Opinion ID: 506588
Heading Depth: 2
Heading Rank: 1

Heading: Lopez's Standing To Pursue Claims Against Rodriguez

Text: 13 Rodriguez argues that Lopez, the nominal plaintiff in this case, lacks standing to sue Rodriguez for most, if not all, of the damages assessed. His standing argument has two components. First Rodriguez asserts that Lopez can only sue him for harms actually suffered by the estate, not harms suffered by nonparty creditors. Second, and presumably alternatively, Rodriguez argues that Lopez lacks statutory authority to assert any claims against Rodriguez because Rodriguez's potential liability was not property of the estate at the time bankruptcy proceedings began. We agree, in part, with Rodriguez's first argument, but we reject his second. 14 There is no question that the governing law in this case is Mosser v. Darrow, 341 U.S. 267, 71 S.Ct. 680, 95 L.Ed. 927 (1951), and its progeny. In Mosser, the Supreme Court established the general proposition that bankruptcy trustees may be held personally liable for breaches of fiduciary duty. The defendant trustee in Mosser allowed two employees to trade on inside information and was surcharged for the profits they made. In affirming, the Court said, trusteeship is serious business and is not to be undertaken lightly or so discharged. The most effective sanction for good administration is personal liability for the consequences of forbidden acts. Id. at 274, 71 S.Ct. at 683. Following Mosser, federal courts including this one have uniformly held that bankruptcy trustees are subject to personal liability for the willful and deliberate violation of their fiduciary duties. Connecticut General, 838 F.2d at 621 (citing In re Gorski, 766 F.2d 723, 727 (2d Cir.1985); In re Cochise College Park, Inc., 703 F.2d 1339, 1357 (9th Cir.1983); Ford Motor Credit Co. v. Weaver, 680 F.2d 451, 461 (6th Cir.1982); Sherr v. Winkler, 552 F.2d 1367, 1375 (10th Cir.1977)). 5 Such liability may be imposed either for the benefit of the estate in the form of a surcharge, or for the benefit of a creditor in the form of damages in a direct action against the trustee. Compare Mosser, 341 U.S. 267, 71 S.Ct. 680 (surcharge payable to estate) with Connecticut General, 838 F.2d at 621-22 (liability to creditor) and In re Rigden, 795 F.2d 727 (9th Cir.1986) (liability to creditor). 15 This statement of the law, we believe, itself effectively refutes Rodriguez's second standing argument. The Supreme Court in Mosser broadly construed federal courts' equitable powers to surcharge trustees for forbidden acts. It did not require a special statutory provision authorizing a successor trustee to file claims against his predecessor. In Mosser, the trustee's wrongdoing was actually called to the bankruptcy court's attention by the Securities and Exchange Commission, an arm of the federal government. 341 U.S. at 270, 71 S.Ct. at 681-82. Here, too, it is the United States (through Lopez) that has pursued Rodriguez, and we think it would be plainly inconsistent with Mosser to dismiss the action altogether for lack of standing. 6 16 Returning to Rodriguez's first standing argument (no harm to the estate), it is interesting to note that the defendant in Mosser also argued in his defense that the estate suffered no loss as a result of his actions. To that, the Court responded by noting that determining the amount of damage the trustee caused, if any, was difficult; the Court then added: But equity has sought to limit difficult and delicate fact-finding tasks concerning its own trustee by precluding such transactions for the reason that their effect is often difficult to trace, and the prohibition is not merely against injuring the estate--it is against profiting out of the position of trust. Mosser, 341 U.S. at 273, 71 S.Ct. at 683. With this passage, we think, the Court clearly rejected the idea that a proven, quantifiable loss to the estate is a prerequisite to personal liability for trustees. At the same time, however, the degree of loss or harm has not been made irrelevant under Mosser. As the Second Circuit has noted, the purpose of a Mosser surcharge is not to punish a trustee, it is to benefit creditors who have been injured by the trustee's acts. Gorski, 766 F.2d at 727-28 (rejecting the use of a civil fine payable to the United States as a form of trustee surcharge). 17 In order to insure that creditors are made whole without also having courts engage in open-ended punishment-by-surcharge, we think that some assessment of harm must be the guiding principle underlying Mosser liability. Where an exact amount of loss to the estate can be determined, that amount is the correct measure of damages. See Matter of Combined Metals Reduction Co., 557 F.2d 179, 197 (9th Cir.1977) (When a trustee has breached his trust, an equity court may hold him liable for any loss or depreciation in the value of the estate resulting from the wrongful act or omission.). Where the fact of harm can be determined but not the exact extent thereof, the estimated amount of harm to the estate should be surcharged. In Mosser, the Court essentially estimated damages by assuming that any profit made by the trustee's employees was to the estate's detriment. See also Combined Metals, 557 F.2d at 197 (In addition, an unfaithful trustee may be held responsible for any lost profit which would have accrued to the estate but for the breach of trust.). Other forms of estimates might be equally acceptable. Moreover, a similar analysis of damages necessarily follows for direct actions by creditors against trustees: the exact or estimated amount of loss should be the amount of liability imposed. 18 A natural corollary to this approach to Mosser liability is that a party may only assert against a trustee the harm it has directly suffered. Where the assets of the estate have been diminished by the trustee's actions, the representative of the estate is the proper party to assert claims against the trustee. Conversely, where the estate itself has suffered no loss but the actions of the trustee have directly harmed a creditor, it should be the creditor, not the estate, that sues. See Gorski, 766 F.2d at 727 (In the usual case, a surcharge is imposed on the fiduciary in the amount of the actual or estimated harm suffered by either the creditors or the estate and is payable accordingly.) (emphasis added). Were we to rule otherwise, trustees would be subject to inconsistent and multiple liability for their actions in suits by the estate and by the creditors. 19 As set out more fully below, it is apparent that in this case the district court assessed against Rodriguez and in favor of the estate some damages suffered by the estate and some damages suffered only by third party creditors. Lopez argues that we should uphold the judgment in toto, but we disagree. 7 The fact that Rodriguez caused some harm to the estate does not mean that the estate can also be awarded damages for harms suffered by creditors of the estate. The creditors themselves must sue for those harms and, as we recognized in Connecticut General, they have an avenue for doing so. 8