In re: Michael Bogdan, a/k/a Andrew Michael Bogdan; INNER CITY MANAGEMENT, LLC

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
 In Re: MICHAEL BOGDAN, a/k/a
Andrew Michael Bogdan; INNER
CITY MANAGEMENT, LLC,
Debtors.
SEAN C. LOGAN, Chapter 7 Trustee,
Trustee-Appellant, No. 04-1643 
v.
JKV REAL ESTATE SERVICES;
FIDELITY NATIONAL TITLE INSURANCE;
STEWART TITLE GUARANTY COMPANY;
JOHN K. VOYATZIS,
Defendants-Appellees. 
Appeal from the United States District Court
for the District of Maryland, at Baltimore.
Andre M. Davis, District Judge.
(CA-04-438-AMD; BK-00-60732-JS)
Argued: December 2, 2004
Decided: July 6, 2005
Before KING and SHEDD, Circuit Judges, and
Henry F. FLOYD, United States District Judge
for the District of South Carolina, sitting by designation.
Reversed and remanded by published opinion. Judge Shedd wrote the
opinion, in which Judge Floyd joined. Judge King wrote an opinion
concurring in part and dissenting in part.

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COUNSEL
ARGUED: Douglas Brooks Riley, ROSENBERG, MARTIN, FUNK
& GREENBERG, L.L.P., Baltimore, Maryland, for Appellant. Robert
L. Ferguson, Jr., FERGUSON, SCHETELICH & BALLEW, P.A.,
Baltimore, Maryland; Richard L. Costella, MILES & STOCK-
BRIDGE, P.C., Baltimore, Maryland, for Appellees. ON BRIEF:
Lawrence J. Yumkas, Sedica Sawez, ROSENBERG, MARTIN,
FUNK & GREENBERG, L.L.P., Baltimore, Maryland, for Appellant.
Ann Doherty Ware, FERGUSON, SCHETELICH & BALLEW, P.A.,
Baltimore, Maryland, for Appellees JKV Real Estate Services, Inc.,
and John K. Voyatzis; Robert Scott Brennen, Matthew G. Summers,
John Robert Fischel, MILES & STOCKBRIDGE, P.C., Baltimore,
Maryland, for Appellee Stewart Title Guaranty Company; Brian
Charles Parker, PARKER, DUMLER & KEILY, L.L.P., Baltimore,
Maryland, for Appellee Fidelity National Title Insurance Company.
OPINION
SHEDD, Circuit Judge:
This bankruptcy appeal requires us to determine whether the bank-
ruptcy trustee has standing to sue, as the assignee of certain creditors,
to recover on behalf of the bankruptcy estate for damages caused to
these creditors by the debtor’s alleged coconspirators. The bankruptcy
court dismissed the trustee’s amended complaint, concluding that the
trustee lacked standing to assert claims against the alleged cocon-
spirators. The district court affirmed the bankruptcy court’s judgment.
Based on the unique facts and circumstances of this case, we reverse
the judgment of the district court and remand for further proceedings
consistent with this opinion.
I.
In 2000, Michael Bogdan and his corporation, Inner City Manage-
ment, LLC (referred to collectively as "Bogdan") filed petitions for
bankruptcy relief. The bankruptcy court appointed Sean C. Logan (the
"trustee") as trustee of the Bogdan estate.
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In 2001, Bogdan pleaded guilty to a federal criminal information
alleging a single count of conspiracy to commit mail and wire fraud
and to make false statements relating to his participation in the real
estate scheme that is the subject of this adversary proceeding. In
2002, after conducting an extensive review of Bogdan’s business
activities, the trustee determined that nearly fifty other persons and
entities — real estate appraisers, settlement agents, mortgage brokers,
and title insurance companies — also participated with Bogdan in the
real estate "flipping scheme" that defrauded numerous mortgage lend-
ers by obtaining under-collateralized mortgage loans to purchase
properties in Baltimore City. Twelve of these mortgage lenders that
were injured by this scheme unconditionally assigned to the trustee all
of their claims against Bogdan and his alleged coconspirators.
