"Property of the bankrupt remains in custodia legis in the bankruptcy court during the period . . . after the discharge of the trustee . . . remain[ing] dormant, in the estate, until the bankruptcy court again appoints a trustee as enforcing guardian." Stein v. United Artists Corp., 691 F.2d 885, 893 (9th Cir. 1982) (holding that controlling shareholder of post-confirmation debtor could not pursue unlisted pre-confirmation claim on behalf of creditors). The bankruptcy court found that under Pennsylvania law creditors of an insolvent corporation have standing to sue the directors and the trustee has standing as their representative.
When a corporation is directly injured, shareholders, employees, and creditors of the corporation may suffer indirect injury. See Stein v. United Artists Corp., 691 F.2d 885, 896 (9th Cir. 1982). The corporation, having suffered the direct injury, has the right to bring an action against the wrongdoer, while other parties suffering indirect injuries cannot individually assert the corporate cause of action.
It is clear, moreover, that when a debtor, following his discharge from bankruptcy, claims that because the bankruptcy trustee failed to pursue a cause of action he thereby abandoned it, the burden of proving such an abandonment is allocated to the debtor. Stein v. United Artists Corp., 691 F.2d 885, 890-91 (9th Cir. 1982), was unequivocal in this regard: Unless property is abandoned or intentionally revested, title generally remains in the trustee.
Vinci II, 80 F.3d at 1375 (quoting Solinger v. A M Records, Inc. ("Solinger II"), 718 F.2d 298, 299 (9th Cir. 1983)) (original alterations omitted); see also Sherman v. British Leyland Motors, Ltd., 601 F.2d 429, 439 (9th Cir. 1979) (holding that injury to corporation does not confer antitrust standing on its sole shareholder). The discussion of shareholder standing in Stein v. United Artists Corp., 691 F.2d 885 (9th Cir. 1982), is particularly apposite here. In that case, the majority shareholder of a motion picture theater operator brought an antitrust action against various motion picture distributors, alleging that the distributors conspired to drive him out of the theater business.
Under Auto West, if the cause of action continues, it remains subject to the claims of Pako's creditors. The treatment of undisclosed assets was also addressed in Stein v. United Artists Corp., 691 F.2d 885 (9th Cir. 1982), under the former Bankruptcy Act. In Stein, plaintiff sought to bring various antitrust claims which had not been disclosed in chapter 11 proceedings, even though the conduct giving rise to the claims occurred prior to the bankruptcy.
Both parties rely on a single case decided in the Ninth Circuit by Judge Kennedy, now an Associate Justice of the United States Supreme Court. In Stein v. United Artists Corp., 691 F.2d 885 (9th Cir. 1982), the court held that the assignee of a bankrupt could not subsequently assert an antitrust action against defendants without first seeking a reopening of bankruptcy proceedings or obtaining an order of abandonment. Judge Kennedy reasoned that the debtor's failure to list the antitrust claim in bankruptcy court prevented the asset from vesting in the assignee at the close of the bankruptcy proceedings.
Therefore, it was never administered and, according to them, remains property of the chapter 11 estate in that earlier case, subject solely to the claims of the 1991 creditors. In so arguing, the objectors refer to Stein v. United Artist Corp., 691 F.2d 885 (9th Cir. 1982). An analysis of the Stein decision will demonstrate the strength and weaknesses of the objectors' contentions.
Therefore, it was never administered and, according to them, remains property of the chapter 11 estate in that earlier case, subject solely to the claims of the 1991 creditors. In so arguing, the objectors refer to Stein v. United Artists Corp., 691 F.2d 885 (9th Cir. 1982). An analysis of the Stein decision will demonstrate the strength and weaknesses of the objectors' contentions.
See Bankruptcy Reform Act of 1978, Pub. L. No. 95-598, 402 and 403, 92 Stat. 2549, 2682-83. See, also, Stein v. United Artists Corp., 691 F.2d 885 (9th Cir. 1982). The rearrangement plan, filed September 7, 1976, refers to specific provisions of the Bankruptcy Act.
Other courts have noted the difficulties spawned when a bankrupt attempts to pursue a cause of action on his own. In Stein v. United Artists Corp., 691 F.2d 885, 894 (9th Cir. 1982), the court noted the risk of tortfeasors going free because the improper plaintiff sued them. The court in Management Investors v. United Mine Workers, 610 F.2d 384, 392 (6th Cir. 1979), discussed the waste of judicial resources caused by the necessity of bringing a new action with the trustee as the plaintiff.