Opinion
Case No. 02-83326-RGM, Adv. Proc. No. 04-1221.
November 30, 2004
MEMORANDUM OPINION
THIS CASE is before the court on the debtor's motion to join three individuals in this adversary proceeding. For the reasons stated below, the motion will be denied.
On January 8, 1999, the debtor filed a Chapter 11 bankruptcy petition in this court. On October 5, 1999, this court entered an order converting the debtor's bankruptcy petition to a chapter 7. The debtor received a discharge on April 7, 2000, and the case was closed on July 30, 2002. On September 18, 2000, the Internal Revenue Service ("IRS") made an assessment of a trust-fund recovery penalty in the amount of $466,617.64 against the debtor. A trust fund recovery penalty is a personal liability resulting from the failure of a business to pay trust fund taxes, which includes taxes withheld from employees wages and excise taxes collected from patrons. These trust fund taxes were owed by District of Columbia Community Services, Inc. ("DCCS"), a nonprofit organization for which the debtor served as Chief Executive Officer during 1997 and part of 1998. The IRS also filed two notices of federal tax lien against the debtor. The first notice was filed on September 24, 1998, and the second was filed on April 2, 2001.
On July 5, 2002, the debtor filed a second Chapter 11 bankruptcy petition in this court. On October 29, 2002, the IRS filed a proof of claim (Claim No. 5) for a total amount of $421,493.14 ($413,993.14 secured and $7,500 priority). Like the prior bankruptcy case, this case was also converted to a petition filed under chapter 7 by court order dated July 24, 2003.
On June 8, 2004, the debtor filed an adversary proceeding against the IRS. The debtor objected to the IRS's proof of claim and seeks to avoid the IRS lien under §§ 522(f), 505, and 362(a)(4). On October 18, 2004, the debtor filed a Motion to Approve Leave to Join Additional Parties in the adversary proceeding. This motion requests the joinder of Mr. Al Villacis, Mr. Terry Thomas, and Ms. Sharon Witherspoon, who were board members and officers of DCCS during the debtor's tenure with the organization. The motion states that "Mr. Thomas, Villacis, and Ms. Witherspoon are jointly and severally liable and their presence in this lawsuit is necessary to accord complete relief among those already parties." The IRS filed an opposition to the debtor's motion.
The adversary proceeding is an objection to the proof of claim filed by the Internal Revenue Service. Additionally, the debtor makes various assertions as to why the lien imposed is invalid or that he does not owe the total amount claimed. The presence or absence of any of the three named individuals described by Mr. Pullman does not affect the matters raised by the debtor. Nor is the determination of whether they are jointly liable or that rights of contribution exist between the debtor and the three parties proposed to be joined necessary for the resolution of the matters raised by the debtor. The matters raised by the debtor can be resolved without the presence of the additional three persons. Nor will a determination of the matters before the court prejudice the debtor if he should later seek to assert his rights, if any, against them. The claims are wholly independent. In fact, a right of contribution can generally only be asserted after a party has paid more of the claim to the creditor than he is obligated to pay as between other co-obligors. Such an action is one among the joint obligors and has no bearing between any or all of the obligors and the obligee, in this case, the IRS.
The court is concerned as to whether the debtor has standing to assert these actions. In his motion, the debtor states that Mr. Thomas, Mr. Villacis, and Ms. Witherspoon are jointly and severally liable for the trust fund taxes at issue. In other words, the debtor believes that he has a right of contribution against these parties. A right of contribution is a legal interest in property. Under § 541(a), the bankruptcy estate "is comprised of all the following property, wherever located and by whomever held: (1) [. . .] all legal or equitable interests of the debtor in property as of the commencement of the case."
Because the IRS's claim arose prior to the filing of the debtor's bankruptcy petition, the debtor's right of contribution against these parties necessarily existed as of the commencement of the case and is property of the estate. Nonetheless, the debtor did not list this right of contribution as property of the estate on Schedule B ("Personal Property"). Instead the debtor listed the IRS on Schedule D ("Creditors Holding Secured Claims") and named DCCS as a co-debtor for the IRS claim on Schedule H ("Co-debtors").
As noted previously, the debtor's petition was converted from a chapter 11 filing to a chapter 7 filing. At that time, a chapter 7 Trustee was appointed to administer the estate. Under § 323, Role and Capacity of Trustee, "(a) The trustee in a case under this title is the representative of the estate" and "(b) The trustee in a case under this title has capacity to sue and be sued." Consequently, in a chapter 7 proceeding, the chapter 7 trustee is responsible for administering the property of the estate and may bring suit if necessary. In this case, the chapter 7 trustee — not the debtor — is the proper party to exercise the right of contribution against these parties for the benefit of the estate.
Without regard to whether the debtor's right of contribution has matured or not matured, the asset remains an asset of the estate. The court further notes that as long as it is not scheduled on the debtor's schedule, it will remain property of the estate notwithstanding the closing of the estate. 11 U.S.C. § 554(c), (d).
CONCLUSION
The court finds that the absence of any of one or of all three of the additional persons named by the debtor does not prevent complete relief being accorded the debtor or the IRS. The court further finds that no one's rights will be adversely affected or practically impaired or impeded by not joining the three additional parties. The court further finds that the debtor does not have standing to bring this action because the action is property of the bankruptcy estate. The court concludes that the provisions of F.R.Bankr.P. 7019 have not been satisfied. The motion will be denied.