The trustee then filed this adversary proceeding in the bankruptcy
court as the assignee of these mortgage lenders, alleging claims for
civil conspiracy, intentional misrepresentation, fraudulent conceal-
ment, negligence, and breach of contract against four of Bogdan’s
alleged coconspirators. According to the trustee, if he prevails on his
claims against the alleged coconspirators, the mortgage lenders will
not recover any money from the adversary proceeding. Instead, the
mortgage lenders will recover, if at all, only as creditors of the estate
on a pro rata basis with all other creditors.1 The trustee’s amended
complaint seeks nearly $1 million in actual damages and $500,000 in
punitive damages relating to 39 mortgage loans.
1Although he did not attach copies of the assignments to his amended
complaint, the trustee provided copies of some of the assignments to the
alleged coconspirators during the bankruptcy court proceedings and rep-
resented to that court that the assignments are unconditional, meaning
that the estate is the only entity that could possibly make any recovery
in this adversary proceeding. Neither the bankruptcy court nor the district
court found it necessary to construe the provisions of the assignments,
instead concluding that the trustee lacked standing to sue regardless of
what the assignments provided. Copies of the assignments are not
included in our appellate record. Nevertheless, the trustee repeats his rep-
resentation that the assignments give him an unconditional right to
recover all monies on behalf of the estate, and the mortgage lenders may
recover, if at all, only as creditors of the estate. The alleged coconspira-
tors do not attack this representation, and we assume it to be true for pur-
poses of this appeal.
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II.
The bankruptcy court dismissed the trustee’s amended complaint,
concluding that the trustee lacked standing to sue Bogdan’s cocon-
spirators for two reasons. First, the court ruled that the mortgage lend-
ers’ causes of action belong exclusively to them and not Bogdan’s
trustee because the action is premised on injury to the creditors, not
Bogdan. The assignments by the mortgage lenders to the trustee do
not, the court decided, give the trustee standing to pursue claims
against the alleged coconspirators. Second, the court ruled that the
trustee lacked standing based on the doctrine of in pari delicto, which
bars a wrongdoer — such as Bogdan — from recovering against his
coconspirators for injuries they jointly caused.
The district court affirmed based largely on the same reasoning as
the bankruptcy court. In particular, the district court determined that
the mortgage lenders, not the trustee, were the real parties in interest
and that the trustee does not have standing to assert causes of action
on behalf of creditors notwithstanding the assignments. The trustee
now appeals.
III.
We review the judgment of a district court sitting in review of a
bankruptcy court de novo, applying the same standards of review that
were applied in the district court. Merry-Go-Round Enters., Inc. v.
Phoenix Am. Life Ins. Co., 400 F.3d 219, 224 (4th Cir. 2005). Specifi-
cally, "we review the bankruptcy court’s factual findings for clear
error, while we review questions of law de novo." Loudoun Leasing
Dev. Co. v. Ford Motor Credit Co. (In re K & L Lakeland, Inc.), 128
F.3d 203, 206 (4th Cir. 1997).
IV.
A.
In affirming the dismissal of the amended complaint, the district
court ruled that the trustee does not have standing to assert claims that
belonged to the mortgage lenders, even though the mortgage lenders
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formally assigned their claims to the trustee. This ruling effectively
establishes a per se ban on claims by trustees as assignees of credi-
tors. The district court relied on the Supreme Court’s opinion in
Caplin v. Marine Midland Grace Trust Co., 406 U.S. 416 (1972), to
support its ruling. We conclude, however, that Caplin is distinguish-
able for several reasons.
More than a decade before commencement of its bankruptcy pro-
ceedings, the debtor in Caplin issued debentures through Marine Mid-
land Trust Company ("Marine"). One of the debtor’s critical
obligations under its agreement with Marine was that it maintain an
asset-liability ratio of 2 to 1. This obligation was intended to protect
the debenture holders from loss on their investments. The debtor was
also required to file annual reports with Marine verifying its compli-
ance with its obligations. Marine promised to exercise due care and
skill in monitoring the debtor’s compliance. Id. at 417-18.
For several years after issuing the debentures, the debtor incurred
such substantial financial losses that by the time it entered bank-
ruptcy, the debtor had roughly three times more liabilities than assets,
a clear violation of its debenture obligation. Id. at 418-19. After con-
ducting his investigation into the debtor’s financial affairs, the trustee
of the debtor’s estate determined that Marine had either willfully or
negligently failed to fulfill its duty to monitor the debtor’s compliance
with its obligations. The trustee filed an action against Marine on
behalf of the debenture holders, not the debtor’s estate. Id. at 420.
