Court Opinion

ID: 3186984
Source: CourtListenerOpinion
Date Created: 2016-03-18 19:03:57.64241+00
Date Added: 2024-06-11T09:18:06.234883
License: Public Domain

UNITED STATES DISTRICT COURT
                           FOR THE DISTRICT OF COLUMBIA

                                          )
NATASHA DALLEY,                           )
                                          )
              Plaintiff,                  )
                                          )
              v.                          )       No. 15–cv-0875 (KBJ)
                                          )
MITCHELL RUBENSTEIN &                     )
ASSOCIATES, P.C.
                                          )
              Defendant.                  )
                                          )

                              MEMORANDUM OPINION

       On June 9, 2014, Defendant Mitchell Rubenstein & Associates, P.C. (“MRA”)

filed a lawsuit against Plaintiff Natasha Dalley in the Superior Court of the District of

Columbia, seeking to recover the amount that Dalley owed on a defaulted 2002 student

loan. MRA’s lawsuit was stayed on November 6, 2014, after Dalley filed for Chapter 7

bankruptcy. Dalley then turned the tables on MRA: she brought the instant lawsuit,

arguing that MRA’s prosecution of the aforementioned civil action violated the Fair

Debt Collecting Practices Act (“FDCPA”), 15 U.S.C. §§ 1692–1692p, and the District

of Columbia Debt Collection Law (“DCDCL”), D.C. Code § 28-3814, and also that it

amounted to common law abuse of process. (See generally 2d Am. Compl., ECF No.

7.)

       Before this Court at present is MRA’s motion to dismiss Dalley’s second

amended complaint under Federal Rule of Civil Procedure 12(b)(1). (See Def.’s Mot. to

Dismiss 2d Am. Compl. (“Def.’s Mot.”), ECF No. 11.) MRA alleges, among other

                                              1
things, that Dalley lacks standing to sue because the right to bring this lawsuit to

recover damages for alleged violations of federal and state collections practice laws was

transferred to the trustee of the bankruptcy estate when Dalley voluntarily petitioned for

Chapter 7 bankruptcy, and this property right has not been abandoned by that trustee to

date. (See id. at 17.) 1 In response, Dalley contends that she has standing to bring her

FDCPA claims notwithstanding the bankruptcy, because her claims were exempted from

her bankruptcy estate under the “wild card” exemption in the bankruptcy code and also

because her FDCPA claims qualify as “payment[s] . . . on account of personal bodily

injury[.]” (See Pl.’s Opp’n to Def.’s Mot. (“Pl.’s Opp’n”), ECF No. 12, at 5–6.)

        For the reasons explained below, this Court concludes that Dalley lacks standing

to file the instant action in federal court, and as a result, MRA’s motion to dismiss

under Rule 12(b)(1) for lack of standing will be GRANTED. A separate order

consistent with this Memorandum Opinion will follow.

I.      BACKGROUND

        A.      Facts

        On behalf of the National Collegiate Student Loan Trust (“NCSLT”), MRA filed

a lawsuit against Dalley in Superior Court on June 9, 2014. (See 2d Am. Compl. ¶¶ 9,

11.) MRA’s Superior Court complaint claimed that Dalley had defaulted on a private

student loan in 2002, and it sought to recover the principal and accrued interest with

respect to that loan. (See id. ¶ 9; Aff. of Natasha Dalley (“Dalley Aff.”), ECF No. 13,

¶ 6.) Dalley alleges that, because of MRA’s lawsuit, she was forced to “file[] for

1
 Page numbers herein refer to those that the Court’s electronic case filing system automatically
assigns.

                                                   2
Chapter 7 bankruptcy protection in the United States Bankruptcy Court for the District

of Columbia.” (See 2d Am. Compl. ¶ 14.) Dalley’s voluntary bankruptcy petition,

which was filed on October 18, 2014, did not list any outstanding lawsuits or other

causes of action in the Schedule B itemization of assets or in the Schedule C claims of

exempt property. (See Voluntary Bankr. Pet., Ex. B to Pl.’s Opp’n, ECF No. 12-2, at 2–

4, 10–15.)

