Opinion
NO. 01-16-00457-CV
07-13-2017
CHRISTOPHER BRIAN VOGLER AND RACHAEL DAWN VOGLER, Appellants v. PACIFIC LIFE INSURANCE COMPANY, Appellee
On Appeal from the 164th District Court Harris County, Texas
Trial Court Case No. 2014-03635A
MEMORANDUM OPINION
After their bankruptcy proceeding concluded, appellants Christopher and Rachael Vogler filed suit against appellee Pacific Life Insurance Company, alleging that Pacific Life breached its annuity contract with them by allowing a portion of their annuity to be wrongfully garnished by a creditor, Icon Bank. Pacific Life moved for summary judgment, alleging, among other defenses, that the Voglers had no standing to pursue their breach-of-contract claim against them because they did not disclose its existence during the bankruptcy proceedings. In two issues on appeal, the Voglers contend that the trial court erred in granting Pacific Life's motion for summary judgment and in denying their motion for new trial. We vacate and dismiss.
BACKGROUND
Rachael Vogler purchases an annuity from Pacific Life
On August 1, 2006, Rachael Vogler bought an $800,000 annuity from Pacific Life. The annuity contract provides that it is "exempt from the claims of creditors to the extent permitted by law."
Icon Bank garnishes the annuity
On March 23, 2011, Icon Bank obtained a default judgment against Rachael Vogler for the default of a promissory note. On April 7, 2011, Icon Bank filed an Application for Writ of Garnishment against Pacific Life, as garnishee, for the sum of $244,251.34 plus interest. As a result of the garnishment, Icon Bank obtained said amount from Rachael Vogler's annuity contract at Pacific Life in late May 2011.
The bankruptcy court found that the Voglers "were not made a party to the garnishment, did not consent to, sign, or approve the Agreed Final Judgment, and were not aware of the garnishment proceeding until after Icon Bank had filed an Agreed Final Order and obtained transfer of the funds." See In re Christopher Brian Vogler and Rachael Dawn Vogler, Debtors, No. 11-37980-H5-7 at *5 (Bankr. S.D. Tex. Dec. 10, 2013).
The Voglers file Chapter 7 bankruptcy and an adversary proceeding against Icon
On September 19, 2011, the Voglers filed a Chapter 7 bankruptcy case. On Schedule C, the Voglers claimed that the remaining $300,468.34 of the Pacific Life Annuity was exempt property. They also claimed an exemption valued at $250,000 for the "Claim against Icon Bank of Texas, N.A. for return of portion of Pacific Life Insurance Company Variable Annuity wrongfully garnished by creditor." Schedule C did not list any potential lawsuit or claims against Pacific Life.
As part of their bankruptcy proceeding, the Voglers filed an adversary bankruptcy proceeding against Icon Bank, asserting claims for return of the garnished funds and a state-law claim for wrongful garnishment. Again, no claims of any sort were asserted against Pacific Life in the adversary proceeding. On December 10, 2013, the bankruptcy court denied the Voglers attempt to void the garnishment as a fraudulent transfer under the bankruptcy code, but held that it would be inappropriate to consider their state wrongful garnishment claim and dismissed the adversary proceeding. The remaining Chapter 7 case was closed on November 14, 2012. No disposition was made regarding any potential claims against Pacific Life.
The bankruptcy court, citing Stern v. Marshall, 564 U.S. 462, 131 S. Ct. 2594 (2011), declined to hear the state court wrongful garnishment claim. Stern held that the bankruptcy court lacked subject matter jurisdiction over counterclaims asserted by the bankruptcy estate against a creditor when the claim is a "state law action independent of the federal bankruptcy law and not necessarily resolvable by a ruling on the creditor's proof of claim in the bankruptcy." 564 U.S. at 487, 131 S. Ct. at 2611. Instead, such claims had to be resolved by an Article III court. Id.
