Opinion ID: 2980098
Heading Depth: 4
Heading Rank: 1

Heading: Standing Against the Title Defendants

Text: The Rankins must have standing to bring their state-law claims against the Title Defendants for injuries alleged as the result of the failed purchase of the Charring Cross property. That action accrued prior to the Rankins’ filed bankruptcy petition on 21 February 2002. The trustee in bankruptcy acts as representative of the estate. It is the trustee who “has capacity to sue and be sued.” 11 U.S.C. § 323(b). “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.” Bauer v. Commerce Union Bank, 859 F.2d 438, 441 (6th Cir. 1988), cert denied 489 U.S. 1079 (1989) (quoting Jefferson v. Miss. Gulf Coast YMCA, 73 B.R. 179, 181-82 (S.D. Miss. 1986)). The debtor has no standing to pursue such causes of action. In re Van Dresser Corp., 128 F.3d 945, 947 (6th Cir. 1997) (Debtor’s appointed trustee has the exclusive right to assert the debtor’s claim). In this instance, the causes of action against the Title Defendants accrued in the early days of 2002, prior to the Rankins’ bankruptcy filing. The Rankins’ contingent interest is fully alienable under Ohio law and may be attached by creditors. Moore v. Foresman, 172 Ohio St. 559, 179 N.E. 2d 349, 353 (1962). As such, a contingent interest is an interest in property that becomes property of the estate under 11 U.S.C. § 541(a)(1) when a bankruptcy petition is filed. Thus, the Rankins’ Trustee alone has the capacity to sue on the instant action involving the Title Defendants, as that suit is a putative asset of the estate. Under § 541(a)(1), the bankruptcy estate is comprised of “all legal or equitable interests of the debtor in property as of the commencement of the case, and . . . the ‘interests of the debtor in property’ include ‘causes of action.’” Bauer v. Commerce Union Bank, -8- No. 09-1087 In re Rankin 859 F.2d at 440-41. Under § 554, the trustee may abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate, but only after notice and a hearing. The Rankins did not disclose any interest in the Charring Cross property in the schedule accompanying their bankruptcy petition, and did not disclose any potential claim against the Woods regarding the property. For the Rankins to claim ownership standing through abandonment they must have formally scheduled the property. See Stein v. United Artists Corp., 691 F.2d 885, 891 (9th Cir. 1982) (“When the bankrupt fails to list an asset, he [or she] cannot claim abandonment because the trustee has had no opportunity to pursue the claim.”). Prior to addressing the merits of the Rankins’ claims against the Title Defendants, the bankruptcy court acknowledged that: on its face it would appear this proceeding is or was at the date of the bankruptcy case filing arguably a cause of action belonging to the debtors which became bankruptcy estate property. It is however being pursued by the debtors individually. An argument can be made that the debtors have no standing and that it is a cause of action with respect to which only the trustee may pursue or abandon (in which case Debtors would not be able to pursue it) or otherwise deal with. Aside from the removal the trustee has taken little or no part in these proceedings and does not appear to have formally abandoned it. Given that for whatever reasons the standing issue appears not to have been raised or seriously pursued, the Court is proceeding to decide the matter on its presented merits. (8 September 2006 Bankruptcy Opinion, p. 6 n. 3). As a putative asset, the Rankins’ suit against the Title Defendants was not part of their bankruptcy schedule and, therefore, remains part of the bankruptcy estate. The trustee did not formally abandon the asset through notice and hearing and, as such, the Rankins do not have -9- No. 09-1087 In re Rankin standing to pursue the claims comprising the asset by right of ownership. Accordingly, the bankruptcy estate was the real party in interest at the time the Rankins filed their suit against the Title Defendants. Upon this premise, we affirm the bankruptcy court’s disposition of the Rankins’ claims against the Title Defendants, but do so on the basis of lack of subject-matter jurisdiction.1 2. No Error in Approving the Trustee’s Compromise Claim. The Rankins maintain the bankruptcy court erred in granting its approval of the Trustee’s proposal to settle their quiet title suit against the Woods. The bankruptcy court has significant discretion to approve such a proposed settlement by virtue of Bankruptcy Rule 9019(a), which directs that “[o]n motion by the trustee and after notice and a hearing, the court may approve a compromise or settlement.” As enunciated in Protective Committee for Independent Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414 (1968), the bankruptcy court is under an affirmative duty to reach a “fair and equitable” settlement: There can be no informed and independent judgment as to whether a proposed compromise is fair and equitable until the bankruptcy judge has apprised himself [or herself] of all facts necessary for an intelligent and objective opinion of the probabilities of ultimate success should the claim be litigated. Further, the judge should form an educated estimate of the complexity, expense, and likely duration of such litigation, the possible difficulties of collecting on any judgment which might be obtained, and all other factors relevant to a full and fair assessment of the wisdom of the proposed compromise. Basic to this process in every instance, of course, is the need to compare the terms of the compromise with the likely rewards of litigation. Id. at 424–25. 