The district court dismissed the complaint, concluding that the trustee
lacked standing to pursue claims on behalf of the debenture holders,
and the Second Circuit affirmed. Caplin v. Marine Midland Grace
Trust Co., 439 F.2d 118 (2d Cir. 1971).
The Supreme Court affirmed for three reasons. First, the Court con-
cluded that there was no provision in the bankruptcy laws allowing
a trustee to assume the responsibility of suing on behalf of creditors
of the estate. The Court held that a trustee is not authorized to "collect
money not owed to the estate." Caplin, 406 U.S. at 428. Second, the
Court reasoned that the debenture holders, rather than the trustee,
should be allowed to decide whether to sue Marine. These holders,
the Court stated, "are capable of deciding for themselves whether or
not it is worthwhile to seek to recoup whatever losses they may have
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suffered by an action against" Marine. Id. at 431. Third, the Court
concluded that because the debenture holders would not be bound by
the judgment in the trustee’s action against Marine, they would be
able to sue Marine directly in a separate suit, thereby increasing the
amount and complexity of litigation relating to the losses suffered by
the debenture holders. Id. at 432. For these reasons, the Court held
that the trustee lacked standing to sue Marine. Id. at 432-34.
The facts of this case and Caplin are substantially different. It does
not follow from the reasons advanced by the Court in Caplin that the
trustee lacks the necessary standing in this case to assert his claims
against Bogdan’s alleged coconspirators on behalf of Bogdan’s estate.
First, while the trustee in Caplin attempted to assert claims directly
on behalf of the debtor’s creditors, Bogdan’s trustee is not making
any claim on behalf of the creditors. By taking unconditional assign-
ments from the creditors, the trustee, as assignee, is making his claim
on behalf of Bogdan’s estate, not on behalf of the mortgage lenders.
The mortgage lenders will recover nothing directly from any recovery
attained from the trustee’s adversary proceeding against Bogdan’s
alleged coconspirators. The mortgage lenders will recover, if at all,
like any other creditor of the estate, by sharing from the assets the
trustee is able to collect on behalf of the estate.
Second, unlike the debenture holders in Caplin, the mortgage lend-
ers in this case have affirmatively elected how best to deal with their
claims against Bogdan’s alleged coconspirators. By unconditionally
assigning their claims to the trustee, the mortgage lenders have
decided to abandon their claims against the alleged coconspirators to
allow the trustee to seek recovery against them on behalf of the estate.
Thus, the mortgage lenders have chosen to attempt to recover, if at
all, as creditors of the estate along with all the other estate creditors.
Third, unlike in Caplin, there is no potential for duplicative and
inconsistent litigation by the mortgage lenders who have assigned
their claims to Bogdan’s trustee. By giving the trustee unconditional
assignments of their potential claims, the mortgage lenders have relin-
quished all rights to seek recovery against Bogdan and the alleged
coconspirators. Thus, the district court’s per se ban on trustee suits
based on assignments from creditors finds no support in Caplin.
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Contrary to the district court’s per se prohibition, the Bankruptcy
Code implicitly authorizes such a suit under the particular facts and
circumstances of this case. Under the Code, a bankruptcy trustee rep-
resents the estate and "has capacity to sue and be sued." 11 U.S.C.
§ 323(b). The trustee is specifically authorized to "collect and reduce
to money the property of the estate for which such trustee serves, and
close such estate as expeditiously as is compatible with the best inter-
ests of parties in interest." Id. § 704(1) (emphasis added). The mean-
ing of "property of the estate" under the Code has been construed
"broadly to encompass all kinds of property, including intangibles."
Integrated Solutions, Inc. v. Service Support Specialities, Inc., 124
F.3d 487, 490 (3d Cir. 1997). More specifically, "property of the
estate" under § 541(a) has "uniformly been interpreted to include
causes of action." Polis v. Getaways, Inc. (In re Polis), 217 F.3d 899,
901 (7th Cir. 2000). "[P]roperty of the estate" also includes "[a]ny
interest in property that the estate acquires after the commencement"
of a bankruptcy case. 11 U.S.C. § 541(a)(7). Thus, the unconditional
assignments acquired by Bogdan’s trustee from the mortgage lenders
after commencement of this bankruptcy case constitute "property of
the estate" that the trustee is authorized to "collect and reduce to
money" on behalf of the estate. See Steinberg v. Kendig (In re Ben
Franklin Retail Stores, Inc.), 225 B.R. 646, 650 (Bankr. N.D. Ill.
