Hof v. Caswell (In re Caswell)
Hof v. Caswell (In re Caswell)
Opinion of the Court
This adversary proceeding is before the Court on the Motion to Dismiss the Amended Complaint filed by Defendants Daniel P. Caswell and Gennell D. Caswell ("Defendants") on May 29, 2018. [Doc. 13]. The Court granted the parties an additional two weeks to file any supplemental materials regarding the pending Motion to Dismiss the Amended Complaint and then further extended the deadline through June 15. [Docs. 15, 22]. Both parties timely filed supplemental materials, [Docs. 18, 21] ("Plaintiffs' Brief" and "Defendants' Brief," respectively), and the matter is ripe for determination. For the reasons set forth below, Defendants' Motion to Dismiss the Amended Complaint will be granted as to plaintiffs Frederich Hof and Wanda Leyes in their individual capacities ("Plaintiffs"), and denied as to Plaintiff Frederich Hof, as Trustee of the Genevieve E. Stewart Winger Revocable Living Trust dated December 17, 1999 (the "Trust").
I. Jurisdiction and Authority
The Court has jurisdiction over the subject matter of this proceeding pursuant to
II. Procedural Background
Defendants commenced the underlying bankruptcy case on January 31, 2018, by filing a voluntary petition under chapter 7 of the Bankruptcy Code in this Court. The first meeting of creditors was set for February 26, making April 27 the deadline for creditors to commence an action to determine the dischargeability of any debt under
III. Factual Background
Ms. Genevieve E. Stewart Winger ("Winger") died on October 15, 2012, leaving three beneficiaries of the Trust-Frederich Hof, Wanda Leyes, and Gennell D. Caswell ("Ms. Caswell"). Ms. Caswell assumed the role of trustee of the Trust prior to Winger's death and, with the involvement of her husband, Daniel P. Caswell ("Mr. Caswell"), administered the Trust. The individual Plaintiffs sued Mr. and Ms. Caswell in the Circuit Court for the State of Oregon (the "State Court") and obtained a judgment. See General Judgment and Money Award ("General Judgment"), [Doc. 12, Ex. A, p. 10]. In the General Judgment, the State Court appointed plaintiff Frederich Hof as successor trustee of the Trust and granted Frederich Hof and Wanda Leyes, as plaintiffs, judgment against Mr. and Ms. Caswell in the sum of $341,141.03.
IV. DISCUSSION
Defendants contend that the Amended Complaint must be dismissed because it is untimely under Rule 4007 since the original Complaint was not asserted by Frederich Hof on behalf of the Trust as the judgment creditor and the Amended Complaint was filed after the deadline for filing a complaint to determine the dischargeability of a debt. Defendants maintain that this is a "major change" that prevents relation back of the Amended Complaint to the filing of the original Complaint under Rule 15. Plaintiffs counter that the Amended Complaint relates back under Rules 15 and 17, and that even if the Amended Complaint does not relate back, Plaintiffs as individual beneficiaries under the Trust have a sufficient interest to confer standing under non-bankruptcy law to sue for the benefit of the Trust and their indirect benefit as beneficiaries.
A. Standing
Bankruptcy Rule 4007(a) provides that only "[a] debtor or any creditor may file a complaint to obtain a determination of the dischargeability of any debt." "The right to bring a proceeding under Rule 4007 turns upon the right to enforce collection of the debt which is at issue." 9 Lawrence P. King, Collier on Bankruptcy ¶ 4007.02 (16th ed. 2018). Section 523 excepts certain types of "debt" from the debtors' discharge. The Code defines a *443"debt" as "liability on a claim."
Oregon law defines a judgment as "the concluding decision of a court ... as reflected in a judgment document."
The judgment document for a judgment in a civil action that includes a money award must contain a separate section clearly labeled as a money award. Any judgment in a civil action that includes a money award, but does not contain a separate section clearly labeled as a money award, does not create a judgment lien but may be enforced by any other judgment remedy.
Plaintiffs contend that they are individually entitled to enforce the $341,141.03 judgment on the Second, Fourth, and Sixth Claims for relief under Oregon Statute § 18.042, which permits enforcement "by any other judgment remedy." However, under the plain language of the Statute, this savings provision, allowing judgments that do not contain "a separate section clearly labeled as a money award" to be enforced by other judgment remedies, does not apply to the General and Supplemental Judgments because each includes a separate money award.
