Opinion ID: 410227
Heading Depth: 1
Heading Rank: 1

Heading: Century's Unlisted Antitrust Claim

Text: 10 Century did not list the antitrust cause of action against appellees in the arrangement proceeding, and the claim was not brought to the attention of the bankruptcy court. Whether Stein can now proceed to enforce Century's antitrust claim depends on whether the cause of action revested in the bankrupt, Century, despite its failure to list the asset. Former section 70(i) of the Bankruptcy Act, 11 U.S.C. § 110(i) (1976), provided that upon the confirmation of an arrangement or plan in bankruptcy, the title to the property dealt with shall revest in the bankrupt or debtor. The dispute on appeal centers on whether the antitrust claim can be said to have been dealt with in bankruptcy. 11 Appellant asserts that the property dealt with refers to all property of the bankrupt, listed or unlisted, because all assets and affairs of the debtor come under the control of the bankruptcy proceedings and bankruptcy court. Appellant attempts to bolster his interpretation by reading section 70(i) in conjunction with Bankruptcy Rule 11-38(f), which applies only to Chapter XI arrangements and which provides that a certified copy of the rearrangement plan and of the order confirming the plan shall constitute conclusive evidence of the revesting of title to all property in the debtor. 11 U.S.C.App. Rule 11-38(f) (1976). 12 Stein apparently does not seek to enforce the corporate claim solely for himself, but concedes that Century's creditors may have an interest in the suit. Stein states he would proceed in custodia legis, for the benefit of all creditors. Alternatively, he suggests creditors can intervene if they choose. 13 Appellees contend that property dealt with means all property administered or listed in bankruptcy. They assert that for this reason appellant has no title to the antitrust claim, and that the proper and sole method of enforcing it is to reopen the bankruptcy proceedings under Rule 515. 2 14 Courts and commentators have not considered how unlisted assets are to be pursued after the completion of Chapter XI rearrangements. As we discuss below, somewhat greater attention has been paid to the problems arising from assets concealed or not listed in Chapter X bankruptcy proceedings. In Chapter XI rearrangements, unlike Chapter X bankruptcies, no trustee is appointed to wind down and distribute the debtor's estate. The debtor generally remains in possession of its property and carries out the plan of rearrangement under the supervision of the bankruptcy court. After analyzing Chapter X precedents in light of the policies and procedures of Chapter XI, we conclude that Century retained no title to the unlisted claim upon termination of the Chapter XI rearrangement, and that the district court properly held that Stein could not enforce the claim without first petitioning the bankruptcy court to supervise and administer the action. 15 In Chapter X bankruptcies, title to unlisted assets has been controlled by the well-established doctrine of abandonment. By operation of law, the trustee is vested with title to all of the bankrupt's property at the time the bankruptcy petition is filed. 11 U.S.C. § 110(a) (1976); Dallas Cabana, Inc. v. Hyatt Corp., 441 F.2d 865, 867 (5th Cir. 1971). The bankrupt may assert title to assets that have been abandoned by the trustee, in addition to assets administered by the trustee and intended to revest in the debtor. Unless property is abandoned or intentionally revested, title generally remains in the trustee. Abandonment requires affirmative action or some other evidence of intent by the trustee. See United States v. Ivers, 512 F.2d 121, 124 (8th Cir. 1975); Gochenour v. Cleveland Terminals Bldg. Co., 118 F.2d 89, 94 (6th Cir. 1941); St. Paul Fire & Marine Insurance Co. v. United States, 525 F.Supp. 880, 882 (Ct. Int'l Trade 1981); In re Wudrick, 305 F.Supp. 1123, 1127 (C.D.Cal.1969), modified on other grounds, 451 F.2d 988 (9th Cir. 1971) (per curiam). A bankrupt alleging abandonment has the burden of proving at least the trustee's intention to abandon the asset. The emerging rule, moreover, is that leave of the bankruptcy court is required for the trustee to abandon an asset. Riverside Memorial Mausoleum, Inc. v. UMET Trust, 469 F.Supp. 643, 644 (E.D.Pa.1979) (failure of trustee to press claim did not permit Chapter X bankrupt to bring suit without first petitioning bankruptcy court for order of abandonment); see Scharmer v. Carrollton Manufacturing Co., 525 F.2d 95, 98 (6th Cir. 1975); Dallas Cabana, Inc. v. Hyatt Corp., 441 F.2d at 868 & n.10; St. Paul Fire & Marine Insurance Co., 525 F.Supp. at 882. 