Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-canb-4_06-ap-04072/USCOURTS-canb-4_06-ap-04072-0/pdf.json

Parties Involved:
James D. Golladay
Plaintiff
Lois I. Brady
Defendant

Document Text:

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UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

In re No. 00-40496 TD

Chapter 7

JOHN THOMAS COBURN,

Debtor.

___________________________/

JAMES D. GOLLADAY, A.P. No. 06-4072 AT

Plaintiff,

vs.

LOIS I. BRADY, Trustee,

Defendants.

___________________________/

MEMORANDUM OF DECISION

In this adversary proceeding, Creditor James D. Golladay

(“Golladay”) asserts claims against Lois I. Brady, the chapter 7

trustee of the above-captioned estate, (the “Trustee”) for

negligence, breach of fiduciary duty, and negligent

misrepresentation. The Trustee moves to dismiss the claims with

prejudice. For the reasons stated below, her motion will be granted.

Signed: July 06, 2006

________________________________________

LESLIE TCHAIKOVSKY

U.S. Bankruptcy Judge

________________________________________

Entered on Docket 

July 06, 2006

GLORIA L. FRANKLIN, CLERK 

U.S BANKRUPTCY COURT 

NORTHERN DISTRICT OF CALIFORNIA

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SUMMARY OF FACTS

John Thomas Coburn (“Coburn”) filed a voluntary chapter 11

petition on January 27, 2000. He had caused his solely owned

corporation, Envirodyne Corporation (“Enviroydyne”), to file a

chapter 11 petition the previous day. Both Envirodyne and Coburn

continued to operate during the chapter 11 cases as debtors in

possession. No reorganization plan was ever confirmed in either

case, and on May 1, 2001, orders were entered converting both cases

to chapter 7 of the Bankruptcy Code. 

Brady was appointed as the chapter 7 trustee in the Coburn case.

In November 2001, she was authorized to employ Reidun Stromsheim as

her general bankruptcy counsel. Various disputes arose between Brady

and the chapter 7 trustee of the Envirodyne estate–-William Broach

(“Broach”)--concerning which estate owned which scheduled asset. The

principal assets in controversy were a condominium in Mexico (the

“Mexican Condo”), a judgment against Donna Pinion (the “Pinion

Receivables”), and two race cars, a T-70 Lola (the “T-70 Race Car”),

and a T-162 Lola (the “T-162 Race Car”). Brady and Broach negotiated

a settlement of those disputes (the “Trustees’ Compromise”).

Golladay filed an objection to the Trustees’ Compromise when it was

noticed for Court approval in the Envirodyne case.

Thereafter, Golladay negotiated a settlement of his objection

with Brady and Broach (the “Golladay Compromise”). In February 2004,

Brady gave notice to creditors of the Coburn estate of the Golladay

Compromise. No party in interest objected, and an order approving

the Golladay Compromise was entered on March 29, 2004. Based on the

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Golladay Compromise, Golladay withdrew his objection to the Trustees’

Compromise in the Envirodyne case.

Brady filed her final report and final application for

compensation in the Coburn case on October 26, 2004. Orders

approving the final report and the fee applications were entered on

December 9, 2004. On February 15, 2005, a final decree was entered,

and the Coburn case was closed. On February 22, 2006, on Golladay’s

motion, the Coburn case was reopened to permit Golladay to prosecute

a previously filed adversary proceeding against Brady: i.e., the

above-captioned adversary proceeding. 

On March 13, 2006, Brady filed a motion to dismiss the complaint

(the “Original Complaint”). On April 10, 2006, Brady filed a

supplement to the motion (the “Supplement”). The parties appeared at

a status conference in the proceeding on April 17, 2006. The Court

continued the status conference to May 18, 2006 when the motion to

dismiss was scheduled to be heard. The Court gave Golladay until May

4, 2006 to file an opposition to the motion and Brady until May 11,

2006 to file a reply. No further briefs were filed. However, on May

16, 2006, Golladay filed an amended complaint (the “Amended

Complaint”). The parties appeared at the May 18, 2006, and the

matter was argued at some length. At the conclusion of the hearing,

the motion was taken under submission. 

DISCUSSION

A. APPLICABLE LAW

Although Brady’s motion to dismiss the Original Complaint does

not identify the procedural rule upon which it relies, the motion

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She also based her original motion to dismiss on Golladay’s

failure to serve her with the complaint and summons on a timely

basis. She noted that the summons was issued on February 14, 2006,

was required to be served within 10 days from the issuance of the

summons. See Fed. R. Bankr. Proc. 7004(e). She declared that she

did not receive copies of the summons and complaint until March 11,

2006. Although this would have prevented Golladay from having

Brady’s default taken if she failed to answer the complaint, it was

not grounds for dismissal of the complaint. A plaintiff may

correct the error of untimely service of a summons and complaint by

obtaining the issuance of an alias summons and serving the alias

summons and the complaint within 10 days from the date of issuance

of the alias summons.

