Golladay v. Brady

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	No. 00-40496 TD
Chapter 7
JOHN THOMAS COBURN,
Debtor.
___________________________/
JAMES D. GOLLADAY, 	A.P. No. 06-4072 AT
Plaintiff,
vs.
LOIS I. BRADY, Trustee,
Defendants.
___________________________/
MEMORANDUM OF DECISION
In 	this 	adversary 	proceeding, 	Creditor 	James 	D. 	Golladay
(“Golladay”) 	asserts 	claims 	against 	Lois 	I. 	Brady, 	the 	chapter 	7
trustee 	of 	the 	above-captioned 	estate, 	(the 	“Trustee”) 	for
negligence, 	breach 	of 	fiduciary 	duty, 	and 	negligent
misrepresentation. 	The 	Trustee 	moves 	to 	dismiss 	the 	claims 	with
prejudice. 	For the reasons stated below, her motion will be granted.
Signed: July 06, 2006
________________________________________
LESLIE TCHAIKOVSKY
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
July 06, 2006
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
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SUMMARY OF FACTS
John 	Thomas 	Coburn 	(“Coburn”) 	filed 	a 	voluntary 	chapter 	11
petition 	on 	January 	27, 	2000. 	He 	had 	caused 	his 	solely 	owned
corporation, 	Envirodyne 	Corporation 	(“Enviroydyne”), 	to 	file 	a
chapter 	11 	petition 	the 	previous 	day. 	Both 	Envirodyne 	and 	Coburn
continued 	to 	operate 	during 	the 	chapter 	11 	cases 	as 	debtors 	in
possession. 	No 	reorganization 	plan 	was 	ever 	confirmed 	in either
case, and on May 1, 2001, orders were entered converting both cases
to chapter 7 of the Bankruptcy Code.
Brady was appointed as the chapter 7 trustee in the Coburn case.
In November 2001, she was authorized to employ Reidun Stromsheim as
her general bankruptcy counsel. 	Various disputes arose between Brady
and 	the 	chapter 	7 	trustee 	of 	the 	Envirodyne 	estate–-William 	Broach
(“Broach”)--concerning which estate owned which scheduled asset. 	The
principal 	assets 	in 	controversy 	were 	a 	condominium 	in 	Mexico 	(the
“Mexican 	Condo”), 	a 	judgment 	against 	Donna 	Pinion 	(the 	“Pinion
Receivables”), and two race cars, a T-70 Lola (the “T-70 Race Car”),
and a T-162 Lola (the “T-162 Race Car”). 	Brady and Broach negotiated
a 	settlement 	of 	those 	disputes 	(the 	“Trustees’ 	Compromise”).
Golladay filed an objection to the Trustees’ Compromise when it was
noticed for Court approval in the Envirodyne case.
Thereafter, 	Golladay 	negotiated 	a 	settlement 	of 	his 	objection
with Brady and Broach (the “Golladay Compromise”). 	In February 2004,
Brady gave notice to creditors of the Coburn estate of the Golladay
Compromise. 	No 	party 	in 	interest 	objected, 	and 	an 	order 	approving
the 	Golladay Compromise was entered on March 29, 2004. 	Based on the
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Golladay Compromise, Golladay withdrew his objection to the Trustees’
Compromise in the Envirodyne case.
Brady 	filed 	her 	final 	report 	and 	final 	application 	for
compensation 	in 	the 	Coburn 	case 	on 	October 	26, 	2004. 	Orders
approving the final report and the fee applications were entered on
December 9, 2004. 	On February 15, 2005, a final decree was entered,
and the Coburn case was closed. 	On February 22, 2006, on Golladay’s
motion, the Coburn case was reopened to permit Golladay to prosecute
a 	previously 	filed 	adversary 	proceeding 	against 	Brady: 	i.e., 	the
above-captioned adversary proceeding.
On March 13, 2006, Brady filed a motion to dismiss the complaint
(the 	“Original 	Complaint”). 	On 	April 	10, 	2006, 	Brady 	filed 	a
supplement to the motion (the “Supplement”). 	The parties appeared at
a status conference in the proceeding on April 17, 2006. 	The Court
continued 	the 	status 	conference 	to 	May 	18, 	2006 	when 	the 	motion 	to
dismiss was scheduled to be heard. 	The Court gave Golladay until May
4, 2006 to file an opposition to the motion and Brady until May 11,
2006 to file a reply. 	No further briefs were filed. 	However, on May
16, 	2006, 	Golladay 	filed 	an 	amended 	complaint 	(the 	“Amended
Complaint”). 	The 	parties 	appeared 	at 	the 	May 	18, 	2006, 	and 	the
matter was argued at some length. 	At the conclusion of the hearing,
the motion was taken under submission.
