Price et al v. Deeba et al
Filing
97
ORDER granting 34 Motion to Dismiss for Lack of Jurisdiction; granting 35 Motion to Dismiss for Lack of Jurisdiction; granting 44 Motion to Dismiss; denying 54 Motion to Amend. Defendant Hill and Plaintiffs shall file simultaneous briefs on the issue of subject matter jurisdiction within 14 days. Signed by Honorable Timothy D. DeGiusti on 9/17/2014. (mb)
IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF OKLAHOMA
JENNIFER PRICE, et al.
Plaintiffs,
vs.
MICHAEL DEEBA, et al.,
Defendants.
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Case No. CIV-14-319-D
ORDER
Before the Court are the following motions filed pursuant to Rule 12(b)(1) and (b)(6),
Fed. R. Civ. P.: Defendant The Martens Companies’ Motion to Dismiss [Doc. No. 34];
Defendant Receivership Services Corporation’s Motion to Dismiss [Doc. No. 35]; and
Amended Motion to Dismiss Amended Complaint [Doc. No. 44] of Defendants Michael
Deeba and Michael E. Deeba PLLC. Plaintiffs have opposed the Motions, which are fully
briefed and at issue. They have also filed Plaintiffs’ Motion for Leave to Amend [Doc.
No. 54], which proposes to cure any pleading deficiencies by filing a Second Amended
Complaint. All defendants, including Price Edwards & Company and Jackie Hill, have
objected to Plaintiffs’ Motion, which is also fully briefed and at issue.
Factual and Procedural Background
This case relates to the bankruptcy case of Macco Properties, Inc. (“Macco”), which
remains pending in this judicial district. See In re Macco Prop., Inc., No. 10-16682-NLJ
(Bankr. W.D. Okla.).1 The corporate debtor filed a voluntary petition under Chapter 11 of
the Bankruptcy Code in November, 2010, to reorganize its business of managing real estate
properties owned by “subsidiary” limited liability companies (or LLCs).2 Plaintiffs Jennifer
Price and Lew McGinnis are, respectively, Macco’s sole shareholder and president/chief
operating officer. Mr. McGinnis is also an unsecured creditor, having purchased and taken
assignment of an unsatisfied claim shortly before filing this action.3 Plaintiffs have sued a
number of persons and entities connected to the bankruptcy case based on allegations of
negligence, gross mismanagement, breach of fiduciary duties, and conspiracy to damage the
bankruptcy estate and “make sure that Plaintiffs were left with nothing.” See First Am.
Compl. [Doc. No. 18] ¶ 198.
Defendant Michael Deeba (“Deeba”) is the bankruptcy trustee. He was appointed by
the bankruptcy court on May 31, 2011, upon motion of the United States Trustee alleging
breach by Macco of the debtor-in-possession’s obligations under Plaintiffs’ management.
See In re Macco Prop., Inc., No. 10-16682-NLJ, Motion to Appoint Trustee (Bankr. W.D.
1
Some facts stated in this Order are not alleged in Plaintiffs’ pleadings but are shown by the
bankruptcy court’s case records. These facts may be considered in ruling on a motion to dismiss, even one
governed by Rule 12(b)(6). See Tal v. Hogan, 453 F.3d 1244, 1264 n.24 (10th Cir. 2006); see also Pace v.
Swerdlow, 519 F.3d 1067, 1072 (10th Cir. 2008).
2
See First Am. Compl. [Doc. No. 18] (referring to LLC’s wholly owned or controlled by Macco as
subsidiaries).
3
Plaintiffs also allege that “Mr. McGinnis owns an equity piece in some of the subsidiary companies
along with Macco.” See First Am. Compl. ¶ 25. The meaning of this allegation is unclear. The best
description of Mr. McGinnis’ interest, however, appears to be that he was “a co-owner of the entities that
owned an interest in the . . . subsidiaries.” Id. ¶ 104. Thus, the Court understands that Mr. McGinnis was
not personally a member of any LLC that was not wholly owned by Macco.
