In the case concerning the Estate of Thelma V. Spirtos, the Ninth Circuit Court addressed the issue of whether a creditor of a bankruptcy estate has standing to bring a lawsuit on behalf of that estate. The court determined that under 11 U.S.C. § 323, only the bankruptcy trustee has the exclusive right to initiate such lawsuits. The background involves Basil and Thelma Spirtos, who were married and had six children. After Basil breached a Marital Settlement Agreement (MSA) in 1984, Thelma filed for Chapter 11 bankruptcy, which was later converted to Chapter 7 in 2001. Following Basil’s death in 1996, his bankruptcy case remained open, with David Ray serving as the trustee.
In 2002, Thelma filed a complaint against various parties involved in Basil’s bankruptcy and probate proceedings, alleging RICO violations and conspiracy to conceal assets from creditors. The district court dismissed her claims, ruling that they were asserted on behalf of the bankruptcy estate, and therefore, Thelma lacked standing. Additionally, the court dismissed the claims related to Basil's probate estate on the grounds of Younger abstention. The dismissal was upheld by the Ninth Circuit, confirming that the bankruptcy trustee holds exclusive authority to sue on behalf of the estate.
Thelma's appeal of the district court’s ruling was denied after the California Court of Appeal determined she is not a creditor of the probate estate due to her failure to properly perfect her claim under California probate law. The court analyzed Thelma's RICO claims related to both the bankruptcy and probate estates. It concluded that she lacks standing to bring claims in either context, affirming the district court's decision without addressing the issue of Younger abstention.
Regarding the RICO claims from Basil’s bankruptcy estate, the court emphasized that the Bankruptcy Code designates the trustee as the sole representative of the estate with the exclusive right to sue on its behalf. While creditors can sue the trustee, they do not generally have standing to assert claims on behalf of the estate. The court noted that, although a trustee can authorize others to sue under certain circumstances, such authorization must be explicitly made. In this case, the trustee's stipulation allowing creditors to sue was approved by the bankruptcy court, granting those creditors standing in that specific instance. However, the court reaffirmed that typically, only the trustee can prosecute causes of action belonging to the bankruptcy estate, and Thelma, as a creditor, does not possess standing or a claim to pursue RICO actions on behalf of the estate.
In Richman v. First Woman’s Bank, the court ruled that a creditor lacks RICO standing if the alleged injury results solely from harm to the corporation, as established in prior case law. Thelma's argument that she could sue alongside the estate's trustee was rejected; the Bankruptcy Code stipulates that only the trustee has the authority to sue on behalf of the estate. The court noted that Thelma had not requested the abandonment of the estate's RICO claims, which remain property of the estate unless formally abandoned. Furthermore, any allegations of trustee misconduct should be addressed through removal under the Bankruptcy Code, not through a RICO claim.
Regarding Thelma's claims related to Basil’s probate estate, the California courts determined she is not a creditor of that estate, and thus lacks the standing to pursue RICO claims. The doctrines of collateral estoppel and res judicata preclude her from relitigating this issue. Consequently, the court affirmed the district court’s judgment, concluding that Thelma lacks standing to assert RICO claims on behalf of both the bankruptcy and probate estates.
