IN RE DeLOREAN MOTOR CO. No. 92-1520.
991 F.2d 1236 (1993)
In re DELOREAN MOTOR COMPANY, Debtor. David W. ALLARD, Jr., Plaintiff-Appellant, v. Howard L. WEITZMAN, an individual, Defendant-Appellee.
United States Court of Appeals, Sixth Circuit.
Rehearing and Rehearing Denied June 17, 1993.
Judy B. Calton, Ronald S. Longhofer (argued and briefed), Honigman, Miller, Schwartz & Cohn, Seth D. Gould, Detroit, MI, for plaintiff-appellant.
James P. Feeney, S. Thomas Wienner (argued and briefed), Peter M. Kellett, Feeney & Kellett, Birmingham, MI, for defendant-appellee.
Before KENNEDY, NORRIS and SUHRHEINRICH, Circuit Judges.
Rehearing and Rehearing En Banc Denied June 17, 1993.
KENNEDY, Circuit Judge.
Plaintiff appeals the District Court's order affirming the Bankruptcy Court's dismissal of plaintiff's complaint for failure to state a claim. Plaintiff David W. Allard, Jr., Trustee of the DeLorean Motor Company, filed a complaint seeking declaratory and monetary relief for the failure of defendant Howard L. Weitzman to seek leave of the Bankruptcy Court before instituting an action against the Trustee and the Trustee's representatives. The complaint also sought injunctive relief under 11 U.S.C. § 105(a) because the action allegedly interfered with the administration of the estate. Because we find that plaintiff's complaint stated claims for declaratory, monetary and injunctive relief, we reverse the order of the District Court upholding the Bankruptcy Court's dismissal of the Trustee's complaint.
DeLorean Motor Company ("DMC") filed for bankruptcy in the Bankruptcy Court for the Eastern District of Michigan under Chapter 11 of the Bankruptcy Code on October 25, 1982. Late in 1983, the Chapter 11 proceedings were converted to Chapter 7 proceedings and plaintiff Allard was appointed trustee of DMC (the "Trustee"). On April 13, 1984, the Trustee instituted a fraudulent conveyance action against John Z. DeLorean, Christina F. DeLorean and defendant Weitzman, alleging that DeLorean owed the DMC estate at least nineteen million dollars ($19,000,000), was insolvent and had fraudulently transferred to Weitzman, his attorney, a 50-acre ranch located in Pauma Valley, California. Allard v. DeLorean, et al., No. 84-1038 JLI (CM) (S.D.Cal.1984) (the "Pauma Valley Case"). The Trustee alleged that the ranch had a fair market value of $2,500,000. The DeLoreans and Weitzman denied any wrongdoing. The Trustee and the Pauma Valley defendants entered into a proposed settlement agreement, which provided, inter alia, that Weitzman would pay the Trustee $325,000. The Unsecured Creditors' Committee objected to the proposal. The Bankruptcy Court denied the Trustee's motion for Authority to Enter into the Proposed Settlement. The fraudulent conveyance action proceeded to trial at which the DeLoreans and Weitzman prevailed. The Trustee appealed. However, before judgment was entered, the Trustee and DeLorean settled their dispute when DeLorean agreed to pay the Trustee approximately nine million dollars ($9,000,000). This settlement was approved by the Bankruptcy Court. Thereafter, the Trustee's fraudulent conveyance action against DeLorean was dismissed with prejudice and the judgment vacated. The Trustee's appeal of the judgment entered in Weitzman's favor was dismissed as moot in light of the settlement between the Trustee and DeLorean. Allard v. DeLorean,
After receiving the Weitzman complaint, the Trustee commenced an adversary proceeding in the Bankruptcy Court for the Eastern District of Michigan on September 24, 1991. In the complaint, the Trustee seeks to enjoin further prosecution of the Weitzman Action and recover damages, including costs and attorneys' fees, incurred as a result of having to defend against the action. Count I of the complaint alleges that because the Weitzman Action was filed without obtaining leave of the Bankruptcy Court it violates 28 U.S.C. § 959(a). The Trustee seeks declaratory relief as well as actual damages incurred in defending against the action. Count II seeks alternative injunctive relief under 11 U.S.C. § 105(a) on the grounds that the Weitzman Action affects or threatens the integrity of the DMC estate.
On October 7, 1991, the Trustee filed a motion for a preliminary injunction. On October 15, 1991, Weitzman voluntarily dismissed the action against David W. Allard, Jr., as trustee, individually, and his professional corporation. The Trustee's former law firm, Spector, McCarron & Allard, was not dismissed. On November 4, 1991, attorneys for the Trustee filed a Certification of No Timely Response to Motion for Preliminary Injunction. On November 6, 1991, the Bankruptcy Court granted the Trustee's motion for a preliminary injunction.
On November 12, 1991, Weitzman filed a Motion to Reconsider and to Vacate Order Granting Preliminary Injunction. The Trustee filed objections to the motion. At a status conference held on November 26, 1991, the Bankruptcy Court dissolved and vacated the preliminary injunction because the Trustee had been dismissed from the Weitzman Action. On December 11, 1991, the Trustee refiled his Motion for Preliminary Injunction. On December 26, 1991, Weitzman filed a Motion to Dismiss for Failure to State a Claim.
On January 16, 1992, the Bankruptcy Court held a hearing on Weitzman's Motion to Dismiss and on the Trustee's Motion for a Preliminary Injunction. However, no testimony on the latter motion was taken because the court granted the Motion to Dismiss. In reaching its decision, the court reasoned that the Weitzman Action was not against the Trustee, that the protections of section 959 do not extend to fiduciaries of the estate other than trustees, receivers or managers, and that the action did not affect the assets of the estate or the administration of the estate.