1998) (ruling that the creditors’ assignments turned the "causes of
action into property of the estates and the Trustee has a duty to mar-
shal those assets for the benefit of the estates"), aff’d in part and rev’d
in part on other grounds, 2000 WL 28266 (N.D. Ill. Jan. 12,
2000)(unpublished). Accordingly, the trustee has the requisite stand-
ing to sue Bogdan’s alleged coconspirators "to collect and reduce to
money" the causes of action he acquired for the estate from the mort-
gage lenders after commencement of this bankruptcy case.
The alleged coconspirators nevertheless argue that the uncondi-
tional assignments do not confer standing on Bogdan’s trustee, citing
the Ninth Circuit’s opinion in Williams v. California 1st Bank (In re
estate of Chacklan Enters., Inc.), 859 F.2d 664 (9th Cir. 1988). We
conclude, however, that Williams actually suggests that the uncondi-
tional assignments acquired by Bogdan’s trustee sufficiently confer
standing.
The debtor in Williams allegedly participated with the defendant
bank in a "Ponzi" scheme defrauding investors. The bankruptcy
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trustee solicited and obtained assignments from some of the injured
investors and brought an action against the bank. Rather than uncon-
ditional assignments, these injured investors gave up their claims in
exchange for the trustee’s promise to recommend to the bankruptcy
court that these particular investors only receive the balance of any
recovery the trustee might secure in the lawsuit against the bank after
the estate paid priority claims and recouped its administrative costs.
Id. at 665.
The Ninth Circuit decided that the trustee lacked standing notwith-
standing the assignments. The court concluded that the investors
remained the "real parties in interest" because "the bulk of any recov-
ery" had been reserved specifically for them. Id. at 666. The court rea-
soned that the investors, in effect, "assigned their claims only for
purposes of bringing suit" and, as a result, the trustee was improperly
attempting to collect money owed to the investors, not the estate. Id.
at 667.
The unconditional assignments acquired by Bogdan’s trustee differ
substantially from the assignments the trustee acquired in Williams.
As asserted by Bogdan’s trustee, the assignments he obtained do not
reserve any part of the potential recovery exclusively for the mortgage
lenders that assigned their claims. Unlike the investors in Williams,
the mortgage lenders in this case will recover, if at all, by sharing
from the general assets of the estate on a pro rata basis with all other
creditors. So, unlike the trustee in Williams, Bogdan’s trustee is seek-
ing to collect money it claims the alleged coconspirators owe the
trustee as assignee and representative of the estate, not money owed
to specific creditors. Accordingly, Bogdan’s estate is the real party in
interest in this adversary proceeding.
The alleged coconspirators also complain that allowing bankruptcy
trustees to sue based on assignments would dramatically and improp-
erly expand the jurisdiction of the bankruptcy courts. They warn that
such a rule would prompt trustees to seek out and purchase unrelated
causes of action and pursue them in adversary proceedings in hope of
increasing the assets of the estate.
This concern is unwarranted specifically in this case and generally
in the broader bankruptcy practice context. As for this case specifi-
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cally, the alleged coconspirators concede that no estate assets were
paid to acquire the assignments from the mortgage lenders. Moreover,
the trustee and the alleged coconspirators agree that this adversary
proceeding is directly related to the bankruptcy case. The collapse of
the "flipping scheme" caused, at least in part, Bogdan’s bankruptcy.
