Opinion ID: 2542771
Heading Depth: 2
Heading Rank: 2

Heading: Brooks's Motion to Substitute Hamm as the Real Party in Interest

Text: A decision on the motion to substitute Hamm as the real party in interest affects the disposition of the rest of the issues on appeal; thus, we address it next. Rule 17(a), Ala. R. Civ. P., requires that [e]very action shall be prosecuted in the name of the real party in interest and that substitution of the real party in interest shall have the same effect as if the action had been commenced in the name of the real party in interest. This Court has stated that `the real party in interest principle is a means to identify the person who possesses the right sought to be enforced.' State v. Property at 2018 Rainbow Drive, 740 So.2d 1025, 1027 (Ala.1999) (quoting Dennis v. Magic City Dodge, Inc., 524 So.2d 616, 618 (Ala.1988)). Therefore, we must determine whether Hamm possesses the right to enforce the FELA claim at issue, and, if so, whether the trial court exceeded its discretion in declining to substitute Hamm as the proper party. All the parties have conceded that under § 541(a)(7) a claim such as Brooks's FELA claim against Norfolk Southern properly belongs to the bankruptcy estate for the benefit of the creditors. This is true even when the property has not been listed in the schedules at the time the bankruptcy case is closed. See, e.g., Lopez v. Specialty Rests. Corp. ( In re Lopez ), 283 B.R. 22, 28 (B.A.P. 9th Cir. 2002) (finding that the Action became property of the bankruptcy estate as of the Petition Date, even though the Action was not listed in the schedules, and property that is neither abandoned nor administered remains property of the estate even after the case is closed. See 11 U.S.C. § 541 (property of estate) and § 554(d) (property not abandoned or administered remains property of estate); Pace v. Battley ( In re Pace ), 146 B.R. 562, 564-66 (9th Cir. BAP 1992), aff'd, 17 F.3d 395 (9th Cir.1994) (table) (unscheduled property remains in estate after case is closed).). Once an asset becomes part of the bankruptcy estate, all rights held by the debtor in the asset are extinguished unless the asset is abandoned back to the debtor pursuant to § 554 of the Bankruptcy Code. See 11 U.S.C. § 554(a)-(c). Parker v. Wendy's Int'l, Inc., 365 F.3d at 1272. Under 11 U.S.C. § 704(1), the bankruptcy trustee has a duty on behalf of the creditors of the bankruptcy estate to collect and reduce to money the property of the estate for which such trustee serves, and close such estate as expeditiously as is compatible with the best interests of parties in interest. The assets of the bankruptcy estateincluding legal claims held by the debtorbecome the responsibility of the bankruptcy trustee. See, e.g., Looney v. Hyundai Motor Mfg. Alabama, LLC, 330 F.Supp.2d 1289, 1292 (M.D.Ala. 2004) (explaining that the duty imposed pursuant to 11 U.S.C. § 704(1) `compels a chapter 7 trustee to take over all nonexempt lawsuits of the debtor' (quoting Travelers Indemnity Co. v. Griner ( In re Griner ), 240 B.R. 432, 436 (Bankr.S.D.Ala. 1999))). Consequently, once a bankruptcy petition has been filed, the bankruptcy trustee is the real party in interest to all nonexempt lawsuits that are part of the debtor's bankruptcy estate. Our courts have recognized this aspect of bankruptcy law on several occasions. ``It is well settled that the right to pursue causes of action formerly belonging to the debtora form of property under the Bankruptcy Codevests in the trustee for the benefit of the estate.'' Ex parte Moore, 793 So.2d 762, 764 (Ala.2000) (quoting Cooks v. Jim Walter Homes, Inc., 695 So.2d 19, 21 (Ala.Civ.App.1996), quoting other cases). Under 11 U.S.C. § 541(a)(1), commencement of a bankruptcy action creates an estate consisting of `all legal or equitable interests of the debtor in property as of the commencement of the case.' This includes causes of action owned by the debtor. In re Louden, 106 B.R. 109 (E.D.Ky.1989). Until the property is listed as exempt, it has no exempt status and the bankruptcy trustee has exclusive authority to assert any cause of action that is the property of the estate. Ball v. Nationscredit Fin. Serv. Corp., 207 B.R. 869 (N.D.Ill.1997). Crider v. Misty Acres, Inc., 893 So.2d 1165, 1169 (Ala.Civ.App.2004). A number of cases have held that once a proceeding has been initiated under Chapter 7 of the Bankruptcy Code involving a debtor, the trustee in bankruptcy becomes the real party in interest