The Voglers file a breach-of-contract action against Pacific Life
In 2014, the Voglers filed the present lawsuit against both the garnishor, Icon Bank, and the garnishee, Pacific Life. In their First Amended Petition, they asserted claims against Icon Bank for wrongful garnishment, and against Pacific Life for wrongful garnishment, breach of contract, breach of fiduciary duty, conversion, and conspiracy.
On appeal, the Voglers challenge only the grant of summary judgment as to their breach-of-contract claim.
The trial court grants Pacific Life's motion for summary judgment
On October 28, 2014, Pacific Life moved for summary judgment, contending that the Voglers: (1) lacked standing because they did not disclose their claims against Pacific Life during their bankruptcy; (2) were judicially estopped from asserting the claims against Pacific Life that were not included in their bankruptcy schedules; and (3) their claims lacked merit as a matter of law. On December 12, 2014, the trial court granted Pacific Life's motion for summary judgment without specifying the grounds for doing so.
On February 5, 2015, the Voglers filed a motion for reconsideration, which the trial court denied on February 18, 2015.
The Voglers amend their bankruptcy schedules
Thereafter, the Voglers filed a motion to reopen the bankruptcy case "for the purpose of allowing the [Voglers] to file an amended Schedule B and C." On May 13, 2015, the Voglers amended their bankruptcy schedules to include "[a]ll claims against Icon Bank of Texas, N.A. and Pacific Life Insurance Company for return of portion of Pacific Life Insurance Company Variable Annuity wrongfully garnished by Icon Bank of Texas, N.A. and wrongfully turned over by Pacific Life Insurance Company." Thus, potential claims against Pacific Life were disclosed explicitly for the first time in the Voglers' bankruptcy schedules after the bankruptcy was closed and after Pacific Life had obtained summary judgment in its favor.
The trial court denies the Voglers' motion for new trial
On June 1, 2015, the Voglers filed a motion for new trial, contending that the amended bankruptcy schedules were "newly discovered evidence which refutes the basis of Pacific Life's judicial estoppel and lack of standing defenses." The trial court overruled the Voglers' motion for new trial on November 11, 2015.
The trial court enters a final judgment in favor of Pacific Life
On March 11, 2016, the trial court severed the Voglers' claims against Pacific Life from their remaining claims against Icon Bank and entered a final judgment in favor of Pacific Life.
The trial court denies the Voglers' second motion for new trial; the Voglers appeal
On April 8, 2016, the Voglers filed a second motion for new trial, again arguing that their amended bankruptcy schedules were "newly discovered evidence." The trial court overruled their second motion for new trial on May 20, 2016, and this appeal followed.
PROPRIETY OF SUMMARY JUDGMENT
In four issues on appeal, the Voglers contend that the trial court erred in: (1) granting Pacific Life's motion for summary judgment on their breach-of-contract claim, contending that language in the annuity contract prohibited Pacific Life from allowing the garnishment of an exempt annuity; (2) granting Pacific Life's motion for summary judgment based on lack of standing; (3) granting Pacific Life's motion for summary judgment based on judicial estoppel, and (4) denying their motions for new trial.
Standard of Review
We review a summary judgment de novo. Travelers Ins. Co. v. Joachim, 315 S.W.3d 860, 862 (Tex. 2010). When, as here, the trial court does not specify the grounds for its grant of summary judgment, we must affirm the summary judgment if any of the theories presented to the court and preserved for appeal are meritorious. See Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 216 (Tex. 2003).
When reviewing a traditional summary judgment, we must determine whether the movant met its burden to establish that (1) no genuine issue of material fact exists and (2) the movant is entitled to judgment as a matter of law. TEX. R. CIV. P. 166a(c); Knott, 128 S.W.3d at 215-16) (citing Haase v. Glazner, 62 S.W.3d 795, 797 (Tex. 2001)); Sw. Elec. Power Co. v. Grant, 73 S.W.3d 211, 215 (Tex. 2002). In reviewing a traditional summary judgment, we consider all the evidence in the light most favorable to the nonmovant, indulging every reasonable inference and resolving any doubts in favor of the nonmovant. Goodyear Tire & Rubber Co. v. Mayes, 236 S.W.3d 754, 756 (Tex. 2007) (per curiam). "A party moving for summary judgment must establish its right to summary judgment on the issues expressly presented to the trial court by conclusively proving all elements of its cause of action or defense as a matter of law." Elliot-Williams Co. v. Diaz, 9 S.W.3d 801, 803 (Tex. 1999) (citations omitted); see also TEX. R. CIV. P. 166a(b),(c). The summary judgment movant has conclusively established a matter if reasonable people could not differ as to the conclusion to be drawn from the evidence. See City of Keller v. Wilson, 168 S.W.3d 802, 816 (Tex. 2005).