2
Okla. May 6, 2011).4 With approval of the bankruptcy court, Deeba’s professional
corporation, Michael E. Deeba PLLC, provided financial accounting services to the trustee.
With similar approval, Defendants Receivership Services Corporation (“RSC”) and Price
Edwards & Company were employed to provide real estate management services. Defendant
The Martens Companies is RSC’s parent company. Defendant Jackie Hill (“Hill”) is
Plaintiffs’ former attorney and an unsecured creditor of the estate. He was appointed by the
bankruptcy court to the unsecured creditors’ committee when it was formed; he remains on
the committee, even though his claim has been satisfied, because he has purchased and taken
assignment of another creditor’s claim. Plaintiffs also sued other attorneys and law firms
involved in the bankruptcy case, but voluntarily dismissed those defendants.
The commencement of this civil action was triggered by applications filed in the
bankruptcy case by Deeba, his corporation, and certain attorneys, seeking final approval of
their compensation. Plaintiffs objected to the applications, in part, based on the same
allegations of mismanagement raised in this case. Soon after filing their objections (the day
before a settlement conference in the bankruptcy case), Plaintiffs filed their Complaint in this
case, purporting to assert claims on behalf of the bankruptcy estate and individual claims for
themselves as “ultimate beneficiaries” of the estate. See Compl. [Doc. No. 1], p.2; First Am.
4
The bankruptcy court’s May 31 order was entered by agreement of the parties; it was not based on
proof of the United States Trustee’s allegations. In subsequent proceedings regarding an alleged breach of
the agreement, however – raised by Ms. Price in a motion to dismiss the bankruptcy case and an adversary
proceeding against the trustee – the presiding bankruptcy judge, the Honorable Niles Jackson, made extensive
findings regarding Plaintiffs’ conduct after a five-day evidentiary hearing. Judge Jackson’s 52-page order
fully explains why the appointment was needed. See Price v. Deeba (In re Macco Props., Inc.), Adv. No.
11-1099, Order at 37-38, 40, 42, 49-50 (Bankr. W.D. Okla. Sept. 7, 2011) (the same order was also filed in
the bankruptcy case on that date).
3
Compl. [Doc. No 18], p.3. Plaintiffs seek disgorgement of fees previously paid in the
bankruptcy case and denial of pending applications, and assert “affirmative claims for relief”
that allegedly are not subject to core jurisdiction of the bankruptcy court. Plaintiffs invoke
the subject matter jurisdiction of this Court under 28 U.S.C. § 1334(b). See First Am.
Compl., pp. 4-5 & ¶ 11.
Defendants’ Motions allege numerous deficiencies in the First Amended Complaint,
and seek dismissal on both jurisdictional and merits-based grounds.5 The Court is obliged
to address jurisdiction as a threshold matter, before reaching the merits of Plaintiffs’ claims.
See Steel Co. v. Citizens for a Better Environment, 523 U.S. 83, 94-95 (1998). As presented
by Defendants, the jurisdictional issues are: 1) Whether the Barton doctrine bars Plaintiffs’
claims against Deeba because they did not obtain authorization of the bankruptcy court to sue
the trustee; and 2) Whether Plaintiffs have standing to sue real estate management companies
providing services to the trustee.6 The Barton doctrine, like standing, “is jurisdictional in
nature” and a motion for dismissal on these grounds is governed by Rule 12(b)(1). See
Satterfield v. Malloy, 700 F.3d 1231, 1234 (10th Cir. 2012) (Barton doctrine); see also
Wilderness Society v. Kane County, 632 F.3d 1162, 1168 (10th Cir. 2011) (en banc)
(standing to sue).
5
Many of these same deficiencies have been raised in the answers of the non-moving defendants,
Price Edwards & Company and Hill. As to any jurisdictional deficiency that would deprive the Court of
subject matter jurisdiction, a finding in favor of the movants may also dispose of Plaintiffs’ claims against
other similarly situated defendants, as discussed infra.
6
Defendants also assert a defense of judicial immunity as officers of the bankruptcy court. This rule
of absolute immunity is not jurisdictional but, when applicable, bars a claim for damages. See, e.g., Pierson
v. Ray, 386 U.S. 547, 554 (1967) (common law rule of immunity from liability for damages).
