Amore et al v. Ridgely et al

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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
In re: 	)
)
DOC’S TRUCK CENTER, LLC, 	) 	Case No. 3:20-bk-120
)
Debtor. 	) 	Chapter 7
___________________________________ 	)
)
AARON C. AMORE, Chapter 7 Trustee, 	)
)
Plaintiff, 	)
)
v. 	) 	Adversary No. 3:20-ap-25
)
SHIRLEY BRANNON RIDGELY and 	)
HARRY RIDGELY, 	)
)
Defendants, 	)
)
SHIRLEY BRANNON RIDGELY, 	)
)
Third-Party Plaintiff, 	)
)
v. 	)
)
WENDY PATRICK, individually and as 	)
Executrix of the Estate of Rodney Patrick, 	)
and ELIZABETH ANN McCORD, 	)
)
Third-Party Defendants. 	)
___________________________________ 	)
MEMORANDUM OPINION
Wendy Patrick and Elizabeth Ann McCord (the “Third-Party Defendants”) seek summary
judgment on the third-party complaint Shirley Brannon Ridgely (the “Third-Party Plaintiff”) filed
against them. 	The Third-Party Defendants contend that summary judgment is appropriate for a
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variety of reasons, including because the Third-Party Plaintiff failed to plead her claims with
particularity as required by Fed. R. Civ. P. (“Rule”) 9(b); she cannot prove her allegations for
several reasons, including specifically the death of Rodney Patrick, the defendants’ late spouse
and father, respectively; her claims here are barred because she failed to make a claim in probate
upon Mr. Patrick’s death; and anything Mr. Patrick took from the business can be reasonably
construed as compensation for otherwise uncompensated employment. 	In response, the Third-
Party Plaintiff asserts that summary judgment is not appropriate based upon genuine disputes of
material facts. 	Therefore, the Third-Party Plaintiff contends that the court should permit her to
prove her action at trial.
For the reasons stated herein, the court will dismiss the third-party complaint.
I. 	STANDARD OF REVIEW
Federal Rule of Civil Procedure (“Rule”) 56, made applicable to this proceeding by Federal
Rule of Bankruptcy Procedure 7056, provides that summary judgment is only appropriate if the
movant demonstrates “that there is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). A party seeking summary judgment
must make a prima facie case by showing: first, the apparent absence of any genuine dispute of
material fact; and second, the movant’s entitlement to judgment as a matter of law on the basis of
undisputed facts. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The movant bears
the burden of proof to establish that there is no genuine dispute of material fact. Celotex Corp. v.
Catrett, 477 U.S. 317, 325 (1986). Demonstrating an absence of any genuine dispute as to any
material fact satisfies this burden. Id. at 323. Material facts are those necessary to establish the
elements of the cause of action. Anderson, 477 U.S. at 248. Thus, the existence of a factual dispute
is material — thereby precluding summary judgment — only if the disputed fact is determinative
of the outcome under applicable law. Shaw v. Stroud, 13 F.3d 791, 798 (4th Cir. 1994). A movant
is entitled to judgment as a matter of law if “the record as a whole could not lead a rational trier of
fact to find for the non-movant.” Williams v. Griffin, 952 F.2d 820, 823 (4th Cir. 1991) (citation
omitted); see also Anderson, 477 U.S. at 248.
If the moving party shows that there is no genuine dispute of material fact, the nonmoving
party must set forth specific facts that demonstrate the existence of a genuine dispute of fact for
trial. Celotex Corp., 477 U.S. at 322-23. The court is required to view the facts and draw reasonable
inferences in the light most favorable to the nonmoving party. Shaw, 13 F.3d at 798. However, the
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court’s role is not “to weigh the evidence and determine the truth of the matter [but to] determine
whether there is a need for a trial.” Anderson, 477 U.S. at 249-50. Nor should the court make
credibility determinations. Sosebee v. Murphy, 797 F.2d 179, 182 (4th Cir. 1986). If no genuine
issue of material fact exists, the court has a duty to prevent claims and defenses not supported in
fact from proceeding to trial. Celotex Corp., 477 U.S. at 317, 323-24. Additionally, the court has
an independent duty to ensure a plaintiff has standing upon which to invoke the court’s jurisdiction.
