Order to
file a response to Carlisle’s previously-filed motion for summary
judgment.
I. Background
Although the Court has done so previously, for ease of
reference, the Court will provide a brief summary of the relevant
facts.

The Browns are property owners who are parties to a

foreclosure action filed in the Delaware County Court of Common
Pleas as Case No. 08-CVE-12-1598.

On December 13, 2013, while

the foreclosure action was still pending in the Court of Common
Pleas, the Browns brought this action pursuant to this Court’s
federal question jurisdiction.

On May 23, 2014, with leave of

Court, the Browns filed a “3rd amended complaint” against Florida

Coastal, Mr. Griffith, Carlisle, and John Doe, Individuals 1-50.
Count one of the 3rd amended complaint alleges that the
defendants violated the FDCPA.

More specifically, the Browns

allege that Carlisle falsely represented in the Common Pleas
Court action that its clients were proper party plaintiffs
(specifically, holders of the loan) when, in fact, they were debt
collectors.

The Browns allege that Carlisle’s false and

misleading representations resulted in judgments and sanctions
against them in the foreclosure action.

Similarly, the Browns

allege that Mr. Griffith falsely represented that Florida Coastal
was a proper party plaintiff in that case when, in fact, it was
also a debt collector.

The Browns further allege that Florida

Coastal and Mr. Griffith misrepresented the character, amount,
and legal status of the mortgage and note in violation of the
FDCPA.

The Browns also set forth state law claims for

foreclosure fraud (count two), slander of title (count three),
slander of credit (count four), emotional distress (count five),
and quiet title (count six).

On October 10, 2014, the Court

granted in part a motion to dismiss by Carlisle, dismissing the
Browns’ claims against Carlisle for the intentional infliction of
emotional distress and to quiet title.

(Doc. 46).

On February 20, 2015, Tonya Brown filed a Chapter 11
bankruptcy petition in the United States Bankruptcy Court for the
Southern District of Ohio, Case No. 2:15-bk-50925.

On February

27, 2015, Mr. Griffith and Florida Coastal filed a notice of
bankruptcy and suggestion of stay.

(Doc. 57).

In examining the

bankruptcy, the Court noted that the case was converted to a
Chapter 7 bankruptcy.
In an Opinion and Order issued on July 10, 2015, the Court
examined the impact of Ms. Brown’s bankruptcy on this litigation.
The Court determined that Ms. Brown lacked standing to pursue her
pre-petition claims because those claims were now considered to
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be “property of the estate.”

In other words, because the United

States Trustee (“UST”) was the real party in interest to Ms.
Brown’s claims, the Court analyzed motions before it only to the
extent that they pertained to Mr. Brown.

The Court granted

summary judgment in favor of Carlisle as to Mr. Brown’s claims,
but it withheld judgment as to Ms. Brown’s claims because those
claims belonged to the UST.
On August 7, 2015, Carlisle filed a notice informing this
Court that the UST abandoned all claims of Tonya Brown against
Carlisle.

(Doc. 66).

Carlisle attached a copy of the UST’s

notice, which states in its totality:
It appearing that there is no recoverable claim against
Carlisle, McNellie, Rini, Kramer & Ulrich Co., L.P.A.,
for the benefit of unsecured creditors, the Trustee does
hereby abandon all claims of the Debtor against Carlisle,
McNellie, Rini, Kramer & Ulrich Co., L.P.A.
(Doc. 66. Ex. 1).

In light of the UST’s abandonment of Ms.

Brown’s claims against Carlisle, Carlisle asks the Court to grant
it judgment on Ms. Brown’s claims.
On August 31, 2015, Ms. Brown filed a document which she
styled as an opposition to Carlisle’s motion for summary
judgment.

(Doc. 68).