4
Standard for Dismissal Under Rule 12(b)(1)
“Motions to dismiss for lack of subject matter jurisdiction ‘generally take one of two
forms: (1) a facial attack on the sufficiency of the complaint’s allegations as to subject matter
jurisdiction; or (2) a challenge to the actual facts upon which subject matter jurisdiction is
based.’” City of Albuquerque v. U.S. Dept. of Interior, 379 F. 3d 901, 906 (10th Cir. 2004)
(quoting Ruiz v. McDonnell, 299 F. 3d 1173, 1180 (10th Cir. 2002)). Where, as here, “the
movant goes beyond the allegations in the complaint and challenges the facts upon which
subject matter jurisdiction depends . . . , the court must look beyond the complaint and has
wide discretion to allow documentary and even testimonial evidence.” Paper, Allied-Indus.,
Chem. & Energy Workers Int’l Union v. Continental Carbon Co., 428 F.3d 1285, 1292 (10th
Cir. 2005); see Holt v. United States, 46 F. 3d 1000, 1002-03 (10th Cir. 1995). A court may
consider such evidence without converting the motion to one for summary judgment under
Rule 56, unless “the jurisdictional question is intertwined with the merits of the case.” Holt,
46 F. 3d at 1003; see Sizova v. Nat’l Inst. Standards & Tech., 282 F.3d 1320, 1324 (10th Cir.
2002); Pringle v. United States, 208 F.3d 1220, 1222 (10th Cir. 2000). The issues are
considered to be intertwined for this purpose where “resolution of the jurisdictional question
requires resolution of an aspect of the substantive claim.” Pringle, 208 F.3d at 1223; see
Sizova, 282 F.3d at 1324.
In this case, Defendants challenge the factual basis for subject matter jurisdiction,
arguing that the Court lacks jurisdiction because a) Plaintiffs did not obtain permission from
the bankruptcy court to sue the trustee, and b) Plaintiffs seek to recover for alleged injuries
5
to the bankruptcy estate but lack authorization from the bankruptcy court to sue on behalf of
the estate. Both arguments depend on facts outside the First Amended Complaint, but neither
requires resolution of some aspect of Plaintiffs’ substantive claims. Therefore, both issues
can properly be decided under Rule 12(b)(1).
Discussion of Jurisdictional Issues
A.
The Barton Doctrine
The well-established rule announced in Barton v. Barbour, 104 U.S. 126, 128 (1881),
is that “before suit is brought against a receiver leave of the court by which he was appointed
must be obtained.” This same rule applies to a bankruptcy trustee: “Barton precludes suit
against a bankruptcy trustee for claims based on alleged misconduct in the discharge of a
trustee’s official duties absent approval from the appointing bankruptcy court.” Satterfield
v. Malloy, 700 F.3d 1231, 1234-35 (10th Cir. 2012). Plaintiffs assert that this rule does not
apply to their suit against Deeba because the case falls within a recognized exception: the
“ultra vires” exception discussed in Barton, 104 U.S. at 134; and a statutory exception
enacted by Congress, 28 U.S.C. § 959.
1.
Ultra Vires Conduct
This exception rests on the premise that a receiver who acts beyond the scope of his
authority is not protected from a personal suit. See Satterfield, 700 F.3d at 1235. In this
circuit, ultra vires conduct is limited to unauthorized acts such as the wrongful seizure of a
third party’s property. See id. at 1235-36. Accordingly, in a suit by a debtor against the
bankruptcy trustee, “claims based on acts that are related to the official duties of the trustee
6
are barred by the Barton doctrine even if the debtor alleges such acts were taken with
improper motives.” Id. at 1236.