See Citizens for Quality Educ. San Diego v. Barrera, 333 F. Supp. 3d 1003, 1020 (S.D. Cal. 2018)
(citing FW/PBS, Inc. v. City of Dallas, 493 U.S. 215, 231 (1990)).
II. BACKGROUND
The Third-Party Defendants are the spouse and daughter, respectively, of Rodney Patrick,
who died on November 17, 2019. According to the Third-Party Plaintiff, Mr. Patrick acted as a
manager of Doc’s Truck Center, LLC (the “Debtor”), from 2014 until his death. 	The Debtor’s
sole member was the Third-Party Plaintiff. 	According to the Third-Party Plaintiff, Mr. Patrick
converted personal property of the Debtor, including cash, for his personal benefit throughout his
employment. Mr. Patrick was otherwise uncompensated despite working as many as fifty hours
per week.
On May 29, 2020, the Chapter 7 trustee administering the Debtor’s bankruptcy estate filed
an adversary proceeding against the Third-Party Plaintiff and Harry Ridgley based generally upon
a fraudulent transfer theory. On January 15, 2021, the trustee amended his complaint and included
a brief allegation against Mr. Patrick. In that regard, the trustee’s allegations regarding Mr. Patrick
are minimal and do not relate to his action against the Third-Party Plaintiff and Mr. Ridgley.
Specifically, the trustee alleges that “[i]t appears that both Brannon and Patrick used the cash and
diverted checks as income to support their personal lives and expenses.” Notably, that claim is
distinct from the various and numerous claims the trustee makes against the Third-Party Plaintiff.
Indeed, the trustee’s amended complaint is 164 numbered paragraphs, the overwhelming majority
of which allege misconduct by the Third-Party Plaintiff that is unrelated to any allegation against
Mr. Patrick.
III. ANALYSIS
The Third-Party Defendants contend that they are entitled to summary judgment for a
variety of reasons. For instance, they allege that the Third-Party Plaintiff failed to state her claim
with particularity as required by Fed. R. Civ. P. 9(b). Additionally, the Third-Party Defendants
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allege that the Third-Party Plaintiff cannot make a prima facie case entitling her to relief,
particularly given Mr. Patrick’s death in 2019. In that regard, the Third-Party Defendants note the
absence of evidence supporting the contention that Mr. Patrick took personal property, including
cash, from the Debtor. Additionally, they contend that anything Mr. Patrick took from the Debtor
should be reasonably construed as compensation for the many hours he spent working for the
Debtor without compensation otherwise. 	Finally, the Third-Party Defendants contend that the
Third-Party Plaintiff cannot make a claim against them after she failed to make a claim against
Mr. Patrick’s death estate.
The Third-Party Plaintiff opposes the motion for summary judgment. In that regard, she
contends that the record developed through discovery—including purported admissions by Ms.
Patrick—supports going to trial on her claims. She acknowledges, however, that the claims she
made in her third-party complaint “rightfully belong to the Plaintiff Trustee . . . .”
Having considered the parties’ respective arguments and the record before it, the court
finds it appropriate to dismiss the third-party complaint against the Third-Party Defendants.
Importantly, the Third-Party Plaintiff’s claim is not a third-party claim at all. See Fed. R. Civ. P.