       On November 6, 2014, “the [Superior] court stayed NCSLT’s lawsuit” in light of

Dalley’s Chapter 7 voluntary petition (see Bankr. Mot. for Sanctions, Ex. E to Pl.’s

Opp’n, ECF No. 12-5, at 2–3), which halted the loan-recovery proceedings by operation

of law. See In re McGuirl, 349 B.R. 759, 760 (D.D.C. 2006) (“The filing of a petition

for bankruptcy relief triggers an automatic stay that prohibits unilateral actions against

the debtor or property of the debtor’s estate.” (citing 11 U.S.C. § 362)). Then, on

January 27, 2015, the bankruptcy court discharged Dalley’s debts in the context of the

Chapter 7 proceedings, thereby closing her bankruptcy case. (See Bankr. Ct. Discharge

of Debtor Order, Ex. B to Def.’s Mot., ECF No. 11-4, at 1.)

       B.     Procedural History

       Approximately five months later, on June 9, 2015, Dalley filed the instant

lawsuit against MRA. Dalley’s second amended complaint alleges that MRA’s debt-

collection lawsuit was time-barred because it was filed “three days after the three-year

statute of limitations [had] expired” (2d Am. Compl. ¶ 11), and that NCSLT “never had

the legal capacity” to sue Dalley—or to authorize MRA to sue Dalley—to recover the

loan amount. (Id. ¶ 22.) Furthermore, according to Dalley, the filing of this

purportedly untimely and unauthorized civil action was tantamount to an unlawful debt

collection practice. Accordingly, Dalley alleges that MRA intentionally, willfully, and
                                             3
maliciously violated several subsections of the FDCPA (Count One) and the DCDCL

(Count Two), and that the filing of MRA’s lawsuit also amounted to abuse of process

(Count Three). (See id. ¶¶ 25–47.)

      On July 20, 2015, MRA filed a motion to dismiss Dalley’s second amended

complaint for lack of jurisdiction under Rule 12(b)(1), alleging that Dalley does not

have standing to sue because, “even though this pre-petition claim was not specifically

listed on Dalley’s bankruptcy schedules,” it nonetheless and necessarily became the

property of the bankruptcy estate when she petitioned for Chapter 7 bankruptcy, and

having not abandoned that claim, the bankruptcy trustee remains the only one with

standing to pursue it. (Def.’s Mot. at 17.) In addition, MRA’s motion to dismiss argues

that the doctrine of judicial estoppel bars Dalley from bringing this lawsuit because she

excluded the cause of action from her list of assets in the bankruptcy proceeding in bad

faith, and the intentional omission is inconsistent with the position she has taken before

this Court. (See id. at 17–21.) See also Frese v. Empire Fin. Servs., 725 F. Supp. 2d

130, 140 (D.D.C. 2010) (explaining that “judicial estoppel is appropriate when a debtor

fails to identify a claim in a bankruptcy proceeding” thereby taking the position that she

holds no actionable claim, “and then proceeds to assert that claim in a separate judicial

action” in direct contravention to her bankruptcy position). Dalley has responded to

MRA’s motion to dismiss—focusing solely on the FDCPA count, she asserts that she

has standing to sue because her “FDCPA claims” are “personal bodily injury claims”

that are “exempted from estate property under [section] 522(d)(11)” of the bankruptcy

                                            4
code and under section 522(d)(5)’s “wild card” exemption. (Pl.’s Opp’n at 5–6.). 2

MRA’s motion to dismiss for lack of standing is now ripe for this Court’s review.

II.     LEGAL STANDARD

        A motion to dismiss for lack of standing alleges a defect in the court’s subject

matter jurisdiction and is properly addressed under Rule 12(b)(1). See Fed. R. Civ. P.