Under Oregon law, " '[j]udgment remedy' means: (a) The ability of a judgment creditor to enforce a judgment through execution; and (b) Any judgment lien arising under ORS 18.150 or 18.152."
B. Relation Back Pursuant to Rules 15 and 17
Generally, "[a]n action must be prosecuted in the name of the real party in interest[,]" though "a trustee of an express trust" "may sue in [his] own name[ ] without joining the person for whose benefit the action is brought[.]" Fed. R. Civ. P. 17(a)(1)(E). Under this rule, Frederich Hof did not have to bring the action in the name of the Trust, but could sue in his name as trustee. Instead of filing the original Complaint in his capacity as trustee, Frederich Hof filed the original complaint solely in his individual capacity, rather than as trustee. Nevertheless,
*444[a] court may not dismiss an action for failure to prosecute in the name of the real party in interest until, after an objection, a reasonable time has been allowed for the real party in interest to ratify, join, or be substituted into the action. After ratification, joinder, or substitution, the action proceeds as if it had been originally commenced by the real party in interest.
Fed. R. Civ. P. 17(a)(3). Where the real party in interest is permitted to be substituted, the action is deemed to have been originally commenced by that party.
Similarly, under Rule 15, an amended pleading filed after a deadline relates back to the original pleading when, among other instances, "the law that provides the applicable statute of limitations allows relation back; [or] the amendment asserts a claim or defense that arose out of the conduct, transaction, or occurrence set out-or attempted to be set out-in the original pleading[.]" Fed. R. Civ. P. 15(c)(1)(A)-(B). In summary,
courts have generally seen [ Rule 17 ] as having a "negative function," "enabl[ing] a defendant to present defenses he has against the real party in interest, to protect the defendant against a subsequent action by the party actually entitled to relief, and to ensure that the judgment will have a proper res judicata effect." Virginia Elec. & Power Co. v. Westinghouse Elec. Corp.,485 F.2d 78 , 83, 84 (4th Cir. 1973). Nevertheless, ... the Advisory Committee's Notes to both Rule 15 and Rule 17, as well as some cases, suggest that Rule 17 retains a residual affirmative purpose. The Committee explains that "[t]o avoid forfeiture of just claims," Rule 17"provide[s] that no action shall be dismissed on the ground that it is not prosecuted in the name of the real party in interest until a reasonable time has been allowed for correction of the defect" using Rule 15. Fed. R. Civ. P. 15 advisory committee's note (1966). Thus, Rule 17 is "intended to insure against forfeiture and injustice" in cases where "an honest mistake has been made in choosing the party in whose name the action is to be filed." Fed. R. Civ. P. 17 advisory committee's note (1966). In this spirit, courts have often permitted amendment under Rule 17 even late in the course of litigation.
Intown Props. Mgmt., Inc. v. Wheaton Van Lines, Inc.,
Plaintiffs assert that the monetary judgments are nondischargeable under § 524(a)(4). A complaint alleging an exception to discharge under § 524(a)(4) must be filed within 60 days of the first meeting set for creditors in the underlying bankruptcy case pursuant to Rule 4007(c).
The Amended Complaint alleges claims identical to those of the original Complaint, which was timely filed and provided full notice to Defendants of specific wrongs, potential liability, and the debt which Plaintiffs sought to except from Defendants' discharge. Plaintiffs' failure to name the real party in interest, *445the Trustee for the Trust, did not result from dishonesty or an effort at a tactical advantage. In fact, the original Complaint attached a copy of the General Judgment and Supplemental Judgment, thereby removing any question as to the obligation Plaintiffs sought to except from Defendants' discharge.
" Rules 15 and 17 of the Federal Rules of Civil Procedure... contemplate allowing just this sort of party-substitution." In re Meyer,
The force of Rule 4007(c)... should fall first and foremost on whether a complaint was filed against a specific debt, not so much on who makes the complaint. Here, [the subsidiary's] timely filing put Meyer on notice. Meyer knew that some creditor in a daisy chain would contest the discharge of the $3 million-plus default judgment. The purpose of Rule 4007(c) had thus been served, and the 60-day rule satisfied. We also note that Meyer has not shown, nor even argued, that he suffered any prejudice from the nominal error. That the subsidiary ... filed instead of the parent ... was of no consequence to Meyer. The absence of prejudice to Meyer affirms our view that Rule 4007(c) turns on the identification of a contested debt, not of the contesting creditor.
