Opinion
Case No. 03-21242, Adv. Proceeding No. 03-2077.
January 19, 2005
Steven Berglass, Esq., Rosie Miller, Esq., and Patrick Fryer, Esq. Seeley Berglass, 121 Whitney Avenue, New Haven, CT 06510 Counsel for Plaintiff
Anthony S. Novak, Esq., Chorches Novak, P.C. 1331 Silas Deane Highway, Wethersfield, CT 06109 Counsel for Debtor-Defendants
RULING GRANTING MOTION TO DISMISS COMPLAINT BASED UPON PLAINTIFF'S LACK OF STANDING
I. ISSUE
Coram Healthcare Corporation, the plaintiff ("the plaintiff"), on July 21, 2003, instituted an adversary proceeding by filing a complaint entitled "Plaintiff/Creditor Coram Healthcare Corporation's Complaint To Determine Dischargeability Of Debt Pursuant To 11 USC § 523, Et Seq And/Or Complaint To Object To Discharge Under 11 U.S.C. § 727, Et Seq" ("the complaint") against Michael T. Ganci and Marianna Lee Ganci ("the debtors"), debtors in a joint Chapter 7 case which they commenced on April 23, 2003. The court, sua sponte, for reasons hereinafter set forth, on November 22, 2004, filed a "Court's Motion To Determine Standing of Plaintiff" ("the motion"). Following a hearing on the motion held on December 10, 2004, the parties submitted their memoranda of law.
Fed.R.Civ.P. 12(h)(3), made applicable in bankruptcy proceedings by Fed.R.Bankr.P. 7012(b), states: "Whenever it appears by suggestion of the parties or otherwise that the court lacks jurisdiction of the subject matter, the court shall dismiss the action."
II. BACKGROUND
The complaint describes the plaintiff as "a corporation existing under the laws of the State of Delaware, with its principal place of business in Denver, Colorado." (Complaint ¶ 1.) The motion specified that a "ruling of the United States Bankruptcy Court for the District of Delaware, dated October 5, 2004, and published in 315 B.R. 321 (Bankr. D. Del. 2004), states that the plaintiff filed a petition for relief under Chapter 11 of the Bankruptcy Code in that court on August 8, 2000; that court appointed a trustee of the plaintiff's estate on March 7, 2002; and that court, on October 5, 2004, confirmed the trustee's Plan of Reorganization providing, inter alia, for the dissolution of the plaintiff." (Motion ¶ 3.) The motion further stated that "standing of a plaintiff is a jurisdictional issue, and a court may raise such issue at any time on its own motion" (Id. ¶ 4), and directed a hearing be scheduled "so that the issue of the standing of the plaintiff may be heard and determined." (Id. at 2.)
The plaintiff, on December 9, 2004, responded with a pleading entitled, "Plaintiff/Creditor's Motion To Substitute Plaintiff Or To Join With Original Plaintiff", and attached an affidavit dated December 7, 2004, and signed by Michael E. Dell, Esq. ("Dell"), "Assistant General Counsel, Coram, Inc." ("Affidavit No. 1"). Dell avers that, in accordance with the Trustee's Second Amended Plan of Reorganization in the plaintiff's Chapter 11 case, ". . . [the plaintiff's] . . . Interests relating to this action and relating to the Gancis have been vested in and/or assigned to Coram, Inc.". (Affidavit No. 1 at ¶ 3). The pleading requested the court "allow plaintiff/creditor to substitute or join Coram, Inc. as plaintiff/creditor." In its post-hearing memorandum, filed December 20, 2004, the plaintiff additionally contends it is "an appropriate party to initiate the instant action in this proceeding . . . [because it] did so with full knowledge and consent of its Chapter 11 Trustee. . . ." (Plaintiff's Memo at 1.) In addition, relying upon Fed.R.Civ.P. 8f ("All pleadings shall be so construed as to do substantial justice."), the plaintiff asserts that since the "Chapter 11 trustee was at all times aware . . . the Court respectfully should construe the instant pleadings in accordance with the letter and spirit of Rule 8(f). In the alternative, in the event this Court rules against creditor/plaintiff, creditor/plaintiff respectfully requests that the Court add the trustee as a co-plaintiff." (Id. at 3.) The plaintiff, on January 5, 2005, submitted a second affidavit ("Affidavit No. 2"), executed by Dell and dated January 4, 2005, in which Dell avers: "The office of Arlin M. Adams, Chapter 11 Trustee of the Post-Confirmation Bankruptcy Estates of Coram Healthcare Corporation and Coram, Inc. was aware of the claims and the above instant proceedings and is awaiting the disposition or settlement of those matters. . . ." (Affidavit No. 2 ¶ 3.)