14(a)(1) (providing that a defendant “may, as third-party plaintiff, serve a summons and complaint
on a nonparty who is or may be liable to it for all or part of the claim against it”). 	Rather, the
Third-Party Plaintiff pleaded an action belonging to the bankruptcy estate and Chapter 7 trustee.1
The Third-Party Plaintiff acknowledges as much in opposition to the extant motion for summary
judgment. See Response, p. 3 (“These third party claims rightfully belong to the Plaintiff Trustee
as they result from cash allegedly obtained from DTC . . . .”). 	Indeed, the Third-Party Plaintiff
does not contend in response to the trustee’s complaint that the Third-Party Defendants are liable
1 	As the court states above, the Chapter 7 trustee made negligible allegations involving Mr. Patrick.
Notwithstanding its analysis and holding, the court would be remiss if it did not also note that it is persuaded by much
of the Third-Party Defendants’ motion for summary judgment. The Third-Party Plaintiff contends that the court should
permit her to proceed to trial on her claims because, in part, “Wendy Patrick has admitted that the cash that was used
to pay the loans came from [the Debtor].” The court, however, finds such contention unsupported by the record and
unable of being developed at trial.
Put simply, Ms. Patrick testified as to where she believes the cash came from. Ms. Patrick cannot definitively
say, at least to the court’s satisfaction, where the cash came from because she did not receive it directly from its source.
Rather, the late Mr. Patrick received cash—from unknown sources as far as the court is concerned—and used those
proceeds to pay certain expenses and loans. As the late Mr. Patrick is the only person that could testify as to the source
of the cash, the court is unpersuaded that the Third-Party Plaintiff can substantiate her claims at trial. Indeed, it is
likely that weighed in the Chapter 7 trustee’s determination to not pursue recovery against Mr. Patrick, his probate
estate, or the Third-Party Defendants.
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to her if she is liable to the estate. To the contrary, she contends that Mr. Patrick also took personal
property, including cash, from the Debtor such that the Third-Party Defendants are liable to the
bankruptcy estate. 	Importantly, she made her claim without seeking derivative standing, to the
extent such standing would be available in this context.
The Fourth Circuit has not yet determined if derivative standing exists in bankruptcy. In
re Tara Retail Grp., LLC, 595 B.R. 215, 225 n.6 (Bankr. N.D.W. Va. 2018); In re Phillips, 573
B.R. 626, 641 (Bankr. E.D.N.C. 2017); and In re CHN Constr., LLC, 531 B.R. 126 (Bankr. E.D.
Va. 2015). It has, however, observed that “[o]ur sister circuits that acknowledge the doctrine have
allowed a bankruptcy court to grant derivative standing to a creditor or creditors’ committee in
two limited circumstances.” Scott v. Nat’l Century Fin. Enters., Inc. (In re Balt. Emergency Servs.
II, Corp.), 432 F.3d 557, 560 (4th Cir. 2005) (citations omitted). “First, several circuits recognize
derivative standing when the trustee or debtor-in-possession unreasonably refuses to bring suit on
its own. Second, two circuits have permitted creditor derivative actions when the trustee or debtor-
in-possession grants consent.” Id. (citations omitted). The Fourth Circuit went on to opine that
[t]he question is a significant one, for limitations on standing are of paramount
importance in bankruptcy proceedings. 	As we have recognized in an analogous
Chapter 7 context, ‘courts consistently have noted a public policy interest in
reducing the number of ancillary suits that can be brought in the bankruptcy context
so as to advance the swift and efficient administration of the bankrupt’s estate. This
goal is achieved primarily by narrowly defining who has standing in a bankruptcy
proceeding.’
Id. at 560-61 (quoting Richman v. First Woman’s Bank (In re Richman), 104 F.3d 654, 656-57
(4th Cir. 1997)).
In the context of avoidance actions, two sister bankruptcy courts in the Fourth Circuit have
viewed derivative standing with skepticism. See Phillips, 573 B.R. at 640-41; CHN Constr., LLC,
531 B.R. at 133 (“The Court finds that derivative standing is not appropriate in chapter 7 cases.”).
In denying a creditor derivative standing to bring an action under § 548 of the Bankruptcy Code,
the court in Phillips relied, in part, on the Fourth Circuit’s recognition that
even if permitted under the Bankruptcy Code, derivative standing is the exception
rather than the rule. If the former were to swallow the latter, creditors could usurp
the central role that the trustee . . . plays as representative of the estate. The state
of affairs would be problematic, because the interests of a creditor . . . may not
always align with those of the estate.