The circumstances in which courts do not permit relation back are very different from those presented here. In Intown, a driver of a Wheaton Van Lines truck hit a restaurant owned by the plaintiff. Intown Props. Mgmt.,
The Fourth Circuit upheld the district court's denial of the motion to amend in Intown. The court first observed that an untimely motion to intervene should be denied, which "seems only fair because, if permitted, intervention may expose a defendant to additional liability."
In this case, as in Meyer, Plaintiffs timely but erroneously filed the original Complaint alleging the nondischargeability of a specific debt in the capacity of a related entity. The State Court awarded the debt at issue under judgments in an action in which Plaintiffs here were the plaintiffs. Indeed, the original Complaint and the Amended Complaint differ in a single respect: the addition of the real party in interest, Frederich Hof, as Trustee for the Trust. Plaintiffs' mistake was neither tactical, nor dishonest, particularly given the recitation of awards set forth in the judgment documents as described above, and does not subject Defendants to additional liability. Defendants received sufficient notice of the wrongs and conduct alleged such that permitting the Amended Complaint to relate back does not constitute undue prejudice. Further, Defendants concede that they understood the complaint and proper party from the inception of the case, see Defendants' Brief, p. 3, and the Amended Complaint was filed in the nascence of the case, even earlier than in Meyer, prior to a discovery conference *447pursuant to Fed. R. Civ. P. 26, and prior to the entry of a scheduling order. In fact, the parties requested and obtained a continuance of the initial pretrial conference, which has not occurred as of the date of this Order. To deny relation back under these circumstances would be an abuse of the Court's discretion. Thus, the Motion to Dismiss the Amended Complaint will be denied as to Frederich Hof, as Trustee for the Trust.
NOW, THEREFORE, IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that the Motion to Dismiss the Amended Complaint is granted as to Frederich Hof and Wanda Leyes in their individual capacities, and denied as to Frederich Hof, as Trustee for the Genevieve E. Stewart Winger Revocable Living Trust, Dated December 17, 1999.
SO ORDERED.
The General Judgment awards this amount in three separate paragraphs, addressing Plaintiffs' Second (Undue Influence), Fourth (Breach of Fiduciary Duty), and Sixth (Surcharge) Claims for relief, respectively.
Fed. R. Bankr. P. 4007(c) provides:
Except as otherwise provided in subdivision (d), a complaint to determine the dischargeability of a debt under § 523(c) shall be filed no later than 60 days after the first date set for the meeting of creditors under § 341(a). The court shall give all creditors no less than 30 days' notice of the time so fixed in the manner provided in Rule 2002. On motion of a party in interest, after hearing on notice, the court may for cause extend the time fixed under this subdivision. The motion shall be filed before the time has expired.
Defendants argue that they will be prejudiced by permitting the amendment to relate back because they waited for the 60-day deadline to pass before informing Plaintiffs of the error. See Defendants' Brief, p. 3. Defendants therefore essentially argue that prejudice arises out of having to defend the claim, which they would not have to do if the Amended Complaint is deemed to be untimely. This argument is logically flawed on numerous bases. If being forced to defend an action itself is prejudice, there never would be circumstances under which relation back did not prejudice a defendant. Furthermore, the fact that the Defendants immediately saw this "obvious error,"
Although not specifically mentioned by the Fourth Circuit, it does not appear that there was any dispute that the insurer was the real party in interest with respect to the claims in its original complaint, since it already had paid those damages to its insured. This observation stands in contrast to this case, in which the Trust is the proper party to assert the dischargeability claim for relief in the original Complaint.
Reference
- Full Case Name
- IN RE: Daniel P. CASWELL, Gennell D. Caswell, Debtors. Frederich Hof Wanda Leyes and Frederich Hof, as Trustee for the Genevieve E. Stewart Winger Revocable Living Trust, Dated December 17, 1999 v. Daniel P. Caswell, Gennell D. Caswell
- Status
- Published