9th Circuit Court of Appeals holds that bankruptcy trustee has exclusive right to sue on behalf of the estate
(April 18th, 2006 under Announcements)
In a recent opinion, Spirtos v. One San Bernadino County Sup. Ct. Case Numbered SPR 02211, 2006 US App. Lexis 8968 (9th Cir. 2006), the Court of Appeals for the 9th Circuit (the "Court") was faced with the issue of whether a creditor of a bankruptcy estate has standing to bring a claim on behalf of the estate. The Court held that 11 U.S.C. 323 vests the bankruptcy trustee with the exclusive right to sue on behalf of the bankruptcy estate.
The facts of this case are interesting. Basil and Thelma Spirtos were married in 1954. In 1983, Basil and Thelma entered into a Marital Settlement Agreement in Los Angeles, California. Basil breached the Agreement and Thelma filed for Chapter 11 in 1984. In 2001, Thelma's case was converted to a Chapter 7.
Basil filed for Chapter 11 in 1987, but later converted to Chapter 7. Because of the outstanding obligations owed to Thelma, she is a creditor of Basil's estate. Basil died in 1996 and the bankruptcy case remains pending as of the date of this Opinion.
In October 2002, Thelma and her daughter, Michelle Spirtos (also Basil's daughter) filed a complaint against nearly everyone involved in the bankruptcy and probate proceedings of Basil's estate, including the Chapter 7 trustee and the Office of the United States Trustee, alleging various RICO claims and state causes of action. The substance of Plaintiff's claims is that the defendants "have jointly conspired to conceal assets belonging to the bankruptcy and probate estates of Dr. Basil N. Spirtos for the purpose of obstructing the payment of the Decedent's creditors and legal heirs...".
In 2003, the district court granted the defendants' motions to dismiss. The district court ruled that the RICO claims derived from the administration of Basil's bankruptcy estate and that under 11 U.S.C. ?? 323 and 704, the bankruptcy trustee has exclusive capacity to sue on behalf of the estate. Accordingly, Thelma lacked standing to bring those RICO claims and they were dismissed. Thelma appealed to the Court of Appeals for the 9th Circuit.
The Court found that the RICO claims derived from the administration of the Bankruptcy estate. The Court states that it has previously stated in dicta that in general, trustees are the exclusive parties possessing the right to sue on behalf of the estate.
The Court also notes that this Opinion does not undermine the Court's ruling in In re Parmetex, Inc., 199 F.3d 1029 (9th Cir. 1999), in which the Court held that creditors could assert claims on behalf of the estate when the trustee stipulated that the creditors could sue on his behalf and the bankruptcy court approved that stipulation.
Ray
This entry was posted
on Tuesday, April 18th, 2006 at 1:31 pm and is filed under Announcements.