16 In cases which concern ownership of assets not listed in Chapter X bankruptcies, the courts reason that abandonment results only when the trustee knows of the existence of the property, so that, at the least, an intent to disclaim can be inferred. When the bankrupt fails to list an asset, he cannot claim abandonment because the trustee has had no opportunity to pursue the claim. These principles were first established by the Supreme Court in First National Bank v. Lasater, 196 U.S. 115, 25 S.Ct. 206, 49 L.Ed. 408 (1905), in which a plaintiff sought to enforce a claim for usury two months after he had received a discharge in bankruptcy and after the trustee had been discharged. The Court held that because the debtor failed to notify either the trustee or the creditors of the claim, the doctrine of abandonment did not apply, and title did not revest in the debtor. 17 It cannot be that a bankrupt, by omitting to schedule and withholding from his trustee all knowledge of certain property, can, after his estate in bankruptcy has been finally closed up, immediately thereafter assert title to the property on the ground that the trustee had never taken any action in respect to it. If the claim was of value ... it was something to which the creditors were entitled, and this bankrupt could not, by withholding knowledge of its existence, obtain a release from his debts and still assert title to the property. 18 Id. at 119, 25 S.Ct. at 208. 19 Courts, invoking Lasater, generally have not permitted parties asserting title to unlisted causes of action to enforce the claim, because they cannot demonstrate abandonment by the trustee. See Management Investors v. United Mine Workers of America, 610 F.2d 384, 392 (6th Cir. 1979); Scharmer v. Carrollton Manufacturing Co., 525 F.2d 95, 98-99 (6th Cir. 1975); Burkett v. Shell Oil Co., 448 F.2d 59 (5th Cir. 1971) (per curiam) (facts set out in subsequent related case at 487 F.2d 1308, 1309-10); Dallas Cabana, Inc. v. Hyatt Corp., 441 F.2d 865 (5th Cir. 1971); In re Thomas, 204 F.2d 788, 793-94 (7th Cir. 1953); Fazakerly v. E. Kahn's Sons Co., 75 F.2d 110, 114 (5th Cir. 1935); St. Paul Fire & Marine Insurance Co., 525 F.Supp. 880, 882 (Ct.Int'l Trade 1981); Moore v. Slonim, 426 F.Supp. 524, 527-28 (D.Conn.), aff'd mem., 562 F.2d 38 (2d Cir. 1977); Hermsmeyer v. A.L.D., Inc., 239 F.Supp. 740 (D.Colo.1964); cf. Wallace v. Lawrence Warehouse Co., 338 F.2d 392 (9th Cir. 1964) (once trustee was appointed, debtor in possession who had brought appeal lost standing to prosecute appeal). 20 As demonstrated in the first two cases cited above, the Sixth Circuit has applied the principle enunciated in Lasater most explicitly to recent Chapter X proceedings. In Scharmer v. Carrollton Manufacturing Co., supra, a former officer, director, and owner of most of the shares of a corporation that had been discharged in Chapter X proceedings sought to enforce causes of action for antitrust violations and related matters against outside parties on the authority of a corporate resolution assigning to him any rights and assets owned by the bankrupt after discharge. Relying on Lasater, the court held that the doctrine of abandonment did not apply because the claims were unscheduled and the bankruptcy court had not authorized abandonment. The Court held the proper procedure would have been a petition to the bankruptcy court to reopen proceedings and determine whether the claims should be administered or abandoned. Because Scharmer chose a more circuitous route, the corporation was never revested with title to the claims and the alleged assignment was a nullity. 525 F.2d at 99. The Sixth Circuit followed the same theory in Management Investors v. United Mine Workers of America, supra. 21 The position adopted by the Sixth Circuit as an interpretation of Lasater is the more widely accepted view, as the cases cited above indicate, though a minority of courts have permitted Chapter X bankrupts to assert sufficient title to bring suit against third parties on unlisted claims, at least until creditors petition the bankruptcy court to reopen and a trustee is appointed. See, e.g., Heywood-Wakefield Co. v. Small, 96 F.2d 496, 500-01 (1st Cir. 1938) (suit for patent infringement); Mills Novelty Co. v. Monarch Tool & Mfg. Co., 49 F.2d 28 (6th Cir.), cert. denied, 284 U.S. 662, 52 S.Ct. 37, 76 L.Ed. 561 (1931) (same); Loose v. Brubacher, 219 Kan. 727, 549 P.2d 991 (1976) (interest in land); McAulton v. Smart, 54 Haw. 488, 510 P.2d 93 (1973) (same); People v. Cole Check Service, Inc., 175 Cal.App.2d 777, 346 P.2d 838 (Dist.Ct.App.1959). 