Upon consideration of the First Amended Complaint, the Court finds that Deeba’s
allegedly improper acts related to his official duties as the bankruptcy trustee, and Plaintiffs’
allegations that he was motivated by retaliatory intent are irrelevant to application of the
Barton doctrine. Here, as in Satterfield, Plaintiffs claim
that [Deeba] acted to undermine the value of the estate and otherwise
mismanaged the estate by: deliberately dissipating the estate’s value; . . .
allowing estate properties to be foreclosed upon [or sold for no value]; failing
to provide for the upkeep of the estate; refusing to [make a claim for insurance
proceeds on behalf of the estate]; and failing to exercise reasonable care in
selecting [management companies]. All of this alleged retaliatory misconduct
stemmed from [Deeba’s] duties as trustee and was clearly related to his
administration of the bankruptcy estate.
Id. Therefore, this case does not fall within the ultra vires exception to the Barton doctrine.
Plaintiffs attempt to avoid this conclusion by arguing – and alleging in their First
Amended Complaint – that Deeba exceeded his authority and wrongfully seized the assets
of third parties when he took control of real estate properties owned by Macco’s subsidiary
LLCs, only five of which were in bankruptcy and none of which had a trustee appointed.
Plaintiffs couch their allegations and argument as made on behalf of the “SPE subsidiaries”
of Macco, whose management and control were allegedly usurped by Deeba and whose
assets were allegedly dissipated or devalued. See, e.g., First Am. Compl. ¶¶ 106-08, 110-11.
Although the Court understands these subsidiaries to be LLCs owned by Macco, Plaintiffs
do not identify the LLCs or, if any LLC was not wholly owned, what other entities or persons
7
are members.7 Nevertheless, Plaintiffs purport to bring suit against Deeba “in his role as
manager of the SPE subsidiaries” as distinguished from his role as the bankruptcy trustee.
See id. ¶¶ 19, 22, 83, 132. The Court is not persuaded.
Plaintiffs filed their First Amended Complaint including these allegations in an effort
to overcome Deeba’s motion to dismiss the original Complaint. However, the allegations
are conclusory and fail to support a plausible claim that Deeba exceeded his authority as
trustee. The factual allegations of Plaintiffs’ pleading (as opposed to legal arguments and
conclusions) state that each of the real properties managed by Macco was owned by a single
purpose entity (SPE) that was organized to hold legal title; Macco held the equitable interest
in each property. See First Am. Compl. ¶ 26. These equitable interests, as well as Macco’s
membership interests in the LLCs (whether 100% or a majority share), were property of the
bankruptcy estate under 11 U.S.C. § 541. See In re Albright, 291 B.R. 538, 540 (Bankr. D.
Colo. 2003) (debtor’s bankruptcy filing transferred its membership interest in LLC to
bankruptcy estate, and trustee succeeded to debtor’s rights to control LLC); see also In re
First Protection, Inc., 440 B.R. 821, 830 (9th Cir. 2010) (same). Plaintiffs do not allege that
any person or entity other than Macco had a right to control any LLC.
Further, “Macco’s business was acquiring underperforming properties, improving the
properties, operating the properties, refinancing the properties and selling the properties.”
See First Am. Compl. ¶ 26. Its business “included acting as the manager of the SPE
7
Plaintiffs’ pleading contains a partial list of subsidiaries owned by Macco; owners or members
other than Macco are not sufficiently identified. See First Am. Compl. ¶ 9. Presumably, any LLC whose
assets were unlawfully seized would be the proper party to bring such a claim.
8
subsidiaries.” Id. ¶ 31. Because Macco was engaged in the business of managing the LLCs
and their properties, the trustee of Macco’s bankruptcy estate was obliged carry on this
business and manage the LLCs and properties, as Plaintiffs had done when they were
operating Macco as the debtor-in-possession. In short, Plaintiffs have failed to present
sufficient facts from which to plausibly claim that a “wrongful seizure” of a third party’s
asset occurred or that Deeba engaged in conduct he was not authorized to undertake as
trustee of the bankruptcy estate.
Moreover, the bankruptcy case record refutes Plaintiffs’ allegations that Deeba’s
actions were not authorized by the bankruptcy court. Many of the decisions by Deeba that
Plaintiffs challenge in this action, such as unprofitable sales or abandonment of the LLCs’
properties, were expressly approved by the bankruptcy court, and Deeba filed written reports
of the sales of Macco’s membership interests in the LLCs. The orders approving property
sales and the trustee’s reports are summarized in an exhibit to Deeba’s Motion, with
references to the corresponding entries in the ECF docket report. See Deeba’s Am. Mot.