12(b)(1); Haase v. Sessions, 835 F.2d 902, 906 (D.C. Cir. 1987). To defeat a motion to

dismiss brought under Rule 12(b)(1), a plaintiff bears the burden of “set[ting] forth

allegations sufficient to establish the court’s jurisdiction over the subject matter of the

claims presented.” Evans v. First Mount Vernon, ILA, 786 F. Supp. 2d 347, 351

(D.D.C. 2011). In deciding such a motion, the court “must accept as true all of the

factual allegations contained in the complaint and draw all reasonable inferences in

favor of the plaintiff”; however, it need not “accept inferences unsupported by the facts

alleged or legal conclusions that are cast as factual allegations.” Id. (internal quotation

marks and citations omitted). Furthermore, “[i]n 12(b)(1) proceedings, it has been long

accepted that the judiciary may make appropriate inquiry beyond the pleadings to

satisfy itself on authority to entertain the case.” Haase, 835 F.2d at 906 (internal

quotation marks and citation omitted).

2
  As noted, Dalley’s response to MRA’s standing argument addresses whether she can bring an FDCPA
claim notwithstanding the bankruptcy, and does not purport to mention the issue of standing in regard
to the claims she has alleged under the DCDCL and common law. It is not clear whether Dalley intends
for her standing arguments to relate to all three counts of her complaint, and her reasons for parsing the
claims in this fashion when responding to defendant’s lack-of-standing contention are not immediately
apparent to this Court. Nevertheless, the Court treats Dalley’s silence with respect to MRA’s assertion
that she lacks standing to bring DCDCL and abuse of process claims as a concession on Dalley’s part
that she has no standing to pursue those claims. See Rosenblatt v. Fenty, 734 F. Supp. 2d 21, 22
(D.D.C. 2010) (“[A]n argument in a dispositive motion that the opponent fails to address in an
opposition may be deemed conceded.”). For that reason, this Memorandum Opinion reaches and
resolves the only contested issue related to standing: whether Dalley lacks standing to pursue the
claims raised in the complaint’s FDCPA count.

                                                    5
III.   ANALYSIS

       MRA argues that the FDCPA claims that Dalley brings in Count One of the

instant lawsuit became part of the bankruptcy estate when Dalley filed for Chapter 7

bankruptcy, despite the fact that Dalley omitted those claims from the list of assets in

the bankruptcy schedules, and that the trustee has not abandoned those claims such that

Dalley has standing to pursue them. (See Def.’s Mot. at 9–13, 17.) Thus, according to

MRA, the bankruptcy trustee is the only party with standing to bring the instant lawsuit.

(See id. at 13, 17.) For the reasons explained below, and assuming for the purpose of

this analysis that Dalley has forfeited any objection to MRA’s standing argument with

respect to the DCDCL and abuse of process claims (see supra note 2), this Court agrees

with MRA.

       A.     Dalley’s Cause Of Action Is Part Of Her Bankruptcy Estate

       It is well established that, upon the filing of a Chapter 7 bankruptcy petition, “all

legal or equitable interests, including causes of action on behalf of the debtor, are

transferred from the debtor to the bankruptcy estate.” Marshall v. Honeywell Tech.

Solutions, Inc., 675 F. Supp. 2d 22, 24 (D.D.C. 2009) (citing 11 U.S.C. § 541(a)(1));

see also Robinson v. District of Columbia, 10 F. Supp. 3d 181, 187 (D.D.C. 2014)

(explaining that “[t]he debtor need not know all the facts or even the legal basis for the

cause of action; rather, if the debtor has enough information . . . to suggest that it may

have a possible cause of action, then that is a known cause of action such that it must be

disclosed” in the bankruptcy schedules and considered part of the bankruptcy

proceeding (emphasis and alterations in original) (internal quotation marks and citation

omitted)). Furthermore, once a pre-petition cause of action becomes part of a

bankruptcy estate, the debtor’s legal rights and interests in that legal action—including

                                             6
the standing to pursue it—transfer to the bankruptcy trustee, who is acting on behalf of

the estate. See Moses v. Howard Univ. Hosp., 606 F.3d 789, 795 (D.C. Cir. 2010); see

also In re Bailey, 306 B.R. 391, 392 (Bankr. D.D.C. 2004) (“In a chapter 7 bankruptcy

case, any unliquidated lawsuits initiated by a debtor prepetition (or that could have been

initiated by the debtor prepetition) become part of the bankruptcy estate subject to the

sole direction and control of the trustee, unless exempted or abandoned or otherwise

revested in the debtor.”).