Standing
In their second issue on appeal, the Voglers argue:
Did the trial court err in granting Pacific Life's motion for traditional summary judgment on Pacific Life's lack of standing claim when the Voglers had already exempted their claim for the return of a portion of the Pacific Life Annuity Contract valued at $250,000 and, where the exemption removed the claim from the bankruptcy estate?
Standing is a component of subject matter jurisdiction, without which the trial court may not consider the merits of a case. Douglas v. Delp, 987 S.W.2d 879, 882 (Tex. 1999). Because it is jurisdictional, we consider the standing issue first.
Applicable Law
The parties in this case agree that when a debtor files for bankruptcy, all of the debtor's property, including pre-petition legal claims, becomes the property of the bankruptcy estate, and that the bankruptcy trustee has exclusive standing to assert the claim. Antonov v. Walters, 168 S.W.3d 901, 904-05 (Tex. App.—Fort Worth 2005, pet. denied) (citing 11 U.S.C. § 541 & 11 U.S.C. § 323(a) (West 2004)).
There are, however, at least two instances in which standing reverts to the debtor. First, a debtor may file a list of property that is exempt, and if no party-in-interest objects, the self-exempted property is removed from the bankruptcy estate and vests in the debtor. Id. at 905 (citing 11 U.S.C. § 522(b), (d)).
Second, a claim may be abandoned by the trustee. See 11 U.S.C. § 554(a) (providing that 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."). Unless the court orders the property abandoned, "any property scheduled under section 521(a)(1) of this title and 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." Id. at § 554(c) (emphasis added). Property that is not abandoned remains the property of the estate. Id. at § 554(d).
Analysis
Therefore, if the claim against Pacific Life was on the Voglers' schedule of exempted property, it is excluded from the bankruptcy estate because no party objected. Likewise, if the claim against Pacific Life was on the Voglers' schedule and not administered at the close of the case, it was abandoned by the trustee. Both situations present this issue: Was the claim against Pacific Life included in the Voglers' scheduled property?
We begin by noting that 11 U.S.C. § 521(a)(1) does not provide guidance about the detail required in a debtor's schedules. Id.; Lee v. Forster & Garbus, LLP, 926 F. Supp. 2d 482, 489 (E.D. N.Y. 2013). However, when a "debtor knows of the existence of [an] asset" and "expects to receive it," he or she should schedule it. Hutchins v. IRS, 67 F.3d 40, 43 (3d Cir. 1995). A "debtor has a duty to prepare schedules carefully, completely, and accurately." In re Mohring, 142 B.R. 389, 394 (Bankr. E. D. Cal. 1992), aff'd, 153 B.R. 601 (B.A.P. 9th Cir. 1993), aff'd, 24 F.3d 247 (9th Cir. 1994). For a bankruptcy trustee to accurately determine how much property an estate has available for distribution to creditors, the schedule of assets must put him or her on notice of all potential assets. Tilley v. Anixter Inc., 332 B.R. 501, 509 (D. Conn. 2005). "A complete schedule of assets and liabilities and a statement of the financial affairs of the debtor are indispensible tools needed for the effective administration of estates under all Chapters of the Code." Id. (quoting Editor's Comment to Rule 1007(b), Norton Bankruptcy Rules 28 (2004-2005 ed.)).
The Voglers' exemption schedule provided:
Claim against Icon Bank of Texas, N.A. for return of portion of Pacific Life Insurance Company Variable Annuity wrongfully garnished by creditor.
