TEX. CASE LAW ---> bankruptcy issues in state court

law-bankruptcy

BANKRUPTCY ISSUES IN STATE COURTS:

     Bankruptcy can affect a debtor's standing to sue. When a person files a bankruptcy petition, she loses
all right, title, and interest in all of her property, and her property is then vested in her bankruptcy estate.
See 11 U.S.C.A. § 541(a)(1) (West 2004); Douglas, 987 S.W.2d at 882; Kilpatrick, 205 S.W.3d at 701. The
bankruptcy estate includes any legal claims the debtor owned when she filed the bankruptcy petition.
Douglas, 987 S.W.2d at 882. The bankruptcy trustee is the representative of the estate. 11 U.S.C.A. § 323
(a) (West 2004). In a case involving a Chapter 11 bankruptcy, the Texas Supreme Court has held that the
bankruptcy trustee has exclusive standing to assert claims that are owned by the estate. Douglas, 987 S.W.
2d at 881, 882.
     But appellant filed for bankruptcy under Chapter 13, and Chapter 13 bankruptcies have some
distinctive features. Although a Chapter 13 debtor loses all right, title, and interest in her property under §
541(a)(1), she “remain[s] in possession of all property of the estate” under § 1306. See 11 U.S.C.A. § 1306
(b) (West 2004). Thus, every federal circuit court that has addressed the issue has concluded that Chapter
13 debtors retain standing to sue on claims that are owned by the bankruptcy estate. Smith v. Rockett, 522
F.3d 1080, 1081-82 (10th Cir. 2008); Crosby v. Monroe Cnty., 394 F.3d 1328, 1331 n.2 (11th Cir. 2004);
Cable v. Ivy Tech State Coll., 200 F.3d 467, 472-74 (7th Cir. 1999); Olick v. Parker & Parsley Petroleum
Co., 145 F.3d 513, 515-16 (2d Cir. 1998); Maritime Elec. Co. v. United Jersey Bank, 959 F.2d 1194, 1209 n.
2 (3d Cir. 1992). Other courts and commentators agree that Chapter 13 debtors have standing to sue.
Jackson v. Marlette (In re Jackson), 317 B.R. 573, 578-80 (Bankr. D. Mass. 2004); Ex parte Moore, 793 So.
2d 762, 765 (Ala. 2000); Kelsey v. Waste Mgmt. of Alameda Cnty., 90 Cal. Rptr. 2d 510, 514 (Cal. Ct. App.
1999); Dance v. La. State Univ. Med. Ctr., 749 So. 2d 870, 873 (La. Ct. App. 1999); 8 Collier on Bankruptcy
¶ 1303.04 (16th ed. 2011, Alan N. Resnick & Henry J. Sommer, eds. in chief) (“Certain rights, such as the
right to bring a lawsuit . . ., are implicit in section 1306(b), which allows the debtor to retain possession of all
property of the estate . . . .”). A few bankruptcy courts have concluded that a Chapter 13 debtor lacks
standing to prosecute claims held by the bankruptcy estate. See Jackson, 317 B.R. at 579 n.8 (collecting
cases).         The courts adopting the majority rule that Chapter 13 debtors retain standing to sue have
reasoned that it would frustrate the purpose of § 1306(b) to grant the debtor possession of legal claims but
deny the debtor the authority to pursue those claims for the benefit of the estate. See, e.g., Smith, 522 F.
3d at 1081 (citing Cable, 200 F.3d at 473). Moreover, under Chapter 13, creditors draw their recoveries
from the debtor's earnings, not the assets of the bankruptcy estate, so the trustee's participation in the
prosecution of a legal claim by the debtor is generally not needed to protect the creditors' rights. Olick, 145
F.3d at 516. Additionally, some legislative history supports the propriety of a Chapter 13 debtor's standing
to sue. Smith, 522 F.3d at 1081-82.
     Chapter 13 of the Bankruptcy Code includes another provision that is potentially relevant in this case.
Under § 1327, “the confirmation of a plan vests all of the property of the estate in the debtor” except as
otherwise provided in the plan or the order confirming the plan. 11 U.S.C.A. § 1327(b) (West 2004). Section
1327(b) “implements a major theme of chapter 13 by preserving to the debtor ownership, as well as
possession, of all property, whether acquired before or during the chapter 13 case, except as otherwise
required to effectuate the confirmed plan.” 8 Collier on Bankruptcy, supra, at ¶ 1327.03 (footnotes omitted).
     Notwithstanding the special features of Chapter 13 bankruptcy, the Fort Worth Court of Appeals has
held that a plaintiff's prior filing and dismissal of a Chapter 13 bankruptcy deprived him of standing to assert
certain claims. Kilpatrick, 205 S.W.3d at 701-03. In that case, the debtor filed two different Chapter 13
bankruptcies, both of which were dismissed. Id. at 695. He later filed a lawsuit in Texas state court. He had
never disclosed the existence of his claims in his Chapter 13 bankruptcies. Id. at 702. The Fort Worth Court
of Appeals held that the debtor's claims passed into his bankruptcy estate when he filed his first Chapter 13
bankruptcy case, and that the claims did not revest in the debtor when the bankruptcy was dismissed
because he never disclosed his claims in that bankruptcy proceeding. Id. at 703. The debtor pointed out
that his bankruptcy case was under Chapter 13, but the court of appeals held that he still lacked standing
because “[f]ull disclosure of assets is required regardless of the chapter under which the bankruptcy was
brought.” Id. at 703.