with respect to lawsuits upon causes of action held by the debtor. See, e.g., Bickford v. Ponce de Leon Care Ctr., 918 F.Supp. 377 (M.D.Fla.1996); Ex parte Moore, 793 So.2d 762 (Ala.2000) (distinguishing Chapter 13 cases, although using `standing' terminology). However, there are two significant exceptions recognized to that principle of law: if the trustee abandons a cause of action, or if the bankruptcy court authorizes the debtor to maintain it in lieu of the trustee, the real party in interest is the debtor and not the trustee. Battle v. Alpha Chem. & Paper Co., 770 So.2d 626, 634 (Ala.Civ.App.2000) (emphasis omitted); see also Ex parte Sterilite Corp. of Alabama, 837 So.2d 815, 819 (Ala. 2002) (quoting Battle with approval). It is undisputed that Brooks's FELA claim against Norfolk Southern has not been exempted from his bankruptcy estate, and Hamm, the trustee of the estate, has made it clear both in the motion to substitute before the trial court and on appeal that he has no intention of abandoning the action. Therefore, Hamm is the real party in interest to Brooks's claim. Norfolk Southern contends that Verneuille v. Buchanan Lumber of Mobile, Inc., 914 So.2d 822, 824-25 (Ala.2005), demonstrates that, even if Hamm is the real party in interest, the trial court did not exceed its discretion in denying the motion for substitution in this case. The facts in Verneuille are similar to those in the instant appeal in that, in Verneuille, the trial court entered a summary judgment on the basis of judicial estoppel because Charles Byrd had initially failed to amend his bankruptcy schedules after he filed a personal-injury complaint. The trial court then denied Byrd's motion to alter, amend, or vacate the summary judgment. Byrd's bankruptcy trustee, Joseph Verneuille, appealed the trial court's decision. This Court affirmed the trial court's ruling, finding that the trial court did not exceed its discretion in denying Byrd's postjudgment motion. 914 So.2d at 825. Though Verneuille shares some similarities with the instant appeal, it differs in at least one key respect. The bankruptcy trustee in Verneuille couched Byrd's postjudgment motion as a motion to substitute Verneuille as the real party in interest, but this Court explicitly disagreed with that characterization. That argument ... overstates the substance of Byrd's motion. The motion requested only that Verneuille be allowed a `sufficient opportunity' to `determine whether to prosecute' the claim in the event he should `elect to do so. ' (Emphasis added.) Verneuille had filed nothing in the case when the trial court denied Byrd's motion on October 7, 2004. Thus, both when the postjudgment motion was filed and when it was denied, the record was by no means clear as to whenif ever Verneuille would appear in the case. We will not place a trial court `in error on matters which the record reveals it neither ruled upon nor was presented the opportunity to rule upon.' J.K. v. Lee County Dep't of Human Res., 668 So.2d 813, 817 (Ala.Civ.App.1995) (quoting Wilson v. State Dep't of Human Res., 527 So.2d 1322, 1324 (Ala.Civ.App.1988)) (emphasis added). Implicit in Verneuille's argument is that the trial court was required to hold the case in abeyance indefinitely, without a motion by Verneuille. He cites no authority for such a proposition. It is significant that the trial court did not rule on Byrd's postjudgment motion until 57 days after Verneuille was appointed as trustee. Under these facts, we cannot hold that the trial court exceeded its discretion in denying Byrd's postjudgment motion. 914 So.2d at 824-25. Thus, the issue in Verneuille was the bankruptcy trustee's failure to appear in the case and Byrd's postjudgment motion failing to give the trial court any indication that an appearance would ever be made. Conversely, in the instant case, Brooks's postjudgment motion expressly requested that Hamm be substituted for Brooks at that time as the real party in interest and it indicated that Hamm intended to proceed with the prosecution of the FELA action, including hiring Brooks's counsel as the attorney for the case. Unlike Verneuille, Brooks was not asking for an indefinite suspension of the case; he was asking for Hamm to be immediately substituted as the real party in interest so that the FELA action could proceed. Given that Brooks's FELA claim is part of the bankruptcy estate, that the Bankruptcy Code clearly provides that the bankruptcy trustee assumes exclusive authority