Opinion
NOT TO BE PUBLISHED
Super. Ct. No. 06AS04205
BUTZ, J.While he was in chapter 7 bankruptcy, plaintiff Steve K. Zinnel filed an action, in propria persona, against defendant Ed Herman for tortious interference with contract and related causes of action. Herman filed successive demurrers, each raising the bar of the statute of limitations. The second demurrer was sustained without leave to amend.
While the second demurrer was pending, Zinnel filed this action in superior court, seeking to recover for the same alleged wrongful conduct. The second action was not time-barred, Zinnel asserted, because he was suing not as Steve Zinnel the plaintiff, but as Steve Zinnel, the assignee of the claims he had recently purchased at an auction from the trustee in bankruptcy. Zinnel contended that his assignment came adorned with the trustee’s “tolling rights” pursuant to title 11 United States Code section 108(a) of the Bankruptcy Code. According to this theory, Zinnel’s reincarnation as an assignee of the claims against Herman allowed him to file a brand-new action, standing in the shoes of the trustee in bankruptcy and protected against all statute of limitations defenses by federal bankruptcy law.
Undesignated section references are to the United States Bankruptcy Code (11 U.S.C. § 101 et seq.).
The trial court entered judgment against Zinnel after sustaining Herman’s demurrer without leave to amend. We shall affirm. Zinnel’s exotic argument fails for two independent reasons: (1) a single violation of a plaintiff’s primary rights may not be split into two lawsuits; and Zinnel’s purchase of the trustee’s right to go after Herman did not include the right to violate this well-settled rule; and (2) the tolling privilege granted to trustees in bankruptcy under section 108(a) does not extend to purchasers of debtor claims at a trustee auction.
PROCEDURAL HISTORY
Zinnel I
On July 20, 2005, Zinnel filed a voluntary chapter 7 petition in the federal bankruptcy court for the Eastern District of California (No. 05-28800-C-7). Among the assets listed in his schedule of assets were his various tort claims against Herman.
On November 15, 2005, without participation of the trustee in bankruptcy, Zinnel filed a civil action in his own name against Herman and others for tortious interference with contract and related causes of action. (Zinnel v. Superior Court (Zacharias), Sacramento County Superior Court case No. 05AS05785 [hereafter Zinnel I].) The gravamen of the complaint was that Herman interfered with Zinnel’s agreement with his former partner, Walter Zacharias, to open an electrical contracting business, by helping Zacharias fund Elite Power Services, Inc. Zinnel also alleged that Herman stole corporate opportunities, tangible documents and business equipment.
Herman demurred to the complaint on various grounds. On April 21, 2006, the trial court sustained the demurrer, concluding that the complaint contained contradictory statements about the dates of the alleged wrongdoing, leading to the possibility that it may be barred by the statute of limitations. Since this was Zinnel’s first pleading, the court gave him leave to amend to explain the contradictions.
Zinnel filed a first amended complaint (FAC) on May 5, 2006. The FAC omitted prior references to the dates of damage, other than to allege that it occurred “within the two years preceding the filing of the original complaint on November 15, 2005.” Herman demurred again.
On July 28, 2006, Zinnel filed a notice of continued hearing in the bankruptcy court, which listed the tort claims against Herman as “presently evidenced in [the] first amended complaint [in Zinnel I]” as one of the assets of the debtor.
On August 29, 2006, a hearing was held in the bankruptcy court for the purpose of auctioning off the assets of the debtor, Zinnel. During the hearing, Zinnel purchased, along with other estate assets, an assignment of the trustee’s right to prosecute Zinnel’s claims against Herman as evidenced by the pending civil action in Zinnel I. There was some discussion among court and counsel as to whether an assignment of the Herman claim would include whatever statute of limitations tolling rights the trustee possessed under section 108(a).
Zinnel II
On October 3, 2006, the same day that Herman’s demurrer to the FAC in Zinnel I was scheduled for hearing, Zinnel filed a new complaint in superior court, commencing the present action (case No. 06AS04205). For convenience, we shall call this lawsuit Zinnel II (C055686). The complaint in Zinnel II was a rehash of the same causes of action pleaded in Zinnel I, with additional allegations that Zinnel was now suing as assignee of the bankruptcy trustee and that this status allowed him to take advantage of the tolling privileges granted trustees by federal bankruptcy law.
At the hearing on the demurrer in Zinnel I, Zinnel announced that he had just filed the new action, rendering the demurrer “moot.” Nevertheless, the court affirmed its tentative ruling, which sustained the demurrer without leave to amend. In its formal order dated October 19, 2006, the court noted that the omission of the dates of injury from the FAC did not explain the earlier contradictory allegations of when the damage occurred. Absent an explanation of the inconsistency, the trial court ruled, the FAC was a “sham pleading.”