More generally, our holding in this case is unlikely to lead trustees
to hunt down and purchase assignments of causes of action unrelated
to the bankruptcy case. The Bankruptcy Code gives bankruptcy courts
broad discretion to monitor all aspects of bankruptcy cases and to pre-
vent abuses of process. See, e.g., 11 U.S.C. § 105(a) (providing that
bankruptcy courts may, sua sponte, take action to prevent an abuse of
process); id. § 330 (granting bankruptcy courts authority to approve
or reject, based on a wide-range of factors, compensation applications
by trustees for expenses incurred and services rendered). Moreover,
our cases establish that trustees must always act in the best interest
of the estate. See, e.g., Yadkin Valley Bank & Trust Co. v. McGee (In
re Hutchinson), 5 F.3d 750, 752 (4th Cir. 1993) (stating that "[e]quity
tolerates in bankruptcy trustees no interest adverse to the trust")
(quoting Mosser v. Darrow, 341 U.S. 267, 271 (1951)). These checks
and balances will help ensure that trustees forego actions not in the
best interests of the bankruptcy estate.
B.
The district court also ruled that the trustee lacks standing based on
the doctrine of in pari delicto. We disagree.
The common-law doctrine of in pari delicto (meaning "of equal
fault") is often described as an affirmative defense that bars a wrong-
doer from recovering against his alleged coconspirators. See Perma
Life Mufflers, Inc. v. International Parts Corp., 392 U.S. 134, 135,
138 (1968), overruled on other grounds by Copperweld Corp. v. Inde-
pendence Tube Corp., 467 U.S. 752 (1984); Burlington Indus., Inc.
v. Milliken & Co., 690 F.2d 380, 387 (4th Cir. 1982). This doctrine
has no application in this adversary proceeding because the trustee is
suing on behalf of the estate as assignee of the mortgage lenders. As
assignee, the trustee stands in the shoes of the mortgage lenders,
thereby assuming all rights and interests that the mortgage lenders
have in the causes of action and becoming subject to all defenses that
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could have been asserted against the mortgage lenders, not Bogdan.
See James v. Goldberg, 261 A.2d 753, 757 (Md. 1970); Harris v. Max
Kohner, Inc., 187 A.2d 97, 100 (Md. 1963). Because there is no alle-
gation that the mortgage lenders were involved in any wrongdoing
relating to the "flipping scheme," the alleged coconspirators cannot
assert the defense of in pari delicto against the trustee, as assignee of
the mortgage lenders, to bar recovery by the trustee on behalf of the
estate.
The alleged coconspirators complain that allowing the trustee to
recover on behalf of the estate in this proceeding could ultimately
result in Bogdan personally recovering from his alleged coconspira-
tors — the precise inequity the doctrine of in pari delicto is designed
to avoid. This could happen, the alleged coconspirators assert, if the
trustee recovers more money than necessary to satisfy all the credi-
tors’ claims. They claim that, if that occurs, the bankruptcy court
would be required to distribute the surplus property of the estate to
Bogdan personally. See 11 U.S.C. § 726(a)(6).
First, from a practical standpoint, it appears that the potential for
Bogdan to make any personal recovery does not realistically exist.
The trustee seeks to recover a total of $1.5 million in this adversary
proceeding, all of which will become property of the estate available
to pay claims against the estate. The trustee represents that the mort-
gage lenders have filed claims against the estate seeking most of this
amount. Moreover, the trustee represents that at least $1.5 million in
additional claims unrelated to the "flipping scheme" have also been
filed by other creditors against the estate. Thus, any monies recovered
in this proceeding would not likely satisfy all the claims against Bog-
dan’s estate, and there would be no surplus assets to distribute to Bog-
dan.
Second, in the unlikely event that any property of the estate will
remain after all claims and legal and administrative fees of the estate
have been satisfied, the alleged coconspirators could pursue other
remedies to keep Bogdan from personally recovering as a result of his
criminal conduct. For instance, the alleged coconspirators can attempt
to raise the doctrine of in pari delicto against Bogdan personally at
that stage of the bankruptcy case. Or, as some other courts have sug-
gested, the alleged coconspirators could seek to assert subrogation
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claims against Bogdan. Caplin, 406 U.S. at 430; Williams, 859 F.2d
at 667.2 Nevertheless, the remote chance that Bogdan might person-
ally receive a distribution of estate property from his bankruptcy
estate should not deter the more fundamental policy undergirding the
bankruptcy system: allowing the trustee to maximize the value of the
estate so that the claims against the debtor are paid to the fullest
extent possible. Commodity Futures Trading Comm’n v. Weintraub,
471 U.S. 343, 352, 355 (1985). The trustee’s adversary proceeding in
this case is particularly appropriate because the trustee is seeking to
maximize the value of the estate by attempting to collect money now
owed to the estate — by virtue of the assignment — from the very
individuals and entities that he claims wrongfully caused, at least in
part, the losses sustained by Bogdan’s creditors.3
V.