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appears to be based on Rule 12(b)(6) of the Federal Rules of Civil

Procedure, made applicable to this proceeding by Rule 7012(b) of the

Federal Rules of Bankruptcy Procedure. There is a presumption

against granting a motion to dismiss a complaint with prejudice on

this basis. Such motions should be granted only if, taking all of

the allegations set forth in the complaint to be true, there does not

appear to be any reasonable chance that a claim may be stated upon

which relief could be granted. See Whitehorn v. Federal

Communications Comm’n, 235 F.Supp.2d 1092, 1096 (D. Nev. 2002).

B. DECISION

The initial basis for the Brady’s motion to dismiss the Original

Complaint filed by Golladay was that Golladay had failed to obtain

the Court’s permission to sue her.1 She filed this motion pro se and

cited no authority in support of her motion. In the Supplement, now

represented by counsel, she cited authority which she contended

supported the initial basis for her motion, referring to it as the

Barton Doctrine. In addition, Brady asserted that Golladay’s claims

were barred by the doctrine of res judicata. She incorporated the

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arguments based on this theory made by Broach in his motion to

dismiss the adversary proceeding filed against him by Golladay in the

Envirodyne case. The Court will address each of these two rationales

for Brady’s motion below.

A. BARTON DOCTRINE

Brady contends that the Barton Doctrine compels dismissal of the

Original Complaint, presumably without prejudice. The Barton

Doctrine holds that permission of the appointing court must be

obtained before a trustee is sued in a court other than the

appointing court. See In re Crown Vanatge, Inc., 421 F.3d 963, 970

(9th Cir. 2005); In re Kashani, 190 B.R. 875, 889 (Bankr. 9th Cir.

1995). It does not apply when a trustee is sued in the court that

appointed her. Kashani at 888. Therefore, Brady’s motion to

dismiss may not be granted based on the Barton Doctrine.

B. RES JUDICATA

As noted above, the Supplement added a second basis for the

motion to dismiss, adopted from the motion filed by Broach in the

Envirodyne case. In the Supplement, Brady contended that Golladay’s

claims were barred by the doctrine of res judicata. The doctrine of

res judicata–-sometimes referred to as claim preclusion--provides

that a final judgment on the merits precludes further litigation on

issues that either were or could have been litigated in the prior

proceeding. Montana v. U.S., 440 U.S. 147, 153 (1979); Nordhorn v.

Ladish Co., 9 F.3d 1402, 1404 (9th Cir. 1993). 

Brady contends that Golladay’s claims are barred by res judicata

based on the order approving her final fee application, to which he

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did not object. In a bankruptcy case, a final fee award is

considered a final judgment on the merits. See In re Iannochino, 242

F.3d 36, 44 (1st Cir. 2001). As recited above, Brady’s final fee

application was approved pursuant to an order entered on December 9,

2004. Golladay was sent notice of the hearing on the application and

did not file an objection. Because claims of malfeasance or

nonfeasance could have been asserted as an objection to a fee

application, subsequent actions against a trustee or professional by

a party in interest who received notice of the applications are

barred by the doctrine of res judicata. See In re Shaw, 2000 WL

1897344 at *6 (N.D. Cal. 2000); Epstein v. Visher, 1997 WL 231108 at

*1 (N.D. Cal.). 

In determining whether the doctrine of res judicata bars pending

litigation, the Court must examine four factors as follows:

(1) whether rights or interests established in

the prior judgment would be destroyed or

impaired by the prosecution of the second

action; (2) whether substantially the same

evidence is presented in the two actions; (3)

whether the two suits involve infringement of

the same right; and (4) whether the two suits

arise out of the same transactional nucleus of

facts. 

Nordhorn, 9 F.3d at 1405. In the Original Complaint, Golladay

alleged that Brady acted negligently and breached her fiduciary duty

in the following respects: 

1. Falsely stated that the Mexican Condo belonged to the Coburn

estate and was registered in Coburn’s name when it was in fact owned

by Envirodyne;

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In the Amended Complaint, Golladay also asked the Court to

set aside the Golladay Compromise. This request will be addressed

in the final section of this memorandum. 

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2. Negligently failed to take timely and effective action to

acquire possession of the Mexican Condo for the Coburn estate;

3. Falsely maintained that the T-70 Race Car, which was owned

by Envirodyne, was property of the Coburn estate and negligently took

no effective action to prevent Coburn from successfully concealing it

or to punish him for having done so;

4. Negligently failed to employ a private investigator to press

for recovery of the T-70 Race Car;

5. Ignored Golladay’s repeated pleas to represent the Coburn

estate directly to the Mexican court so as to obtain control over the

Mexican Condo.

In the Amended Complaint, Golladay added a claim for negligent

misrepresentation, alleging that Brady negligently misrepresented

that the Mexican Condo was registered in Coburn’s name and was owned

by him.2 Each of the four factors identified in Nordhorn, as applied

to these claims, is discussed below.