In her opposition, Ms. Brown states:

The abandonment of assets by a Trustee in bankruptcy is
a process involving multiple events. In the Plaintiffs
[sic] pending bankruptcy case the Trustee has filed a
“Report of No Distribution” on July 20, 2015. In this
instance abandonment is complete upon the discharge of
the debtor and closing of the bankruptcy case (15-50925).
Neither discharge nor closing of Plaintiff’s bankruptcy
case has occurred to date and therefore Carlisle’s motion
for summary judgment is premature and should be denied.
Id. at 2.

For these reasons, Ms. Brown requests that this Court

deny Carlisle’s pending motion for summary judgment.
II. Discussion
This Court will now examine the UST’s abandonment of Ms.

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Brown’s claims against Carlisle and the effect that the
abandonment has in this case.

As this Court stated in its

previous Opinion and Order, once a debtor files a petition in
bankruptcy, only the bankruptcy trustee has standing to pursue
the debtor’s pre-petition causes of action.

Tyler v. Capital

Mgmt., Inc., 736 F.3d 455, 461 (6th Cir. 2013), citing Stevenson
v. J.C. Bradford & Co. (In re Cannon), 277 F.3d 838, 853 (6th
Cir. 2002).

That is, the trustee, and not the debtor, has

standing to pursue existing claims after the debtor files for
bankruptcy protection because such claims are considered to be
“property of the estate” under 11 U.S.C. §541(a)(1).

See, e.g.,

In re Bernstein, 525 B.R. 505, 508 (N.D. Ga. 2015)(“a Chapter 7
debtor lacks standing to litigate pre-petition claims and is not
the real party in interest in whose name such claims may be
brought unless and until such claims are abandoned by the trustee
back to the debtor”).

As the Court of Appeals has observed,

“[t]he Bankruptcy Code itself provides that the bankruptcy estate
comprises ‘all legal or equitable interests of the debtor in
property as of the commencement of the case,’ 11 U.S.C.
§541(a)(1), and it is well established that the ‘interests of the
debtor in property’ include ‘causes of action.’”

Bauer v.

Commerce Union Bank, Clarksville, Tenn., 859 F.2d 438, 440-41
(6th Cir. 1988).
“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.”

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U.S.C. §554(a); see also Biesek v. Soo Line R. Co., 440 F.3d 410,
413-14 (7th Cir. 2006)(noting that a Trustee may abandon assets
of low value, including legal claims).

As a general rule, the

abandoned property returns to the debtor as if no bankruptcy has
been filed.

See In re Renaissance Stone Works, L.L.C., 373 B.R.

817, 820 (E.D. Mich. Aug. 28, 2007).
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In this case, both Carlisle

and Ms. Brown appear to understand that the UST’s abandonment of
Ms. Brown’s claims against Carlisle means that those claims are
no longer part of the bankruptcy estate and, at some point in
time, they once again belong to Ms. Brown.

The disputed issue

between Carlisle and Ms. Brown seems to relate to timing –
specifically, when the abandoned claims revert to Ms. Brown.
Although not stated outright in its motion for summary judgment,
Carlisle is proceeding as if Ms. Brown’s claims have already been
returned to her and are ripe for resolution in this Court.
Conversely, Ms. Brown seems to believe that the claims are not
yet hers to pursue despite the UST’s abandonment, in light of a
“Report of No Distribution” issued by the UST.

According to Ms.

Brown, her claims may not be litigated in this Court until she is
discharged from the bankruptcy and her bankruptcy case is closed.
Hence, Ms. Brown’s position is that Carlisle’s motion for summary
judgment is premature.
On July 20, 2015, the UST issued a report of no
distribution.

That report provides, in relevant part:

I, Christal L. Caudill, having been appointed trustee of
the estate of the above-named debtor(s), report that I
have neither received any property nor paid any money on
account of this estate; that I have made a diligent
inquiry into the financial affairs of the debtor(s) and
the location of the property belonging to the estate; and
that there is no property available for distribution from
the estate over and above that exempted by law. Pursuant
to Fed. R. Bank. P. 5009, I hereby certify that the
estate of the above-named debtor(s) has been fully
administered. I request that I be discharged from any
further duties as trustee.
(Bankr. Doc. 105).