       Dalley’s claim against MRA for violations of the FDCPA accrued before she

filed the petition for bankruptcy on October 18, 2014, because MRA’s debt-recovery

action preceded Dalley’s bankruptcy filing, and “[t]he FDCPA protects (1) consumers

(2) who have been subjected to abusive, deceptive or unfair debt collection practices (3)

by a debt collector (4) in an attempt to collect a debt.” Muldrow v. EMC Mortg. Corp.,

657 F. Supp. 2d 171, 174–75 (D.D.C. 2009). Although Dalley attests in her affidavit

that she did not “know” that she had a legal claim against MRA until after she filed for

bankruptcy (see Dalley Aff. ¶ 11), the facts alleged in the complaint, along with the

accompanying documents in the record, demonstrate that Dalley had more than enough

information when she petitioned for bankruptcy to suggest a possible FDCPA claim

against MRA based on the underlying litigation in Superior Court.

       Specifically, Dalley was aware that she was a “natural person obligated or

allegedly obligated to pay any debt[,]” 15 U.S.C. § 1692a(3), and thus, qualified as a

consumer under the FDCPA. In addition, Dalley knew that MRA had attempted to

collect the loan debt by filing a suit against her in Superior Court on June 9, 2014. (See

Super. Ct. Compl., Civ. No. XX-XXXXXXX, Ex. A to Pl.’s Opp’n, ECF. No. 12-1, at 2.)

                                            7
She also knew, or should have known, that MRA’s lawsuit could be characterized as

“abusive, deceptive or unfair” because (1) NCSLT purportedly did not have the capacity

to sue her or to authorize MRA to sue her (see Dalley’s Answer to Super. Ct. Compl.,

Ex. A to Def.’s Reply, ECF No. 14-1), and (2) she allegedly had made the last payment

on the loan in 2008, over three years before MRA’s lawsuit, which was apparently

beyond the applicable statute of limitations (see Dalley Aff. ¶ 7). Thus, when Dalley

petitioned for bankruptcy four months after MRA filed suit, the facts known to her were

sufficient to give rise to an obligation to disclose a possible FDCPA claim against

MRA, even if she was not specifically aware of the legal basis for such action.

Consequently, MRA is correct that the pre-petition FDCPA claim was a known asset of

Dalley’s that became part of the bankruptcy estate upon her filing of a voluntary

petition under Chapter 7. (See Def.’s Mot at 17; Def.’s Reply at 5–6.)

       Undaunted, Dalley asserts that her FDCPA claims were not part of her

bankruptcy estate because they were expressly exempted either under 11 U.S.C.

§ 522(d)(11)(D)—a statutory provision that allows a debtor to schedule some payments

as exempt “on account of personal bodily injury, not including pain and suffering or

compensation for actual pecuniary loss”—or under the “wild card” exemption that

applies to certain assets, including legal claims, as set forth in § 522(d)(5). (See Pl.’s

Opp’n at 5–6 (citing section 522(d)(5), which exempts a debtor’s “aggregate interest in

any property” up to certain amounts that are automatically and periodically adjusted

over time).) But Dalley’s second amended complaint does not allege that Dalley

suffered any personal bodily injury as a result of MRA’s debt-collection efforts;

furthermore, in this context, the wildcard exemption relates only to a debtor’s ability to

                                             8
recover some, or all, of the proceeds of a legal claim if the trustee successfully litigates

that claim, and it does not vest in the debtor any legal right to pursue the claim herself.