Dism., Ex. 3 [Doc. No. 45-3]. In addition, the bankruptcy court has rejected Plaintiffs’
allegations of unauthorized conduct and mismanagement by the trustee in the context of
denying a motion to enjoin the trustee and dismiss the case, and in ruling on later objections
to his application for interim compensation.8 Thus, the bankruptcy case record makes clear
8
In the same order explaining why a trustee was needed (see supra note 4), Judge Jackson approved
of actions taken by Deeba soon after his appointment that Plaintiffs alleged were unauthorized. Judge
Jackson found no merit in Ms. Price’s objection to Deeba’s first fee application in which she claimed, among
other things, that he had mismanaged the properties. See In re Macco Props., Inc., Case No. 10-16682-NLJ,
Order Approving Appl. First Interim Comp. by Chap. 11 Trustee (Bankr. W.D. Okla. July 20, 2012).
9
that the bankruptcy court approved and was informed of the trustee’s actions with regard to
management of the LLCs’ properties.
For these reasons, the Court finds that Plaintiffs’ quest to bring their case under the
ultra vires exception to the Barton doctrine fails.
2.
Statutory Exception
A federal statute authorizes a suit against a trustee or receiver as follows:
Trustees, receivers or managers of any property, including debtors in
possession, may be sued, without leave of the court appointing them, with
respect to any of their acts or transactions in carrying on business connected
with such property.
See 28 U.S.C. § 959(a). Federal courts called to interpret § 959 have concluded that
Congress did not intend for this exception to “swallow the rule.” See Satterfield, 700 F.3d
at 1237. Federal appellate courts, including the Tenth Circuit, have interpreted the statute
as a narrow exception applicable “to circumstances in which a trustee is operating a business
in an ongoing manner rather than simply taking administrative steps to liquidate the estate.”
Id. at 1238. The statute “was intended to ‘permit actions redressing torts committed in
furtherance of the debtor’s business, such as the common situation of a negligence claim in
a slip and fall case where a bankruptcy trustee, for example, conducted a retail store.’” Id.
(quoting Carter v. Rodgers, 220 F.3d 1249, 1254 (11th Cir. 2000)). Thus, in Satterfield, the
court found that § 959 did not apply because the plaintiffs were complaining about the
bankruptcy trustee’s alleged misconduct in “‘administering the estate’s property, and not on
tortious acts committed in furtherance of [plaintiff’s] leasing or mortgage and real estate
business.’” Id. at 1238 (quoting Muratore v. Darr, 375 F.3d 140, 145 (1st Cir. 2004)).
10
As a Chapter 11 trustee, Deeba was in some respects carrying on Macco’s business
and might be subject to suit, for example, for personal injuries caused by negligent
maintenance of the real estate properties. Plaintiffs’ claims against Deeba, however, are not
based on negligent operation of Macco’s business as a going concern, but on his acts in
administering and liquidating the estate. Like the debtor in Satterfield, Plaintiffs are
complaining about the manner in which Deeba performed his trustee duties, such as allegedly
dissipating the value of the properties comprising the bankruptcy estate, failing to make good
faith efforts to sell some property, failing to provide for adequate upkeep of the real property,
and failing to exercise reasonable business judgment. See id. at 1233. Plaintiffs are seeking
to recover for alleged injury to the bankruptcy estate that, in turn, caused losses to them as
equity holders or creditors.9 Therefore, the Court finds that Plaintiffs’ claims against Deeba
do not fall within the limited statutory exception created by § 959.
3.
Conclusions Regarding the Barton Doctrine
For these reasons, the Court finds that Plaintiffs’ failure to obtain authorization of the
bankruptcy court to bring this action deprives the Court of jurisdiction of their claims against
Deeba, the bankruptcy trustee. Further, as to Michael E. Deeba PLLC, the First Amended
Complaint does not identify any wrongful act; it appears that Plaintiffs have sued Deeba’s
professional corporation for its role in assisting the trustee or performing some of his duties.