In the report of no distribution, the UST

informed the Bankruptcy Court that the estate had no assets
available for distribution.

In other words, the UST informed the

Court that no creditors would receive payment and the case is
considered to be what is referred to as a “no asset” case.

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This

type of report is not uncommon in Chapter 7 cases, and there is
nothing in the report issued in Ms. Brown’s bankruptcy case which
would impede her ability to pursue the abandoned claims here.
When the UST abandons a claim, “the debtor regains standing
to bring that claim because ‘upon abandonment, the debtor’s
interest in the property is restored nunc pro tunc as of the
filing of the bankruptcy petition.’”

In re Kreisel, 399 B.R.

679, 687 (C.D. Cal. Aug. 14, 2008)(quoting Catalano v. Comm’r of
Internal Revenue, 279 F.3d 682, 685 (6th Cir. 2002)). “Nunc pro
tunc” is a Latin phrase which means “now for then.”

In re Matter

of Diamond Mortg. Corp., 77 B.R. 597, 599 (E.D. Mich. 1987).
Thus, when the UST abandoned Ms. Brown’s claims against Carlisle
in this case, Ms. Brown’s ownership in those claims reverted nunc
pro tunc, so that she is treated as having had ownership in those
claims continuously, as if the bankruptcy was never filed.

See

In re Renaissance Stone Works, L.L.C., 373 B.R. at 820, citing
Morlan v. Universal Guar. Life Ins. Co., 298 F.3d 609, 617 (7th
Cir. 2002)(quoting Wallace v. Lawrence Warehouse Co., 228 F.2d
392, 394 n.1 (9th Cir. 1964)); Mason v. Commissioner of Internal
Revenue, 646 F.2d 1309, 1310 (9th Cir. 1980)(“When the court
grants a trustee’s petition to abandon property in a bankrupt’s
estate, any title that was vested in the trustee extinguished,
and title reverts back to the bankrupt, nunc pro tunc”); Bergeron
v. Ross (In re Ross), 367 B.R. 577, 580 (W.D. Ky. 2007)(quoting
Dewsnup v. Timm (In re Dewsnup), 908 F.2d 588, 590 (10th Cir.
1990))(“[p]roperty abandoned under [section 554] ceases to be
part of the estate.

It reverts to the debtor and stands as if no

bankruptcy petition was filed”); 3 Norton Bankruptcy Law and
Practice 2d §53:1 (William L. Norton, Jr., ed., June 2007 (same).
The automatic stay, which is in place to protect property of
the bankruptcy estate, likewise does not prevent Ms. Brown from
litigating the abandoned claims at this time.
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Indeed, the

automatic stay statute indicates that the stay only “continues
until such property is no longer property of the estate....”
U.S.C. §362(c)(1).

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In other words, “[w]hen property is abandoned

by a Chapter 7 trustee, the automatic stay that protects property
of the estate terminates.”

In re Wagner, 2011 WL 1625031, at *2

(Bankr. N.D. W. Va. Apr. 28, 2011).

Consequently, the law as

this Court understands it allows Ms. Brown to pursue her claims
in this Court at this time, despite the fact that the bankruptcy
case is still pending.
Based upon the foregoing, the Court finds that Carlisle’s
motion for summary judgment is not premature.

Because Ms. Brown

has yet to respond to the substance of the motion, the Court will
grant her 21 days from the issuance of this Opinion and Order to
file an opposition to Carlisle’s motion for summary judgment.
III. Conclusion
For the reasons set forth above, the Court grants Ms. Brown
21 days from the issuance of this Opinion and Order to file a
response to Carlisle’s motion for summary judgment (Doc. 66).
Carlisle may file a reply within fourteen days thereafter.
/s/ Terence P. Kemp
United States Magistrate Judge

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