Lee v. McCardle
880 F.3d 1207
10th Cir.2018Background
- Adrian Lee (a barred attorney) sued trustee Scott McCardle in Utah state court seeking to garnish alleged trust distributions owed to debtor Adam Peeples; Lee alleged trustee unduly influenced Ruth McCardle to disinherit Peeples.
- The state court dismissed Lee’s suit for lack of standing and/or statute of limitations, awarded attorney’s fees against Adrian Lee, and left fee calculation open.
- While fees were being determined, Adam and Jennifer Peeples filed a bankruptcy petition; the Lees then sought a bankruptcy-court declaration that the automatic stay applied to Adrian’s state suit and damages for willful violation of the stay.
- The bankruptcy court (and the district court on appeal) held the automatic stay did not apply to the state action and granted summary judgment to McCardle.
- On further appeal, the Tenth Circuit declined to reach whether the stay applied; it vacated the judgment as to Angela Lee for lack of Article III standing and affirmed dismissal of Adrian Lee’s claims because they fall outside the Bankruptcy Code’s zone of interests.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does Angela Lee have Article III standing to sue? | Angela is a co-plaintiff in the adversary proceeding and should be able to challenge the stay violation. | Angela lacks any individual injury; the state-court fee judgment was entered against Adrian alone. | No — Angela lacks Article III standing; judgment against her vacated and remanded for dismissal. |
| Does § 362(a)’s automatic stay cover Adrian’s state-court suit (declaratory relief)? | The state suit sought to recover a claim against debtor Peeples, so § 362(a) barred it; declaratory relief appropriate. | The suit was against McCardle (trustee), not the debtor; the alleged injury (fees against Adrian) is not the stay’s interest. | No — Adrian’s declaratory-judgment claim falls outside § 362(a)’s zone of interests and must be dismissed. |
| Does § 362(k) permit Adrian to recover damages for willful stay violation? | § 362(k) allows “an individual injured by any willful violation” to recover actual damages; Adrian is such an individual. | Even if broad, § 362(k) protects those whose creditor/debtor interests the stay was designed to protect, not non-creditor harms. | No — Adrian’s damages claim is outside § 362(k)’s zone of interests because his injury is not harm to his creditor interest. |
| Final disposition as to both Lees? | N/A | N/A | Judgment against Adrian affirmed; judgment against Angela vacated and remanded for dismissal for lack of jurisdiction. |
Key Cases Cited
- Jubber v. SMC Elec. Prods., Inc. (In re C.W. Min. Co.), 798 F.3d 983 (10th Cir.) (standard of review for bankruptcy appeals)
- Johnson v. Smith (In re Johnson), 575 F.3d 1079 (10th Cir.) (automatic-stay scope reviewed de novo)
- Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (U.S.) (Article III standing requirements)
- Lexmark Int’l v. Static Control Components, Inc., 134 S. Ct. 1377 (U.S.) (zone-of-interests analysis and limits)
- Lopez v. Behles (In re Am. Ready Mix, Inc.), 14 F.3d 1497 (10th Cir.) (automatic-stay zone of interests is limited; order must directly affect appellant’s estate interests)
- St. Paul Fire & Marine Ins. Co. v. Labuzan, 579 F.3d 533 (5th Cir.) (§ 362(k) protects creditors/debtors for interests the stay was intended to protect)
- Thompson v. N. Am. Stainless, LP, 562 U.S. 170 (U.S.) (statutory language does not automatically eliminate zone-of-interests limits)
- Clarke v. Sec. Indus. Ass’n, 479 U.S. 388 (U.S.) (zone-of-interests doctrine limits who may sue under a statute)