DISCUSSION
A. 	APPLICABLE LAW
Although Brady’s motion to dismiss the Original Complaint does
not 	identify 	the 	procedural 	rule 	upon 	which 	it 	relies, 	the 	motion
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1She also based her original motion to dismiss on Golladay’s
failure to serve her with the complaint and summons on a timely
basis. 	She noted that the summons was issued on February 14, 2006,
was required to be served within 10 days from the issuance of the
summons. 	See Fed. R. Bankr. Proc. 7004(e). 	She declared that she
did not receive copies of the summons and complaint until March 11,
2006. 	Although this would have prevented Golladay from having
Brady’s default taken if she failed to answer the complaint, it was
not grounds for dismissal of the complaint. 	A plaintiff may
correct the error of untimely service of a summons and complaint by
obtaining the issuance of an alias summons and serving the alias
summons and the complaint within 10 days from the date of issuance
of the alias summons.
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appears 	to 	be 	based 	on 	Rule 	12(b)(6) 	of 	the 	Federal 	Rules 	of 	Civil
Procedure, made applicable to this proceeding by Rule 7012(b) of the
Federal 	Rules 	of 	Bankruptcy 	Procedure. 	There 	is 	a 	presumption
against 	granting 	a 	motion 	to 	dismiss 	a 	complaint 	with 	prejudice 	on
this 	basis. 	Such 	motions 	should 	be 	granted 	only 	if, 	taking 	all 	of
the allegations set forth in the complaint to be true, there does not
appear 	to 	be 	any 	reasonable 	chance 	that 	a 	claim 	may 	be 	stated 	upon
which 	relief 	could 	be 	granted. 	See 	Whitehorn 	v. 	Federal
Communications Comm’n, 235 F.Supp.2d 1092, 1096 (D. Nev. 2002).
B. 	DECISION
The initial basis for the Brady’s motion to dismiss the Original
Complaint 	filed 	by 	Golladay 	was 	that 	Golladay 	had 	failed 	to 	obtain
the Court’s permission to sue her. 1 	She filed this motion pro se and
cited no authority in support of her motion. 	In the Supplement, now
represented 	by 	counsel, 	she 	cited 	authority 	which 	she 	contended
supported 	the 	initial 	basis 	for 	her 	motion, 	referring 	to 	it 	as 	the
Barton Doctrine. 	In addition, Brady asserted that Golladay’s claims
were 	barred 	by 	the 	doctrine 	of 	res 	judicata. 	She 	incorporated 	the
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arguments 	based 	on 	this 	theory 	made 	by 	Broach 	in 	his 	motion 	to
dismiss the adversary proceeding filed against him by Golladay in the
Envirodyne case. 	The Court will address each of these two rationales
for Brady’s motion below.
A. 	BARTON DOCTRINE
Brady contends that the Barton Doctrine compels dismissal of the
Original 	Complaint, 	presumably 	without 	prejudice. 	The 	Barton
Doctrine 	holds 	that 	permission 	of 	the 	appointing 	court 	must 	be
obtained 	before 	a 	trustee 	is 	sued 	in 	a 	court 	other 	than 	the
appointing court. 	See In re Crown Vanatge, Inc., 421 F.3d 963, 970
(9 th 	Cir. 	2005); 	In 	re 	Kashani, 	190 	B.R. 	875, 	889 	(Bankr. 	9 th 	Cir.
1995). 	It 	does 	not 	apply 	when 	a 	trustee 	is 	sued 	in 	the 	court 	that
appointed 	her. 	Kashani 	at 	888. 	Therefore, 	Brady’s 	motion 	to
dismiss may not be granted based on the Barton Doctrine.
B. 	RES JUDICATA
As 	noted 	above, 	the 	Supplement 	added 	a 	second 	basis 	for 	the
motion 	to 	dismiss, 	adopted 	from 	the 	motion 	filed 	by 	Broach 	in 	the
Envirodyne case. 	In the Supplement, Brady contended that Golladay’s
claims were barred by the doctrine of res judicata. 	The doctrine of
res 	judicata–-sometimes 	referred 	to 	as 	claim 	preclusion--provides
that a final judgment on the merits precludes further litigation on
issues 	that 	either 	were 	or 	could 	have 	been 	litigated 	in 	the 	prior
proceeding. 	Montana v. U.S., 440 U.S. 147, 153 (1979); Nordhorn v.
Ladish Co., 9 F.3d 1402, 1404 (9 th Cir. 1993).