Fed.R.Civ.P. 8 is made applicable in bankruptcy proceedings by Fed.R.Bank.P. 7008.
The debtors assert that the plaintiff does not deny that it initiated this action on July 21, 2003 at a time when a Chapter 11 trustee had replaced the plaintiff as debtor-in-possession in the plaintiff's Chapter 11 case. They therefore contend that the plaintiff, having no standing to institute the adversary proceeding, the proceeding should be dismissed ("first contention"). They also assert a joinder of a new party as plaintiff should be denied on the basis that the alleged causes of action are now time-barred.
III. DISCUSSION
Because standing is jurisdictional under Article III of the United States Constitution, see Valley Forge Christian College v. Americans United for Separation of Church and State, Inc., 454 U.S. 464, 471-76, 102 S.Ct. 752, 757-61, 70 L.Ed.2d 700 (1982), it is a threshold issue in all cases since putative plaintiffs lacking standing are not entitled to have their claims litigated in federal court.
Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114, 117 (2d Cir. 1991).
The first contention of the debtors is fully supported by precedential rulings in this circuit. In In re Dawnwood Properties, 209 F.3d 114, 116 (2d Cir. 2000), in which the debtor-in-possession had been replaced by a Chapter 11 trustee, the debtor and its principal equity owner brought an action for malpractice and breach of contract against an architectural firm. The Court of Appeals ruled:
Once the trustee was appointed to maximize the assets of the Chapter 11 bankruptcy estate, neither [the debtor's principal] nor [the debtor] had standing to bring [an] adversary proceeding on [the debtor's] behalf; that authority instead rested solely with the trustee. See 11 U.S.C. § 323(b). . . . Accordingly, we have no difficulty concluding that when plaintiffs filed their adversary proceeding complaint . . . they lacked standing to initiate this matter. Therefore, the case properly was dismissed.
Section 323(b) provides: "The trustee in a case under this title has capacity to sue and be sued."
Further, this court is satisfied that "[t]he existence of Federal jurisdiction ordinarily depends on the facts as they exist when the complaint is filed." Newman Green, Inc. v. Alfonso-Lorrain, 490 U.S. 826, 830, 109 S.Ct. 2218, 2222, 104 L.Ed.2d 893 (1989) (emphasis added), and that the addition or substitution of a party after a suit is filed cannot create standing where none existed at the time suit was filed. Lujan v. Defenders of Wild Life, 504 U.S. 555, 571 n. 4, 112 S.Ct. 2130, 2142, 119 L.Ed.2d 351 (1992) ("It cannot be that, by later participating in the suit, the [additional parties] retroactively created a redressability (and hence a jurisdiction) that did not exist at the outset.").
The plaintiff does not contend that it established a derivative right to bring the present action by obtaining, prior to the commencement of this adversary proceeding, an appropriate order of the Bankruptcy Court in which the plaintiff's case was filed.See, e.g., Glinka v. Murad (In re Housecraft Industries USP, Inc.), 310 F.3d 64, 71 n. 7 (2d Cir. 2002) (Courts may grant individual creditors or creditors' committees authority to sue instead of trustee or debtor-in-possession when doing so "is in the best interest of the estate."). In an analogous proceeding concerning whether an unsecured creditor had standing to surcharge a secured creditor's collateral under Bankruptcy Code § 506(c), Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 13 n. 5, 120 S.Ct. 1942, 1951, 147 L.Ed. 2d 1 (2000), the Supreme Court remarked:
Section 506(c) provides:
The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim.
We do not address whether a bankruptcy court can allow other interested parties to act in the trustee's stead in pursuing recovery under § 506(c). . . . [S]ome courts [have allowed] creditors or creditors' committees a derivative right to bring . . . actions when the trustee refuses to do so. . . . Whatever the validity of that practice, it has no analogous application here, since [the plaintiff] did not ask the trustee to [bring this action] and did not seek permission from the Bankruptcy Court to take such action in the trustee's stead. [The plaintiff] asserted an independent right to use § 506(c), which is what we reject today.
Id.
IV. CONCLUSION
"The burden of establishing standing lies with the party claiming that status. . . ." Hirsch v. Arthur Anderson Co., 72 F.3d 1085, 1092 (2d Cir. 1995). The two affidavits submitted by the plaintiff, even if deemed acceptable, fail to allege facts that entitle the plaintiff to standing. The plaintiff's request that the court add additional parties as co-plaintiffs is denied. A judgment will enter dismissing this adversary proceeding on the ground that the plaintiff lacked standing to have commenced such action. It is
SO ORDERED.