(1) Whether Prior Rights Established Would be Destroyed.

The right of a professional to a fee award would be impaired by

permitting a subsequent malpractice claim to be asserted. Shaw at

*5. Similarly, here, Golladay’s claims against Brady--for

negligence, breach of fiduciary duty, and negligent representation--

would impair her fee awards. Thus, the first of the four required

factors is clearly satisfied.

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(2) Whether Two Actions Would Require Substantially the Same

Evidence.

In Shaw, the party asserting the subsequent malpractice action

had objected to the fee application. The Shaw court found that the

evidence presented in support of the objection was the same evidence

that would be offered in support of the malpractice action. Shaw at

*5. Here, Golladay did not file an objection to the fee

applications. However, all of the factual bases for the claims

asserted here could have been asserted in support of such an

objection. 

As noted above, for res judicata to apply, a party need not

have asserted the claim in the prior action. It is sufficient that

the party could have asserted the claim. As recited above, Golladay

received ample notice of the fee applications. He had a full and

fair opportunity to assert his claims in the context of an objection

to the fee applications. Thus, the Court concludes that the second

of the four factors is also satisfied.

(3) Whether Both Actions Involve Infringement of Same Right. 

The Court also concludes that the third factor has been

satisfied. The claims asserted by Golladay here involve the

infringement of the same right as that raised by the fee application.

The right asserted by Golladay here is the right to have the chapter

7 trustee exercise due care in marshalling the debtor’s assets for

the benefit of the estate’s creditors. This is the same right that

he could have asserted by means of an objection to the fee

application.

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Because the order approving the Golladay Compromise was

entered in the bankruptcy case, not in this adversary proceeding,

this request should have been made by motion in the case. However,

as a matter of judicial economy, the Court will address it in the

context of this proceeding. 

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(4) Whether Both Actions Arise Out of Same Nucleus of Facts.

The final factor is also clearly satisfied. The fee application

of a chapter 7 trustee puts at issue the quality of her services on

behalf of the estate and its creditors. This is the same nucleus of

facts raised by Golladay’s claims. See In re Coastal Plains, Inc.,

338 B.R. 703, 713 (N.D. Tex. 2006)(causes of action for negligence

and breach of fiduciary duty are based on same nucleus of operative

facts as trustee’s fee application).

Based on the foregoing, the Court concludes that all of the

claims asserted in the Original and Amended Complaint are barred by

res judicata effect of the order approving Brady’s final fee

application. Therefore, the claims asserted in the Original and

Amended Complaint should be dismissed with prejudice.

C. MOTION TO SET ASIDE GOLLADAY COMPROMISE 

In the Amended Complaint, Golladay also asks the Court to set

aside the order approving the Golladay Compromise.3

 He alleges that

he entered into the Golladay Compromise based on his false assumption

that Brady would supply any necessary legal documents to permit him

to obtain ownership of the Mexican Condo. He contends that the Court

would not have approved the Golladay Compromise had it known about

this false assumption. 

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As recited above, the order approving the Golladay Compromise

was entered on March 29, 2004. Golladay did not seek to set aside

this order until the Amended Complaint was filed on May 16, 2006.

Clearly, Golladay learned of the factual basis for his request to set

aside the order long before the Amended Complaint was filed. The

Court finds that his request untimely. See Fed. R. Civ. Proc. 60(b),

made applicable to this proceeding by Fed. R. Bankr. Proc. 9024. 

Moreover, setting aside the order approving the Golladay

Compromise would have no effect on the Court’s ruling on Brady’s

motion. Unlike Broach’s motion in the Envirodyne case, Brady’s

motion is not based on any release provisions contained in the

agreement embodying the Golladay Compromise. It is based solely on

the doctrine of res judicata

. CONCLUSION

Defendants’ motion to dismiss will be granted in its entirety.

The Barton Doctrine does not support dismissal of the Original or

Amended Complaint. The Barton Doctrine applies only to suits against

trustees filed in courts other than the appointing court. However,

all of the claims asserted in the Original and Amended Complaint are

barred based on the res judicata effect of the order approving

Brady’s final fee application. Therefore, the motion to dismiss all

of the claims asserted with prejudice will be granted. 

Golladay’s request that the order approving Golladay Compromise

be set aside will be denied. The request is untimely. More

important, it would be futile in that it would not change the outcome

of the motion to dismiss. In this proceeding, the motion to dismiss

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is not based on any release provisions contained in the settlement

agreement embodying the Golladay Compromise. 

Brady is directed to submit a proposed form of order in

accordance with this decision. 

END OF DOCUMENT

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COURT SERVICE LIST

Dennis D. Davis

Goldberg, Stinnett, Meyers & Davis

44 Montgomery St., Ste. 2900

San Francisco, CA 94104

James D. Golladay

P.O. Box 1784

Grass Valley, CA 95945

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