Brady contends that Golladay’s claims are barred by res judicata
based on the order approving her final fee application, to which he
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did 	not 	object. 	In 	a 	bankruptcy 	case, 	a 	final 	fee 	award 	is
considered a final judgment on the merits. 	See In re Iannochino, 242
F.3d 	36, 	44 	(1 st 	Cir. 	2001). 	As 	recited 	above, 	Brady’s 	final 	fee
application was approved pursuant to an order entered on December 9,
2004. 	Golladay was sent notice of the hearing on the application and
did 	not 	file 	an 	objection. 	Because 	claims 	of 	malfeasance 	or
nonfeasance 	could 	have 	been 	asserted 	as 	an 	objection 	to 	a 	fee
application, subsequent actions against a trustee or professional by
a 	party 	in 	interest 	who 	received 	notice 	of 	the 	applications 	are
barred 	by 	the 	doctrine 	of 	res 	judicata. 	See 	In 	re 	Shaw, 	2000 	WL
1897344 at *6 (N.D. Cal. 2000); Epstein v. Visher, 1997 WL 231108 at
*1 (N.D. Cal.).
In determining whether the doctrine of res judicata bars pending
litigation, the Court must examine four factors as follows:
(1) 	whether 	rights 	or 	interests 	established 	in
the 	prior 	judgment 	would 	be 	destroyed 	or
impaired 	by 	the 	prosecution 	of 	the 	second
action; 	(2) 	whether 	substantially 	the 	same
evidence 	is 	presented 	in 	the 	two 	actions; 	(3)
whether 	the 	two 	suits 	involve 	infringement 	of
the 	same 	right; 	and 	(4) 	whether 	the 	two 	suits
arise 	out 	of 	the 	same 	transactional 	nucleus 	of
facts.
Nordhorn, 	9 	F.3d 	at 	1405. 	In 	the 	Original 	Complaint, 	Golladay
alleged that Brady acted negligently and breached her fiduciary duty
in the following respects:
1. 	Falsely stated that the Mexican Condo belonged to the Coburn
estate and was registered in Coburn’s name when it was in fact owned
by Envirodyne;
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2In the Amended Complaint, Golladay also asked the Court to
set aside the Golladay Compromise. 	This request will be addressed
in the final section of this memorandum.
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2. 	Negligently 	failed 	to 	take 	timely 	and 	effective 	action 	to
acquire possession of the Mexican Condo for the Coburn estate;
3. 	Falsely maintained that the T-70 Race Car, which was owned
by Envirodyne, was property of the Coburn estate and negligently took
no effective action to prevent Coburn from successfully concealing it
or to punish him for having done so;
4. 	Negligently failed to employ a private investigator to press
for recovery of the T-70 Race Car;
5. 	Ignored 	Golladay’s 	repeated 	pleas 	to 	represent 	the 	Coburn
estate directly to the Mexican court so as to obtain control over the
Mexican Condo.
In 	the 	Amended 	Complaint, 	Golladay 	added 	a 	claim 	for 	negligent
misrepresentation, 	alleging 	that 	Brady 	negligently 	misrepresented
that the Mexican Condo was registered in Coburn’s name and was owned
by him. 2 	Each of the four factors identified in Nordhorn, as applied
to these claims, is discussed below.
(1) 	Whether Prior Rights Established Would be Destroyed.
The right of a professional to a fee award would be impaired by
permitting 	a 	subsequent 	malpractice 	claim 	to 	be 	asserted. 	Shaw 	at
*5. 	Similarly, 	here, 	Golladay’s 	claims 	against 	Brady--for
negligence, breach of fiduciary duty, and negligent representation--
would 	impair 	her 	fee 	awards. 	Thus, 	the 	first 	of 	the 	four 	required
factors is clearly satisfied.
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(2) 	Whether 	Two 	Actions 	Would 	Require 	Substantially 	the 	Same
Evidence.
In Shaw, the party asserting the subsequent malpractice action
had objected to the fee application. 	The Shaw court found that the
evidence presented in support of the objection was the same evidence
that would be offered in support of the malpractice action. 	Shaw at
*5. 	Here, 	Golladay 	did 	not 	file 	an 	objection 	to 	the 	fee
applications. 	However, 	all 	of 	the 	factual 	bases 	for 	the 	claims
asserted 	here 	could 	have 	been 	asserted 	in 	support 	of 	such 	an
objection.
As 	noted 	above, 	for 	res 	judicata 	to 	apply, 	a 	party 	need 	not
have asserted the claim in the prior action. 	It is sufficient that
the party could have asserted the claim. 	As recited above, Golladay
received 	ample 	notice 	of 	the 	fee 	applications. 	He 	had 	a 	full 	and
fair opportunity to assert his claims in the context of an objection
to the fee applications. 	Thus, the Court concludes that the second
of the four factors is also satisfied.
(3) 	Whether Both Actions Involve Infringement of Same Right.
