Beck & Beck, LLC v. Costello
174 A.3d 227
| Conn. App. Ct. | 2017Background
- Beck & Beck, LLC sued James T. Costello in small claims court for unpaid legal fees related to representation in a receivership; the case moved to the regular docket and Costello asserted counterclaims and a cross-claim against attorney Kenneth A. Beck.
- The trial court struck Costello’s original counterclaims as legally insufficient; after Beck was cited in, Costello filed amended counterclaims and a cross-claim that largely repled the stricken claims; the court struck those amended claims and entered judgment, and Costello appealed.
- While that appeal was pending and after a trial on Beck & Beck’s fee claim (resulting in a $750 judgment against Costello), Costello filed a Chapter 7 bankruptcy petition. On his Schedule B he listed the $750 judgment and the underlying suit but checked "None" for "other contingent and unliquidated claims, including counterclaims."
- The bankruptcy trustee filed a report of no distribution and the bankruptcy case was closed; the trustee never made a judicial determination that Costello’s counterclaims were abandoned because she was not aware of them.
- This court initially reversed the strike of the amended counterclaims and remanded for further proceedings; on remand the trial court dismissed the amended counterclaims and cross-claim for lack of standing, concluding the claims belonged to the bankruptcy estate because they were not scheduled.
- Costello appealed that dismissal; the appellate court affirmed, holding prepetition causes of action become estate property, unscheduled claims are not abandoned, and a debtor lacks standing to pursue them post-bankruptcy.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Costello had standing to prosecute prepetition counterclaims/cross-claims after filing Chapter 7 | Costello lacked standing because he failed to list the counterclaims on Schedule B; unscheduled prepetition claims remained property of the bankruptcy estate and were not abandoned | Costello argued the trustee’s report of no distribution and closure of the case constituted abandonment, so the claims revested in him | Held: No standing — unscheduled prepetition claims remained estate property and were not abandoned; dismissal affirmed |
| Whether trustee’s report of no distribution equals abandonment of unknown/unscheduled claims | Beck: Report does not effect abandonment of claims unknown to trustee; abandonment requires proper scheduling or judicial/administrative action | Costello: Closure and report signaled abandonment, permitting him to pursue claims | Held: Report/closure alone did not abandon claims the trustee never knew about; scheduling required for abandonment |
| Whether omission of claims from bankruptcy schedules bars post-bankruptcy prosecution even if omission was innocent | Beck: Yes — innocent omission still prevents revesting; debtor cannot pursue unscheduled claims | Costello: Omission was inadvertent and should not bar him | Held: Innocent omission still bars debtor from pursuing the claims; they remain estate property |
| Whether trial court should reach merits once lack of standing found | Beck: Court lacks subject matter jurisdiction if plaintiff lacks standing; merits not reached | Costello: Merits should be considered despite standing issue | Held: Court correctly refrained from reaching merits after determining lack of standing |
Key Cases Cited
- Crawford v. Franklin Credit Management Corp., 758 F.3d 473 (2d Cir. 2014) (prepetition causes of action become property of the bankruptcy estate)
- In re Suplinskas, 252 B.R. 293 (Bankr. D. Conn. 2000) (an asset must be properly scheduled to revest in the debtor through abandonment)
- In re Costello, 255 B.R. 110 (Bankr. E.D.N.Y. 2000) (unscheduled claims leave debtor without capacity to pursue post-discharge regardless of innocence of omission)
- Rosenshein v. Kleban, 918 F. Supp. 98 (S.D.N.Y. 1996) (unscheduled claim remains property of bankruptcy estate; debtor lacks standing post-bankruptcy)
- Omotosho v. Freeman Investment & Loan, 136 F. Supp. 3d 235 (D. Conn. 2016) (claim known at time of filing but omitted from Schedule B is owned by the bankruptcy estate)
- Fairfield Merrittview Ltd. Partnership v. Norwalk, 320 Conn. 535 (Conn. 2016) (standing is a jurisdictional question reviewed de novo; courts must consider facts in complaint in most favorable light)