STEYR-DAIMLER-PUCH OF AMERICA CORPORATION, a Delaware
Corporation, Plaintiff- Appellee,
and
Charles L. Marcus, Trustee in Bankruptcy, for American Hawk
Enterprises, Ltd., Plaintiff,
v.
James J. PAPPAS; American Hawk, U.S.A., Inc., a purported
Virginia Corporation, Defendant-Appellant,
v.
Tavia GORDON; Daniel Gordon; Allen J. Gordon, Third Party
Defendants- Appellees.
STEYR-DAIMLER-PUCH OF AMERICA CORPORATION, a Delaware
Corporation, Plaintiff- Appellant,
and
Charles L. Marcus, Trustee in Bankruptcy for American Hawk
Enterprises, Ltd., Plaintiff,
v.
James J. PAPPAS; American Hawk, U.S.A., Inc., a purported
Virginia Corporation, Defendants-Appellees,
v.
Tavia GORDON; Daniel Gordon; Allen J. Gordon, Third Party
Defendants.
James J. PAPPAS; Plaintiff-Appellant,
American Hawk Enterprises, Ltd., Debtor-Appellant,
v.
STEYR-DAIMLER-PUCH OF AMERICA CORPORATION; Charles L.
Marcus, Trustee for American Hawk Enterprises,
Ltd., Defendants-Appellees,
and
Allen Tavia; Daniel Gordon, Defendants.
Nos. 85-2046, 85-2072 and 86-3566.
United States Court of Appeals,
Fourth Circuit.
Argued March 8, 1988.
Decided July 25, 1988.
Rаndal M. Reaves, Lawrence Glanzer, Norfolk, Va., for appellees.
No one argued for appellant.
Before WIDENER and MURNAGHAN, Circuit Judges, and McMILLAN, United States District Judge for the Western District of North Carolina, sitting by designation.
MURNAGHAN, Circuit Judge:
Three consolidated appeals are before the court. All concern a voluntary bankruрtcy proceeding of American Hawk Enterprises, Ltd. We dismiss two of the appeals, Nos. 85-2046 and 86-3566, for failure to prosecute, and affirm the district court in the other, No. 85-2072.
A partial history of the matter is found in Steyhr [sic] Daimler Puch of America Corp. v. Pappas,
On July 17, 1981, SDPA obtained a default judgment against Enterprises for $258,686.22 in the City of Virginia Beach Circuit Court arising out of the delivery of goods for which Enterprises did not pay. Enterprises moved the state court to set aside the default judgment. The court denied the motion on October 23, 1981. No appeal was taken; rather, Enterprises filed a voluntary petition under Chapter 7 оf the Bankruptcy Code on October 28, 1981, with the United States District Court for the Eastern District of Virginia at Norfolk. On February 3, 1982 SDPA filed a proof of claim against the bankrupt estate for $258,686.82 based upon the default judgment.
The trustee on March 30, 1984 objected to SDPA's proof of claim, but the objectiоn was denied by the bankruptcy court and the denial was affirmed by the district court. The trustee subsequently filed two suits against SDPA: a state court action to set aside the default judgment, and a federal suit to assert an offsetting claim against SDPA. The trustee determined that he could not prevail in thе two suits and decided to enter into a compromise with SDPA in which the trustee agreed to dismiss the two suits and SDPA agreed to put a ceiling of $1076 on its recovery from the estate. The bankruptcy court on October 31, 1985, over Pappas' objection, approved the comprоmise. Pappas challenged the compromise in the district court. The district court affirmed the bankruptcy court's approval of the compromise. Pappas filed a notice of appeal. The appeal was docketed as No. 86-3566 in this Court.
Earlier thе trustee had filed on November 24, 1986 suits against Pappas and Hawk U.S.A. for breach of duty and corporate mismanagement claims. The trustee proposed to compromise and settle the actions against Pappas and Hawk U.S.A. for $20,000. On August 12, 1983 the bankruptcy court approved the settlement of the claims. On October 4, 1983 the district court affirmed and dismissed the suits with prejudice. The trustee executed a general release in favor of Pappas and Hawk U.S.A.
One more litigation, initially begun outside the bankruptcy proceeding, is pertinent to the present appeal. On April 15, 1983, SDPA filed a complaint in district court alleging diversity jurisdiction against Pappas and Hawk U.S.A. alleging "alter ego" claims and seeking to have Pappas and Hawk U.S.A. answer for Enterprises' debt. Pappas and Hawk U.S.A. answered the SDPA suit, counterclaimed against SDPA and filed third party complaints against the Gordons. On November 10, 1983, the district court: (1) ordered the trustee in bankruptcy joined as a party plaintiff, thereby destroying diversity jurisdiction; (2) found that the district court retained jurisdiction because SDPA's action was "related to" a bankruptcy proceeding within the mеaning of 28 U.S.C. Sec. 1471(b); (3) permitted the defendants to amend their counterclaim; and (4) referred the action to the bankruptcy court for its recommendations. Enterprises I,
Upon referral of the case to it, the bankruptcy court recommended that SDPA's action, as well as аny claims of the trustee as party plaintiff, be dismissed. The district court, reviewing the matter de novo, agreed with the recommendation. It dismissed SDPA's action and also dismissed each of the contingent counterclaims of Pappas and Hawk U.S.A. against SDPA as well as their third-party claims agаinst the Gordons. Enterprises II,
Pappas, acting pro se, appеaled dismissal of his and Hawk U.S.A.'s counterclaim and third-party complaint. That appeal was docketed as Number 86-2046. SDPA later timely cross-appealed dismissal of its complaint against Pappas and Hawk U.S.A. That appeal was docketed as Number 86-2072.