Citing Lee v. Forster, the Voglers argue that "[a]lthough the description does not specifically describe the asset as a claim against Pacific Life, it was sufficiently detailed under 11 U.S.C.A § 521(a)(1) for claims against Pacific Life to have been considered and abandoned by the bankruptcy trustee."
In Lee v. Forster, the plaintiff received a collection letter from NCOP, which was signed by its representative, Forster. 926 F. Supp. 2nd at 485. The plaintiff later filed suit against NCOP and Forster, claiming that the collection letter violated the Fair Debt Collection Practices Act ["FDCPA"]. Id. Forster contended that the plaintiff was barred from bringing claims against him because, when she declared bankruptcy, she did not schedule a FDCPA claim against him as an asset, though she did list such a claim against NCOP. Id. at 488. The court determined that the schedule was sufficient, stating:
[I]t appears that the Schedule provided sufficient information about Plaintiff's potential FDCPA claims for the trustee to have been able to make an educated decision not to bring the claims against both Defendants. Even though the Schedule did not list Forster as a possible defendant in any FDCPA action, a minimal investigation by the trustee would have revealed that Forster was a potential defendant in any such an action. The trustee would have needed only to take a cursory look at the Collection Letter to see that it was written on Forster's letterhead and sent from Forster's offices. The trustee then easily could have decided that Forster was responsible for any alleged FDCPA violations arising out of the Collection Letter. Thus, the trustee abandoned Plaintiff's FDCPA action against both NCOP and Forster when it did not bring FDCPA claims before Plaintiff's bankruptcy case was closed.Id. at 490. Lee v. Forster, while similar in some respects, is distinguishable. In that case, the claims against both the defendant listed in the schedule and the omitted defendant were the same: unfair debt collection practices based on the same letter that Forster sent as a representative of NCOP. By looking at the letter giving rise to the lawsuit, the trustee could determine all potential defendants, both NCOP and Forster.
However, in this case, the claim against Icon Bank is based on wrongful garnishment, which is an alleged violation of the statutory provisions relating to garnishment. See Peerless Oil & Gas Co. v. Teas, 138 S.W.2d 637 (Tex. Civ. App.—San Antonio 1940), aff'd, 138 Tex. 301, 158 S.W.2d 758 (1942) (holding garnishment is wrongful if affidavit given in support is untrue). And, in the claim against Icon Bank, the relief sought is a return of the money that was allegedly wrongfully garnished. However, the claim against Pacific Life is based on a provision of the annuity contract that the Voglers contend Pacific Life breached when it turned over the garnished funds, and the relief sought from Pacific Life is damages and attorney's fees, not a return of the funds.
There is no agency relationship between Icon Bank and Pacific Life like there was between the defendants in Lee v. Forster. The existence of a wrongful garnishment claim against Icon Bank would not necessarily put the trustee on notice that he should examine specific provisions of the annuity contract to determine whether it had been breached.
This case is more like Tilley v. Anixter Inc., 32 B.R. 501 (Bankr. D. Conn. 2005), in which the debtor scheduled a "[c]laim against ex-husband and ex-husband's employer for back child support," but did not schedule a tort claim for intentional infliction of emotional distress arising out of an alleged concealment of income giving rise to her child support claim. Id. at 507-08. The court held that the scheduled child support claim was not sufficiently broad to include the claim for intentional infliction of emotional distress, stating that "[a] claim 'for back child support' does not similarly inform a trustee of the need to investigate whether the plaintiff had a claim for intentional infliction of emotional distress arising out of fraud in connection with the reporting of Mr. Tilley's income." Id. at 511. The court concluded that "[t]he present emotional distress claim existed while the plaintiff was in bankruptcy, and the trustee lacked the information he needed to determine whether to pursue it." Id. Because the emotional distress claim existed, but was not scheduled, it could not have been abandoned; therefore, the plaintiff lacked standing to pursue it. See also Cusano v. Klein, 264 F.3d 936 (9th Cir. 2001) (holding that debtor's scheduling of "songrights" as an asset not sufficiently broad to include pre-petition claims for unpaid royalties) and In re Suplinskas, 252 B.R. 293 (Bankr. D. Conn. 2000) (holding that scheduled asset of partnership interest was insufficient to include pre-existing claims for fraud, breach of fiduciary duty and conversion arising out of purchase of partnership interest).