See In re Fetner, 218 B.R. 262, 264 (Bankr. D.D.C. 1997) (explaining that the wild card

exemption for legal claims “is simply an interest in any potential recovery from the

lawsuit, . . . not an absolute right to retain the lawsuit” and that “[i]t is the trustee who

has the capacity to prosecute a lawsuit on behalf of the estate” (internal quotation marks

and citation omitted)). What is more, even if Dalley’s exemption arguments were

meritorious, it is clear that claiming exemption from the bankruptcy estate now, long

after the bankruptcy proceedings have concluded, cannot give rise to standing to sue

when the debtor failed to list the cause of action in her bankruptcy schedules prior to

commencing the lawsuit. See Yelverton v. District of Columbia, 529 B.R. 1, 4 (D.D.C.

2014) (explaining that “claiming an exemption” for a cause of action after filing suit

does not “retroactively provide a debtor with standing”).

       Thus, this Court easily concludes that, because Dalley failed to list the FDCPA

claims that she relates in Count One of her second amended complaint in the context of

the bankruptcy proceeding, and also because the alleged exemptions do not appear to

permit Dalley to file the FDCPA claims that she seeks to bring here in any event,

Dalley’s FDCPA claims became the property of her bankruptcy estate upon her Chapter

7 filing, which means that Dalley does not have standing to pursue those claims in this

Court, unless the trustee abandoned them.

       B.     Nothing In The Complaint Or The Record Establishes That The
              Bankruptcy Trustee Abandoned Dalley’s FDCPA Claims

       Under well-settled law, title to claims that have been transferred to the

bankruptcy estate to be handled by the trustee remains in the estate unless the cause of

                                              9
action is abandoned back to the debtor pursuant to § 554 of the Bankruptcy Code. See

11 U.S.C. § 554(d). “Abandonment” is a term of art, and the limited circumstances

under which abandonment can be deemed to have occurred are delineated in § 554 of

the Bankruptcy Code, which states, in pertinent part:

       (a)    After notice and a hearing, 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.
       (b)    On request of a party in interest and after notice and a hearing, the
              court may order the trustee to abandon any property of the estate that
              is burdensome to the estate or that is of inconsequential value and
              benefit to the estate.
       (c)    Unless the court orders otherwise, any property scheduled under
              section 521(a)(1) of this title not otherwise administered at the time
              of the closing of a case is abandoned to the debtor and administered
              for purposes of section 350 of this title.

11 U.S.C. § 554. This statute plainly establishes that there are three instances in which

a cause of action that is part of the bankruptcy estate may be considered “abandoned”

by the trustee and thus may be pursued by the debtor: (1) when the trustee, upon his or

her own volition, provides the interested parties with formal notice of the abandonment

and an opportunity to be heard; (2) when the bankruptcy court, upon request of an

interested party, orders the trustee to abandon the cause of action after formal notice

and a hearing; and (3) when the cause of action has been disclosed and scheduled as an

asset by the debtor but not administered by the trustee before closing of the bankruptcy

case—“i.e., [when the trustee] does nothing to pursue the action, it will then be deemed

abandoned by operation of law[,]” Wissman v. Pittsburgh Nat’l Bank, 942 F.2d 867, 873

(4th Cir. 1991).

       As for the relevant timing, “[i]t may be the case that abandonment of litigation

claims retroactively returns the claims to the debtor as of the date [s]he files for

                                             10
bankruptcy[,]” Yelverton, 529 B.R. at 3 (emphasis omitted), and thus, a plaintiff such as

Dalley might arguably “retroactively obtain[] standing” to sue based on a trustee’s

subsequent abandonment of a cause of action, id. But “[w]here nothing in the record

shows that a trustee [ever] abandoned a debtor’s cause of action, dismissing a complaint

brought by the debtor for lack of standing is proper.” Marshall, 675 F. Supp. 2d at 26;

see also Parker v. Wendy’s Int’l, Inc., 365 F.3d 1268, 1272 (11th Cir. 2004) (stating

that lack of standing, and not judicial estoppel, is the more appropriate defense where a

debtor brings a claim that was not abandoned by the trustee).