9
Plaintiffs’ claims are not unlike claims of corporate waste and mismanagement, which generally
belong to the corporation and can only be raised by the corporation or by stockholders in a derivative suit.
See Stat-Tech Int’l Corp. v. Delutes (In re Stat-Tech Int’l Corp.), 47 F.3d 1054, 1059 (10th Cir. 1995); see
also Official Committee of Unsecured Creditors v. R.F. Lafferty & Co., Inc., 267 F.3d 340, 348-49 (3d Cir.
2001).
11
Accordingly, any claim against the corporation will be treated as one against the trustee.
Therefore, the Court lacks jurisdiction of all claims against Deeba and his corporation.
This conclusion regarding the trustee may also impact Plaintiffs’ claims against Hill,
a member of the unsecured creditors’ committee. Hill was similarly appointed by the
bankruptcy court, and Plaintiffs similarly claim that Hill engaged in conduct that breached
a fiduciary duty arising from his official position.10 It would appear that Plaintiffs’ suit
against Hill is also barred by the Barton doctrine due to Plaintiffs’ lack of authorization from
the bankruptcy court to bring their claims. See Carter v. Rodgers, 220 F.3d 1249, 1252
(11th Cir. 2000) (Barton doctrine protects “the trustee or other-court-appointed officer, for
acts done in the actor’s official capacity”); see also Lawrence v. Goldberg, 573 F.3d 1265,
1270 (11th Cir. 2009) (all court-appointed officers or their equivalents were protected by the
Barton doctrine). Prior to the potential dismissal of Plaintiffs’ action against Hill, however,
the Court will permit the parties to brief the jurisdictional issues as they pertain to Hill.
B.
Standing
Plaintiffs assert claims of “gross mismanagement” against service professionals who
were employed by Deeba, with bankruptcy court approval, as real estate managers for some
estate properties. See First Am. Compl. ¶¶ 179, 190. Defendants Price Edwards & Company
and RSC, together with its parent company, The Martens Companies (“Martens”), are the
10
Plaintiffs also allege that Hill’s conduct as a member of the committee breached ethical obligations
owed to them as former clients. This malpractice claim appears to be a collateral attack on Hill’s appointment
to the committee; he allegedly had a conflict of interest and access to confidential information obtained during
the prior representation. The only harm allegedly caused by Hill’s conduct seems to be injury to the
bankruptcy estate and, only derivatively, to Plaintiffs as creditors or equity owners.
12
targets of these claims. Plaintiffs allege that these defendants breached a duty to conserve
and protect the assets of Macco and its subsidiaries, and caused a loss of equity in the
properties. Id. ¶¶ 182, 191.
The Motions of RSC and Martens challenge Plaintiffs’ standing to assert claims of
injury to Macco’s bankruptcy estate.11 The Bankruptcy Code expressly confers on the
bankruptcy trustee, as representative of the estate, standing to sue on its behalf. See
11 U.S.C. § 323. A creditor has no standing to sue for the estate unless a trustee or debtor-inpossession fails to do so and the bankruptcy court authorizes the suit. See, e.g., Starzynski
v. Sequoia Forest Indus., 72 F.3d 816, 821 (10th Cir. 1995). Plaintiffs have not been granted
such authority by the bankruptcy court.
Plaintiffs do not disagree with these principles as applied to their claims on behalf of
the bankruptcy estate. As to these claims, Plaintiffs have made a demand on the bankruptcy
trustee, and after the demand was rejected, Plaintiffs have filed motions in the bankruptcy
case seeking such authority from the bankruptcy court. To date, no disposition of these
motions has been made. Plaintiffs nevertheless assert that they may bring individual claims
for injuries to their own interests, apart from their claims on behalf of the estate.
Plaintiffs attempt to establish an individual right of action by alleging that the loss of
equity in the estate properties caused a diminution in Ms. Price’s ownership interest as the
11
This is a question of “prudential” standing to bring a particular claim, as opposed to the
constitutional minimum of Article III standing. See, e.g., Kowalski v. Tesmer, 543 U.S. 125, 128-29 (2004).