TEXAS SUPREME COURT DECISION(s)

Unifund CCR Partners v. Villa, No. 08-1026 (Tex. Oct. 23, 2009)(per curiam)
(sanctions for filing suit to collect debt discharged in bankruptcy reversed)
UNIFUND CCR PARTNERS v. JAVIER VILLA; from Webb County;
4th district (04-07-00465-CV, 273 SW3d 385, 09-17-08)
Pursuant to Texas Rule of Appellate Procedure 59.1, after granting the petition for review and without
hearing oral argument, the Court reverses the court of appeals' judgment and renders judgment.
Per Curiam Opinion

Ferguson v. Building Materials Corp. of America, No. 08-0589 (Tex. Jul. 3, 2009)(per curiam)
(judicial e stoppel based on bankruptcy proceeding does not apply here)
JASON FERGUSON AND BOBBIE FERGUSON v. BUILDING MATERIALS CORPORATION OF AMERICA,
CPC LOGISTICS, INC., AND ROBERT JAMES MADDOX; from Dallas County;
8th district (08-07-00051-CV, 276 SW3d 45, 06-12-08 Opinion of the Eight Court of Appeals below)
Pursuant to Texas Rule of Appellate Procedure 59.1, after granting the petition for review and without
hearing oral argument, the Court reverses the court of appeals' judgment and remands the case to the trial
court. Per Curiam Opinion [pdf]
Jason Ferguson and his wife sued Building Materials Corporations of America and others for injuries Ferguson suffered
when an eighteen-wheeler crashed into a building, which collapsed on him. A few months after filing the personal injury suit
against Building Materials, the Fergusons filed for bankruptcy, which required them to disclose their income, assets, and
liabilities to the bankruptcy court, the bankruptcy trustee, and their creditors. See 11 U.S.C. § 521 (a)(1)(A) & (B)(i),(ii),(iii). To
comply with these disclosures, the Fergusons completed several forms, including a Statement of Financial Affairs and a
Schedule of Personal Property. The Fergusons disclosed the pending lawsuit in the Statement of Financial Affairs,
providing the caption and style of the suit, nature of the claim, cause number, and the court in which it had been filed. The
Fergusons, however, failed to include it on their Schedule of Personal Property.
The Fergusons also participated in a creditors meeting at which they again disclosed the pending personal injury suit to
the bankruptcy trustee. See 11 U.S.C. § 341(c). The trustee acknowledged the existence of the pending litigation in his
report, which was given to the bankruptcy court and creditors. None of the creditors objected to the final bankruptcy plan
that failed to include the lawsuit as an asset.
Within weeks of the plan’s approval, Building Materials, the defendant in the personal injury lawsuit, filed a motion for
summary judgment, claiming the personal injury action was barred on the basis of judicial estoppel. The trial court granted
the motion, and a divided court of appeals affirmed, reasoning that the Fergusons were judicially estopped from pursuing
the personal injury lawsuit. 276 S.W.3d at 49-52.
The Fergusons have neither taken a clearly inconsistent position nor gained an unfair advantage in their bankruptcy
proceeding. As the dissenting justice in the court of appeals noted, the Fergusons never attempted to conceal the
existence of the personal injury suit. 276 S.W.3d at 54. Rather, the Fergusons listed it on their Statement of Financial
Affairs and also disclosed it to the trustee at the creditors meeting, at which time they acknowledged the suit and directed the
trustee to contact plaintiffs’ counsel if the trustee needed additional information. And, although the Fergusons omitted it from
the bankruptcy plan initially confirmed by the court, when the omission was called to their attention, they amended their
bankruptcy plan to include its value and agreed to recalculate the amount owed to the creditors. Thus, even assuming the
existence of an inconsistent position, the Fergusons have gained no advantage and more importantly, neither Building
Materials in the pending personal injury suit nor the creditors in the bankruptcy have suffered any disadvantage. The doctrine
of judicial estoppel simply does not apply under these circumstances. See Pleasant Glade Assembly of God, 264 S.W.3d at
6-8.
Because the Fergusons have taken neither a clearly inconsistent position nor obtained an unfair advantage, the court of
appeals erred in affirming the dismissal of their personal injury claim under the doctrine of judicial estoppel. We accordingly
grant the petition for review and, without hearing oral argument, reverse the court of appeals’ judgment and remand to the
trial court.