       So it is here. Dalley’s second amended complaint does not specifically allege

that the FDCPA cause of action was abandoned by any of the three established methods,

nor does the record reveal any facts that demonstrate abandonment occurred with

respect to the FDCPA claims at issue here. That is, there are no alleged facts that, if

taken as true, demonstrate that the bankruptcy trustee voluntarily undertook to provide

notice and to have a hearing to accomplish abandonment of Dalley’s FDCPA claims per

subsection (a), see 11 U.S.C. § 554(a), and there is neither allegation nor evidence that

any interested party requested a court order of abandonment with respect to Dalley’s

FDCPA claim pursuant to subsection (b) after notice and a hearing, see id. § 554(b).

Furthermore, it is clear that Dalley cannot rely upon subsection (c)—which provides for

abandonment by operation of law upon the closing of a bankruptcy case—because it is

undisputed that she failed to schedule her FDCPA claim as an asset before the closing

of her case in January of 2015. See id. § 554(c). There is no question that “assets that

[a bankruptcy petitioner] had[] as of the date of filing [bankruptcy], but that she did not

add to her schedule, were not abandoned to her when the case was closed [i.e., they

                                            11
remained part of the bankruptcy estate], regardless of whether the failure to formally

schedule the cause of action was innocent.” Marshall, 675 F. Supp. 2d at 25 (emphasis

added); see also Locapo v. Colsia, 609 F. Supp. 2d 156, 159 (D.N.H. 2009) (“[O]nce a

bankruptcy case closes through administration of the estate, the debtor loses his rights

in a cause of action he had at the time he sought bankruptcy protection but nevertheless

failed to list on his schedule.”). Thus, the mere fact that Dalley’s bankruptcy case

closed without administration of her unscheduled FDCPA claim does not mean that her

FDCPA claims were abandoned by the trustee such that she is free to bring them in

Court now. 3

        The thrust of all this is quite conveniently summarized in the express terms of

section 544 of Title 11 of the United States Code, which states that “[u]nless the court

orders otherwise, property of the estate that is not abandoned under this section and that

is not administered in the case remains property of the estate.” 11 U.S.C. § 544(d).

This Court has already found that Dalley’s FDCPA claims became the property of her

bankruptcy estate when she filed for Chapter 7 bankruptcy, see supra Part III.A, and

even though those claims remained unadministered at the time Dalley’s bankruptcy case

closed, there is nothing in Dalley’s complaint or in the record that establishes that the

bankruptcy trustee ever abandoned those claims. Consequently, there is no basis upon

3
  If Dalley’s assertion that she amended the Schedule C bankruptcy form to include the FDCPA claim at
some point after the filing of the instant lawsuit (see Pl.’s Opp’n at 7) was intended to establish her
right to sue, this Court finds that it does not do so. While it is clear beyond cavil that causes of action
that a trustee has actually abandons generally revert to the debtor, see Moses, 606 F.3d at 795, the mere
fact that a debtor lists a claim as exempt in her bankruptcy schedules at some point after filing a
lawsuit regarding the claim does not result in actual abandonment. See Yelverton, 529 B.R. at 3
(explaining that filing amended schedules to list the cause of action as exempt after bringing suit and
after the bankruptcy case closed, does not suffice; rather, the debtor must follow section 554’s
requirements to “compel a trustee to abandon”).

                                                    12
which this Court can conclude that Dalley has standing to bring the instant FDCPA

action.

IV.       CONCLUSION

          When a debtor files for Chapter 7 bankruptcy, she loses the legal standing to

bring a lawsuit regarding a pre-petition cause of action that she did not disclose in her

bankruptcy filings, unless or until the trustee abandons that cause of action. Dalley’s

undisclosed FDCPA claims arose prior to her Chapter 7 bankruptcy declaration and

nothing in the complaint or the record establishes that the bankruptcy trustee abandoned

those claims such that Dalley has standing to pursue them in this Court. Therefore, this

Court lacks subject-matter jurisdiction over Dalley’s complaint, and as set forth in the

accompanying order, MRA’s motion to dismiss will be GRANTED.

DATE: March 18, 2016                        Ketanji Brown Jackson
                                            KETANJI BROWN JACKSON
                                            United States District Judge

                                              13