On January 22, 1992, the Bankruptcy Court entered an order vacating the preliminary injunction and dismissing the Trustee's complaint. The United States District Court for the Eastern District of Michigan affirmed. It held that it was not error for the Bankruptcy Court to have concluded that section 959 protection did not extend to the remaining Weitzman defendants and that, therefore, leave of the Bankruptcy Court was not required before filing the Weitzman Action. The District Court also held that Count II of the Trustee's complaint, seeking injunctive relief under 11 U.S.C. § 105(a), failed to state a claim and that the Bankruptcy Court properly vacated the injunction. It found that the assets of the estate and the administration of the estate were not threatened by the Weitzman Action. The Trustee then filed a timely notice of appeal to this Court.
II. Motion to Dismiss
Standard of Review
We review the dismissal of a complaint pursuant to Federal Rule of Civil
The Leave Requirement (Count I)
The Trustee alleges in Count I of his complaint that Weitzman violated 28 U.S.C. § 959(a) by failing to obtain leave of the Bankruptcy Court before filing his malicious prosecution and abuse of process action against the Trustee and the Trustee's representatives. Section 959(a) provides:
28 U.S.C. § 959(a) (1978).
It is well settled that leave of the appointing forum must be obtained by any party wishing to institute an action in a non-appointing forum against a trustee, for acts done in the trustee's official capacity and within the trustee's authority as an officer of the court. In re Baptist Medical Center,
Barton, 104 U.S. at 129. This requirement enables the Bankruptcy Court to maintain better control over the administration of the estate. Contrary to statements in the Bankruptcy Court's opinion, this requirement arises not from section 959, but from the common law.
This exception does not apply to suits against the trustee for actions taken while administering the estate. In re Campbell, 13 B.R. at 976. "Merely collecting, taking steps to preserve, and/or holding assets, as well as other aspects of administering and liquidating the estate, do not constitute `carrying on business' as that term has been judicially interpreted." Id. (citations omitted). The Trustee in the instant case was never an operating trustee. Further, the Trustee's fraudulent conveyance suit against DeLorean and Weitzman was in no way related to carrying on DMC's business.
We find that Weitzman's action against the Trustee and his representatives was a suit for actions of the Trustee wholly unrelated to carrying on DMC's business, and therefore, the Weitzman Action does not fit within the statutory exception. Without the benefit of the exception, Weitzman is required to seek leave of the Bankruptcy Court for the Eastern District of Michigan. Because Weitzman commenced the action against the Trustee without seeking leave of the appointing court, the general rule regarding stays governs, and Weitzman may be held in contempt of the stay. In re Baptist, 80 B.R. at 643 (citing In re Kish,
The fact that the trustee was voluntarily dismissed from the suit does not change our conclusion.
The District Court erred in affirming the Bankruptcy Court's dismissal of the Trustee's claims for costs and damages incurred by the Trustee as a result of having to defend against the Weitzman Action. The District Court found that "[t]here is no specific allegation that the Trustee was entitled to recover his actual costs of defense; therefore the Bankruptcy Court did not dismiss the claim or even rule on it." This finding overlooks the language found in Count I of the Trustee's complaint specifically requesting such damages:
The District Court's alternative holding that the Bankruptcy Court had discretion under 11 U.S.C. § 330(a)(2) to deny the award of damages to the Trustee is also in error. Section 330(a)(2) has no application in this case. The Trustee is entitled to the damages that he requested in Count I of his complaint. Furthermore, the Trustee must be given the opportunity to prove the amount of the damages incurred as a result of having to defend against the Weitzman Action including the necessity of the filing of the Trustee's complaint with the Bankruptcy Court in Detroit.
Request for Injunction (Count II)
The Trustee also requested that the Bankruptcy Court use its powers under 11 U.S.C. § 105(a)
In his complaint, the Trustee alleges that the Weitzman Action "attempts to interfere in the administration of the estate." He further alleges that "the DMC bankruptcy estate would be irreparably harmed in that, among other things, it would complicate and burden the administration of the estate, threaten to drain the estate of its resources, and risk the possibility of inconsistent judgments." Given that a section 105(a) injunction may issue against an action, in a non-appointing forum, that threatens the integrity of the estate, the Trustee has clearly stated a claim upon which relief may be granted. The Trustee is entitled to offer his proof supporting these allegations that the Weitzman Action would unduly hinder the administration of the estate. The District Court erred in dismissing this claim for failure to state a claim.
III. Preliminary Injunction
"The ... dissolution of a preliminary injunction is within the sound discretion of the trial court and can be set aside only if it is based on an error of law or constitutes an abuse of discretion." Tri-State Generation v. Shoshone River Power, Inc.,
When the Bankruptcy Court vacated the preliminary injunction, it based the dissolution on the fact that the Trustee had been dismissed from the action. The following
As discussed above, as a matter of law, counsel for the trustee stands in the shoes of the trustee. Given the fact that when the Trustee was a defendant in the Weitzman Action, the Bankruptcy Court issued the preliminary injunction because Weitzman failed to obtain leave of the court and because the action interfered with the administration of the DMC estate, it was error to vacate the injunction merely because of the dismissal of the Trustee.
Accordingly, the District Court's order affirming the Bankruptcy Court's order vacating the preliminary injunction and dismissing the Trustee's complaint for failure to state a claim is REVERSED. The case is REMANDED to the District Court with instructions to remand the case to the Bankruptcy Court for further proceedings consistent with this opinion.
- No Cases Found