On January 29, 2007, Zinnel filed a notice of appeal from the judgment in Zinnel I (C054772).
Subsequent proceedings
Herman demurred to the present complaint that alleges Zinnel’s assignee status as the basis for the suit. On January 16, 2007, the trial court sustained the demurrer without leave to amend. The court ruled that the second suit was an attempt to split the causes of action in Zinnel I, which was impermissible. The court also rejected Zinnel’s argument that, as assignee of his claim from the bankruptcy trustee, he acquired the statute of limitations tolling rights granted under section 108(a). The court ruled that only the trustee himself could take advantage of section 108(a)’s tolling privilege.
A formal order sustaining the demurrer without leave to amend was filed on February 20, 2007, and judgment of dismissal was entered on April 7, 2007.
On November 14, 2007, this court dismissed the appeal in Zinnel I (C054772), following Zinnel’s notice of abandonment of appeal. A remittitur issued the same day.
Pursuant to Herman’s request, we take judicial notice of the notice of abandonment, our order dismissing the appeal, and the remittitur in Zinnel I.
DISCUSSION
I. General Principles--Demurrer
“When reviewing an order sustaining a demurrer without leave to amend, this court must treat the demurrer as admitting all properly pleaded facts, but not contentions, deductions or conclusions of fact or law. We must read the complaint as a whole and give it a reasonable interpretation.” (Koch v. Rodlin Enterprises (1990) 223 Cal.App.3d 1591, 1595.)
Judicially noticeable facts, as well as those pleaded in the complaint, may be relied on to support the demurrer. (Code Civ. Proc., § 430.30, subd. (a); Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) Even if the complaint alleges facts sufficient to state a cause of action, a demurrer must be sustained if judicially noticeable facts establish a complete defense. (Cryolife, Inc. v. Superior Court (2003) 110 Cal.App.4th 1145, 1152.) A judgment correct as a matter of law will be affirmed, even where the trial court’s reasoning was erroneous or where the correct ground was not raised below. (See Trinkle v. California State Lottery (1999) 71 Cal.App.4th 1198, 1201.)
II. Zinnel II Violated the Rule Against Splitting Primary Rights Claims
The initial ground relied upon by the trial court to sustain the demurrer was that Zinnel’s complaint in the present action was barred by the rule against splitting primary rights claims into successive lawsuits.
It is unclear whether the trial court intended to rest its ruling upon this ground. The tentative ruling sustaining the demurrer included a lengthy exposition of the rule against splitting as one of the grounds for the ruling. At the hearing, Judge Loncke purported orally to delete this discussion. The court’s ruling after the hearing on the demurrer deleted the discussion of the rule against splitting. Nevertheless, the signed, filed formal order includes the discussion as a ground for sustaining the demurrer.
It is hornbook law that a single cause of action cannot be split up and made the basis of more than one lawsuit. If the first action was concluded to judgment for the defendant, it sets up the defense of res judicata. (Rest.2d Judgments, § 19; 7 Witkin, Cal. Procedure (5th ed. 2008) Judgment, § 334, p. 938; see Code Civ. Proc., § 1908, subd. (a)(2).) However, the rule against splitting applies even if the first suit has not been brought to judgment. (See Ricard v. Grobstein, Goldman, Stevenson, Siegel, LeVine & Mangel (1992) 6 Cal.App.4th 157, 162 [new lawsuit filed in attempt to circumvent adverse demurrer ruling in prior suit may be stricken as sham]; City of Los Angeles v. Superior Court (1978) 85 Cal.App.3d 143, 150.) “The rule against splitting a cause of action is based upon two reasons: (1) That the defendant should be protected against vexatious litigation; and (2) that it is against public policy to permit litigants to consume the time of the courts by relitigating matters already judicially determined, or by asserting claims which properly should have been settled in some prior action.” (Wulfjen v. Dolton (1944) 24 Cal.2d 891, 894-895.)
In determining whether the plaintiff has impermissibly split a single claim into more than one suit, California follows the ubiquitous primary rights doctrine. If the facts show one violation of the plaintiff’s primary rights, it is considered a single cause of action regardless of the number of theories asserted, and cannot form the basis of a second suit. (Castro, supra,31 Cal.App.4th at p. 357; Ford Motor Co. v. Superior Court (1973) 35 Cal.App.3d 676, 679.)