22 In the present case we are faced with a bankrupt's claim to a cause of action not listed in a Chapter XI bankruptcy. Chapter XI proceedings, in which the debtor remains in possession, present a stronger case for preventing bankrupts from asserting title to unlisted assets than in Chapter X cases such as Lasater and Scharmer. 23 Appellant contends that because the debtor remains in possession during Chapter XI rearrangement and because no trustee is appointed, it must follow that all property of the bankrupt, whether administered or unlisted, should revest in the bankrupt. This mischaracterizes the debtor's status. As a debtor in possession, the Chapter XI bankrupt holds the title and powers of trustee, subject at all times to the control of the court. 11 U.S.C. § 742 (1976); see In re Southland Supply, Inc., 657 F.2d 1076, 1080 (9th Cir. 1981); Wallace v. Lawrence Warehouse Co., 338 F.2d 392, 393 (9th Cir. 1964). The debtor in possession is a fiduciary, and owes the same duties as a trustee. Gochenour v. Cleveland Terminals Bldg. Co., 118 F.2d 89, 93 (6th Cir. 1941). The debtor in possession is strictly supervised by the bankruptcy court, and his actions, including abandonment, must be approved. The bankrupt does not act in his own interests until he reverts to his former status upon discharge and confirmation of the plan. The extent of the fiduciary duties should not vary with the identity of the one who performs that role. 24 The dangers resulting from the concealment of assets are greater when the debtor remains in possession than in cases in which a third party acts as trustee. An outside trustee is a separate mechanism for discovering unlisted claims or assets. If a debtor in possession were permitted to omit claims in bankruptcy and later assert title to them, there might be an inducement to do so, to the prejudice of creditors' interests. Such a rule would undermine the fiduciary status of the debtor in possession. Whether or not the failure to list the asset in the case before us was intentional, the opportunity for concealment must be considered in formulating the proper general rule. 25 The post-Lasater Supreme Court case, Danciger & Emerich Oil Co. v. Smith, 276 U.S. 542, 48 S.Ct. 344, 72 L.Ed. 681 (1928), does not suggest a result different from that in Lasater in debtor in possession cases. In Danciger, the bankrupt sought to enforce a claim after he had received a discharge in a voluntary proceeding in which he did not mention the claim and in which no trustee had been appointed because there were no other assets. The Court held that the bankrupt was the owner of the claim and could assert title to it, because no trustee had been appointed and property remains in the debtor until such time. The Court held that the Lasater doctrine did not apply because there a trustee had been appointed to whom the right of action had passed. Id. at 547, 48 S.Ct. at 345. We conclude Danciger's holding does not apply to Chapter XI cases in which the debtor remains in possession. A debtor in possession holds title to property as a fiduciary for the creditors, as in Lasater. In Danciger a trustee had not been appointed and the bankrupt was not acting as a trustee and had no fiduciary obligation, at least under the statutory scheme. 26 We hold that in Chapter XI proceedings, property dealt with refers to property administered or listed in the bankruptcy proceedings and supervised by the bankruptcy court, and therefore only such property reverts to the bankrupt upon termination of the bankruptcy proceedings. 27 Rule 11-38(f), providing that the certified copy of the Chapter XI plan and order constitutes conclusive evidence of the revesting of title to all property in the debtor, has evidentiary effect only. It simply means that the Chapter XI plan constitutes conclusive evidence of the revesting of title to all property in the debtor that was dealt with properly in the bankruptcy. The proper procedure to enforce any newly discovered asset neither listed nor abandoned by the debtor in possession is to petition the bankruptcy court to reopen the proceedings under Rule 515 to permit the court to decide whether reopening is desirable and, if so, whether the claim is to be administered for the benefit of creditors or abandoned. If the claim is to be enforced for the estate, a trustee will be appointed for its enforcement. The title to the antitrust claims that were not listed in Century's Chapter XI proceedings did not revest in Century upon its discharge in bankruptcy, and the assignment to Stein was a nullity. 