over property in the bankruptcy estate upon the filing of the bankruptcy petition, and that Brooks and Hamm properly moved to substitute Hamm as the real party in interest to the FELA action once Brooks's bankruptcy estate was reopened, the trial court exceeded its discretion in refusing to substitute Hamm as the real party in interest to Brooks's FELA action. In reaching the foregoing conclusion, we have considered whether there was some ground upon which, as a matter of law, the trial court's judgment should be affirmed other than the ground argued by Norfolk Southern. This Court may affirm a trial court's judgment on `any valid legal ground,' General Motors Corp. v. Stokes Chevrolet, 885 So.2d 119, 124 (Ala. 2003), subject, of course, to due-process constraints, see Liberty Nat'l Life Ins. Co. v. University of Alabama Health Servs. Found., 881 So.2d 1013, 1020 (Ala.2003). As noted, Rule 17(a), Ala. R. Civ. P., requires that [e]very action shall be prosecuted in the name of the real party in interest. It further provides: No action shall be dismissed on the ground that it is not prosecuted in the name of the real party in interest until a reasonable time has been allowed after objection for ratification of commencement of the action by, or joinder or substitution of, the real party in interest. . . . Taken together, these two provisions form the basis for a trial court to decline to consider, after the aforesaid reasonable time has come and gone, an action that is not being prosecuted in the name of the real party in interest. See 6A Charles Alan Wright, Arthur R. Miller, & Mary Kay Kane, Federal Practice & Procedure § 1555 (2d ed. 1990) ([I]f the real party in interest is not joined or substituted within a reasonable time, the court should dismiss the suit, albeit in a manner that does not, in and of itself, bar any action that might subsequently be brought by the proper party.). We therefore turn to the issue whether the trial court's summary judgment and, more specifically, its denial of the postjudgment motion seeking the substitution of Hamm, as bankruptcy trustee, as the real party in interest should be upheld on the alternative ground that the motion for substitution was not filed within a reasonable time. As a threshold matter, it should be observed that a real-party-in-interest objection is waivable. Federal Practice & Procedure at § 1554 (explaining that a defendant may voluntarily or involuntarily waive any objection that he might have had to plaintiff's status as the real party in interest). As noted, Rule 17(a) contemplates that an action shall not be dismissed based on that rule until there has been an objection by the opposing party and a reasonable time has passed following that objection to allow for substitution. We have carefully reviewed the filings in the trial court, and we see no objection of the nature contemplated by Rule 17(a) to Brooks's prosecution of the action, i.e., on the ground that he was not the real party in interest. Specifically, the summary-judgment motion filed by Norfolk Southern contains no argument or objection on the basis that Brooks was not the real party in interest. That motion is limited to an argument that contemplates Brooks as the plaintiff and asks the trial court to apply the principle of judicial estoppel to Brooks. There is no objection to the prosecution of the action by Brooks on the ground that he is not the real party in interest; there is only an argument that he should not be allowed to prosecute the action because he is judicially estopped from doing so. [3] Nor was there any mention of Rule 17 or concerns as to whether Brooks was the real party in interest in the supplemental letter brief filed by Norfolk Southern shortly before the trial court ruled on its motion for summary judgment. As was true of the original summary-judgment motion itself, the only argument in that letter brief is one to the effect that the principle of judicial estoppel should apply to prevent Brooks from prosecuting the FELA action. In sum, it was not until the motion to substitute Hamm for Brooks as the real party in interest that the real-party-in-interest issue was injected into the trial court proceedings. It therefore cannot be said that the trial court could have upheld, or that we, as an appellate court, may uphold, the denial of the motion for substitution on the ground that it was not made within a reasonable time after the opposing party had raised an objection under Rule 17(a). [4]