It is not disputed that the pleadings in Zinnel I sought to vindicate the identical primary rights as those framed by the complaint in Zinnel II--Herman’s alleged usurpation of Zinnel’s business opportunities by helping Zacharias to capitalize a new electrical contracting business.The trial court so found and Zinnel does not gainsay this proposition on appeal. Indeed, he implicitly concedes the point by stating that, without the assignment from the trustee, these claims “had no value to the bankruptcy estate as the statute of limitations for those claims had expired.” (Italics added.)
Zinnel’s position is that by virtue of his new status as assignee of the Herman claims from the trustee in bankruptcy, he was entitled to commence Zinnel II, purged of the history, as well as the inconvenient outcome in Zinnel I.He bases this argument strictly on section 108(a).
Section 108(a) provides that a trustee in bankruptcy may commence an action to vindicate prepetition claims of the debtor either before the expiration of the applicable statute of limitations, or within two years from the order for relief [i.e., the filing of the petition], whichever is later. The effect of the statute is to extend statutes of limitations that otherwise may expire while the debtor is in bankruptcy. (See In re Phillip (5th Cir. 1991) 948 F.2d 985, 987 (Phillip).) Its purpose is to give the trustee “ample time to discover what causes of action may exist and to assess their viability.” (Norton, Bankruptcy Law and Practice (2d ed. 1997) § 16:1, p. 16-2.)
See footnote 1, ante.
Zinnel’s line of reasoning, which can be found in the conclusory allegations of his complaint, runs like this: (1) when Zinnel filed for chapter 7 bankruptcy on July 20, 2005, the Herman claims became the property of the bankruptcy estate; (2) section 108(a) gives the trustee two years from the filing of the bankruptcy petition to commence an action on those claims; (3) the trustee was therefore not bound by any lawsuits filed by Zinnel after July 20, 2005 (including Zinnel I), nor was he bound by any rulings made in Zinnel I; (4) the trustee sold and assigned the Herman claims to Zinnel at a bankruptcy auction; (5) included within the assignment was the trustee’s section 108(a) right to commence an action within two years of July 20, 2005; and thus (6) Zinnel was free to commence a new action “standing in the shoes of the trustee” and with the statute of limitations extended to July 20, 2007, regardless of the pendency or final outcome of Zinnel I.
While we agree that Zinnel’s assets became property of the trustee in bankruptcy on July 20, 2005, and that he purchased the claims against Herman at the trustee auction, Zinnel’s remaining propositions are flawed because they evince a fundamental misunderstanding of the nature of the “asset” that the trustee assigned to him.
“The widely accepted rule is that after a person files for bankruptcy protection, any causes of action previously possessed by that person become the property of the bankrupt estate.” (Cloud v. Northrup Grumman Corp. (1998) 67 Cal.App.4th 995, 1001 (Cloud); see 11 U.S.C. § 541(a)(7).) The trustee, who is the representative of the bankrupt estate, automatically succeeds to all causes of action held by the debtor at the time the bankruptcy petition was filed. (Cloud, at p. 1001; Haley v. Dow Lewis Motors, Inc. (1999) 72 Cal.App.4th 497, 503-504.) This allows the trustee to effect an orderly liquidation and distribution of assets to the creditors.
Hence, on July 20, 2005, the trustee obtained the right to vindicate the Herman claims in state court. However, Zinnel beat him to the punch by filing Zinnel I in his own name. There is a split of authority whether a debtor in bankruptcy may prosecute a civil action in his own name. Some cases hold that he may, at least until the trustee takes some affirmative action to intervene. (Baltins v. James (1995) 36 Cal.App.4th 1193, 1201, fn. 10, disapproved on a different ground in Jordache Enterprises, Inc. v. Brobeck, Phleger & Harrison (1998) 18 Cal.4th 739, 761, fn. 9; California Aviation, Inc. v. Leeds (1991) 233 Cal.App.3d 724, 729-730; National Secretarial Service, Inc. v. Froehlich (1989) 210 Cal.App.3d 510, 520.) Others take the contrary view, that only the trustee is the proper plaintiff and the debtor lacks standing. (See, e.g., Bostanian v. Liberty Savings Bank (1997) 52 Cal.App.4th 1075, 1081-1082.)
But even assuming that Zinnel filed the lawsuit at a time when he lacked standing, that was a mere technical defect, capable of quick remedy. The only effect of a bankruptcy debtor filing suit in his own name is a defect in named parties, since the debtor-plaintiff, lacking standing, is not the real party in interest. (Cloud, supra, 67 Cal.App.4th at p. 1004; see Code Civ. Proc., § 367.) However, as long as the nature of the claim remains the same, California freely allows an amendment substituting a trustee or other real party in interest as the plaintiff. (Cloud, supra, at p. 1005; see Code Civ. Proc., § 473.) Indeed, in the case of a trustee in bankruptcy seeking to substitute as real party plaintiff, the trial court lacks discretion not to allow the substitution. (Cloud,at p. 1005,citing Kaley v. Catalina Yachts (1986) 187 Cal.App.3d 1187, 1195, fn. 7.)