The 	Court 	also 	concludes 	that 	the 	third 	factor 	has 	been
satisfied. 	The 	claims 	asserted 	by 	Golladay 	here 	involve 	the
infringement of the same right as that raised by the fee application.
The right asserted by Golladay here is the right to have the chapter
7 	trustee 	exercise 	due 	care 	in 	marshalling 	the 	debtor’s 	assets 	for
the benefit of the estate’s creditors. 	This is the same right that
he 	could 	have 	asserted 	by 	means 	of 	an 	objection 	to 	the 	fee
application.
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3Because the order approving the Golladay Compromise was
entered in the bankruptcy case, not in this adversary proceeding,
this request should have been made by motion in the case. 	However,
as a matter of judicial economy, the Court will address it in the
context of this proceeding.
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(4) 	Whether 	Both 	Actions 	Arise 	Out 	of 	Same 	Nucleus 	of 	Facts.
The final factor is also clearly satisfied. 	The fee application
of a chapter 7 trustee puts at issue the quality of her services on
behalf of the estate and its creditors. 	This is the same nucleus of
facts raised by Golladay’s claims. 	See In re Coastal Plains, Inc.,
338 	B.R. 	703, 	713 	(N.D. 	Tex. 	2006)(causes 	of 	action 	for 	negligence
and breach of fiduciary duty are based on same nucleus of operative
facts as trustee’s fee application).
Based 	on 	the 	foregoing, 	the 	Court 	concludes 	that 	all 	of 	the
claims asserted in the Original and Amended Complaint are barred by
res 	judicata 	effect 	of 	the 	order 	approving 	Brady’s 	final 	fee
application. 	Therefore, 	the 	claims 	asserted 	in 	the 	Original 	and
Amended Complaint should be dismissed with prejudice.
C. 	MOTION TO SET ASIDE GOLLADAY COMPROMISE
In 	the 	Amended 	Complaint, 	Golladay 	also 	asks 	the 	Court 	to 	set
aside the order approving the Golladay Compromise. 3 	He alleges that
he entered into the Golladay Compromise based on his false assumption
that Brady would supply any necessary legal documents to permit him
to obtain ownership of the Mexican Condo. 	He contends that the Court
would 	not 	have 	approved 	the 	Golladay 	Compromise 	had 	it 	known 	about
this false assumption.
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As 	recited 	above, 	the 	order 	approving 	the 	Golladay 	Compromise
was 	entered 	on 	March 	29, 	2004. 	Golladay 	did 	not 	seek 	to 	set 	aside
this 	order 	until 	the 	Amended 	Complaint 	was 	filed 	on 	May 	16, 	2006.
Clearly, Golladay learned of the factual basis for his request to set
aside 	the 	order 	long 	before 	the 	Amended 	Complaint 	was 	filed. 	The
Court finds that his request untimely. 	See Fed. R. Civ. Proc. 60(b),
made applicable to this proceeding by Fed. R. Bankr. Proc. 9024.
Moreover, 	setting 	aside 	the 	order 	approving 	the 	Golladay
Compromise 	would 	have 	no 	effect 	on 	the 	Court’s 	ruling 	on 	Brady’s
motion. 	Unlike 	Broach’s 	motion 	in 	the 	Envirodyne 	case, 	Brady’s
motion 	is 	not 	based 	on 	any 	release 	provisions 	contained 	in 	the
agreement embodying the Golladay Compromise. 	It is based solely on
the doctrine of res judicata
. 	CONCLUSION
Defendants’ motion to dismiss will be granted in its entirety.
The 	Barton 	Doctrine 	does 	not 	support 	dismissal 	of 	the 	Original 	or
Amended Complaint. 	The Barton Doctrine applies only to suits against
trustees filed in courts other than the appointing court. 	However,
all of the claims asserted in the Original and Amended Complaint are
barred 	based 	on 	the 	res 	judicata 	effect 	of 	the 	order 	approving
Brady’s final fee application. 	Therefore, the motion to dismiss all
of the claims asserted with prejudice will be granted.
Golladay’s request that the order approving Golladay Compromise
be 	set 	aside 	will 	be 	denied. 	The 	request 	is 	untimely. 	More
important, it would be futile in that it would not change the outcome
of the motion to dismiss. 	In this proceeding, the motion to dismiss
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is 	not 	based 	on 	any 	release 	provisions 	contained 	in 	the 	settlement
agreement embodying the Golladay Compromise.
Brady 	is 	directed 	to 	submit 	a 	proposed 	form 	of 	order 	in
accordance with this decision.
END OF DOCUMENT
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COURT SERVICE LIST
Dennis D. Davis
Goldberg, Stinnett, Meyers & Davis
44 Montgomery St., Ste. 2900
San Francisco, CA 94104
James D. Golladay
P.O. Box 1784
Grass Valley, CA 95945
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