Opinion ID: 4553073
Heading Depth: 1
Heading Rank: 5

Heading: artesanias’s claims became property of the

Text: BANKRUPTCY ESTATE BECAUSE THEY RELY ON A DERIVATIVE THEORY OF RECOVERY Now that we have confirmed our jurisdiction, we proceed to the merits. We start with whether Artesanias’s claims against North Mill and Leisawitz Heller became property of 11 the estate. If they did, then only the bankruptcy trustee has the statutory authority to bring them unless abandoned. We conclude that those claims rely on a theory of recovery derivative of harm that Wilton suffered directly. If Artesanias prevails, all of Wilton’s creditors would stand to benefit. So Artesanias’s claims became property of the bankruptcy estate to be managed by the trustee.
derivative theory of recovery Even though it has constitutional standing, Artesanias cannot pursue its claims if the Bankruptcy Code denies it the statutory authority to do so. As discussed, the Code makes some claims the exclusive province of the trustee, not a creditor like Artesanias. Only the trustee has the power to prosecute causes of action (1) that “existed at the commencement of the [bankruptcy] filing” and (2) that “the debtor could have asserted . . . on his own behalf.” Foodtown, 296 F.3d at 169 n.5. The first element is about timing. Artesanias’s claims existed before Wilton’s bankruptcy. Indeed, Artesanias brought those claims two months before the bankruptcy began. Even if it had not filed them, they still would have predated the bankruptcy because the alleged plundering preceded it. In bankruptcy, “a ‘claim’ arises when an individual is exposed . . . [to] conduct giving rise to an injury.” Jeld-Wen, Inc. v. Van Brunt (In re Grossman’s Inc.), 607 F.3d 114, 125 (3d Cir. 2010) (en banc) (quoting 11 U.S.C. § 101(5)). The second element hinges on whether the claim is “general” to the estate or “personal” to a specific creditor. Emoral, 12 740 F.3d at 879 (quoting Foodtown, 296 F.3d at 170); accord 5 Collier on Bankruptcy ¶ 541.07 & n.1 (16th ed. 2020) (citing Emoral). Individual creditors have the statutory authority to bring only personal claims. Emoral, 740 F.3d at 879. That is because a general claim “inures to the benefit of all creditors” by enlarging the estate, and so “ ‘the trustee is the proper person to assert the claim.’ ” Id. (quoting St. Paul Fire & Marine Ins. Co. v. PepsiCo, Inc., 884 F.2d 688, 701 (2d Cir. 1989)). The distinction between general and personal claims “promotes the orderly distribution of assets in bankruptcy” by funneling all asset-recovery litigation through a single plaintiff: the trustee. Id. To distinguish general from personal claims, we focus not on the nature of the injury, but on the “theory of liability.” Emoral, 740 F.3d at 879. Claims alleging that “third parties . . . wrongfully deplete[d] the debtor’s assets” are general or derivative because “[e]very creditor has a similar claim for the diversion of assets of the debtor’s estate.” Tronox Inc. v. KerrMcGee Corp. (In re Tronox Inc.), 855 F.3d 84, 103 (2d Cir. 2017); accord Emoral, 740 F.3d at 879–80. The theory of recovery for those claims is “not tied to the harm done to the creditor by the debtor.” Tronox, 855 F.3d at 103. Rather, it is “based on an injury to the debtor’s estate that creates a secondary harm to all creditors regardless of the nature of their underlying claim[s] against the debtor.” Id. at 104. So harm done mainly to the debtor can indirectly injure the creditors, making the claim a general one. If the theory of recovery “would be based on facts generally available to any creditor, and recovery would serve to increase the pool of 13 assets available to all creditors,” then the claim is general, not personal. Emoral, 740 F.3d at 881. Only when a particular creditor suffers a direct, particularized injury that can be “directly traced” to the defendant’s conduct is the claim personal to that creditor and not property of the estate. Tronox, 855 F.3d at 100 (quoting Marshall v. Picard (In re Bernard L. Madoff Inv. Sec. LLC), 740 F.3d 81, 89 (2d Cir. 2014)); see id. at 100– 02 (collecting cases). B. Artesanias’s claims rely on a derivative theory of recovery Artesanias’s claims against North Mill and Leisawitz Heller became property of the estate. According to Artesanias, the defendants “hinder[ed]” its ability to collect debts owed to it by Wilton by “divert[ing] assets from [an] insolvent corporation.” App. 56. As in Emoral and Tronox, Artesanias’s claims are “aimed at recovering estate assets.” Tronox, 855 F.3d at 105 (citing Emoral, 740 F.3d at 880–81). Its theory of recovery thus derives from the plundering suffered by Wilton. Artesanias’s assertions that the plundering targeted and disproportionately affected it do not transform the harm into an injury unique to Artesanias. That its harm might be worse in degree than that suffered by other creditors does not change the fact that all the creditors’ injuries from the plundering are the same in kind. Because Artesanias’s claims depend on harm suffered directly by Wilton and only indirectly by Artesanias, its theory of recovery is not personal, but derivative of harm to the estate. 14 In reaching this conclusion, we decline to rely on the trustee’s assertion that Artesanias’s claims “belonged to . . . and continue to belong to Artesanias (not the Wilton estate).” App. 463. As the District Court rightly held, the trustee lacks authority to decide who has the statutory authority to bring those claims. 607 B.R. at 207–08. We must answer that legal question ourselves. Plus, as the bankruptcy court noted, the trustee’s assertion contradicts Wilton’s asset schedules, which included causes of action much like Artesanias’s. 2018 WL 6440600, at . We will not outsource to the trustee our duty to determine what is part of the estate. At bottom, Artesanias alleges that North Mill and Leisawitz Heller left Wilton “with insufficient assets to pay [its] creditors.” Tronox, 855 F.3d at 105. Its claims rely on a general theory of recovery derivative of harm done to Wilton. The Bankruptcy Code thus gives the statutory authority to pursue those claims to the trustee.