Pappas is the аppellant in two appeals, Numbers 86-3566 and 86-2046. Pappas has prosecuted neither appeal. Pappas, consistent with his conduct before the Bankruptcy Court and the District Court, has ignored virtually every order and request of this Court. For instance, the Clerk of the Court has rеpeatedly advised Pappas that while he can appear pro se on his own behalf, he may not represent Hawk U.S.A., a corporation, since he is not a member of the bar. Pappas left unanswered three letters from the Clerk inquiring about counsel for the corporate party. Additionally, he has failed to file a requested informal brief, and he failed to appear at oral argument though he was informed that the court expected him to appear.
A court has inherent discretionary power to dismiss an action for want of prosecution. 9 C. Wright and A. Miller Federal Practice and Procedure Sec. 2370 (1971). Pappas' prosecution of the appeals in Numbers 85-2046 and 86-3566 is wanting in virtually every respect. We dismiss them.
The trustee has asked for an award of his costs, including expenses and attorney's feеs due to the frivolous and groundless nature of the appeals of Pappas and lack of good faith on Pappas' part in prosecuting the two appeals that he brought. Courts of Appeals may award damages, including attorney's fees and double costs, to an appellee when an appeal is frivolous. 28 U.S.C. Sec. 1912; Fed.R.A.P. 38. We assess double costs against Pappas for his failure to prosecute. We also award expenses and attorney's fees to the trustee and to SDPA.
We remand the case to the district court so thаt it may calculate the amount of attorney's fees due to the trustee and due to SDPA as a result of Pappas' bringing and failing to prosecute Appeals Nos. 85-2046 and 86-3566. Ginther v. O'Connell, In re Ginther,
SDPA's appeal in 85-2072 is an appeal of the district court's dismissal of its action against Pappas and Hawk U.S.A. seeking to have them answer for Enterprises' debt. The district court dismissed the suit after it concluded that the alter ego claim was one that the trustee had brought, comprоmised and released pursuant to his power under 11 U.S.C. Sec. 544 to "step into the shoes of creditors" and assert claims for the benefit of all creditors. SDPA's appeal presents an interesting issue of bankruptcy law, whether a bankruptcy trustee may bring an alter ego claim. We conclude that the trustee may and therefore affirm the district court's dismissal of SDPA's suit, but we so conclude on a different basis. We conclude that an alter ego claim, under Virginia law, is property of the corporation so that it becomes property of the bankruptcy estate over which the trustee has control pursuant to 11 U.S.C. Sec. 541. Since the trustee previously compromised that claim with Pappas and Hawk U.S.A., the district court was correct in dismissing SDPA's complaint asserting the claim.
SDPA's suit stated four counts: count I alleged that Enterprises and Hawk U.S.A. werе "alter egos" of Pappas; count II was similar to count I with an additional allegation of alter ego compounded by fraud; count III alleged that asset transfers were fraudulent conveyances, and count IV alleged that Pappas breached his fiduciary duty to both сorporations. At oral argument, in the present appeal, counsel for SDPA conceded that the fraud component of count II as well as counts III and IV belongs to the debtor and trustee. At issue then is the question whether the alter ego claim in count I (and count II that is now identical to count I since fraud was removed) can be brought by the trustee or whether it is personal to creditors like SDPA.
The powers of a bankruptcy trustee pertinent to the present case arise principally from two sources: (1) the rights of the debtor, 11 U.S.C. Sec. 541, and (2) the rights of creditors of the debtor, 11 U.S.C. Sec. 544. Federal bankruptcy law looks to state law for definition of what interests are rights of the debtor or creditors of the debtor. See Butner v. United States,
However, one recent Eighth Circuit case hаs not agreed that the trustee's power as the general representative of all creditors allowed him to bring an alter ego claim on their behalf. In Mixon v. Anderson (In re Ozark Restaurant Equip. Co., Inc.),
We need not address the section 544 issue since we conclude that under Virginia law an alter ego claim is property of the estate under Sec. 541(a). Thus, the trustee, who succeeds to the rights of the debtor, can bring an alter ego claim.
Under Virginia law, a corporation has an equitable interest in the assets of an alter ego because the corporation and the alter ego are "one and the same." Pepper v. Dixie Splint Coal Co.,
Since the alter ego claim against Pappas and Hawk U.S.A. is "property of the estate" within the meaning of Sec. 541(a)(1), сertain conclusions follow. First, the automatic stay applies. Moreover, because the claim is property of the estate, the trustee is given full authority over it. 4 Collier on Bankruptcy p 541.02 (15th ed. 1985). Thus, before the debtor or a creditor may pursue a claim, there must be а judicial determination that the trustee in bankruptcy has abandoned the claim. Teltronics Services v. Anaconda-Ericsson, Inc.,
Since the defendants' counterclaims were contingent upon a finding of liability in favor of SDPA, they, too, were properly dismissed. Similarly, the third-party claims were also properly dismissed.
AFFIRMED.