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573 B.R. at 641 (citing Scott, 432 F.3d at 562.). Ultimately, the court denied the creditor derivative
standing because the creditor “made no allegations in the [c]omplaint that the Chapter 7 Trustee’s
alleged decision to not pursue the § 548 Claim was unreasonable, or that she initiated the § 548
with the consent of the Chapter 7 Trustee.” Phillips, 573 B.R. at 641. Indeed, the court observed
that “[a] trustee’s decision not to pursue an avoidance claim because of cost is certainly justifiable,
and it is not an extreme circumstance that would extend standing to a creditor. Rather, it is a sound
business decision within the trustee’s fiduciary discretion.” Id.
Similarly, the court in CHN denied a creditor derivative standing where the trustee acted
reasonably in deciding not to bring the avoidance action. 531 B.R. at 134. Like in Phillips, trustee
consent was not a factor as the trustee opposed the grant of derivative standing. Id. at 132. The
CHN court went a step further, however, first determining that “derivative standing is not
appropriate in chapter 7 cases.” Id. at 133; but see In re Pursuit Cap. Mgmt., LLC, 595 B.R. 631,
662 (Bankr. D. Del. 2018) (a blanket prohibition on derivative standing in Chapter 7 “does not
fully account for . . . a chapter 7 trustee who has determined it is in the best interest of the estate
to sell . . . a cause of action”). 	In reaching its conclusion, the CHN court noted the important
distinction between cases under Chapter 7 and Chapter 11. Id. For instance, a Chapter 7 trustee
is an independent fiduciary “charged with administering the estate in a manner that is ‘compatible
with the best interests of parties in interest.’” Id. (quoting 11 U.S.C. § 704(a)(1)). “The chapter 7
trustee needs to be provided a substantial degree of discretion in determining how to most
effectively administer the bankruptcy estate.” Id. at 132-33. Moreover, “[t]he Office of the U.S.
Trustee is responsible for the supervision of chapter 7 trustees.” Id. at 133 n.9 (citing 28 U.S.C. §
586(a)(1)).
Here, the Third-Party Plaintiffs did not seek derivative standing, and the court finds it
unavailable, to prosecute avoidance actions in Chapter 7 such that the Third-Party Plaintiff lacks
standing to bring her action against the Third-Party Defendants. 	In that regard, the court is
persuaded by the robust and thoughtful analysis in CHN. 	Specifically, the court believes the
administration of a chapter 7 estate, including the pursuit of avoidance actions, should be left to
the reasonable business judgment of the trustee, the legal representative of the estate. 11 U.S.C. §
323. In the event a party believes a trustee is derelict in their duties, they can seek trustee removal
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or other relief.2 	Additionally, the plain language of § 548 supports this holding except in
circumstances not applicable here. 	See In re Council, Civil Action No. 06-1537, 2006 WL
3060752, at *4 (E.D. Pa. Oct. 27, 2006) (“In Chapters 11 and 12, Congress confers standing on
debtors to pursue avoidance actions. Chapter 7, however, does not contain a similar provision . .
. . This omission suggests that Congress knew how to confer standing on debtors, but deliberately
declined to do so for Chapter 7 debtors.”) (citations omitted). Moreover, the court is skeptical that
derivative standing—even if it was available for creditors to pursue avoidance actions in Chapter
7—is similarly available to a litigant like the Third-Party Plaintiff, the former sole member of the
Debtor. Therefore, the court will dismiss the third-party complaint for lack of standing.
IV. CONCLUSION
Based upon the foregoing, the court finds that the Third-Party Plaintiff lacks standing to
pursue the cause of action set forth in her third-party complaint. Therefore, the court will enter a
separate order dismissing the third-party complaint consistent with Fed. R. Bankr. P 7058.
2 Perhaps, for instance, a debtor can seek abandonment under § 554(b) of the Bankruptcy Code. Here, however, it is
not even the Debtor seeking to bring the action.
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