For the foregoing reasons, the judgment of the district court is
reversed, and we remand for further proceedings consistent with this
opinion.
REVERSED AND REMANDED
KING, Circuit Judge, concurring in part and dissenting in part:
Although I am constrained to partially concur in the panel majori-
ty’s decision, I write separately for two reasons. First, the majority’s
position on standing depends entirely on the legality of the assign-
ments under Maryland law, and because the assignments were not
presented to the lower courts, their validity remains subject to ques-
2We do not decide that the alleged coconspirators could successfully
assert these defenses. Instead, we state only that they can attempt to
assert them.
3The dissent suggests that the bankruptcy and district courts merely
exercised their discretion in invoking the equitable defense of in pari
delicto and that we should not disturb these rulings. We cannot, however,
affirm a lower court’s ruling if it is based on erroneous legal principles.
See Koon v. United States, 518 U.S. 81, 100 (1996). In this case, both
the bankruptcy and district court’s rulings were based on a misapplica-
tion of Caplin or cases following Caplin.
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tion. My partial concurrence is thus subject to this caveat, in that the
assignments may well be invalid. Second, I disagree with the view of
my friends in the majority that the trustee is not subject to the defense
of in pari delicto.
I.
I first briefly address the issue of standing and the problem of the
assignments. In Caplin v. Marine Midland Grace Trust Co., 406 U.S.
416 (1972), the Supreme Court held that a reorganization bankruptcy
trustee lacked standing to assert claims against third parties on behalf
of the holders of the debtor’s debentures. The Court premised its rul-
ing on three bases: (1) the applicable bankruptcy statute failed to
authorize the trustee to assert such claims; (2) the debenture holders,
rather than the trustee, were obliged to decide whether to sue third
parties; and (3) such claims asserted by the trustee may be inconsis-
tent with independent actions pursued by debenture holders, enhanc-
ing the extent and complexity of the litigation. 406 U.S. at 428-34. In
this proceeding, as the majority observes, the second and third Caplin
factors bear no relationship to the claims asserted by the Bogdan
trustee. The determinative question thus implicates the first Caplin
factor only, that is, whether the Bankruptcy Code authorizes the
claims asserted in the Bogdan trustee’s adversary proceeding. See
Cissell v. Am. Home Assurance Co., 521 F.2d 790, 792 (6th Cir.
1975) ("As a creature of statute, the trustee in bankruptcy has only
those powers conferred upon him by the Bankruptcy [Code].").
By § 704(1) of the Bankruptcy Code, a Chapter 7 trustee is autho-
rized to "collect and reduce to money the property of the estate." 11
U.S.C. § 704(1). Because claims of the debtor constitute property of
a bankruptcy estate under § 541(a)(1) of the Code, § 704(1) grants the
debtor’s trustee the right to assert causes of action on behalf of the
debtor. 11 U.S.C. §§ 541(a)(1), 704(1); see Polis v. Getaways, Inc.,
(In re Polis), 217 F.3d 899, 901 (7th Cir. 2000) (noting that § 541(a)
has "uniformly been interpreted to include causes of action"). If a
claim belongs solely to the creditors, however, the debtor’s trustee has
no standing to pursue it. Caplin, 406 U.S. at 434. And whether a par-
ticular claim belongs to the debtor, thus constituting "property of the
estate," depends upon state law. Steyr-Daimler-Puch of Am. Corp. v.
Pappas, 852 F.2d 132, 135 (4th Cir. 1988); see also Official Comm.
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of the Unsecured Creditors of Color Tile, Inc. v. Coopers & Lybrand,
LLP, 322 F.3d 147, 156-57 (2d Cir. 2003) (holding that state law
claims assigned to bankruptcy trustee belonged to debtor under Texas
law and thus that trustee possessed standing).