1 Alternatively, even if the Rankins had standing to bring suit against the Title Defendants, the bankruptcy court properly dismissed their claims under the decisions laid down in Koppers Co. v. Garling & Langlois, 594 F.2d 1094, 1098 (6th Cir. 1979), and Mickam v. Joseph Louis Palace Trust, 849 F. Supp. 516, 522 (E.D. Mich. 1994). - 10 - No. 09-1087 In re Rankin The bankruptcy court carried out the appropriate Rule 9019 inquiry, making an independent judgment on whether the Trustee’s proposed compromise was fair and equitable. In its opinion on the matter, the bankruptcy court observed that the prospects for success in the Rankins’ suit against the Woods were exceedingly slim, noting that the record did not show a meeting of the minds on the sale price of the Charring Cross property. Further, the record indicated the Rankins were unable to raise the funds to consummate the transaction at the agreed upon sale price. Further, the bankruptcy court determined from the record that, even if the Trustee could have prevailed on the claims against the Woods, the resulting benefit to the creditors – the real entities in interest – would have been minimal at best. The cost of litigating, the likelihood of appeal, the Rankins’ litigious manner, the risk of having to immediately resell the property from the estate if the Trustee prevailed, considered together would not have produced the net gain to the bankruptcy estate offered by the Woods’ $10,000 settlement offer. On the record presented, the bankruptcy court’s factual findings were not clearly erroneous and the court clearly met the legal standard that it be sufficiently apprised of the relevant facts and law to permit an informed judgment as to whether the Trustee’s proposed compromise was fair and equitable. - 11 - No. 09-1087 In re Rankin 3. No Abuse of Discretion in the Award of Sanctions. The Rankins challenge the decision of the bankruptcy court to award a total of $9,309.21 in sanctions to six entities for the Appellants’ alleged violations of Federal Rule of Bankruptcy Procedure 9011.2 Bankruptcy court sanction awards are reviewed for an abuse of discretion. See Mapother & Mapother, P.S.C. v. Cooper (In re Downs), 103 F.3d 472, 480 (6th Cir. 1996). To find for the Rankins in their effort to defeat the sanctions awarded requires us to conclude that the bankruptcy court relied upon clearly erroneous findings of fact, improperly applied the law, or used an erroneous legal standard. Id. We reach no such conclusion. The bankruptcy court imposed sanctions of reasonable attorney fees and costs against the Rankins in an Order on 31 July 2006, pursuant to a sanctions hearing on 14 June 2006. The sanctions hearing was in response to the Rankins’ filings with the bankruptcy court, against a number of entities. In particular, the bankruptcy court focused upon the Rankins’ 9 January 2006 filing which called for a grand jury investigation of six named entities “To Charge Defendants and Others with Violation of Civil Rights Act and RICO,” and charged illegality, criminal conspiracy, perjury, fraud, and racism. Upon appeal to the Sixth Circuit, the Rankins repeat those allegations, without evidence and with a marked absence of coherence. Nothing in the Rankins’ current filings reaches beyond the ad hominem conclusory allegations which initially gave rise to the bankruptcy court’s initial imposition 2 The court denies the Rankins’ motion to expand the appeal citation to include those individuals and entities awarded sanctions but not appearing as parties in the underlying suit. - 12 - No. 09-1087 In re Rankin of sanctions. The Rankins’ litigious behavior, further, caused the bankruptcy court to file an Injunctive Order Prohibiting Debtors from Filing any Further Pleadings on 15 March 2006. Finally, the Rankins offer no argument that the amounts of the sanctions awarded by the bankruptcy court were inappropriate under the standards set forth in Rule 9011(c)(2), which limits such awards to an amount “sufficient to deter repetition of such conduct or comparable conduct by others similarly situated.” From the record on appeal, the bankruptcy court’s determination to award sanctions was not an abuse of discretion. Further, the amounts awarded are not beyond what appear to be sufficient to deter repetition of the Rankins’ sanctionable filings.