13
equity holder of Macco. See First Am. Compl. ¶¶ 185, 196.12 Plaintiffs argue in their briefs
that the management companies, acting as employees of the trustee or persons in control of
estate properties, owed duties arising under federal and state tort law to safeguard the
interests of creditors and equity holders. Plaintiffs provide no legal authority holding that
an individual creditor or equity holder can sue for a breach of these duties. They simply
assert that the management companies owed “a duty directly to Plaintiffs (as Plaintiffs were
both creditors of the estate as well as beneficiaries of the estate as equity holders of both the
debtor and its subsidiaries). . . [and] Plaintiffs are entitled to sue Defendant[s] on their own
behalf.” See Pls.’ Resp. Br. Martens’ Mot. [Doc. No. 49], ¶ 3; Pls.’ Resp. Br. RSC’s Mot.
[Doc. No. 51], ¶ 7.
The Court finds that Plaintiffs’ argument lacks a sound legal basis. Regardless of a
theory of liability, it is clear that all claims asserted against the management companies in
the First Amended Complaint are based solely on Plaintiffs’ status as creditors or equity
holders. Plaintiffs allege no facts from which to conclude that either of them suffered any
unique injury or loss that was not shared by the estate, creditors, or beneficiaries generally.
The overwhelming weight of authority holds that the trustee has the exclusive right to bring
general claims that are property of the estate; a creditor has only the right to bring a personal
claim, that is, one in which “the claimant himself is harmed and no other claimant or creditor
has an interest in the cause.” See CBS, Inc. v. Folks (In re Folks), 211 B.R. 378, 387 (9th
12
The First Amended Complaint also alleges there was a loss of equity by “the co-owners of the SPE
subsidiaries.” Id. ¶ 183. However, there are no factual allegations to establish that either individual plaintiff
was an owner or member of any subsidiary LLC.
14
Cir. BAP 1997) (internal quotation omitted); see also Levey v. Systems Div., Inc. (In re
Teknek, LLC), 563 F.3d 639, 646 (7th Cir. 2009). “‘If a claim is a general one, with no
particularized injury arising from it, and if that claim could be brought by any creditor of the
debtor, the trustee is the proper person to assert the claim, and the creditors are bound by the
outcome of the trustee’s action.’” Folks, 211 B.R. at 387 (quoting Kalb, Voorhis & Co. v.
American Fin. Corp., 8 F.3d 130, 132 (2d Cir. 1993)). “A creditor must assert a direct injury
to have standing to sue outside of the bankruptcy proceedings.” Newby v. Enron Corp., (In
re Enron Corp. Sec., Derivative & “ERISA” Litig.), 511 F. Supp. 2d 742, 798 (S.D. Tex.
2005).
Under the circumstances presented, Plaintiffs may not bring claims against the estate
professionals on their own behalf because Plaintiffs share an alleged injury “common to all
creditors and ha[ve] personally been injured only in an indirect manner.” Teknek, 563 F.3d
at 646. Therefore, Plaintiffs’ action against the management companies – RSC, Martens, and
Price Edwards & Company – must be dismissed for lack of standing.13
Standard for Amendment of Pleadings
Plaintiffs propose to file a Second Amended Complaint if their existing pleading is
found to be deficient. Plaintiffs’ Motion is governed by Rule 15(a)(2), Fed. R. Civ. P., which
directs courts to “freely give leave [to amend] when justice so requires.” This rule is
13
Although Price Edwards & Company did not move for dismissal, the Court has an independent
obligation to determine its jurisdiction. See 1mage Software, Inc. v. Reynolds and Reynolds Co., 459 F.3d
1044, 1048 (10th Cir. 2006). Because Plaintiffs’ claims against this defendant are indistinguishable from
their claims against RSC and Martens, and because the jurisdictional issues have been fully briefed, the Court
finds that Plaintiffs’ claims against Price Edwards & Company should also be dismissed.