Filing a motion for substitution under Code of Civil Procedure section 473 is expressly authorized by title 11 United States Code section 108(b) of the Bankruptcy Code, which permits the trustee to “file any pleading, demand, notice, or proof of claim or loss, cure a default, or perform any other similar act,” within the period prescribed by nonbankruptcy law or within 60 days following the order for relief, whichever is longer. (11 U.S.C. § 108(b)(1)-(2).)
Accordingly, what the trustee in bankruptcy acquired on July 20, 2005, was Zinnel’s unperfected claims against Herman. Those claims ripened into a lawsuit with the filing of Zinnel I, giving the trustee the right to intervene as the proper party plaintiff. That right,to substitute in as the plaintiff and to continue prosecution of the ongoing lawsuit to its conclusion, was what the trustee had in his possession and what he sold to Zinnel at the auction hearing. Unfortunately for Zinnel, what he bought was a lawsuit in the throes of extinction; Herman had demurred once and his second demurrer was about to be sustained without leave to amend.
Thus, even if we were to agree with Zinnel’s central claim that the trustee had the power to and did assign his section 108(a) rights, we would still uphold the trial court’s dismissal of this action. Section 108(a) only grants the trustee the right to commence a lawsuit on behalf of the debtor, and then only if the ordinary limitations period had not expired before the date of the filing of the petition. (See Phillip, supra,948 F.2d at p. 987.) But at the time of the auction, a lawsuit had been commenced to vindicate Zinnel’s claims against Herman and was in the midst ofbeing challenged on statute of limitations grounds. We are unaware of any authority supporting the proposition that a trustee may ignore the debtor’s pending litigation and file a parallel lawsuit seeking the same relief, thereby splitting one primary right claim into two actions, in violation of res judicata principles and the one-judgment rule.
In blunt terms, when the trustee sold Zinnel I to Zinnel, along with a residence, motor vehicle, boat and trailer for $35,000, he sold only what he had–-the right to take over the reins of a beleaguered lawsuit pending in the superior court. Zinnel’s acquisition of this lawsuit from the trustee in bankruptcy did not endow him with magical powers. By commencing Zinnel II, he violated the rule against splitting causes of action as surely as the trustee would have, had he filed the action himself. Moreover, once Zinnel I became a final judgment with the dismissal of the appeal and remittitur to the trial court, it became res judicata, serving as an absolute bar to the maintenance of a second action, no matter how denominated.
This point was underscored at the auction hearing, the transcript of which Zinnel submitted in his opposition and of which the trial court took judicial notice. After Zinnel informed the court that the defendants had filed a demurrer in the pending lawsuit, raising the statute of limitations defense, the court replied, “I don’t think I can control the statute of limitations.” Later, when the court noted that it was authorizing the sale of the lawsuit “as is,” the trustee replied “I think we tried to make that clear in the notice. It’s whatever the estate’s interest is, and it’s as is, where is, subject to whatever faults, liens, claims, or interests are out there.” The court remarked, “And the trustee doesn’t even promise that any of the causes of action are meritorious,” to which the trustee replied, “That’s for sure.” (Italics added.)
III. Zinnel Did Not Acquire the Trustee’s Section 108(a) Rights
As a separate ground for our affirmance, we reject Zinnel’s argument that the trustee’s section 108(a) rights were assignable and were, in fact, transferred to him at the auction.
At the outset, we note that the statute only grants tolling privileges to the trustee in bankruptcy. Case law does recognize that the tolling privilege of section 108(a) is available to debtors in possession. However, those decisions are based on the fact that, by statute, such debtors have all the rights, powers and duties of a trustee. (MHI Shipbuilding, LLC v. Nat’l Fire Ins. of Hartford (D.Mass. 2002) 286 B.R. 16, 22; Phillip, supra, 948 F.2d at p. 988; see 11 U.S.C. § 1107(a).) Obviously, an assignee who purchases bankruptcy assets for his own account does not stand in a comparable position.