28 Stein seeks to sue in custodia legis for the benefit of creditors, contending that until a trustee is again appointed, the bankrupt is the only existing entity who may hold title to the asset. This misconceives the nature of the bankruptcy estate. Property of the bankrupt remains in custodia legis in the bankruptcy court during the period in which no trustee has been appointed and after the discharge of the trustee, United States v. Ivers, 512 F.2d 121, 124 (8th Cir. 1975); Stanolind Oil & Gas Co. v. Logan, 92 F.2d 28, 31 (5th Cir. 1937), cert. denied, 302 U.S. 763, 58 S.Ct. 409, 82 L.Ed. 592 (1938), but title need not reside in a physical entity. Title may remain dormant, in the estate, until the bankruptcy court again appoints a trustee as enforcing guardian. Stanolind Oil & Gas Co., 92 F.2d at 31. Without petitioning the bankruptcy court, Stein cannot resurrect the estate to proceed in custodia legis. Similarly, Stein may not proceed for the benefit of creditors. The creditors themselves could not have proceeded to enforce Century's antitrust claims without having obtained leave of the bankruptcy court, so Stein is in no better position by proceeding in their name. See Management Investors v. United Mine Workers of America, 610 F.2d 384, 393 (6th Cir. 1979); Dallas Cabana, Inc. v. Hyatt Corp., 441 F.2d 865, 868 (5th Cir. 1971); Gochenour v. Cleveland Terminals Bldg. Co., 118 F.2d 89, 94-95 (6th Cir. 1941); St. Paul Fire & Marine Insurance Co., 525 F.Supp. 880, 882 (Ct. Int'l Trade 1981); Gochenour v. George & Francis Ball Foundation, 35 F.Supp. 508 (S.D.Ind.1940), aff'd, 117 F.2d 259 (7th Cir. 1941) (per curiam). 29 We also reject Stein's final argument that the alleged antitrust tortfeasors are not the proper parties to raise the bankruptcy proceedings as a defense. The right to sue goes to the essential merits of the claim, as the identity of the injured party relates directly to the measure of damages and under general standing principles only the injured party ensures the adversary interest necessary to prosecute the suit. The defendants in the district court were entitled to contend that Stein lacked title to the claim he was asserting. 30 Appellants do not specifically argue, but underlying their appeal is the implicit claim, that the district court should not have dismissed the claim without prejudice but rather should have stayed the case so that the bankruptcy proceedings could be reopened, a trustee appointed, and the trustee joined in the suit as plaintiff. In fact, ordering a stay on plaintiff's motion is the most sensible solution to the problems presented by this type of case. A stay would enable a trustee to intervene on behalf of creditors while at the same time permitting appellant's allegations of antitrust violations to be fully adjudicated. The only parties benefiting from the absence of a stay are those accused of violating the antitrust laws. In the case at hand, however, appellants did not petition the district court for a stay. The estate here has already been resolved, and the debtor in possession has been relieved of its duties as trustee. While on first impression we likely would have stayed the assigned claim pending a decision by the bankruptcy court, we cannot say that the trial court-in the absence of a motion for a stay by appellants-abused its discretion in dismissing the cause of action. Management Investors, v. United Mine Workers of America, 610 F.2d at 392-93. 31 We recognize that the dismissal of the corporate claim raises the possibility that the antitrust defendants will go free because of the bar of the statute of limitations, though we intimate no opinion on that issue. If this is the case, it is not the result of the rules that have been established for the sound administration of bankruptcy estates and proceedings. (T)he predicament in which (appellant) now finds himself is the result of his never having listed this right of action as an asset of his bankruptcy estate or otherwise brought it to the trustee's attention. Management Investors v. United Mine Workers of America, 610 F.2d at 393. The dismissal of Stein's assigned corporate claim was proper.