483 B.R. 460
Bankr. W.D. Tex.2012Background
- Debtor filed a Motion to Remove Trustee in June 2012; Judge Gargotta denied the motion in a memorandum opinion.
- Horiba International Corporation sued Debtor pre-petition in California for alleged breach of contract; Horiba counterclaims were part of ongoing litigation.
- Trustee was appointed to the estate; Debtor listed Horiba counterclaims and a potential legal malpractice claim on Schedule B.
- Horiba settled its claims for $362,433 subject to offset from any judgment on Debtor’s counterclaims.
- Trustee sought to abandon the Horiba counterclaims and later pursued malpractice claims against Debtor’s counsel, resulting in a settlement of about $1.55 million to the estate.
- Andersons (Debtor’s principal creditors) filed an adversary against Trustee; Debtor sought Trustee removal in the wake of disputed handling of the Horiba matter.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standard for removal of a trustee | Debtor argues cause exists under § 324 to remove Trustee. | Trustee argues no fixed burden; business judgment standard applies. | Court declines fixed burden; no cause shown under totality of circumstances. |
| Did dismissal with prejudice of Horiba counterclaims establish cause? | Debtor claims dismissal harmed estate and shows conflict of interest. | Trustee acted on business judgment to pursue other claims; dismissal did not show disqualifying conflict. | Insufficient evidence of cause to remove Trustee. |
| Acrimonious relationship with creditors justifying removal | AFI Holding shows continuing hostility warrants removal. | Relationship was professional; not enough to show lack of disinterestedness. | No removal based on acrimonious relationship. |
| Adversary proceeding against Trustee as lack of disinterestedness | Andersons’ suit evidences Trustee’s conflict with estate interests. | Adversary filing is permissible; trustee acted to protect estate interests. | Adversary proceeding alone is insufficient for removal. |
| Delay in filing Debtor’s tax returns as cause | Trustee delayed 2009–2011 returns to prejudice estate. | Trustee relied on own accountant; Debtor failed to provide documentation. | Delay not proven to be cause for removal. |
Key Cases Cited
- In re Marvel Entm't Group, 140 F.3d 463 (3d Cir.1998) (removal for cause analyzed on case-by-case basis)
- In re Haugen Construction Serv., Inc., 104 B.R. 233 (Bankr.D.N.D.1989) (case-by-case approach to cause)
- Grogan v. Garner, 498 U.S. 279 (Supreme Court 1991) (preponderance of evidence generally governs burden of proof)
- In re Reed, 178 B.R. 817 (Bankr.D. Ariz.1995) (trustee discretion in prosecution/defense of estate actions)
- In re Cajun Elec. Power Co-op., Inc., 119 F.3d 349 (5th Cir.1997) (equitable subordination used to enlarge estate; standing for trustee)
- Kane v. Nat’l Union Fire Ins. Co., 535 F.3d 380 (5th Cir.2008) (estate includes prepetition causes of action; trustee represents creditors)
- In re Morgan, 375 B.R. 838 (8th Cir. BAP 2007) (adversary against trustee does not by itself prove lack of disinterestedness)