Hence, we agree with the authorities affirming that a trustee’s section 108(a)’s tolling rights are not transferable to mere assignees of debtor claims. (Motor Carrier Audit & Collection Co. v. Lighting Products, Inc. (N.D.Ill. 1989) 113 B.R. 424, 426-427; 2 Collier on Bankruptcy (15th rev. ed.) (LexisNexis 2007) ¶ 108.02[3], p. 108-7.) This view is supported by unanimous case law holding that debtors acting in their own interests may not invoke section 108, or its predecessor, section 29(e). (See Natco Industries, Inc. v. Federal Ins. Co. (S.D.N.Y. 1987) 69 B.R. 418, 419-420 (Natco Industries), citing In re Lawler (Bankr. N.D.Tex. 1985) 53 B.R. 166, 172; Burroughs v. Local Acceptance Co. (In re Dickson) (W.D. N.C. 1977) 432 F.Supp. 752, 756 (Burroughs), and other cases.) Since Zinnel bought the lawsuit for his own account and not as a fiduciary or agent of the trustee, the reasoning of these cases would dictate that he is not entitled to exercise the tolling privileges accorded to trustees under section 108(a).
The case of Duckor Spradling & Metzger v. Baum Trust (In re P.R.T.C., Inc.) (9th Cir. 1999) 177 F.3d 774 (P.R.T.C.), upon which Zinnel relies, does not hold that section 108(a) tolling rights may be exercised by assignees of debtor claims. In fact, P.R.T.C. does not even cite section 108(a).
The P.R.T.C. case involved an agreement whereby the trustees in bankruptcy assigned to the estate’s largest creditor, Baum, the right to pursue collection of various claims owing to the estate. In return, Baum and the estate would split the net recovery on a 50/50 basis. (P.R.T.C., supra,177 F.3d at pp. 776-777.) The Ninth Circuit held that, because Baum was “not pursuing solely its own interest but, instead, the interest of all creditors,” the bankruptcy court properly allowed him to exercise the trustee’s avoidance powers. (Id. at pp. 782-783.) The P.R.T.C. court’s approval of the transfer of avoidance powers thus rests on an agency or joint venture theory.
Here, Zinnel purchased and was pursuing the claims on behalf of no one’s interest but his own. He was not acting as an agent of the trustee, nor would a successful outcome benefit any of the estate’s creditors. Hence, even by analogy, the logic of P.R.T.C. does not help Zinnel.
Zinnel also claims to find support for his argument in the declaration of the trustee in bankruptcy, Stephen Reynolds, averring that it was his intent to assign his section 108(a) rights to Zinnel. But the trustee’s subjective intent is totally irrelevant--the trustee can only sell what the law allows him to sell. In our view, the law does not allow the tolling rights conferred on trustees by section 108(a) to be auctioned off and sold to the highest bidder, like doll collections and antique furniture.
IV. Conclusion
The trial court properly sustained the demurrer to Zinnel II without leave to amend for two reasons:
First, the complaint was barred by the rule against splitting causes of action seeking to redress a single primary right. Because the action in Zinnel I was the exclusive avenue available to the trustee to obtain recovery on behalf of the debtor, the trustee’s assignment of Herman claims gained Zinnel nothing more than the right to pursue the litigation to its final conclusion. He was not permitted to split the primary rights teed up for adjudication in Zinnel I by filing Zinnel II. (Castro, supra,31 Cal.App.4th at p. 357.)
Second, when Zinnel purchased the Herman claims from the trustee, he did not and could not acquire the trustee’s tolling rights under section 108(a). That privilege is vested by statute in the bankruptcy trustee and is not assignable to bidders of debtor claims at an auction of estate assets. (See Natco Industries, supra, 69 B.R. at pp. 419-420; Burroughs, supra, 432 F.Supp. at p. 756.)
DISPOSITION
The judgment is affirmed. Herman shall recover his costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1) & (2).)
We concur: MORRISON, Acting P. J., HULL, J.
Section 108(a)(1) and (2) provide:
“(a) If applicable nonbankruptcy law, an order entered in a nonbankruptcy proceeding, or an agreement fixes a period within which the debtor may commence an action, and such period has not expired before the date of the filing of the petition, the trustee may commence such action only before the later of
“(1) the end of such period, including any suspension of such period occurring on or after the commencement of the case; or
“(2) two years after the order for relief.”
Whether the court actually relied on the rule against splitting is of academic importance. If the ground was a valid one, it is our duty to affirm the judgment, regardless of the trial court’s stated reasons. (See Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967 [“The judgment must be affirmed ‘if any one of the several grounds of demurrer is well taken’”]; Castro v. Higaki (1994) 31 Cal.App.4th 350, 360 (Castro) [“[I]t is the validity of the court’s action, and not of the reason for its action, which is reviewable”].)