619 B.R. 423
Bankr. E.D. Cal.2020Background
- Mark One Corporation: involuntary Chapter 7 case filed July 8, 2016; petitioning creditors included Burger Physical Therapy Services (Burger PTS).
- Chapter 7 Trustee Irma Edmonds prosecuted preference/avoidance claims and entered a court‑approved compromise and sale of estate claims to John C. Sims (individually and as Trustee of the G&M Baker 1994 Trust).
- Burger PTS had sued Sims in state court alleging torts (intentional/negligent interference with prospective economic advantage, conspiracy, and UCL violations) based on Sims’s control of Debtor and postured asset transfers and creditor payments.
- This bankruptcy court previously remanded the state action but authorized Burger PTS or Sims to seek a federal supplemental order, at the state judge’s direction, to determine what rights the Trustee transferred in the settlement.
- Burger PTS moved for a supplemental order asserting its state-law claims are personal to it and were never estate property; Trustee/Sims opposed, arguing the claims are general/derivative and were within the estate rights sold to Sims.
- The court concluded that claims premised on alleged preferential payments and fraudulent transfers are property of the bankruptcy estate and, under the Trustee’s compromise, were assigned to John Sims; the court did not decide whether any unstated, uniquely personal claims exist.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are Burger PTS’s state‑law claims derivative (estate property) or particularized to Burger PTS? | Burger: claims are personal to Burger PTS (direct economic harm), not property of the estate. | Sims: claims are general/derivative; Burger PTS lacks standing to assert claims that belong to the estate. | Claims based on alleged preferences or fraudulent transfers are estate property (derivative); therefore covered by Trustee’s settlement and assigned to Sims. |
| Did the Trustee’s settlement/sale transfer the rights Burger PTS seeks to assert? | Burger: those personal claims were never owned by the estate and were not sold. | Sims: Trustee had authority to compromise and sell estate avoidance/preference claims; such rights were included in the approved settlement. | Court: the Trustee’s compromise covered rights to preference/fraudulent‑transfer avoidance and recovery; those rights were assigned to Sims. |
| Can Burger PTS pursue tort/UCL theories that are premised on the same alleged preferences/fraudulent transfers? | Burger: relabeling the injuries as tort/UCL makes them personal and outside the estate. | Sims: labels cannot avoid the derivative nature if the injury flows from depletion of estate assets; trustee/trustee settlement controls. | Court: labels do not control; where the alleged wrongful acts are preferential payments or fraudulent transfers, the claims are estate property and cannot be prosecuted by Burger PTS. |
| Did the court resolve whether any uniquely personal claims exist or whether amendment should be allowed? | Burger: (sought leave / argued personal harms exist). | Sims: opposed allowing amendment and argued claims are general. | Court: did not prospectively decide unstated or uniquely personal claims; declined to grant relief beyond holding that claims based on preferences/fraudulent transfers were estate property and assigned to Sims. |
Key Cases Cited
- Shaoxing County Huayue Import & Export v. Bhaumik, 191 Cal.App.4th 1189 (Cal. Ct. App. 2011) (creditor’s alter‑ego claims held not estate property where injury was particularized to creditor rather than to debtor)
- Tronox Inc. v. Kerr‑McGee Corp., 855 F.3d 84 (2d Cir. 2017) (discusses derivative vs. particularized claims in bankruptcy; labels do not control; examine factual origin and nature of legal claim)
- Johns‑Manville Corp. v. Chubb Indem. Ins. Co., 517 F.3d 52 (2d Cir. 2008) (Manville III) (distinguishes claims seeking redress for direct harms by third party from claims derivative of harm to the estate)
- Picard v. JPMorgan Chase & Co., 721 F.3d 54 (2d Cir. 2013) (JPMorgan) (trustee lacked standing to bring certain customer claims that were particularized; court examines substance over form)
- In re Emoral, Inc., 740 F.3d 875 (3d Cir. 2014) (claims framed as successor liability were held to be general/estate property where recovery would benefit all creditors)
- St. Paul Fire & Marine Ins. Co. v. PepsiCo, Inc., 884 F.2d 688 (2d Cir. 1989) (discusses when third‑party claims are general and should be pursued by trustee for the benefit of all creditors)