Court: United States Bankruptcy Court, E.D. Tennessee; May 15, 2012; Us Bankruptcy; United States Bankruptcy Court
Defendants F. Scott Leroy, LeRoy Bickerstaff, and C. Kenneth Still (the LeRoy Defendants and Trustee) have filed a motion to dismiss the complaint of Plaintiff Nelson E. Bowers II in an adversary proceeding. The Banks Defendants and Debtor McKenzie did not join this motion, while Bowers opposes it. The court, having reviewed the relevant briefings and legal standards, finds that Bowers’ claims are identical to claims previously dismissed against the same defendants in earlier proceedings. Consequently, the court will dismiss Bowers’ claims against the LeRoy Defendants and Trustee based on immunity.
Bowers filed his complaint on December 15, 2011, asserting residency in Chattanooga, Tennessee, and claiming to be a business associate of Debtor McKenzie, with whom he co-owned a limited liability company, Cleveland Auto Mall, LLC (CAM). The complaint outlines complex relationships and transactions involving the defendants, including the representation by attorneys Banks and Morgan, who were involved in McKenzie’s bankruptcy case. The background includes an involuntary bankruptcy petition against McKenzie filed on November 20, 2008, and subsequent related filings, leading to the appointment of Trustee Still on February 20, 2009. The court highlights its previous rulings on similar issues to conserve judicial resources.
On June 14, 2010, the court converted the case to a Chapter 7 bankruptcy, with Mr. Still serving as the Chapter 7 trustee. The Trustee's application to employ Evans LeRoy, Hackett, PLLC as local counsel was approved on April 3, 2009, and on July 1, 2010, Mr. Banks was appointed as special litigation counsel to pursue actions against Bowers and others. The Trustee initiated two lawsuits against Bowers related to transactions between CAM and Exit 20 Auto Mall, LLC.
Bowers claims these lawsuits were maliciously prosecuted and constitute an abuse of process. The first lawsuit, filed by the Trustee on August 5, 2010, known as the "50 Acre Lawsuit," alleged multiple claims against Bowers, including violation of the automatic stay, avoidance of preferences and fraudulent transfers, equitable subordination, and claims against insiders. The complaint accused Bowers of facilitating the creation of an entity to receive property from the debtor’s estate post-bankruptcy filing, violating 11 U.S.C. § 362. The factual background of these claims has been addressed in previous court opinions.
The second lawsuit, initiated on August 6, 2010, in Bradley County Chancery Court, was brought against Bowers, Exit 20 Auto Mall, LLC, John Anderson, and GKH, alleging breach of fiduciary duty, conflict of interest, and civil conspiracy. The Trustee also claimed that Bowers assisted in a fiduciary breach. This Malpractice Lawsuit was later resolved with the Chancery Court finding that the statute of limitations had expired on certain claims, leading to the dismissal of remaining claims by the Debtor and Trustee.
GKH subsequently filed a malicious prosecution suit against the Trustee and their counsel, but this was dismissed regarding the Trustee due to his immunity in prosecuting the Malpractice Complaint.
Bowers has initiated an adversary proceeding against the Trustee and his counsel, reiterating allegations previously articulated in several court memoranda regarding a Malpractice Complaint. His claims of malicious prosecution and abuse of process mirror those made by GKH in Adversary Proceeding No. 11-1118 and in the GKH Malpractice M/P Lawsuit, with no new grounds presented for these claims related to the Trustee's actions in assisting a fiduciary breach. The court has previously detailed the allegations leading to Bowers' claims and therefore will not restate them, instead incorporating its earlier findings from the related bankruptcy and GKH Malpractice M/P contexts.
In the 50 Acre M/P Lawsuit, GKH alleged malicious prosecution and abuse of process against the Trustee and the LeRoy Defendants, claiming their investigation into claims against GKH was inadequate and that the lawsuit was filed with malice to extort settlement funds. The defendants sought dismissal based on Bankruptcy Code preemption, insufficient factual allegations, and inadequate service of process. The court instructed the parties to provide supplemental briefs on trustee immunity, referencing several relevant cases. In response, the Trustee and the LeRoy Defendants submitted their briefs, while GKH contended that the defendants could not claim immunity due to alleged misconduct and ultra vires actions. The court's memorandum accompanying its order to dismiss discussed trustee immunity, the trustee's obligations under the Bankruptcy Code, the applicability of immunity to the Trustee’s counsel, and assessed the legitimacy of the claims made by GKH.
GKH initiated a lawsuit against the Trustee in Hamilton County Circuit Court, alleging malicious prosecution and abuse of process related to the Malpractice Complaint. GKH claimed that both it and Bowers had previously sought to dismiss the Malpractice Complaint and asserted that the Trustee should have recognized the lack of probable cause for the claims after the dismissal of the 50 Acre Lawsuit. GKH accused the Trustee of malicious intent, alleging that the Malpractice Lawsuit was an attempt to extort settlement funds and that the Trustee failed to conduct necessary legal research.
The Trustee subsequently removed the case to federal court, where he filed a motion to dismiss, arguing that he enjoyed absolute immunity for actions taken while filing the Malpractice Complaint. The Trustee contended that the GKH complaint did not state a valid claim and that GKH's claims were preempted by the Bankruptcy Code. In response, GKH maintained that its allegations presented sufficient factual issues to survive a motion to dismiss and claimed that the Trustee was not entitled to immunity due to willful misconduct and actions exceeding his authority.