That the Voglers amended their bankruptcy schedules after the present suit was filed does not change our conclusion. Standing is determined at the time suit is filed. Tex. Ass'n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440, 446 n.9 (Tex. 1993). "Jurisdiction cannot subsequently be acquired while the suit is pending." Bell v. Moores, 832 S.W.2d 749, 754 (Tex. App.—Houston [14th Dist.] 1992, writ denied). See also TJFA, L.P. v. Texas Comm'n on Envtl. Quality, 368 S.W.3d 727, 733 (Tex. App.—Austin 2012, pet. denied) (stating that subject-matter jurisdiction determined when suit filed); Bell, 832 S.W.2d at 753-54 (noting that at time suit is filed, court either has jurisdiction or does not; jurisdiction cannot subsequently be acquired while suit is pending); Aetna Cas. & Sur. Co. v. Hillman, 796 F.2d 770, 774, 776 (5th Cir. 1986) (federal rule of civil procedure 15, pertaining to amendment of pleadings, does not permit plaintiff to amend complaint to substitute new plaintiff to cure lack of subject-matter jurisdiction).
Nothing in the record indicates that the bankruptcy trustee has taken any action to abandon the breach-of-contract claim against Pacific Life after the Voglers amended their schedules to include it.
Because the Voglers' scheduled "[c]laim against Icon Bank of Texas, N.A. for return of portion of Pacific Life Insurance Company Variable Annuity wrongfully garnished by creditor" was insufficient to put the bankruptcy trustee on notice to investigate a possible claim against Pacific Life for breach of the annuity contract, the trial court properlty determined that the claim against Pacific Life was not included in the Voglers' bankruptcy schedules. Therefore, the claim against Pacific Life was not abandoned by the trustee when the bankruptcy was closed, and the trial court properly granted summary judgment for Pacific Life based on the Voglers' lack of standing.
Having determined that the Voglers lacked standing to sue Pacific Life, we overrule issue two on appeal.
CONCLUSION
The trial court properly determined that the Voglers had no standing to bring the claims in this suit against Pacific Life because those claims were not included on their bankruptcy schedules. Thereafter, the court granted summary judgment and entered a final judgment that the Voglers "take nothing" on their claims against Pacific Life. However, the proper remedy when a plaintiff brings claims that he has no standing to assert is to dismiss the claims for want of jurisdiction. See Douglas v. Delp, 987 S.W.2d 879, 882 (Tex. 1999) ("As [the plaintiff] did not have standing in this proceeding . . . , the trial court did not have subject matter jurisdiction to address the merits of his claims."). Because the Voglers' lack of standing left the trial court without subject matter jurisdiction, we vacate the trial court's judgment and dismiss the cause for want of jurisdiction. See id.; see also Chimp Haven, Inc. v. Primarily Primates, Inc., 281 S.W.3d 629, 632 (Tex. App.—San Antonio 2009, no pet.) ("If the trial court lacked jurisdiction, we have jurisdiction only to set aside the judgment of the trial court and to dismiss the cause.") and Dallas Co. Appraisal Dist. v. Funds Recovery, Inc., 887 S.W.2d 465, 468 (Tex. App.—Dallas 1994, writ denied) (holding same). Because we have held that the trial court had no subject-matter jurisdiction, and because the remaining issues on appeal involve assertions of trial court error, we need not address the remaining issues on appeal, and we decline to do so. See TEX. R. APP. P. 47.1.
Both parties thoroughly argued and briefed the standing issue as a part of the summary judgment proceedings.
Sherry Radack
Chief Justice Panel consists of Chief Justice Radack and Justices Brown and Lloyd.