Under Maryland law (which applies in this dispute), a cause of
action arising in either contract or tort is generally considered to be
an assignable claim. See Med. Mut. Liab. Ins. Soc’y of Md. v. Evans,
622 A.2d 103, 116 (Md. 1993). The complaint filed by the Bogdan
trustee alleges that the mortgage lenders have assigned to him state
law claims of civil conspiracy, intentional misrepresentation, fraudu-
lent concealment, negligence, and breach of contract. Because the
trustee, as assignee, is the real party in interest under Maryland law,
the causes of action alleged in the complaint constitute apparent
claims of the debtor. Bacon & Assocs., Inc. v. Rolly Tasker Sails
(Thailand) Co., 841 A.2d 53, 66 (Md. Ct. Spec. App. 2004)(holding
that an "‘assignment passes the title to the assignee so that he is the
owner of any claim arising from the chose and should be treated as
the real party in interest’") (emphasis added) (quoting 6A C.A.
Wright, A.R. Miller, & M.K. Kane, Federal Practice and Procedure:
Civil 2d § 1545, at 346 (1990)); cf. Williams v. Cal. 1st Bank, 859
F.2d 664, 666 (9th Cir. 1988) (holding trustee lacked standing to
bring suit on assigned claims in part because creditors remained "real
party in interest").
This analysis, however, is predicated entirely on the assumed valid-
ity of the assignments, a proposition we accept in viewing the com-
plaint in the light most favorable to the trustee. See Fed. R. Civ. P.
12(b)(6); Lambeth v. Bd. of Comm’rs of Davidson County, N.C., 407
F.3d 266, 268 (4th Cir. 2005) ("[W]e accept as true the factual allega-
tions of the challenged complaint, and we view those allegations in
the light most favorable to the plaintiff.") (internal citations omitted).
As I see it, the assignments here are likely invalid under Maryland
law, which precludes the assignment of claims if it contravenes public
policy. See, e.g., Pub. Serv. Comm’n of Md. v. Panda-Brandywine,
LP, 825 A.2d 462, 469 (Md. 2003) (relying on Restatement (Second)
§§ 317-23 (1981) of Contracts that assignments are valid unless inop-
erative on grounds of, inter alia, public policy). In this proceeding,
the trustee for the estate of a tortfeasor is seeking to sue the debtor’s
joint tortfeasors. Put simply, one of several thieves, purportedly acting
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on behalf of his victims, is suing his fellow thieves. The stench arising
from such a proceeding — being pursued in a federal court of equity
— cannot be concealed by any amount of perfume. And, under Mary-
land law, the joint-tortfeasor defendants are entitled to counterclaim
against the trustee for contribution, on both the trustee’s contract and
tort claims, if a judgment is rendered against them. See Md. Cts. &
Jud. Proc. Code Ann. § 3-1402(a) (2004) ("The right of contribution
exists among joint tort-feasors."); see also Hartford Accident &
Indem. Co. v. Scarlett Harbor Assocs., 674 A.2d 106, 137 (Md. Ct.
Spec. App. 1996) ("[C]ontribution is not limited to tort cases.").
The pursuit of this proceeding thus appears to impose on the Bog-
dan trustee an untenable conflict of interest, in contravention of Mary-
land’s public policy. On the one hand, the trustee, as assignee, is
suing the defendants for their tortious activities and, on the other, he
must defend the debtor, admittedly a joint tortfeasor in those same
illegal activities. See Md. R. Prof. Conduct 1.7, Conflict of Interest
(barring attorney from representing clients if that representation will
be materially limited by lawyer’s responsibilities to another client or
to third person).1 Because — and only because — the bankruptcy and
district courts have not had occasion to address the potential invalidity
of the assignments, I concur in the standing aspect of the panel deci-
sion. As I see it, however, the assignments are probably invalid under
Maryland law.
1In addition to the conflict of interest problems facing the Bogdan
trustee, other public policy concerns are apparent. For example, some
state courts have held that it is against public policy to permit a joint tort-
feasor to purchase a cause of action from a plaintiff to whose injury the
tortfeasor contributed. See, e.g., Int’l Proteins Corp. v. Ralston-Purina
Co., 744 S.W.2d 932, 934 (Tex. 1988); see also BHI Corp. v. Litgen
Concrete Cutting & Coring Co., 827 N.E.2d 435, 438-39 (Ill. 2005)
(holding assignment of tort claims to settling defendants contravened
public policy of Illinois’ contribution scheme); DeJong v. B. F. Good-
rich, Inc., 292 N.W.2d 157, 159-60 (Mich. Ct. App. 1980) (holding
assignment of wrongful death action to insurer of tortfeasor violated pub-
lic policy); Coleman Powermate, Inc. v. Rheem Mfg. Co., 880 So.2d 329,
335 (Miss. 2004) ("No jurisdiction has yet authorized one tortfeasor to
bring an action against a joint tortfeasor as assignee of the wrongful
death beneficiaries.").
