Evangelista v. SilverEvangelista v. Silver
OPINION AND ORDER DENYING DEFENDANT L&L GOLD‘S MOTION FOR RECONSIDERATION
This matter is before the Court on the Motion for Reconsideration filed by Defendant L&L Gold Associates, Inc. (“Gold“). Gold seeks reconsideration of an Opinion entered on December 9, 2022, granting in part and denying in part cross-motions for summary judgment (Adv. P. Dkt. No. 228). In that Opinion, the Court granted summary judgment to Gold on the counts alleging fraudulent transfers and seeking a declaratory judgment. The Court also granted the cross-motion for summary judgment filed by Great Lakes Business Credit (“Great Lakes“), on behalf of itself and the estate, on the common law convеrsion claim, holding that Great Lakes established Gold‘s liability, but the Court reserved the amount of damages resulting from Gold‘s conversion, if any, as an issue of fact. With respect to statutory conversion, the Court denied summary judgment for statutory conversion because statutory convеrsion requires knowledge, which Great Lakes conceded remained an issue of fact. All other claims were voluntarily dismissed. Gold now moves for reconsideration of the Court‘s Opinion granting summary judgment as to liability for common law conversion and denying Gold‘s motion for summary judgment seeking the dismissal of the statutory conversion claims.
First, Gold argues that, under Michigan law, a plaintiff asserting a conversion claim must have an ownership interest in the converted property. Jason Silver did not own the items allegedly converted by Gold, those items being: (1) the pawn lоans themselves which were made pursuant to a line of credit from Great Lakes to Silver‘s Jewelry and Loan as borrower; or (2) the underlying pawned items, which remained the property of the pawnor who had a right to redeem and recover his or her property. According to Gold, because the Trustee, standing in the shoes of Jason Silver, has no “ownership interest” in the converted property, the Trustee lacks standing to bring conversion claims on behalf of Jason Silver‘s estate or on behalf of the non-debtor Silver‘s Jewelry and Loаn. Because the Trustee lacks standing to pursue conversion claims against Gold, the argument continues, Great Lakes, who holds a security interest in the pawn loans transferred to Gold (among other collateral), “will be pursuing the [conversion] claims for its own benefit, not for the benefit of the estate.” Reply Brief in Support of Motion for Reconsideration, Adv. P. Dkt. No. 239 at 3. Thus, Great Lakes’ direct conversion claims against Gold no longer involve or implicate the estate and, according to Gold, this Court lacks jurisdiction over those claims. Gold asserts that those claims should have been dismissed as well.
Second, Gold contends that the doctrine of in pari delicto bars the Trustee or Great Lakes from asserting conversion claims against Gold. Finally, Gold argues that, even were the Court to find that it has jurisdiction over Great Lakes’ conversion claims against Gold, the statute of limitations has long since run on Great Lakes’ claims and, again, these claims should have been dismissed.
For its first argument, Gold‘s initial premise is that debtor Jason Silver had no ownership interest in the property allegedly converted and, therefore, he lacks standing to bring a conversion action аgainst Gold. According to this argument, because the Trustee stands in Jason Silver‘s shoes and she has no greater rights to pursue a conversion claim against Gold than Jason Silver had, she too lacks standing to assert conversion claims against Gold on behalf of the Jason Silver estate.1
We now come to the crux of Gold‘s argument. If the Trustee cannot pursue conversion claims against Gold, whether for lack of standing or otherwise, then Great Lakes must “be pursuing the [conversion] claims for its own benefit, not for the benefit of the estate.” Reply Briеf in Support of Motion for Reconsideration, Adv. P. Dkt. No. 239 at 3. Gold then concludes that, if Great Lakes is pursuing the conversion claims solely for its own benefit, then this is simply a two-party dispute involving two non-debtors over which this Court lacks jurisdiction under
The relevant statute for determining the scope of this Court‘s jurisdiction over the conversion claims is
As recently explained by the court in In re Nu-Cast Step & Supply, Inc., 639 B.R. 440, (Bankr. E.D. Mich. 2021),
The meanings of the terms embedded in
28 U.S.C. § 1334 are well established. The term “cases under title 11” as used in28 U.S.C. § 1334(a) means the bankruptcy petition itself filed pursuant to11 U.S.C. §§ 301 ,302 , or303 —i.e., the umbrella under which all of the proceedings that follow the filing of the bankruptcy petition take place. See, e.g., Michigan Employment Sec. Cоmm‘n v. Wolverine Radio Co., Inc. (In re Wolverine Radio Co.), 930 F.2d 1132, 1140 (6th Cir. 1991). See also Gupta v. Quincy Medical Ctr., 858 F.3d 657 (1st Cir. 2017). As noted above,28 U.S.C. § 1334(a) gives federal district courts exclusive jurisdiction over cases under title 11.The term civil proceedings “arising under title 11” means those causes of action created or determined by a statutory provision of title 11 (e.g., preferential transfers under
11 U.S.C. § 547 ). See, e.g., Wolverine Radio, 930 F.2d at 1144. See also Moyer v. Bank of America (In re Rosenberger), 400 B.R. 569, 572–73 (Bankr. W.D. Mich. 2008).The term civil proceedings “arising in” a case under title 11 means proceedings that, by their very nature, could arise only in bankruptcy cases. See In re Bliss Technologies, Inc. v. HMI Indus., Inc. (In re Bliss Technologies, Inc.), 307 B.R. 598, 602 (Bankr. E.D. Mich. 2004) (quoting Wolverine Radio, 930 F.2d at 1144). These “arising in” proceedings “are not based on any right expressly created by title 11, but nevertheless, would have no existence outside of the bankruptcy.” New England Power & Marine, Inc. v. Town of Tyngsborough, Mass. (In re Middlesex Power Equip. & Marine, Inc.), 292 F.3d 61, 68 (1st Cir. 2002).