The court addressed the doctrine of trustee immunity, the duties of a trustee under the Bankruptcy Code, and exceptions to immunity, such as breach of fiduciary duty and ultra vires actions. The court also discussed failure to state a claim and indicated that it would not address the preemption argument as it would be considered dicta. Additionally, Bowers filed a complaint alleging similar claims of malicious prosecution and abuse of process against the Trustee and the LeRoy Defendants, related to both the 50 Acre and Malpractice Lawsuits.
The Complaint cites extensively from both the Malpractice Complaint and the hearing regarding the dismissal of the 50 Acre Lawsuit. It details the Trustee's failure to dismiss the Malpractice Lawsuit after the bankruptcy court dismissed the 50 Acre Lawsuit and recounts the resolution of the Malpractice Lawsuit. Bowers claims that the Trustee and the LeRoy Defendants lacked probable cause for their actions, similar to allegations made by GKH in related lawsuits. He alleges that the defendants failed to adequately research their claims, aiming instead to extort settlement proceeds from him. The LeRoy Defendants and the Trustee have filed motions to dismiss, asserting immunity from Bowers' tort claims, arguing that such claims are preempted by the Bankruptcy Code, and contending that Bowers fails to establish a prima facie case for his claims. They reference prior cases and the history of related adversary proceedings. Bowers, representing himself with GKH's assistance, argues that he has sufficiently pled his claims of malicious prosecution and abuse of process but does not introduce new facts. He echoes GKH's arguments regarding the ultra vires nature of the defendants' actions and addresses preemption, referencing cases previously considered by the court.
Federal Rule of Civil Procedure 12(b)(6) permits a party to dismiss a complaint for failing to state a claim upon which relief can be granted. In evaluating such a motion, courts must accept all well-pleaded allegations as true and interpret them favorably towards the plaintiff. The Supreme Court's ruling in Bell Atlantic Corp. v. Twombly clarifies that while detailed factual allegations aren't necessary, the plaintiff must provide enough factual content to suggest a plausible entitlement to relief, avoiding mere labels or conclusions. Legal conclusions presented as factual allegations are not to be accepted as true.
In the analysis section, the court addresses motions to dismiss related to claims of malicious prosecution and abuse of process against the Trustee and the LeRoy Defendants, stemming from the 50 Acre Lawsuit and the Malpractice Lawsuit. The court finds that the Trustee acted within his duties to investigate and recover assets for the estate. Despite unsuccessful outcomes in the lawsuits, the Trustee is granted immunity as the actions were within the scope of his responsibilities. The court applies the reasoning from a prior memorandum opinion and extends immunity to the LeRoy Defendants, as they served as counsel for the Trustee. The court similarly concludes that the Trustee is immune from liability regarding the Malpractice Lawsuit.
The court endorses the reasoning from its March 30, 2012 memorandum opinion in the case of Grant, Konvalinka, Harrison, P.C. v. Banks et al., which supports its findings in the current matter. In the Malpractice Lawsuit, the Debtor and Trustee filed two counts against all defendants: Count I for conflicts of interest/breach of fiduciary duty and Count III for civil conspiracy, along with an additional Count II against Bowers for assisting a fiduciary in breaching his duty, based on the same factual allegations. The court did not address Count II concerning GKH due to the absence of specific claims against them regarding the Trustee's immunity defense. The Debtor and Trustee argue that Bowers owed a fiduciary duty to the Debtor due to their business ties, particularly as members of CAM, alleging undue influence by all defendants over the Debtor's finances. Bowers contested Count II by claiming insufficient allegations regarding his knowledge of GKH's fiduciary duty and its breach, and also argued that the claim was barred by the statute of limitations. The Chancellor dismissed the breach of fiduciary duty claims due to a one-year statute of limitations. The court found that Count II against Bowers should be treated similarly to the other counts, as it stemmed from the same facts, sought monetary damages, and was successfully defended on statute of limitations grounds. Consequently, the court upheld that the Trustee is immune from liability for pursuing claims in the Malpractice Lawsuit, affirming that these actions relate directly to the Trustee’s statutory responsibilities in managing the estate.
The Trustee's efforts to enhance the estate's assets through damages from Bowers for tort violations align with his responsibilities, supported by case law. Bowers' claim of malicious prosecution failed due to the lack of a merits determination and the expiration of the statute of limitations. The court reaffirmed its earlier rulings regarding the Trustee's actions, asserting that Bowers lacks standing to contest the Trustee's actions under the ultra vires exception to the Barton doctrine, as he has not claimed ownership of the property involved in the 50 Acre Lawsuit. Even if Bowers were found to own Exit 20 Auto Mall, LLC, there is no evidence that the Trustee seized or controlled that property. The court also noted that Bowers did not present new arguments that warranted additional consideration. Consequently, the court determined that both the Trustee and the LeRoy Defendants are immune from Bowers’ claims, leading to the dismissal of the claims of malicious prosecution and abuse of process against them with prejudice. A separate order will follow, and Bowers acknowledges that the LeRoy Defendants were not involved in the Malpractice Lawsuit, excluding any claims against them related to that matter.