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II.
Turning to the issue of the in pari delicto defense, I disagree with
the panel majority that the Bogdan trustee, as assignee of the claims,
is only subject to defenses which the defendants could have raised
against the mortgage lenders. The decisions upon which the majority
relies on this issue, James v. Goldberg, 261 A.2d 753 (Md. 1970), and
Harris v. Max Kohner, Inc., 187 A.2d 97 (Md. 1963), are inapposite
— they stand for the mere proposition that equitable defenses which
the defendants possess against the assignor may likewise be raised
against the assignee. See James, 261 A.2d at 757 ("An unqualified
assignment generally operates to transfer to the assignee all of the
right, title and interest of the assignor in the subject of the assignment
and does not confer upon the assignee any greater right than the right
possessed by the assignor."); Harris, 187 A.2d at 100 ("[A] trustee for
creditors stands in the shoes of his assignor and takes the property
subject to all equities against the assignor.") (internal quotation marks
omitted). Although a trustee may stand in the shoes of creditors, the
James and Harris decisions do not support the proposition that the
defendants are precluded from raising validly held defenses against
the Bogdan trustee.
Furthermore, the defense of in pari delicto is an equitable doctrine,
and under Maryland’s formulation of that defense, the courts are to
be concerned with "‘the policy of the law.’" Schneider v. Schneider,
644 A.2d 510, 517 (Md. 1994) (quoting Cronin v. Hebditch, 195 Md.
607, 619-20 (Md. 1950)); see also Tanvir Alam, Fraudulent Advisors
Exploit Confusion in the Bankruptcy Code: How In Pari Delicto Has
Been Perverted to Prevent Recovery for Innocent Creditors, 77 Am.
Bankr. L.J. 305, 315 (2003)("[I]n pari delicto is a highly flexible equi-
table doctrine easily adoptable to peculiar fact scenarios and crucially
concerned with fair outcomes."). Indeed, a court may strike the
defense of in pari delicto "if the equities call for such a limitation,"
but the "court may exercise ‘the [furthest] breadth of its discretion’"
in determining its applicability. Brown & Sturm v. Frederick Road
Ltd. P’ship, 768 A.2d 62, 89 (Md. Ct. Spec. App. 2001) (quoting
Goldman, Skeen & Wadler, P.A. v. Cooper, Beckman, & Tuerk, LLP,
712 A.2d 1, 8 (Md. Ct. Spec. App. 1998)). Here, both the bankruptcy
and district courts have properly exercised their discretion in that
regard, and each has concluded that the trustee is subject to the in pari
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delicto defense in this proceeding. See Logan v. JKV Real Estate
Servs., Inc. (In re Inner City Mgmnt., LLC), No. Civ. AMD 04-438,
slip op. at *7 (D. Md. May 5, 2004); Logan v. Kramer, (In re Inner
City Mgmnt., LLC), 304 B.R. 250, 254 (Bankr. D. Md. Oct. 7, 2003).2
In my view, these rulings are not erroneous, and I therefore agree with
these courts that the trustee is subject to the in pari delicto defense.
Logan, No. Civ. AMD 04-438, slip op. at *7; Logan, 304 BR. at 254.
Pursuant to the foregoing, I concur in part and dissent in part.
2One final point: as I see it, the lower courts incorrectly conflated the
applicability of the in pari delicto defense with the issue of standing. The
standing question is properly a separate issue from whether the defense
of in pari delicto applies. See Official Comm. of Unsecured Creditors v.
R.F. Leftward & Co., 267 F.3d 340, 346 (3rd Cir. 2001) ("An analysis
of standing does not include an analysis of equitable defenses, such as
in pari delicto. Whether a party has standing to bring claims and whether
a party’s claims are barred by an equitable defense are two separate ques-
tions, to be addressed on their own terms.").
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