Opinion ID: 419817
Heading Depth: 1
Heading Rank: 4

Heading: EFFECT OF PFEL's BANKRUPTCY

Text: 38 PFEL contends that the imposition of dismissal is inconsistent with the Bankruptcy Act. First, it argues that Sec. 57j, 11 U.S.C. Sec. 93(j), bars the assessment of penalties against the estate of the bankrupt. Yet that section does not bar dismissal of claims asserted by the bankrupt estate against other parties when the bankrupt has been guilty of fraud in prosecuting the claim. Goggin v. United States, 152 F.Supp. 78, 138 Ct.Cl. 279 (Ct.Cl.1957). The trustee in bankruptcy takes derivative rights that are not superior to those of the bankrupt. Id. at 79. 39 Second, PFEL argues that the purposes of Rule 37 sanctions, deterrence and punishment, militate against imposing dismissal on the trustee in bankruptcy. Specifically, it contends that the wrongdoers, PFEL officers, agents, and attorneys, will go unpunished at the expense of innocent creditors. 40 Although there may be some equity in this argument, the rights of creditors derive from those that the company had before its bankruptcy, and the creditors may not profit from PFEL's misconduct. Goggin, 152 F.Supp. at 79. We have affirmed the imposition of discovery sanctions in other cases when the sting of the sanction was felt largely by those other than wrongdoers. E.g., Chism, 637 F.2d at 1332; G-K Properties, 577 F.2d at 648-49. 41 Finally, PFEL asserts that dismissal was improper because the trustee was neither negligent nor willful. The district court stated correctly that this argument ignores the trustee's status as a substituted party. Because a substituted party steps into the position of the original party, the trustee was subject to sanctions to the same extent as PFEL. See United States v. Miller Brothers Construction Co., 505 F.2d 1031, 1036 (10th Cir.1974). 42 Additionally, the court found that trustee Benedict's failure to take remedial action and trustee Wyle's failure to investigate bound them to the fraud and discovery abuses of PFEL. We need not decide whether the record justifies imposition of sanctions based solely on Wyle's and Benedict's failures. Their status as substituted parties is sufficient to support the district court's decision to dismiss. See id.