15
intended “to provide litigants ‘the maximum opportunity for each claim to be decided on its
merits rather than on procedural niceties.’” Minter v. Prime Equip. Co., 451 F.3d 1196, 1204
(10th Cir. 2006) (quoting Hardin v. Manitowoc-Forsythe Corp., 691 F.2d 449, 456 (10th Cir.
1982)). Accordingly, a request to amend a pleading should be granted unless a sufficient
reason exists to deny it. Id.; see Foman v. Davis, 371 U.S. 178, 182 (1962). “‘Refusing leave
to amend is generally only justified upon a showing of undue delay, undue prejudice to the
opposing party, bad faith or dilatory motive, failure to cure deficiencies by amendments
previously allowed, or futility of amendment.’” Bylin v. Billings, 568 F.3d 1224, 1229 (10th
Cir. 2009) (quoting Frank v. U.S. West, Inc., 3 F.3d 1357, 1365 (10th Cir. 1993)).
Application to Plaintiffs’ Second Amended Complaint
Defendants oppose Plaintiffs’ request to further amend their pleading on grounds that
Plaintiffs have already been allowed an amendment after being advised of the deficiencies
by prior motions to dismiss, and that Plaintiffs’ proposed second amendment would be futile.
In view of the jurisdictional deficiencies found by this Order, the Court agrees that permitting
Plaintiffs to file the Second Amended Complaint attached to their Motion would be futile.14
The Court has carefully reviewed Plaintiffs’ 75-page proposed pleading.15 In it, the
Court finds insufficient factual allegations to avoid the protection of the Barton doctrine or
14
Notably, Plaintiffs do not appear to disagree with Defendants’ futility objections. The only
arguments in Plaintiffs’ reply brief addressing futility assume that either the motions to dismiss lack merit
or the bankruptcy court will grant Plaintiffs’ motions for authorization to sue the trustee and the management
companies. See Pls.’ Reply Br. [Doc. No. 76] at 7-9.
15
For convenience, the Court reviewed the redlined draft submitted in response to Plaintiffs’ Motion.
See Deeba’s Objection, Ex. 1 [Doc. No. 68-1].
16
to establish Plaintiffs’ standing to sue the real estate management companies employed by
the trustee. Plaintiffs do not allege any additional facts showing that the trustee was acting
outside the authority of his office or that his acts were unrelated to the administration and
liquidation of the bankruptcy estate. Nor do Plaintiffs allege facts that might establish a
personal right of action against the estate professionals. As to these defendants, Plaintiffs’
claims cannot be brought in this Court without prior authorization of the bankruptcy court.
Plaintiffs acknowledge in the proposed Second Amended Complaint that no such
authorization was received before filing suit. The Second Amended Complaint expressly
states that Plaintiffs have filed motions in the bankruptcy case to obtain authorization to sue
but the motions remain pending.16 Therefore, Plaintiffs cannot assert their claims against the
trustee, his professional corporation, or the management companies in this action.
IT IS THEREFORE ORDERED that Defendants’ Motions to Dismiss [Doc. Nos. 34,
35, and 44] are GRANTED, as set forth herein. Plaintiffs’ action against all parties except
Defendant Jackie Hill is dismissed pursuant to Fed. R. Civ. P. 12(b)(1) for lack of
jurisdiction.17 As to Defendant Hill, Plaintiffs and Hill shall file simultaneous briefs on the
issue of subject matter jurisdiction within 14 days from the date of this Order.
16
Electronic access of the bankruptcy case record before entry of this Order revealed no ruling on
the motions.
17
Because the Court lacks jurisdiction, the dismissal must be without prejudice to refiling, even if
refiling would be futile. See Brereton v. Bountiful City Corp., 434 F.3d 1213, 1218 (10th Cir. 2006) (“the
court, having determined that it lacks jurisdiction over the action, is incapable of reaching a disposition on
the merits of the underlying claims”) (emphasis in original).
17
IT IS FURTHER ORDERED that Plaintiffs’ Motion for Leave to Amend [Doc.
No. 54] is DENIED.
IT IS SO ORDERED this 17th day of September, 2014.
18
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