Civil proceedings that are “related to” a case under title 11 might seem to include an expansive universe of jurisdiction but, in reality, they do not. In Wolverine Radio, 930 F.2d at 1142, the Sixth Circuit adopted the Third Circuit‘s statement of “related to” jurisdiction as set forth in Pacor, Inc. v. Higgins (In re Pacor, Inc.), 743 F.2d 984, 994 (3d Cir. 1984):
Thе usual articulation of the test for determining whether a civil proceeding is related to bankruptcy is whether the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy. Thus, the proceeding nеed not necessarily be against the debtor or against the debtor‘s property. An action is related to bankruptcy if the outcome could alter the debtor‘s rights, liabilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankrupt estate. [emphasis in original; citations omitted.]
“Related to” proceedings can include a civil suit between non-debtor third parties if the outcome could conceivably have an effect on the bankruptcy estate. See, e.g., Celotex Corp. v. Edwards, 514 U.S. 300, 309, 115 S.Ct. 1493, 131 L.Ed.2d 403 (1995). In Wolverine Radio, 930 F.2d at 1142, the Sixth Circuit cautioned against finding “related to” jurisdiction in situations where there is an extremely tenuous connection to the estate.
In re Nu-Cast at 446-47 (emphasis added, footnotes omitted).
In this case, “related to” jurisdiction exists for a variety of reasons, but two reasons in particulаr are worth noting. First, Great Lakes was permitted to intervene as a party-plaintiff with respect to the conversion claims asserted in the Trustee‘s complaint. Subsequently, pursuant to a lengthy opinion read into the record by the Court on July 28, 2022 (Adv. P. Dkt. No. 221), Great Lakes was granted derivative standing to pursue all of the claims in the Trustee‘s complaint, including the conversion claims, under an agreement whereby Great Lakes would fund and prosecute the litigation and a percentage of any net recoveries in the case would inure directly tо the benefit of the bankruptcy estate. Adv. P. Dkt. No. 205, at 8 (Exhibit A). In this way, any recoveries obtained by Great Lakes on the conversion claims will unquestionably “alter the debtor‘s rights, liabilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankrupt estate . . . .”
Moreover, because Jason Silver guaranteed the obligations of Silver‘s Jewelry and Loan to Great Lakes, and Great Lakes obtained a non-dischargeable judgment against Jason Silver personally, Great Lаkes is the largest unsecured creditor in Jason Silver‘s bankruptcy. To the extent that Great Lakes receives the remaining net recoveries after payments to the Trustee, such net recoveries will reduce Great Lakes’ claims against the estate resulting in greatеr distributions to other creditors. Great Lakes’ receipt of a portion of the net recoveries will again “alter the debtor‘s rights, liabilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankrupt estate ....” For these reasons, this Court has “related to” jurisdiction over the remaining conversion claims.
The Court‘s conclusion that it has “related to” jurisdiction is buttressed by the Sixth Circuit‘s decision in Church Joint Venture, L.P. v. Blasingame (In re Blasingame), 920 F.3d 384 (6th Cir. 2019). There, the Trustee sold a cause of action outright to Church for a lump sum payment and a reduction of Church‘s claim against the bankruptcy estate. The Sixth Circuit recognized that, once an asset is sold, “the proceeds of that sale increase the bankruptcy estate, but the sale also means that the bankruptcy trustee gives up its right to sue based on that cause of action. Thus, the cause of action can no longer affect the value of the bankruptcy estate, which means the bankruptcy court no longer has jurisdiction over it.” Id. at 389. The court went on to note that, in contrast, where a creditor is granted derivative standing, the estate retains an interest in the outcome of the litigation, the value of the bankruptcy estate can be affected, and jurisdiction is retained. See Id. That is the situation in this case. The amount of net recoveries resulting from the prosеcution of the conversion claims will directly affect the value of the bankruptcy estate and, as Blasingame teaches, this Court retains jurisdiction over this litigation.
Turning next to Gold‘s in pari delicto argument, Gold‘s Motion for Reconsideration asserts that the Court‘s Opinion is palpably defective because it fаiled to address this defense. While Gold listed
Similarly, Gold‘s argument that Great Lakes’ conversion claims are now barred by the statute of limitations was also not previously raised, analyzed, or argued in connection with Gold‘s Motion for Summary Judgmеnt, its opposition to Great Lakes’ Motion to Intervene (Adv. P. Dkt. No. 150), or in connection with its opposition to the Trustee‘s and Great Lakes’ Joint Motion for Entry of Order Authorizing and Approving Assignment Agreement (Adv. P. Dkt. No. 183). This argument also cannot now be raised in a motion for reconsiderаtion.
Because Gold has not demonstrated a palpable defect by which the Court and the parties have been misled and that a different disposition of the case must result from a correction thereof, IT IS HEREBY ORDERED that the Motion for Reconsideration filed by L&L Gold Associates, Inc. is DENIED.
Signed on March 3, 2023
/s/ Joel D. Applebaum
Joel D. Applebaum
United States Bankruptcy Judge